You’re probably familiar with sales tax as a consumer, but are you familiar with it as a business owner or employee in an optometry office? Sales tax is a part of daily life and practices in many locations.
Understanding it is crucial to staying on the right side of the law and avoiding costly penalties. It can be rather complicated, and it’s not part of the standard optometry school curriculum.
Read on to learn some important basics of sales tax as it applies to optometry.
What is sales tax?
Sales tax is a tax imposed on retail goods and/or services, collected by the seller at the time of service and transmitted to state and/or local authorities. It is usually calculated as a percentage based on the cost of the item purchased and is not reported as the seller’s earnings.1
As optometrists and business owners, it is important to note that sometimes we are a buyer or consumer—for example, when purchasing office supplies, diagnostic supplies, glasses frames and lenses, and contact lenses. Other times we are a seller—like when we provide prescription lenses, frames, contacts, vitamins, and more to our patients.
If we buy goods and the seller does not collect taxes on them, we may be required to pay a “use tax.” This functionally ensures you are paying the state some tax for goods that may have been purchased online or out of state where the retailer did not collect the tax.
Understanding state-specific sales taxes
Sales tax in the United States is governed at the state level—there is no federal sales tax. Some states also allow for local governments to apply additional tax (e.g., some cities or counties).
Currently, there are 38 states that have local taxes, which typically benefit schools, law enforcement, and other utilities like water. The tax amount varies widely by state. Some states have no sales tax while others reach as high as 7.25% at the time of this writing, which combined with local rates can reach 9% or higher in some areas.2
The tax rate can sometimes vary based on the item being sold; certain items may qualify for lower tax rates or may qualify as tax-exempt. In Illinois, prescription glasses and contacts qualify for a much lower rate than other items, so if you are selling numerous types of items in your practice you need to keep track of which qualify at which rate.
Taxable items when you are the seller
The products sold in optometric practices are variable but can include:
- Prescription glasses: Frames and lenses
- Non-prescription glasses: Plano sunglasses, over-the-counter (OTC) readers, etc.
- Contact lenses
- Vitamins and supplements
- Contact lens solution
- Eye drops: OTC tears, allergy drops, or prescription drops in some states
- Dry eye and hygiene products: Moist heat masks, lid scrubs, etc.
- Beauty products
The taxability of these products varies widely by state. Five states have no sales tax (i.e., Alaska, Delaware, Montana, New Hampshire, and Oregon).3 Some states, like New Mexico, Alabama, and Utah, require sales tax on all items sold in an optometry practice.
Most states fall somewhere in between, requiring sales tax to be charged on some, but not all items. This makes it critically important that you research and understand exactly what your state and local governments require tax to be collected on and at what tax rate(s).
This table was compiled after reaching out to each American Optometric Association (AOA) state affiliate office to get input on their sales tax laws. These 23 states either responded and provided information, or have no state sales tax.
Table 1 outlines which commonly sold products in optometry practices are taxed per state.
| State | Prescription Eyeglasses (Frames and Lenses) | Frame Only (e.g., Plano Sunglasses) | Vitamins and Supplements | Contact Lens Solutions | OTC Eye Drops (e.g., Artificial Tears) |
|---|---|---|---|---|---|
| Alabama | Yes | Yes | Yes | Yes | Yes |
| Arkansas | No | Yes | Yes | Yes | Yes |
| California | No | Yes | Yes | Yes | Yes |
| Colorado | No | Yes | No | No | No |
| Delaware | No | No | No | No | No |
| Idaho | No | Yes | Yes | Yes | Yes |
| Illinois | Yes* | Yes | Yes | Yes | Yes* |
| Kansas | No | Yes | Yes | Yes | Yes |
| Maine | No | Yes | Yes | Yes | Yes |
| Massachusetts | No | Yes | Yes | Yes | Yes |
| Michigan | No | Yes | Yes | Yes | Yes |
| Missouri | No | Yes | Yes | Yes | Yes |
| Montana | No | No | No | No | No |
| New Jersey | No | No | No | Yes | No |
| New Hampshire | No | No | No | No | No |
| New Mexico | Yes | Yes | Yes | Yes | Yes |
| Ohio | No | Yes | Yes | Yes | Yes |
| Oregon | No | No | No | No | No |
| Rhode Island | No | Yes | No | No | Yes |
| Utah | Yes | Yes | Yes | Yes | Yes |
| Virginia | No | Yes | Yes | Yes | Yes |
| Washington | No | Yes | Yes | Yes | Yes |
| Wisconsin | No | Yes | Yes | Yes | Yes |
Table 1: Courtesy of Melanie Deitch, OD.
