What is wrong with the following statement, found on an actual 3D ultrasound company’s website:
What is the price of the service?
The 3D/4D packages range from $119 to $179 depending on your needs. Gender determination is now only $75. (Please account for 5% sales tax on all VISA, Master Card and Discover sales. Cash sales are exempt from sales tax. Sorry no personal checks or Americal Express cards).
First, ignore the hefty price of their cheapest gender check package – this 3D ultrasound company is from another state and so they do not have a First Peek Ultrasound to compete with. (In keeping with our mission to make 3D ultrasounds accessible to as many families as possible, we shook up the rest of the 3D ultrasound centers in the Chicago area by being the first to set our prices to start at $39, forcing the rest of the centers to lower their prices dramatically to keep up).
1) Sales tax is being charged on a service! When have you ever paid sales tax on other services, such as a haircut, massage, or car wash? This company (which shall remain nameless) is charging sales tax on a service. They may be uninformed and paying this sales tax to the state government, but if they are pocketing the money (to pay for credit card transaction fees), then this is illegal.
2) Cash sales are exempt from sales tax! Taxes are never discriminately applied depending on whether the purchase is made with cash or credit card. If this company was actually selling something that required sales tax, then not charging sales tax on cash services would be considered to be tax fraud. However, in this case, sales tax is not required on any of these services, which makes me think again, where is this sales tax money going to?
3) Using an illegitimate sales tax in advertising to get more money is a form of advertising fraud as well. Unless they are dutifully handing over this sales tax on some of their service sales to the state government, that is. In that case, they are just hurting themselves and making prices higher for their customers unnecessarily.
When we first started First Peek Ultrasound in 2008, we noticed other 3D ultrasound centers, including one in the Chicagoland area, charging sales tax on 3D ultrasounds for years, which went against my own understanding of tax law. I confirmed the illegitimacy of this charge with the Illinois Department of Revenue and never charged sales tax on our services. It was only after blogging about this situation in this post that this shady practice was stopped by the other ultrasound clinic in our area.
The ultrasound studio in the above quote charges the local Virginia sales tax of 5%, but there are two other studios in North Carolina that add on a whopping 8.5% to all 3D ultrasound packages. (I double-checked the state laws and they do not have a special tax on 3D ultrasounds. North Carolina does charge a sales tax on specific services, including dry cleaning and cable tv and some specific entertainment services. Do these specifically enumerated entertainment services include 3D ultrasound services and are these local centers specifically asked to charge sales tax by the state of North Carolina? It’s possible, but I doubt it, especially since there are other 3D ultrasound centers in North Carolina that do not charge the sales tax.)
It is entirely possible that many states will eventually require sales tax on services, and this requirement will probably start with entertainment or recreational services. For example, the State of Washington already imposes a sales tax in general for “recreational services” and the one 3D ultrasound facility in the state of Washington does in fact charge this sales tax.
What is the purpose of this article? I hope that a few customers of these 3D ultrasound centers will stumble upon my blog and will let these 3D ultrasound centers know that it is not okay to add on a surcharge and call it a sales tax in order to boost the profit margin. While most customers may not notice and happily pay the extra amount, the practice is in fact illegal and advertising fraud and may be considered tax fraud as well. The fact that some 3D ultrasound centers within the same state charge a sales tax while others do not and the fact that 3D ultrasound centers, on at least one occasion, have discontinued the sales tax when they are called out on it, at the very least belies the fact that the sales tax is not required and is either ignorantly being charged to consumers at best or fraudulently kept by the 3D ultrasound centers at worst.
Do you have any comments? I especially want to hear from owners of other 3D ultrasound centers who were confused by this sales tax issue. If you do not charge sales tax while another 3D ultrasound center in your area does, has this helped or hurt your business in any way? If you do charge sales tax, is this required by the state? If not, is there another reason why you charge sales tax (i.e. the requirement by the city of Oak Park for all businesses who want a storefront location to charge sales tax). We would love to hear from you.