Are Physicians Exempt from Sales and Use Tax in Missouri and Illinois?

Many physicians are aware that the medical services they provide are typically exempt from sales tax. However, the physician may still be required to pay sales or use tax in his or her medical practice. The liability depends on the suppliers they are using, if they are reselling to patients, and the state in which they’re practicing.

Physicians making purchases from out-of-state or online suppliers that do not collect sales tax may be responsible to accrue and remit the use tax. They may also be required to remit sales tax if they resell items to consumers.

What if My Practice is in Illinois?

In Illinois, the state sales and use tax rate is 6.25% (plus local tax) on general sales, while items such as food, drugs, medicine and medical appliances are taxed at a special reduced rate of 1%. Illinois physicians are required to accrue and remit use taxes on purchases they use in the performance of their services when purchased from out-of-state suppliers or other suppliers not required to collect tax in Illinois.

State Tax Example

If an Illinois physician purchases tongue depressors from a supplier who does not collect Illinois tax, the physician should self-assess and remit the use tax to the government. The tongue depressors are supplies used by the physician rather than medical appliances, so they are subject to the general sales/use tax rate rather than the special 1% tax rate.

Transferring Goods to Patients

Illinois physicians may find tax laws more favorable when transferring goods to their patients. Under Illinois law, physicians do not collect sales tax on services when primarily rendering services to their patients. Yet, physicians are taxable on the sale of tangible personal property as an incident to the furnishing of professional services, such as bandages, etc. Physicians are also liable for tax when they sell goods like crutches, wheelchairs, and medical bracelets to consumers for use separate from the physician providing professional services. When such items are sold, the physicians should accrue and remit the sales tax to the government.

What if My Practice is in Missouri?

The state general sales and use tax rate in Missouri is 4.225% (plus local tax). Sales and use tax laws in Missouri are similar to Illinois laws. Under Missouri law, physicians providing services typically are not subject to tax on their services. However, tax should be self-assessed and remitted on items used in the performance of their services on purchases made from out-of-state suppliers or other suppliers not required to collect Missouri tax.

Comparable to Illinois, tangible personal property used or consumed in the physician’s practice is subject to tax when the goods are purchased. These goods could include items like diagnostic equipment, surgical tools, medical instruments, and supplies used to provide care to patients.

State Tax Example

For example, a Missouri physician would be required to pay tax when purchasing tongue depressors for use in his or her medical practice. If the vendor did not charge sales tax, the physician should self-assess and remit the use tax to the government

Transferring Goods to Patients

In Missouri, goods purchased by the physician that are not used or consumed in the medical practice are subject to sales tax when the physician resells the goods. In contrast to Illinois, wheelchairs and ambulatory aides, like crutches, are exempt from Missouri tax. As a result, a physician’s sale of a wheelchair would not be taxable in Missouri, though it could be taxable in Illinois.

In additional to ambulatory aids and wheelchairs, other items are also exempt from Missouri tax. For instance, sales, repairs, and rentals of durable medical equipment, prosthetic and orthopedic devices are exempt from Missouri tax. Additionally, insulin, medical oxygen, hearing aids and hearing aid supplies, hospital beds, home respiratory equipment, and all drugs legally required to be dispensed by a licensed pharmacist with a lawful prescription are all exempt from Missouri sales tax.

What are the Consequences of Not Paying These Taxes?

Failing to accrue tax and properly filing sales or use tax returns can result in a variety of potential issues. Individuals and businesses making purchases from suppliers not required to collect state sales tax have the potential to be audited if use taxes are not accrued and remitted on the purchases. Audits could lead to penalties and interest on unpaid taxes.

In Illinois, the statute of limitations to assess a tax deficiency is three years from the time a return is filed. However, the statute increases to six years if a return is never filed. In Missouri, the statute of limitations is three years after the return was filed or was required to be filed. However, if a fraudulent return was filed or a return was never filed, Missouri has no statute of limitations to assess a tax deficiency. As a result, an individual or business could owe several years of tax, interest, and penalties if sales or use tax returns have never been filed.

Sales and use tax can be perplexing, and the consequences of failing to accrue taxes due and file the tax returns can be substantial. The Anders State and Local Tax Services Group is here to help. Contact an Anders advisor to learn more about filing sales and use tax returns.

Tax associate Claire E. Rogers was a contributor to this post.