Did a chiropractor's separate marked-up charge for supplements make the supplier's sale a sale for resale under a 1990 California letter?

Plain-English summary

The redacted supplier was under audit when it asked about nutritional supplements sold to chiropractors. The auditor reported that at least some chiropractors separately stated and marked up supplements furnished to patients during treatment, and that they might also sell products to the general public.

The letter said a chiropractor could act in two capacities. When recommending and furnishing supplements as part and parcel of a patient's treatment regimen, the chiropractor was the consumer under section 6018.4—even when separately billing and marking up the product. The supplier's sale to that chiropractor was therefore taxable.

When the chiropractor sold supplements to the general public without providing professional services, the chiropractor was a retailer. A chiropractor with a seller's permit could give the supplier a resale certificate. The chiropractor then owed use tax on products consumed in treatment and sales tax on products sold at retail.

If the chiropractor lacked a seller's permit, the letter told the supplier to pay sales tax and collect reimbursement at the sale. If the supplier accepted a resale certificate in good faith, first treatment use triggered the chiropractor's use tax under section 6094.

Live annotation and source posture

The current live annotation closely preserves the separate-billing facts, chiropractor-consumer treatment, stand-alone retail branch, seller's-permit and resale-certificate rules, and split between use tax on consumed products and sales tax on retail products.

The live page calls the requester a retailer and does not disclose that the supplier's account was being audited, that the July 5 letter reached the wrong address and delayed the response, or that Tax Counsel learned the facts through an August 22 call with the field auditor. It also omits the use-tax equalization discussion, sales-tax reimbursement rule, first-use timing, and reliance on unidentified prior staff rulings.

The source cites Annotation 425.0022 for the historical proposition that chiropractors were not physicians or surgeons, so their sales were not exempt under section 6369. That citation does not decide whether a particular supplement could qualify under some other current product exemption; the source identifies none and supplies no product facts.

The printed reporter 209 Cal. App. 2d 780 resolves to Bank of America v. State Board of Equalization, matching the named case. No chiropractor, patient, treatment regimen, nutritional product, bill, markup, seller's permit, resale certificate, invoice, return, audit workpaper, adjustment, assessment, refund or final audit result is supplied.

CDTFA's Annotated Legal Opinions collection says these documents are summarized as annotations and statutory law controls over an inconsistent annotation. The official three-page PDF has native text and one page-one letterhead image, so no OCR was required. Two fresh direct PDF downloads and two live-page downloads were byte-identical; duplicate default text extractions also matched.

What this means for you

Trace inventory by transaction role. A separately stated price and markup did not prove resale when the supplement was part of professional treatment. For mixed practices, retain permits, timely certificates, treatment records, retail receipts, and inventory-use records so consumed and resold units can be reported differently.

Common questions

Q: Did separately stating and marking up the supplement prove resale?

A: No. The professional-treatment context controlled; a separate charge did not stop the chiropractor from being the consumer.

Q: When could the supplier accept a resale certificate?

A: When the chiropractor held a seller's permit and issued a certificate that the supplier accepted in good faith.

Q: What happened if the chiropractor both treated patients and made retail sales?

A: The chiropractor accounted for use tax on supplements consumed in professional services and sales tax on stand-alone retail sales.

Q: Did the letter decide the tax status of a particular supplement?

A: No. It supplies no product identity, ingredients, label or independent exemption analysis.

Missing evidence and references

• July 5, 1990 inquiry and August 22 auditor-call record — absent
• Supplier, chiropractor, patient and field-office identities — redacted
• Supplements, ingredients, labels and product exemptions — absent
• Treatment plans, patient bills, markups and public sales — absent
• Seller's permits, resale certificates, invoices and returns — absent
• Audit workpapers, adjustments, assessments, refunds and final outcome — not supplied

Verbatim support

From the official September 10, 1990 Tax Counsel letter:

First, when dispensing the supplements in the course of rendering professional services – i.e., when it is recommended as part and parcel of the regimen of treatment that the patient take the supplements – the chiropractor is the consumer of the supplements.

The chiropractor is “furnishing” the supplements within the meaning of the statute even when charging for them separately.

On the other hand, when selling supplements on a general basis without also rendering professional services to the purchaser, a chiropractor is treated as the retailer of those products.

If the chiropractor issues you a resale certificate and you take it in good faith, the chiropractor will then have to pay use tax on the supplements consumed and pay sales tax on those sold at retail.

