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An Update on Taxing Cosmetic Services
October 2005
T he taxation of cosmetic services has roiled dermatologists across the country — despite the fact that it has affected only a small portion of the more than 10,000 dermatologists in the country. Many doctors are concerned, and rightly so, that this tax may signal a new trend that could soon be widespread — especially with the number of cosmetic procedures continuing to rise.
According to Rachel Emma Silverman1 of The Wall Street Journal, there were 9.2 million cosmetic plastic surgery procedures performed last year in the nation. This number represents a 5% increase from a year earlier, and a 24% jump from 2000, according to the American Society of Plastic Surgeons. That number includes both surgical procedures, such as face-lifts, and minimally invasive treatments, such as Botox. Americans spent $8.4 billion on cosmetic surgery last year.1
In this article, I will review which states have implemented a tax on cosmetic services performed by dermatologists and by non-physicians. In addition, I’ll examine the effect of these tax laws so far. Lastly, I’ll take a look at states that are considering imposing cosmetic taxes.
How doctors view New Jersey’s Cosmetic Tax
The state that has garnered the majority of attention in matter of cosmetic surgery taxation is New Jersey. Last summer, New Jersey imposed a 6% sales tax on cosmetic surgery and a 3.5% tax on the gross receipts of physician-owned surgery centers. The money from the New Jersey tax will help fund hospital care for the uninsured and poor. Under the law, doctors must collect the tax from their patients, and turn the money over to the state every quarter.
Needless to say, this law has elicited a storm of controversy,2,3 but has not seemed to have had much effect. Joe Eastern, M.D., a dermatologist in New Jersey stated, “It’s a pain, but otherwise [it has not had] much impact. We get surprisingly few gripes from patients — they just pay it without comment.”
Although proponents of the tax estimated that it would raise $26 million, the revenue generated from the tax has fallen short of that estimate. In 2004, the tax earned only $7 million dollars, according to Assemblyman Joseph Cryan (D-NJ).4
Dr. Eastern is aware of this and noted that, “so far New Jersey has collected only about one-quarter the anticipated amount, which probably means a lot of doctors are not bothering to collect it.” According to Dr. Eastern, “This is foolish because there are significant penalties, including losing your license. And rumor has it that there are a few offices collecting it and keeping it,” which could lead to severe penalties.
Others think that enforcement efforts have been adequate. Karen Silberman1 quoted Tom Vincz, a spokesman for the New Jersey Treasurer’s office, who said that revenue from new taxes often differs from original projections. “It’s an issue of accurately estimating an unknown,” he explained. He doesn’t think that doctors have been lax in collecting the tax. “We don’t believe that it is an enforcement issue.” 1
An overview of the tax
The mechanics of New Jersey’s cosmetic services tax bear explication.5 All providers required to collect the tax must register to do so and must file quarterly returns for each calendar quarter — even if they had no receipts that were subject to the tax for that particular quarter.
If a physician determines that he or she is required to collect the cosmetic medical procedures gross receipts tax, then the physician must update his or her existing New Jersey registration record to report that he or she is required to collect the tax, if this hasn’t already been done.
To update the physician’s record or to register the physician’s business for the first time, a physician must go to www.state.nj.us/njbgs/services.html.
Cosmetic medical procedures gross receipts tax returns (form CMPT-100) are due on or before the 20th day of the month following the close of the calendar quarter and must be filed either online or by phone. Paper returns aren’t accepted. For example, returns and payments covering Sept. 1 through Sept. 30, 2005, are due Oct. 20, 2005.
In addition to filing form CMPT-100 electronically, the physician must make the quarterly payments electronically as well, either by electronic check (e-check), electronic funds transfer, or credit card.
There is no charge for filing cosmetic medical procedures gross receipts tax returns online or by phone. However, if a physician chooses to pay by credit card, a convenience fee of 2.5% of the physician’s liability must be paid directly to Official Payments Corporation.
