Does a dental clinic owe sales tax on the electricity it uses for X-rays, making crowns/bridges/appliances, dental lights, and air conditioning for patients?

Subject

Dental Clinic Electricity For X-Rays And Making Crowns/Bridges/Appliances Is Taxable Commercial Use

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9310L1270F09

Plain-English Summary

A dental clinic asked the Comptroller whether the electricity it uses in its practice is taxable. The clinic explained that its electricity powers X-ray equipment (taking and developing X-rays), the manufacture of crowns, bridges, and dental appliances for patients, dental lights, and air conditioning to keep patients comfortable during treatment.

The Comptroller's answer is that this electricity use is taxable "commercial use." The letter reasons that the sales tax law taxes commercial use of natural gas and electricity, and "commercial use" is defined as use by persons engaged in selling a service, either professional or personal — which describes the dentist providing professional dental/health care services (repairing teeth, replacing damaged or missing teeth with bridges, correcting a patient's "bite" with an appliance).

The clinic might have hoped that making crowns, bridges, and appliances would count as "manufacturing," since "commercial use" specifically excludes electricity used by persons manufacturing tangible personal property for sale as tangible personal property. The Comptroller rejected that argument: the dental crowns, bridges, and appliances are used by the dentist in providing dental care, not "sold" to patients as tangible personal property. The letter points to Rule 3.295 (Natural Gas and Electricity) and concludes that neither the sales tax law nor Rule 3.295 exempts electricity used by persons providing health care services. As a result, the clinic is required to pay sales tax on its electricity and natural gas used in the clinic.

What This Means For You

If you run a dental or medical practice: Electricity and natural gas used to run your practice — including for diagnostic equipment like X-ray machines, in-office fabrication of items used in patient treatment, patient-comfort lighting, and climate control — is generally taxable "commercial use" because you are selling a professional health care service. This letter states plainly that Rule 3.295 does not carve out an exemption for health care purposes.

If you make items in-house that you use (not sell) to deliver a service: Don't assume that fabricating a physical item — like a crown, bridge, or dental appliance — makes your utility use qualify as tax-exempt "manufacturing." Under this letter, the manufacturing exclusion turns on whether the item is actually sold as tangible personal property; here, the crowns/bridges/appliances were used in providing care rather than sold to the patient, so the exclusion didn't apply.

Facts matter, and can change the outcome: The letter itself notes that "this opinion is based on the facts presented," and that the result could differ with additional or different facts — so a practice with a materially different fact pattern (for example, an operation that separately sells fabricated dental items as tangible personal property) should not assume this letter automatically applies.

Q&A

Q: Does a dental clinic have to pay sales tax on the electricity it uses?
A: Yes. The letter states, "You are required to pay sales tax on your electricity and natural gas used in the clinic."

Q: Why is the clinic's electricity use considered "commercial use"?
A: Because "commercial use is defined as use by persons engaged in selling a service, either professional or personal," and the letter states the dentist uses electricity "to provide professional services" such as repairing teeth, replacing damaged or missing teeth with bridges, or correcting a patient's "bite" with a dental appliance.

Q: Does making crowns, bridges, and appliances count as tax-exempt manufacturing?
A: No. The letter explains that "commercial use" does not include electricity used by persons manufacturing tangible personal property for sale as tangible personal property, but "the dental crowns, bridges, and dental appliances that you manufacture are used by you in providing dental care; they are not 'sold' to the patients."

Q: Does Rule 3.295 exempt electricity used for health care purposes?
A: No. The letter states, "The sales tax law and Rule 3.295 simply do not exempt electricity used by persons providing health care purposes."

Q: What electricity uses were specifically addressed in this ruling?
A: The letter lists electricity used "for taking and developing X-rays, manufacturing crowns, bridges, and dental appliances for patients," as well as "dental lights and air conditioning to keep patients comfortable while they are being worked on."

Original ruling text

October 22, 1993

Dear *****:

Thank you for your letter of October 18, 1993, concerning the taxability
of electricity used in your dental clinic.

You state that the electricity is used for health care purposes.
Electricity is used for taking and developing X-rays, manufacturing crowns,
bridges, and dental appliances for patients. Electricity is also used for
dental lights and air conditioning to keep patients comfortable while they
are being worked on.

You are providing health services when you repair a patient's teeth or
replace apatient's damaged or missing teeth with bridges or correct a
patient's "bite" with a dental appliance.

The sales tax law taxes commercial use of natural gas and electricity.
Commercial use is defined as use by persons engaged in selling a service,
either professional or personal. You use electricity to provide professional
services. "Commercial use" does not include electricity used by persons
manufacturing tangible personal property for sale as tangible personal
property. The dental crowns, bridges, and dental appliances that you
manufacture are used by you in providing dental care; they are not "sold"
to the patients. See Rule 3.295 concerning natural gas and electricity.

You are required to pay sales tax on your electricity and natural gas
used in the clinic.

The sales tax law and Rule 3.295 simply do not exempt electricity used by
persons providing health care purposes.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may call toll free 1-800-531-5441, extension 3-4683 if you have any
questions or need more information. You may write to Tax Administration
Division, Comptroller of Public Accounts.

Sincerely,

Eddie C. Washington
Tax Administration Division

NOTE: Previous Accession Number 9311069L.2 and/or 9311069L