City of Centennial Sales Tax Requirements
Centennial is unique in that it has elected to perform its own licensing and collect its own sales tax. The state collects tax for most cities and then distributes receipts. With revenues down, some municipalities are stepping up enforcement to help balance their budgets.
Accordingly, many Centennial dentists have received a letter from the city asserting that dentists must collect sales tax from patients on certain cosmetic products, including teeth whitening kits. However, Centennial’s tax code exempts “drugs or materials furnished by a doctor as part of professional services provided to a patient” from sales tax requirements. Based on this exemption, the CDA acted on dentists’ behalf and sent a letter to the city questioning their interpretation of the tax code.
In March 2010, the city of Centennial responded to the CDA’s inquiry stating that city sales tax must be charged on whitening products sent home with the patient. The city of Centennial sent copies of its response, addressed to the attorney for the Colorado Dental Association (CDA), to many Centennial dentists.
While we continue to disagree with Centennial’s interpretation of the tax ordinance, it is apparent that the city is determined to collect sales tax on these products. The CDA will consider supporting our members practicing in Centennial if they choose to press the legality of the interpretation of the city’s sales tax ordinance. However, it is important to note that even if a challenge to the city of Centennial’s interpretation the viewpoint of the CDA was successful, the city of Centennial could simply change the wording of the ordinance to circumvent the ruling.
Thus, at this point, dentists that practice within the Centennial city limits and sell consumer products should apply for a sales tax license with the city. When purchasing whitening and other consumer products from a vendor, dentists should not pay the city sales tax, claiming exemption since this will be paid by the patient (the dentist should continue to let the vendor collect state sales tax) . City sales tax should be collected from the patient and remitted to the city. Prescription drugs and devices continue to be exempt from city and state sales tax.
Information on Sales Tax and Business Licenses
Pursuant to an ordinance passed on Oct. 2008, each business that has a physical business location in the city of Centennial must have a license. A business may have either a business license or a sales tax license depending on its sales activities. A business is not required to obtain both licenses; however, a separate license must be maintained for each business location in the city of Centennial.
Business licenses apply to service-only businesses such as “architectural firms, attorneys, banks, churches, counselors, accountants, daycare providers, dentists, engineering firms, political party offices, property managers, physicians, realtors, and seamstresses.” This license applies only to businesses that do not already have a sales tax license. If you already have a sales tax license, the business license is not required.
Retail sales tax licenses apply to any business that sells taxable products and/or services. Sales of certain materials like specialty or electric toothbrushes, toothpaste, mouthwashes, books, videos or other consumer products may be subject to this license and sales tax. Prescription drugs and “sales of drugs or materials when furnished by a doctor as part of professional services provided to a patient” are exempt from sales tax and do not alone require a sales tax license. We sought clarification from the city of Centennial on the exact parameters of the “drugs and materials” exemption, specifically in regard to teeth whitening products. They continue to assert consumer sales tax must be charged on whitening products.
Other compliance requirements may apply to those who obtain a sales tax license, which include:
- Maintaining and renewing the license,
- Keeping all records related to tax liability for at least 36 months,
- Collecting sales tax on taxable items,
- Filing sales tax returns and remitting sales tax collected,
- Filing up to monthly reports, regardless of whether retails sales are made for the reporting period, and
- Periodic audits by the city.
If you already have a sales tax license, you should complete and file an annual report with the city, even if you have no retail sales to report (in that case, simply mark “0” in the applicable section of the return). Items such as electric toothbrushes, toothpaste and mouthwashes should be reported and the sales tax paid. If a dentist sells prescription drugs or other exempt products, the dentist should list the sale of these products separately, stating that the dentist believes these products to be exempt, pursuant to Section 4-1-260(v) of Centennial Sales Tax Ordinance 2008-O-29. This approach will preserve the dentist’s right to object to paying the sales tax and avoids any potential penalty for failure to file the report or disclose sales.
The city’s fee is $25 for both types of licenses.
State Law and Policy
The item of interest in the state FYI publication is the “exemptions” to sales tax in the C.R.S. – specifically the 7th bullet point on page 1: “all sales of drugs and materials when furnished to a patient by a doctor as part of professional services.” On page 3 (last paragraph of the first column under “Doctors”), this phrase is further defined. The City of Centennial includes this verbiage in the Sales Tax Ordinance; however, does not allow it as an exemption from sales tax in actuality.
City Law and Policy
See page 41 of the Ordinance, Section 4-1-260(v) concerning sale of drugs. This section is drafted in accordance with the C.R.S. sales tax exemptions for drugs and materials furnished to a patient by a doctor.
The City of Centennial requires all businesses operating within the city file for a Business or Sales Tax License.
CDA Correspondence with Centennial
CDA Correspondence with Dentist Members
Any additional questions concerning these requirements should be directed to Pam Brockhaus at 303-996-2843, 800-343-3010 ext. 103 or email@example.com.
Note: This page summarizes some highlights of the Centennial Tax Code but is not intended to be a comprehensive list of all requirements. Please review the rule directly and consult with your legal or tax counsel to ensure compliance with all requirements, as specific to your practice.