Providers who are required to collect the cosmetic medical procedures gross receipts tax do so as trustees on behalf of the State of New Jersey. Thus, business owners, partners, corporate officers, and some employees of such businesses may be held personally liable for failure to collect the tax when required to do so or for failure to file returns and remit any taxes due on a timely basis.
In addition to interest on any unpaid taxes, the Division of Taxation will impose late filing penalties of 5% per month of the balance due. This amount is not to exceed 25% of such liability plus a $100 per month penalty for each month the return is late. Also, providers must pay a late payment penalty of 5% of the balance of the taxes due and paid late.
To file Form CMPT-100 online or by phone a physician will need a PIN (or the first four characters of your registered taxpayer name), along with your 12-digit New Jersey Taxpayer Identification Number.
If the physician is already registered to collect the tax, the physician’s PIN appears at the beginning of this letter. If this letter does not contain a PIN, the physician is not yet registered to collect the tax and must do so immediately if the physician is required to collect the tax.
how to file this tax
File Online:
1. Visit the Division of Taxation
Web site www.state.nj.us/treasury/
taxation/.
2. Choose “File Online” on the navigation bar.
3. Scroll down to “Cosmetic Medical Procedures Gross Receipts Tax”.
4. Select “Form CMPT-100”.
File by Phone:
1. Complete the requisite worksheet.
2. Call the Business Paperless Telefiling System at (877) 829-2866 (toll-free from touch-tone phones anywhere).
3. Select “5” from the menu to file the physician’s cosmetic medical procedures gross receipts tax return. As of Oct. 15, 2004, returns could be filed by phone.
For more information about the cosmetic medical procedures gross receipts tax, visit www.state.nj.us/treasury/taxation/cosmetic.htm, or call the Division’s Customer Service Center at (609) 292-6400 during normal business hours.
Other States and the Cosmetic Services Tax
Since the passage of the New Jersey bill, lawmakers in states including Texas, Washington, Illinois, Arkansas, Tennessee and New York have introduced bills or budget proposals to install similar taxes. However, to date, none of these states has passed the taxes into law.1
In Washington State, a bill exempting medically-necessary or reconstructive surgery, but imposing a 6.5% sales tax for elective cosmetic surgery to fund health care for children was purposed but didn’t make it to the floor of the Senate for a vote this year.1
In Illinois, the state comptroller has proposed a 6% tax on cosmetic surgery to create a stem-cell research institute. If the Legislature approves it, the question could be put to the voters in 2006. 1
Taxing Non-Physicians for Cosmetic Services
Non-physicians have also been targeted by tax laws. Silberman notes that states are taxing all sorts of other aesthetic services, including tattoos, body piercing, tanning salon sessions and massages.1 Twenty-one states taxed tanning salons and 10 states taxed massages as of last July, according to the Federation of Tax Administrators, which tracks state taxes.1 Last year, Arkansas began imposing a sales tax on body piercing, tattoos and electrolysis.1
Ohio has a comprehensive schema for taxing non-physicians who provide independently cosmetic services. Am. Sub. H.B. 95 of the 125th Ohio General Assembly expanded the tax base for the Ohio sales tax. In that bill, a new Revised Code (“R.C.”) section 5739.01(B)(3)(r) was enacted, which includes within the definition of a taxable “sale” all transactions by which: on and after Aug. 1, 2003, personal care service is or is to be provided to an individual.6 As used in this division, taxable “personal care services” include such services as:
• Skin care, including facials and exfoliation
• Cosmetics application
• The application of false eyelashes
• Manicures, including the application of polish
• The application of artificial nails
• Pedicures
• Hair removal by any means, including electrolysis, plucking or the application of depilatory products
• Body piercing and branding
• Tattooing, including permanent and temporary tattoos
• Massage, all types
• Tanning, whether done using light or chemical means.
“Personal care service” does not include a service provided by or on the order of a licensed physician or licensed chiropractor, or the cutting, coloring, or styling of an individual’s hair.
