Taxable Talk

I live and work in beautiful Orange County, California. Several years ago the voters of this county passed a 0.5% sales tax increase to fund transportation issues (such as the widening of Interstate 5 through Orange County). That sales tax increase expires at the end of 2011. The Orange County Transportation Authority (OCTA) administers the tax, and has been running a somewhat blatant advertising campaign in support of renewing Measure M. Just one little problem: that's probably illegal.

No matter what your view is on Measure M, it's irrelevant; it's illegal (under California law) for a government agency to publicly campaign for a proposition. And as the Orange County Register noted in an editorial, the OCTA issued an 8-page campaign mailer an 8-page informational brochure praising the benefits of Measure M. Sort of sounds like the campaign for pre-schools that Rob Reiner ran. You can see the ad/brochure here.

While Rob Reiner has suffered the consequences of his actions, it's uncertain whether the OCTA will. Hopefully, the Legislature and the Orange County Board of Supervisors will tell the OCTA to spend their money on improving the freeways and not on glitzy campaign literature informational brochures.

If you're a plastic surgeon, and you use breast implants as part of your work, do you have to pay sales tax on the implants you use?

Yes, in Alabama.

The Alabama Department of Revenue recently took a doctor to task for not paying use tax on the breast implants he was using in his surgery practice. (Use tax is when the user is required to pay the equivalent of sales tax when the seller doesn't charge sales tax. Almost all states have use tax laws. For example, that book you bought on Amazon tax free—well, you're probably supposed to pay use tax on it. Indeed, many states have added a "use tax" line on their income tax forms.)

Alabama considers "...doctors, as members of a learned profession, are not making retail sales when they provide or supply tangible property to their patients incidental to their professional services. Hamm v. Proctor, 198 So.2d 782 (Ala. 1967); Haden v. McCarty, 152 So.2d 141 (Ala. 1963). However, the use or consumption of the property by the doctors in providing the services in Alabama is clearly subject to Alabama use tax." So those stitches, bandages, and, yes, those silicone implants are taxable.

California appears to be headed in the opposite direction. The Board of Equalization ruled on February 1st that cosmetic medical treatments, including Botox and silicone implants, should be exempt from sales tax.

But one state taxes cosmetic surgery—New Jersey. Specifically exempted from the New Jersey ordinance are reconstructive procedures. However, cosmetic dentistry is taxable. Teeth whitening is specifically cited as taxable. Would orthodontia be taxable? I can imagine a sales tax auditor peering into some childs' mouth, seeing how bad the overbite is. "Your son only has a 40% overbite, so you must pay sales tax." But I digress....

Of course, when I read the Alabama story, I remembered the wonderful Chesty Morgan. Humorously, Chesty tried to deduct the implant surgery as a medical deduction (subject to a 7.5% AGI limitation) and lost in Tax Court. But the judge allowed her to deduct the surgery as an unreimbursed business expense (subject to a 2.0% AGI limitation).

So, the moral of this tale is that if you're a plastic surgeon in Alabama, you'd better charge sales tax on those silicone implants or you could be busted.

Thanks to the NAEA for alerting me to this story.
Link: Alabama Administrative Law Judge Ruling