*In Illinois, glasses and some eye drops are taxed at a significantly reduced rate compared with other goods.
Note: This table should not be used exclusively to help you determine which items to charge tax on, but rather is intended to help highlight the state-to-state variability and the value of utilizing the services of resources like optometric associations.
Taxable items when you are the buyer
Many of the items you buy for use in practice may be subject to tax as well, and that tax might not be collected by the seller.
This could include:
- Prescription glasses: Frame and lab bills
- Contact lenses
- Diagnostic supplies
- Equipment
If the tax is not collected by the seller, you may be required to submit it on your business tax return, or sometimes separately alongside sales tax. Some states allow for use tax exemptions on certain items in optometry practices. If this is the case in your state, you may be able to provide a sales tax exemption certificate or reseller’s permit to your vendors to avoid having them charge you sales tax.
Helpful resources on sales tax for optometrists
Tax law can be ambiguous, so it can be helpful to utilize resources that may have legal briefs or other information to guide you. You’ll want to find out how to register as a seller, tax rate(s), what items to tax, when tax is due, and what penalties there might be for missing payments.
Good resources include:
- Your state’s Department of Revenue.
- State and local optometry organizations, such as your state AOA affiliate.
- Legal counsel, especially those familiar with optometry practice in your state.
5 FAQs on sales tax collection in optometry
When reviewing sales tax collection in your practice, there are 5 main things to consider:
1. Do I need to collect sales tax on any items I sell in my practice?
Work with your state and local government, state optometry board, or local optometric associations to determine what items require tax and at what rate(s).
2. Do I need to have a sales tax certificate?
If your state has a sales tax that applies to any of the goods you plan to sell, then you will need to apply for a sales tax permit. This can have different names based on your location (ex., sales tax license, retail license, seller’s permit, etc).
Information about the permit, including how to apply, can generally be found on the state’s Department of Revenue website. You should also look into use tax and whether you qualify for exemptions; if so, you’ll want to learn how to fill out and submit exemption forms or reseller’s certificates for your state.
3. How do I collect the tax?
First, you need to know your rate(s), and charge that amount to your patients or customers on transactions. You’ll need to keep good records of what the sale value was and what the tax amount collected was.
Many practice management systems have reporting tools that can help to make this easier when used effectively. This inventory software is typically associated with a practice’s electronic health record.
It will be important to have defined office-wide training and protocols—you and all your team members need to be on the same page about when and how to collect tax to ensure consistency and good record-keeping.
4. How do I report the tax? How often do I report and pay?
You’ll need to know exactly what you collected in tax for the reporting period—again this highlights the importance of good record-keeping so that you can find the amount easily.
Consult with your state officials to know how often taxes are due and how to pay.
5. What is the penalty for missing payments?
The penalty for late payment varies but could include a flat penalty as well as an interest percentage on the amount owed. Additional penalties could be assessed if an audit is performed and you have not kept adequate records or if it seems like you have purposefully attempted to evade payment.
Some states may have waivers you can apply for to avoid penalties if you had staff turnover in a position that had been reporting for you or in other unique circumstances.
Personal pearls on sales taxation for ODs
In Kansas, where my practice is located, sales tax reporting is due on the 25th of the month following each calendar quarter. There are no helpful reminders, so we mark the date on our calendars and set electronic reminders.
Reporting and payment are completed through the state’s Department of Revenue website, which is also where we can find answers to all our questions on the various aspects of taxation.
We have struggled at times with procedural knowledge being limited to a certain individual, where turnover could result in loss of the details surrounding a task such as sales tax application and payment.
To combat this, we have created comprehensive job descriptions and procedure manuals so that when turnover occurs, there is a manual for another individual (partner in the practice, manager, etc.) to take over the tasks successfully. Doing this has helped us stay in compliance.
Key takeaways
Sales tax is complicated and varies widely based on location. Some goods bought for or sold in optometric practice may be subject to tax, and others may not. Penalties for missing payments can add up quickly and be very costly.
For these reasons, it is crucial that you use the resources available to you to obtain a solid understanding of how tax laws apply to you and how to stay in compliance.