A cosmetic therapy service performed on the order of a physician is also exempt from taxation. Although there is no specific language in the statute, the order should specify cosmetic therapy services and be patient specific. There is no requirement that the order be written, but should there be a Department of Taxation audit, written orders may help a cosmetic therapist document the exemptions. In addition, the fact that a third-party payer may reimburse for a cosmetic therapy service does not exempt the procedure from the sales tax, nor does employment in a physician’s office provide a blanket exemption.
Depending on the circumstances, an insurance company that will cover cosmetic therapy services may or may not also pay for the sales tax. Regardless of whether or not a third-party payer will reimburse for the sales tax, the cosmetic therapist is required to collect and remit the tax.6
The success of this law in raising money has yet to be determined.
The penalties for not paying the tax could be up to 50% of the total of taxes due, in addition to the original tax amount. The criminal penalty is up to $1,000. For “allowable ignorance,” that is, cases in which a therapist did not comply with the law simply due to a lack of understanding of his or her responsibilities, there may be a 15% penalty.6
The Overall Impact to Dermatologists
Taxes on cosmetic services have not had much impact yet on dermatologists. This could change in the future. If dermatologists do not think that taxes should be imposed, then
they must start their lobbying efforts before such taxes are imposed. From a practical standpoint, it is of the utmost importance that proper taxes be paid because tax avoidance has severe consequences.
It remains to be seen what kind of future impact these tax requirements will have on the practice of dermatology. One thing is for sure, this is an issue we’re likely to hear more about and more states will most likely implement taxes of their own.
T he taxation of cosmetic services has roiled dermatologists across the country — despite the fact that it has affected only a small portion of the more than 10,000 dermatologists in the country. Many doctors are concerned, and rightly so, that this tax may signal a new trend that could soon be widespread — especially with the number of cosmetic procedures continuing to rise.
According to Rachel Emma Silverman1 of The Wall Street Journal, there were 9.2 million cosmetic plastic surgery procedures performed last year in the nation. This number represents a 5% increase from a year earlier, and a 24% jump from 2000, according to the American Society of Plastic Surgeons. That number includes both surgical procedures, such as face-lifts, and minimally invasive treatments, such as Botox. Americans spent $8.4 billion on cosmetic surgery last year.1
In this article, I will review which states have implemented a tax on cosmetic services performed by dermatologists and by non-physicians. In addition, I’ll examine the effect of these tax laws so far. Lastly, I’ll take a look at states that are considering imposing cosmetic taxes.
How doctors view New Jersey’s Cosmetic Tax
The state that has garnered the majority of attention in matter of cosmetic surgery taxation is New Jersey. Last summer, New Jersey imposed a 6% sales tax on cosmetic surgery and a 3.5% tax on the gross receipts of physician-owned surgery centers. The money from the New Jersey tax will help fund hospital care for the uninsured and poor. Under the law, doctors must collect the tax from their patients, and turn the money over to the state every quarter.
Needless to say, this law has elicited a storm of controversy,2,3 but has not seemed to have had much effect. Joe Eastern, M.D., a dermatologist in New Jersey stated, “It’s a pain, but otherwise [it has not had] much impact. We get surprisingly few gripes from patients — they just pay it without comment.”
Although proponents of the tax estimated that it would raise $26 million, the revenue generated from the tax has fallen short of that estimate. In 2004, the tax earned only $7 million dollars, according to Assemblyman Joseph Cryan (D-NJ).4
Dr. Eastern is aware of this and noted that, “so far New Jersey has collected only about one-quarter the anticipated amount, which probably means a lot of doctors are not bothering to collect it.” According to Dr. Eastern, “This is foolish because there are significant penalties, including losing your license. And rumor has it that there are a few offices collecting it and keeping it,” which could lead to severe penalties.
Others think that enforcement efforts have been adequate. Karen Silberman1 quoted Tom Vincz, a spokesman for the New Jersey Treasurer’s office, who said that revenue from new taxes often differs from original projections. “It’s an issue of accurately estimating an unknown,” he explained. He doesn’t think that doctors have been lax in collecting the tax. “We don’t believe that it is an enforcement issue.” 1
An overview of the tax
The mechanics of New Jersey’s cosmetic services tax bear explication.5 All providers required to collect the tax must register to do so and must file quarterly returns for each calendar quarter — even if they had no receipts that were subject to the tax for that particular quarter.
