Whether you owe sales tax on what you sell depends on your state and on the item. Prescribed medications are treated differently from supplements and retail products in most states, so check with your CPA before you sell anything, and track product sales apart from memberships.
Memberships and products aren't the same
Your membership fee pays for care. Products are different. If you sell supplements, skincare, braces, scales or other goods at the front desk or online, those sales may be taxable in your state even though your memberships aren't.
Why it depends on the state and the item
Each state sets its own sales tax rules. Most states exempt prescription medications. Over-the-counter drugs, vitamins and supplements are treated differently from one state to the next. Some exempt them, some tax them, and some decide based on how the product is labeled or whether it's prescribed. Retail products like clothing or equipment are usually taxable where a sales tax exists.
A few states have no statewide sales tax at all. Local taxes can also apply on top of the state rate. That's why I'd never guess. Your CPA, or your state's revenue department, can tell you what applies to the items you sell.
Questions to ask your CPA
- Do I need a sales tax permit for what I sell?
- Which of my products are taxable, and which are exempt?
- Does it change if a product is prescribed versus sold over the counter?
- How often do I file, and what's the due date?
- Do online sales to members in other states change anything?
How it shows up in your books
Sales tax you collect isn't your money. It's held for the state. In your books it sits as a liability until you pay it, not as revenue. If it gets mixed into revenue, your sales look higher than they are and the tax payment later looks like an expense.
In a made-up example, you sell $2,000 of taxable supplements in a month at a combined 8% rate and collect $160 in tax. Your revenue is $2,000. The $160 goes to a sales tax payable account and comes out when you file.
Track product sales on their own revenue line, separate from memberships. That also tells you whether products are worth the shelf space. This post shows how to see if meds and labs make or lose money.
If you've been selling without collecting
Don't panic, and don't ignore it. Tell your CPA. Many states have ways to come forward and settle what's owed, and your CPA can tell you the options.
What I'd do this week
- List every product you sell that isn't part of a membership.
- Send the list to your CPA and ask which items are taxable in your state.
- Ask your bookkeeper to put product sales on their own revenue line.
Common questions
Do I charge sales tax on memberships?
In most cases, care isn't taxed the way goods are, but rules vary. Confirm with your CPA for your state.
Is collected sales tax income?
No. It's money you hold for the state. It belongs in a liability account until you pay it.
Does my membership platform collect sales tax for me?
Some can add tax at checkout if you set it up. You still file and pay it to the state, so check the setup with your CPA.
Want product sales and sales tax kept straight?
We put product sales on their own line and hold sales tax as a liability every month, so your revenue is accurate and your filing numbers are ready. If that's what you need, apply to work with us.