Citations and references

• California Revenue and Taxation Code § 6018.4 — chiropractor consumer rule applied to supplements furnished during professional services
• California Revenue and Taxation Code §§ 6007 and 6091–6094 — resale certificates and use of resale inventory
• California Revenue and Taxation Code §§ 6015(a), 6051, and 6066 — retailer and seller-permit rules
• California Revenue and Taxation Code §§ 6201 and 6369 — use tax and the historical prescription-medicine rule
• California Civil Code § 1656.1 — sales-tax reimbursement by agreement
• Bank of America v. State Board of Equalization, 209 Cal. App. 2d 780 — reporter resolves to the named case
• Annotation 425.0022 and unidentified prior staff rulings — cited but not reproduced

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 425.0018
• Original supporting opinion: 425.0018 PDF

Original ruling text

425.0018

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-3828

September 10, 1990

Ms. L--- K--President
R--- L--- N--- S--XXX --- Street
--- ---, CA XXXXX

RE:

SR -- XX-XXXXXX

Dear Ms. K---:
Your letter of July 5, 1990 has been referred to me for response. Our answer has been delayed because your letter went to the wrong address and only just arrived here. You are requesting an opinion regarding the sales tax consequences to you of the resale by chiropractors of the nutritional supplements which you sell to them. I.

FACTUAL BACKGROUND

Your letter indicates that R--- L--- N--- S---, Inc. (hereinafter “R---”), sells nutritional supplements to chiropractors. I had a telephone conversation with Alexandra Freitas of the --- --Field Office, who is auditing your account, on August 22, 1990, and understand that a question arose regarding the methods by which some of the chiropractors to whom you sell account for their sales of R---’s products to their patients. I understand that at least some of the chiropractors, when selling R---’s products as part of the treatment of patients, charge for the supplements separately on their bills and even mark up the charge to the patient. They may also sell such products to the general public. The issue appears to be thus: Does the fact that the chiropractor separately charges for the nutritional supplements mean that all sales to him are excluded from tax as being for resale?

Ms. L--- K---

II.

-2-

September 10, 1990
425.0018

OPINION
A.

Sales and Use Tax Generally

In California, except where specifically exempted by statute, Revenue and Taxation Code Section 6051 imposes an excise tax, computed as a percentage of gross receipts, upon all retailers for the privilege of selling tangible personal property at retail in this state. (Unless otherwise stated, all statutory references are to the Revenue and Taxation Code.) A “retailer” is one who engages in the business of making retail sales of tangible personal property. (§ 6015(a).) The retailer owes the sales tax, but it may collect sales tax reimbursement from the purchaser pursuant to agreement. (Civ. Code § 1656.1.) Likewise, Section 6201 imposes a use tax on the storage, use, or other consumption of tangible personal property purchased from any retailer for storage, use, or other consumption in this state unless exempted by statute. The use tax is supplemental to the sales tax, and, as such, is intended to equalize the tax burden by subjecting all sales of property not actually subject to the sales tax to an equivalent tax. (Bank of America v. St. Bd. of Equal. (1962) 209 Cal.App.2d 780, 792 [26 Cal.Rptr. 348].) Chiropractors are not “physicians or surgeons.” (II. Bus. Tax. L. Guide, Annot. 425.0022.) Thus, their sales of R---’s products are not exempted from sales tax as prescription medicines under Section 6369. Under the general scheme, where a sales transaction involves intermediate retailers who buy and resell the product, sales tax is due only upon the transfer to the ultimate purchaser (here, the patient). Any intermediate sales are treated as sales for resale and thus not includable in the measure of sales or use tax. (§§ 6007, 6091.) The Legislature has, however, partially altered that scheme with regard to chiropractors. When the chiropractor uses or furnishes vitamins, minerals, dietary supplements, and orthotic devices in the performance of his professional services, he is treated as the consumer thereof and not the retailer. (§ 6018.4.) “Every person desiring to engage in or conduct business as a seller within this state shall file with the board an application for a permit for each place of business.” (§ 6066.) A person who has a seller’s permit may purchase tangible personal property free of sales tax by issuing a resale certificate which the seller takes in good faith. (§§ 6091-6093.) If the purchaser makes any use of the property so purchased other than the retention, demonstration, or display while holding it for sale in the regular course of business, the purchaser is liable for use tax at the time of first use. (§ 6094.)

Ms. L--- K---

B.

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September 10, 1990
425.0018

Tax Consequences to R---

Previous rulings of the Board staff indicate that Section 6018.4 can cause a chiropractor to play two different roles when purveying nutritional supplements such as R---’s. First, when dispensing the supplements in the course of rendering professional services – i.e., when it is recommended as part and parcel of the regimen of treatment that the patient take the supplements – the chiropractor is the consumer of the supplements. The chiropractor is “furnishing” the supplements within the meaning of the statute even when charging for them separately. On the other hand, when selling supplements on a general basis without also rendering professional services to the purchaser, a chiropractor is treated as the retailer of those products. A chiropractor who sells nutritional supplements at retail must have a seller’s permit. Any chiropractor to whom you sell who has a seller’s permit may purchase R---’s products free of tax by issuing you a resale certificate at the time of purchase. If the chiropractor does not have a seller’ permit, you must pay sales tax and collect sales tax reimbursement at the time of the sale. If the chiropractor issues you a resale certificate and you take it in good faith, the chiropractor will then have to pay use tax on the supplements consumed and pay sales tax on those sold at retail. I hope the foregoing discussion has answered your question. If you need anything further, please do not hesitate to write again. Very truly yours,

John L. Waid
Tax Counsel

JLW:sr