If a physician determines that he or she is required to collect the cosmetic medical procedures gross receipts tax, then the physician must update his or her existing New Jersey registration record to report that he or she is required to collect the tax, if this hasn’t already been done.
To update the physician’s record or to register the physician’s business for the first time, a physician must go to www.state.nj.us/njbgs/services.html.
Cosmetic medical procedures gross receipts tax returns (form CMPT-100) are due on or before the 20th day of the month following the close of the calendar quarter and must be filed either online or by phone. Paper returns aren’t accepted. For example, returns and payments covering Sept. 1 through Sept. 30, 2005, are due Oct. 20, 2005.
In addition to filing form CMPT-100 electronically, the physician must make the quarterly payments electronically as well, either by electronic check (e-check), electronic funds transfer, or credit card.
There is no charge for filing cosmetic medical procedures gross receipts tax returns online or by phone. However, if a physician chooses to pay by credit card, a convenience fee of 2.5% of the physician’s liability must be paid directly to Official Payments Corporation.
Providers who are required to collect the cosmetic medical procedures gross receipts tax do so as trustees on behalf of the State of New Jersey. Thus, business owners, partners, corporate officers, and some employees of such businesses may be held personally liable for failure to collect the tax when required to do so or for failure to file returns and remit any taxes due on a timely basis.
In addition to interest on any unpaid taxes, the Division of Taxation will impose late filing penalties of 5% per month of the balance due. This amount is not to exceed 25% of such liability plus a $100 per month penalty for each month the return is late. Also, providers must pay a late payment penalty of 5% of the balance of the taxes due and paid late.
To file Form CMPT-100 online or by phone a physician will need a PIN (or the first four characters of your registered taxpayer name), along with your 12-digit New Jersey Taxpayer Identification Number.
If the physician is already registered to collect the tax, the physician’s PIN appears at the beginning of this letter. If this letter does not contain a PIN, the physician is not yet registered to collect the tax and must do so immediately if the physician is required to collect the tax.
how to file this tax
File Online:
1. Visit the Division of Taxation
Web site www.state.nj.us/treasury/
taxation/.
2. Choose “File Online” on the navigation bar.
3. Scroll down to “Cosmetic Medical Procedures Gross Receipts Tax”.
4. Select “Form CMPT-100”.
File by Phone:
1. Complete the requisite worksheet.
2. Call the Business Paperless Telefiling System at (877) 829-2866 (toll-free from touch-tone phones anywhere).
3. Select “5” from the menu to file the physician’s cosmetic medical procedures gross receipts tax return. As of Oct. 15, 2004, returns could be filed by phone.
For more information about the cosmetic medical procedures gross receipts tax, visit www.state.nj.us/treasury/taxation/cosmetic.htm, or call the Division’s Customer Service Center at (609) 292-6400 during normal business hours.
Other States and the Cosmetic Services Tax
Since the passage of the New Jersey bill, lawmakers in states including Texas, Washington, Illinois, Arkansas, Tennessee and New York have introduced bills or budget proposals to install similar taxes. However, to date, none of these states has passed the taxes into law.1
In Washington State, a bill exempting medically-necessary or reconstructive surgery, but imposing a 6.5% sales tax for elective cosmetic surgery to fund health care for children was purposed but didn’t make it to the floor of the Senate for a vote this year.1
In Illinois, the state comptroller has proposed a 6% tax on cosmetic surgery to create a stem-cell research institute. If the Legislature approves it, the question could be put to the voters in 2006. 1
Taxing Non-Physicians for Cosmetic Services
Non-physicians have also been targeted by tax laws. Silberman notes that states are taxing all sorts of other aesthetic services, including tattoos, body piercing, tanning salon sessions and massages.1 Twenty-one states taxed tanning salons and 10 states taxed massages as of last July, according to the Federation of Tax Administrators, which tracks state taxes.1 Last year, Arkansas began imposing a sales tax on body piercing, tattoos and electrolysis.1
Ohio has a comprehensive schema for taxing non-physicians who provide independently cosmetic services. Am. Sub. H.B. 95 of the 125th Ohio General Assembly expanded the tax base for the Ohio sales tax. In that bill, a new Revised Code (“R.C.”) section 5739.01(B)(3)(r) was enacted, which includes within the definition of a taxable “sale” all transactions by which: on and after Aug. 1, 2003, personal care service is or is to be provided to an individual.6 As used in this division, taxable “personal care services” include such services as:
• Skin care, including facials and exfoliation
• Cosmetics application
• The application of false eyelashes
• Manicures, including the application of polish
• The application of artificial nails
• Pedicures
• Hair removal by any means, including electrolysis, plucking or the application of depilatory products
• Body piercing and branding
• Tattooing, including permanent and temporary tattoos
• Massage, all types
• Tanning, whether done using light or chemical means.
