Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. This rule
explains the application of Washington's business and occupation (B&O),
retail sales, and use taxes to the business activities of optometrists,
ophthalmologists, and opticians. It explains the tax liability resulting from
the rendering of professional services and the sale of prescription lenses,
frames, and other optical merchandise. It also discusses the retail sales tax
exemption for the sale and repair of prescription lenses and frames, and the
B&O tax deduction for prescription drugs administered by a medical service
provider.
(a)
Examples. Examples
found in this rule identify a number of facts and then state a conclusion.
These examples should be used only as a general guide. The tax results of other
situations must be determined after a review of all facts and
circumstances.
(b)
Other
rules that may be relevant. The department of revenue (department) has
adopted other rules dealing with the taxability of various activities relating
to the provision of health care. Readers may want to refer to the rules in the
following list for additional information.
(i)
WAC 458-20-102 Reseller
permits;
(ii) WAC
458-20-151 Dentists,
audiologists, and other health care providers-Dental laboratories and dental
technicians;
(iii) WAC
458-20-168 Hospitals, nursing
homes, assisted living facilities, adult family homes and similar health care
facilities;
(iv) WAC
458-20-178 Use tax and the use of
tangible personal property;
(v) WAC
458-20-18801 Medical substances,
devices, and supplies for humans-Drugs prescribed for human use-Medically
prescribed oxygen-Prosthetic devices-Mobility enhancing equipment-Durable
medical equipment.
(c)
Definitions for the purpose of this rule are:
(i)
Optical merchandise.
"Optical merchandise" includes prescription lenses, frames, springs, temples,
cases, and other items or accessories to be worn or used with lenses. It also
includes nonprescription lenses or eyeglasses.
(ii)
Prescription lens.
"Prescription lens" means any lens, including contact lens, with power or prism
correction for human vision, which has been prescribed in writing by a
physician or optometrist. The term includes all ingredients and component parts
of the lens itself, including color, scratch resistant or ultraviolet coating,
and fashion tints.
(iii)
Professional services. "Professional services" includes the
examination of the human eye, the examination, identification, and treatment of
any defects of the human vision system, and the analysis of the process of
vision. It includes the use of any diagnostic instruments or devices for the
measurement of the powers or range of vision, or the determination of the
refractive powers of the eye or its functions. It does not include the
preparation or dispensing of lenses or eyeglasses.
(2)
Taxability of
professional services. Optometrists and ophthalmologists are subject to
service and other activities B&O tax on their gross income from providing
professional services.
(3)
Purchases and sales of optical merchandise by optometrists,
ophthalmologists, and opticians. Purchases of optical merchandise by
optometrists, ophthalmologists, and opticians for resale without intervening
use as a consumer are not subject to retail sales tax. Thus, optometrists,
ophthalmologists, and opticians are not required to pay retail sales or use tax
on items which will be given to customers as part of a sale of eyeglasses or
contact lenses, such as cleaning supplies, carrying cases, and the like. The
department considers these items to be sold along with the eyeglasses or
contact lenses. An optometrist, ophthalmologist, or optician purchasing
tangible personal property for resale must furnish a reseller permit to the
seller to document the wholesale nature of the sale as provided in WAC
458-20-102.
Sales of optical merchandise to consumers are subject to
retailing B&O tax. The seller must collect retail sales tax unless the sale
is specifically exempt by law.
(a)
Are sales of prescription lenses and frames subject to retail sales
tax? No, sales of prescription lenses and frames for prescription lenses
are exempt from retail sales tax as prosthetic devices under RCW
82.08.-0283.
(b)
Are repairs
of prescription lenses and frames subject to retail sales tax? No,
charges for the repair of prescription lenses or to prescription eyeglass
frames, whether the frames are the original frames or replacement frames, are
exempt from retail sales tax as labor and services rendered in respect to
prosthetic devices under
RCW
82.08.0283.
(c)
Segregation of income from
different sources. To claim a retail sales tax exemption under
RCW
82.08.0281 or
82.08.0283, persons providing or
selling any combination of professional services, prescription lenses,
prescription eyeglass frames, or other optical merchandise must segregate and
separately account for the income derived from each source.
(d)
Examples.
(i)
Example 1. Taxpayer is an
optometrist who performs eye examinations and sells prescription eyeglasses,
contact lenses, and other optical merchandise. All sales of prescription lenses
are made under written prescription. Income attributable to the eye
examinations, the sale of prescription lenses, and the sale of other optical
merchandise is segregated in Taxpayer's books of account.
The income derived from the eye examinations is subject to
service and other activities B&O tax. The gross proceeds of sales of the
prescription lenses, eyeglass frames with prescription lenses, contact lenses,
and other optical merchandise are subject to retailing B&O tax. The sales
of prescription lenses, eyeglass frames with prescription lenses, including
contact lenses, are exempt from retail sales tax. Tax-payer must collect retail
sales tax on sales of other optical merchandise and remit the tax to the
department.
(ii)
Example 2. Taxpayer is a retail drugstore that sells preassembled
"off-the-shelf" reading glasses. These eyeglasses have lenses with power or
prism correction and are sold without a prescription. In addition, Taxpayer
sells magnifiers, binoculars, monoculars, and sunglasses. These items are also
sold without a prescription.
