Over the past few years we have seen an increased focus by the North Carolina Department of Revenue (NCDOR) and the South Carolina Department of Revenue on dentists for the audit of sales and use tax compliance. With this in mind, we want to work with our Practice owners to educate and prevent the massive impact these audits can cause. A proactive approach and timely return filing is the best process in reducing the headache that sales and use tax can cause.
Sales and Use Tax in NC includes two groups
This is what we all expect to pay when we purchase items in our day-to-day lives. As a dentist, your Practice is required to charge sales tax on certain items such as electric toothbrushes. The general rule of thumb we share with our dental clients is:
If it leaves in the patient’s mouth, the items and services are NOT subject to sales tax.
This means that everything else may be subject to sales tax. Our team can work with you to review your product offerings to determine which items sales tax should be added to.
This is the lesser known part of sales tax. Use tax applies when you purchase items from a vendor and that vendor does not charge you sales tax. If you receive invoices for supplies and equipment or office supplies, your Practice is responsible for reporting this information and paying the sales tax that the vendor did not charge. We primarily see this when Practice owners purchase items from out of state suppliers, online vendors, or small retailers. Purchases from Amazon, Etsy, Ebay, etc. should be reviewed carefully.
Compliance with both parts of the tax can be time consuming and difficult but it is necessary. We have been working with our Practice owners to implement procedures to ease in this compliance process.
Each month you should total the number of items sold by your Practice that were subject to sales tax. Also, review your Practice Management software reports as this information may already be shown. Once totaled, forward to your accountant.
We recommend you include your office manager or a trusted member of staff in this process. Your staff member should review all invoices from your vendors to ensure sales tax was charged. If not, that invoice should be set aside for payment of Use Tax. You should also be sharing this with your accountant on a regular basis.
Information for each category is reported to the NCDOR using NC form E-500 and E-536.
To learn more about how we can support your Practice in this process, contact us!