“Personal care service” does not include a service provided by or on the order of a licensed physician or licensed chiropractor, or the cutting, coloring, or styling of an individual’s hair.
A cosmetic therapy service performed on the order of a physician is also exempt from taxation. Although there is no specific language in the statute, the order should specify cosmetic therapy services and be patient specific. There is no requirement that the order be written, but should there be a Department of Taxation audit, written orders may help a cosmetic therapist document the exemptions. In addition, the fact that a third-party payer may reimburse for a cosmetic therapy service does not exempt the procedure from the sales tax, nor does employment in a physician’s office provide a blanket exemption.
Depending on the circumstances, an insurance company that will cover cosmetic therapy services may or may not also pay for the sales tax. Regardless of whether or not a third-party payer will reimburse for the sales tax, the cosmetic therapist is required to collect and remit the tax.6
The success of this law in raising money has yet to be determined.
The penalties for not paying the tax could be up to 50% of the total of taxes due, in addition to the original tax amount. The criminal penalty is up to $1,000. For “allowable ignorance,” that is, cases in which a therapist did not comply with the law simply due to a lack of understanding of his or her responsibilities, there may be a 15% penalty.6
The Overall Impact to Dermatologists
Taxes on cosmetic services have not had much impact yet on dermatologists. This could change in the future. If dermatologists do not think that taxes should be imposed, then
they must start their lobbying efforts before such taxes are imposed. From a practical standpoint, it is of the utmost importance that proper taxes be paid because tax avoidance has severe consequences.
It remains to be seen what kind of future impact these tax requirements will have on the practice of dermatology. One thing is for sure, this is an issue we’re likely to hear more about and more states will most likely implement taxes of their own.
T he taxation of cosmetic services has roiled dermatologists across the country — despite the fact that it has affected only a small portion of the more than 10,000 dermatologists in the country. Many doctors are concerned, and rightly so, that this tax may signal a new trend that could soon be widespread — especially with the number of cosmetic procedures continuing to rise.
According to Rachel Emma Silverman1 of The Wall Street Journal, there were 9.2 million cosmetic plastic surgery procedures performed last year in the nation. This number represents a 5% increase from a year earlier, and a 24% jump from 2000, according to the American Society of Plastic Surgeons. That number includes both surgical procedures, such as face-lifts, and minimally invasive treatments, such as Botox. Americans spent $8.4 billion on cosmetic surgery last year.1
In this article, I will review which states have implemented a tax on cosmetic services performed by dermatologists and by non-physicians. In addition, I’ll examine the effect of these tax laws so far. Lastly, I’ll take a look at states that are considering imposing cosmetic taxes.
How doctors view New Jersey’s Cosmetic Tax
The state that has garnered the majority of attention in matter of cosmetic surgery taxation is New Jersey. Last summer, New Jersey imposed a 6% sales tax on cosmetic surgery and a 3.5% tax on the gross receipts of physician-owned surgery centers. The money from the New Jersey tax will help fund hospital care for the uninsured and poor. Under the law, doctors must collect the tax from their patients, and turn the money over to the state every quarter.