The gross proceeds of sales of these items are subject to
retailing B&O tax. In addition, Taxpayer must collect retail sales tax on
sales of these items and remit the tax to the department. Because these items
are not sold under a prescription, nor are they prescribed, fitted, or
furnished for the buyer by a person licensed under the laws of this state to
prescribe, fit, or furnish prosthetic devices, they are not exempt from retail
sales tax under either
RCW
82.08.0281 or
82.08.0283.
(4)
Equipment and
supplies used by optometrists, ophthalmologists, and opticians.
Purchases of equipment and supplies used by optometrists, ophthalmologists, and
opticians are purchases at retail and are subject to retail sales tax unless
specifically exempt by law. If the seller does not collect retail sales tax,
the optometrist, ophthalmologist, or optician must remit the retail sales tax
(commonly referred to as "deferred sales tax") or use tax directly to the
department unless specifically exempt by law. Deferred sales or use tax
liability should be reported on the use tax line of the buyer's excise tax
return. For detailed information about use tax, refer to WAC
458-20-178.
(a)
Prescription drugs.
"Prescription drugs," as defined in
RCW
82.08.0281, may be purchased without payment
of retail sales or use tax by optometrists and ophthalmologists if all
requirements for the exemption are met. For additional information regarding
prescription drugs, refer to WAC
458-20-18801.
(b)
Prescription drugs administered by
the medical service provider.
RCW
82.04.620 allows a deduction from the service
and other activities classification of the B&O tax (RCW
82.04.290(2) ) for amounts
received by physicians or clinics for drugs for infusion or injection by
licensed physicians or their agents for human use pursuant to a prescription.
This deduction only applies to amounts that:
(i) Are separately stated on invoices or
other billing statements;
(ii) Do
not exceed the then current federal rate; and
(iii) Are covered or required under a health
care service program subsidized by the federal or state government.
For purposes of this deduction only, amounts that "are covered
or required under a health care service program subsidized by the federal or
state government" include any required drug copayments made directly from the
patient to the physician or clinic.
(A) "Federal rate" means the rate at or below
which the federal government or its agents reimburse providers for prescription
drugs administered to patients as provided for in the medicare, Part B drugs
average sales price information resource as published by the United States
Department of Health and Human Services, or any index that succeeds it.
RCW
82.04.620.
(B) The deduction is available on an "all or
nothing" basis against the total of amounts received for a specific drug
charge. If the total amount received by the physician or clinic for a specific
drug exceeds the federal reimbursement rate, none of the total amount received
qualifies for the deduction (including any required copayment received directly
from the patient). In other words, a physician or clinic may not simply take an
"automatic" deduction equal to the federal reimbursement rate for each
drug.
(c)
Samples. Optometrists, ophthalmologists, and opticians are
required to pay use tax on any samples, with the exception of prescription drug
samples, that they acquire unless retail sales or use tax has been previously
paid on these samples.
(d)
Examples.
(i)
Example
3. Taxpayer is an ophthalmologist who performs eye examinations, laser
surgery, and cataract surgery. Taxpayer purchases equipment and supplies that
are used in performing these services such as surgical instruments, eye
shields, cotton swabs, sterile dressings, bandages, and gauze. Taxpayer also
purchases a computer, technical publications, and magazines by mail order and
over the internet.
Taxpayer is subject to retail sales tax on these purchases. If
the seller does not collect sales tax, Taxpayer is liable for deferred sales
tax or use tax and must remit the tax directly to the department.
(ii)
Example 4.
Taxpayer is an optometrist who performs eye examinations and sells prescription
eyeglasses, contact lenses, and other optical merchandise. Taxpayer purchases
nonprescription saline and cleaning solutions for contact lenses and carrying
cases for eyeglasses and contact lenses. The saline and cleaning solutions are
consumed when Taxpayer performs eye examinations. The eyeglass and contact lens
carrying cases are provided to customers at the time they purchase eyeglasses
or contact lenses.
The purchases of the eyeglass and contact lens carrying cases
are purchases for resale and are not subject to sales tax if Taxpayer provides
the seller with a reseller permit . The purchases of the saline and cleaning
solutions are subject to retail sales tax. These solutions are consumed while
providing professional services and cannot be considered to be purchased for
resale. They also do not qualify for a sales tax exemption under
RCW
82.08.0281 as prescription drugs. If retail
sales tax was not paid on the saline and cleaning solutions at the time of
purchase, Taxpayer must remit deferred sales tax or use tax directly to the
department.
Statutory Authority:
RCW
82.32.300,
82.01.060(2),
chapters
82.04,
82.08,
82.12 and
82.32 RCW. 10-06-069, §
458-20-150, filed 2/25/10, effective 3/28/10. Statutory Authority:
RCW
82.32.300 and
82.01.060(2).
08-16-055, § 458-20-150, filed 7/30/08, effective 8/30/08; 04-17-023,
§ 458-20-150, filed 8/9/04, effective 9/9/04. Statutory Authority:
RCW
82.32.300. 93-19-020, § 458-20-150,
filed 9/2/93, effective 10/3/93; 83-07-034 (Order ET 83-17), § 458-20-150,
filed 3/15/83; Order 74-2, § 458-20-150, filed 6/24/74; Order ET 70-3,
§ 458-20-150 (Rule 150), filed 5/29/70, effective
7/1/70.