24.30.4. Tax for Subsidized Services

When a clinic sells taxable items, state tax laws typically require tax to be collected from the purchaser (client), even if a third party (like a nonprofit) is covering the cost of the item. Taxes are not waived simply because the item is subsidized.

How It Works:

When a subsidy or grant is applied to a taxable item:

1. The system applies the subsidy to the base price of the item.
2. The system charges the client (pet owner) the applicable tax separately.
3. This ensures that the clinic collects tax correctly while still allowing the majority of the item to be subsidized.

This setup ensures:

• The nonprofit or grant fund does not pay sales tax.
• The client pays only the legally required tax amount.
• The clinic remains in compliance with applicable state tax laws.

State Tax Law Considerations

Tax laws vary by state. However, most states follow similar rules.

Taxable:

• Tangible goods sold to clients (flea collars, e-collars, prescription and OTC meds, pet food)
• Separately listed items on invoices, even when administered by the veterinarian

Nontaxable (typically):

• Veterinary services (exams, surgery, bundled vaccinations)
• Items used during treatment and not itemized separately

Tip: You can quickly look up your state laws using a Chat GPT summary here

Example: In Minnesota, sales tax must be collected on tangible personal property sold to pet owners—even if a nonprofit is covering the cost. Tax-exempt status applies to purchases made directly by the nonprofit for its own use, not when it funds goods for a third party.

• Item: One-Year Rabies Vaccine
• Price: $17.00
• Sales Tax (MN): $0.02
• Subsidy Applied: $17.00 (paid by grant or nonprofit)
• Client Pays: $0.02 (sales tax only)

Recommendations

1. Do not create duplicate invoice items to bypass sales tax.
2. Use the system’s existing subsidy tools, which handle taxes correctly.
3. Inform clients and funders that a small tax charges may still apply and is legally required.
4. Confirm tax obligations with your state’s Department of Revenue if you're unsure.

Benefits of This Approach

1. Compliant with state law
2. Minimizes manual invoicing errors
3. Saves staff time by avoiding duplicate workflows
4. Transparent for clients and partners