Needless to say, this law has elicited a storm of controversy,2,3 but has not seemed to have had much effect. Joe Eastern, M.D., a dermatologist in New Jersey stated, “It’s a pain, but otherwise [it has not had] much impact. We get surprisingly few gripes from patients — they just pay it without comment.”
Although proponents of the tax estimated that it would raise $26 million, the revenue generated from the tax has fallen short of that estimate. In 2004, the tax earned only $7 million dollars, according to Assemblyman Joseph Cryan (D-NJ).4
Dr. Eastern is aware of this and noted that, “so far New Jersey has collected only about one-quarter the anticipated amount, which probably means a lot of doctors are not bothering to collect it.” According to Dr. Eastern, “This is foolish because there are significant penalties, including losing your license. And rumor has it that there are a few offices collecting it and keeping it,” which could lead to severe penalties.
Others think that enforcement efforts have been adequate. Karen Silberman1 quoted Tom Vincz, a spokesman for the New Jersey Treasurer’s office, who said that revenue from new taxes often differs from original projections. “It’s an issue of accurately estimating an unknown,” he explained. He doesn’t think that doctors have been lax in collecting the tax. “We don’t believe that it is an enforcement issue.” 1
An overview of the tax
The mechanics of New Jersey’s cosmetic services tax bear explication.5 All providers required to collect the tax must register to do so and must file quarterly returns for each calendar quarter — even if they had no receipts that were subject to the tax for that particular quarter.
If a physician determines that he or she is required to collect the cosmetic medical procedures gross receipts tax, then the physician must update his or her existing New Jersey registration record to report that he or she is required to collect the tax, if this hasn’t already been done.
To update the physician’s record or to register the physician’s business for the first time, a physician must go to www.state.nj.us/njbgs/services.html.
Cosmetic medical procedures gross receipts tax returns (form CMPT-100) are due on or before the 20th day of the month following the close of the calendar quarter and must be filed either online or by phone. Paper returns aren’t accepted. For example, returns and payments covering Sept. 1 through Sept. 30, 2005, are due Oct. 20, 2005.
In addition to filing form CMPT-100 electronically, the physician must make the quarterly payments electronically as well, either by electronic check (e-check), electronic funds transfer, or credit card.
There is no charge for filing cosmetic medical procedures gross receipts tax returns online or by phone. However, if a physician chooses to pay by credit card, a convenience fee of 2.5% of the physician’s liability must be paid directly to Official Payments Corporation.
Providers who are required to collect the cosmetic medical procedures gross receipts tax do so as trustees on behalf of the State of New Jersey. Thus, business owners, partners, corporate officers, and some employees of such businesses may be held personally liable for failure to collect the tax when required to do so or for failure to file returns and remit any taxes due on a timely basis.
In addition to interest on any unpaid taxes, the Division of Taxation will impose late filing penalties of 5% per month of the balance due. This amount is not to exceed 25% of such liability plus a $100 per month penalty for each month the return is late. Also, providers must pay a late payment penalty of 5% of the balance of the taxes due and paid late.
To file Form CMPT-100 online or by phone a physician will need a PIN (or the first four characters of your registered taxpayer name), along with your 12-digit New Jersey Taxpayer Identification Number.
If the physician is already registered to collect the tax, the physician’s PIN appears at the beginning of this letter. If this letter does not contain a PIN, the physician is not yet registered to collect the tax and must do so immediately if the physician is required to collect the tax.
how to file this tax
File Online:
1. Visit the Division of Taxation
Web site www.state.nj.us/treasury/
taxation/.
2. Choose “File Online” on the navigation bar.
3. Scroll down to “Cosmetic Medical Procedures Gross Receipts Tax”.
4. Select “Form CMPT-100”.
File by Phone:
1. Complete the requisite worksheet.
2. Call the Business Paperless Telefiling System at (877) 829-2866 (toll-free from touch-tone phones anywhere).
3. Select “5” from the menu to file the physician’s cosmetic medical procedures gross receipts tax return. As of Oct. 15, 2004, returns could be filed by phone.
For more information about the cosmetic medical procedures gross receipts tax, visit www.state.nj.us/treasury/taxation/cosmetic.htm, or call the Division’s Customer Service Center at (609) 292-6400 during normal business hours.
Other States and the Cosmetic Services Tax
Since the passage of the New Jersey bill, lawmakers in states including Texas, Washington, Illinois, Arkansas, Tennessee and New York have introduced bills or budget proposals to install similar taxes. However, to date, none of these states has passed the taxes into law.1
In Washington State, a bill exempting medically-necessary or reconstructive surgery, but imposing a 6.5% sales tax for elective cosmetic surgery to fund health care for children was purposed but didn’t make it to the floor of the Senate for a vote this year.1
In Illinois, the state comptroller has proposed a 6% tax on cosmetic surgery to create a stem-cell research institute. If the Legislature approves it, the question could be put to the voters in 2006. 1
Taxing Non-Physicians for Cosmetic Services
Non-physicians have also been targeted by tax laws. Silberman notes that states are taxing all sorts of other aesthetic services, including tattoos, body piercing, tanning salon sessions and massages.1 Twenty-one states taxed tanning salons and 10 states taxed massages as of last July, according to the Federation of Tax Administrators, which tracks state taxes.1 Last year, Arkansas began imposing a sales tax on body piercing, tattoos and electrolysis.1
Ohio has a comprehensive schema for taxing non-physicians who provide independently cosmetic services. Am. Sub. H.B. 95 of the 125th Ohio General Assembly expanded the tax base for the Ohio sales tax. In that bill, a new Revised Code (“R.C.”) section 5739.01(B)(3)(r) was enacted, which includes within the definition of a taxable “sale” all transactions by which: on and after Aug. 1, 2003, personal care service is or is to be provided to an individual.6 As used in this division, taxable “personal care services” include such services as:
• Skin care, including facials and exfoliation
• Cosmetics application
• The application of false eyelashes
• Manicures, including the application of polish
• The application of artificial nails
• Pedicures
• Hair removal by any means, including electrolysis, plucking or the application of depilatory products
• Body piercing and branding
• Tattooing, including permanent and temporary tattoos
• Massage, all types
• Tanning, whether done using light or chemical means.
“Personal care service” does not include a service provided by or on the order of a licensed physician or licensed chiropractor, or the cutting, coloring, or styling of an individual’s hair.
A cosmetic therapy service performed on the order of a physician is also exempt from taxation. Although there is no specific language in the statute, the order should specify cosmetic therapy services and be patient specific. There is no requirement that the order be written, but should there be a Department of Taxation audit, written orders may help a cosmetic therapist document the exemptions. In addition, the fact that a third-party payer may reimburse for a cosmetic therapy service does not exempt the procedure from the sales tax, nor does employment in a physician’s office provide a blanket exemption.
Depending on the circumstances, an insurance company that will cover cosmetic therapy services may or may not also pay for the sales tax. Regardless of whether or not a third-party payer will reimburse for the sales tax, the cosmetic therapist is required to collect and remit the tax.6
The success of this law in raising money has yet to be determined.
The penalties for not paying the tax could be up to 50% of the total of taxes due, in addition to the original tax amount. The criminal penalty is up to $1,000. For “allowable ignorance,” that is, cases in which a therapist did not comply with the law simply due to a lack of understanding of his or her responsibilities, there may be a 15% penalty.6
The Overall Impact to Dermatologists
Taxes on cosmetic services have not had much impact yet on dermatologists. This could change in the future. If dermatologists do not think that taxes should be imposed, then
they must start their lobbying efforts before such taxes are imposed. From a practical standpoint, it is of the utmost importance that proper taxes be paid because tax avoidance has severe consequences.
It remains to be seen what kind of future impact these tax requirements will have on the practice of dermatology. One thing is for sure, this is an issue we’re likely to hear more about and more states will most likely implement taxes of their own.
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August 2024
Volume 32
Issue 5
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