Nebraska Sales and Use Tax for Physicians Information Guide, May 10, 2018, Page 1
Information Guide
Overview
Charges for a physician’s professional services are not subject to sales tax.
Physicians are the consumers of all medical supplies, medical equipment, ofce supplies,
and business equipment they use to provide their services. Physicians owe Nebraska and
local sales or use tax on their purchases of these items.
This guidance document is advisory in nature but is binding on the Nebraska Department
of Revenue (Department) until amended. A guidance document does not include internal
procedural documents that only affect the internal operations of the Department and does
not impose additional requirements or penalties on regulated parties or include condential
information or rules and regulations made in accordance with the Administrative Procedure
Act. If you believe that this guidance document imposes additional requirements or penalties
on regulated parties, you may request a review of the document.
Terms
Note. These terms are not the same denitions used by the Nebraska Department of Health and Human
Services (Nebraska DHHS).
Drugs. Drugs are compounds, substances, and preparations sold to a patient with a prescription, and
which meet all of the following criteria:
❖ Recognized in the ofcial United States Pharmacopoeia, ofcial Homeopathic Pharmacopoeia of
the United States, or ofcial National Formulary, and any supplement of them;
❖ Intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease;
❖ Intended to affect the structure or any function of the human body;
❖ Are not food, food ingredients, dietary supplements, nor alcoholic beverages; and
❖ Are not over-the-counter drugs.
Durable Medical Equipment. Durable medical equipment is equipment which:
❖ Can withstand repeated use;
❖ Is primarily and customarily used to serve a medical purpose;
❖ Is generally not useful to a person in the absence of illness or injury;
❖ Is appropriate for use in the patient’s home, and
❖ Is not worn in or on the body.
Durable medical equipment includes repair and replacement parts for durable medical equipment.
6-471-2008 Rev. 5-2018 Supersedes 6-471-2008 Rev. 3-2010
Nebraska Sales and Use Tax for Physicians
May 2018
This guidance document may change with updated information or added examples. The
Department recommends you do not print this document. Instead, sign up for the subscription
service at revenue.nebraska.gov to get updates on your topics of interest.
Nebraska Sales and Use Tax for Physicians Information Guide, May 10, 2018, Page 2
Home Medical Supplies. Home medical supplies are supplies which are:
❖ Primarily and customarily used to serve a medical purpose;
❖ Appropriate for use in the home; and
❖ Generally not useful to a person in the absence of illness or injury.
Mobility Enhancing Equipment. Mobility enhancing equipment is equipment which is:
❖ Primarily and customarily used to provide or increase the ability to move from one place
to another;
❖ Generally not used by persons with normal mobility; and
❖ Appropriate for use either in a home or motor vehicle.
Mobility enhancing equipment does not include any motor vehicle or equipment on a motor vehicle that is
normally provided by a motor vehicle manufacturer.
Over-the-Counter (OTC) Drugs. Over-the-counter drugs are drugs that have a label identifying the product
as a drug as required by 21 C.F.R. 201.66, as this regulation existed on January 1, 2003. The OTC drug
label includes a drug facts panel or a statement of the active ingredients with a list of those ingredients
contained in the compound, substance, or preparation.
Oxygen Equipment. Oxygen equipment is equipment used to dispense, hold, or transport oxygen for a
medical purpose.
Physician. A physician is a medical practitioner licensed under the Nebraska Uniform Credentialing Act
who is authorized to prescribe drugs, oxygen, prosthetic devices, mobility enhancing equipment, durable
medical equipment, or home medical supplies within the scope of his or her practice.
Prescription. A prescription means an order done in writing, orally, or electronically by a licensed medical
practitioner under the Nebraska Uniform Credentialing Act for a drug or device for human use.
Prosthetic Devices. Prosthetic devices are replacement, corrective, or supportive devices worn on or in
the body to:
❖ Articially replace a missing portion of the body;
❖ Prevent or correct physical deformity or malfunction; or
❖ Support a weak or deformed portion of the body.
Prosthetic devices include any supplies used by the patient with the device, and repair and replacement
parts after placement of the device on or in the patient. For surgically implanted devices, only the devices
which remain in or on the patient after the procedure are considered prosthetic devices eligible for
tax exemption. Supplies used by the patient in connection with the implanted device are also exempt
fromtax.
Retail Sales. Retail sales are sales made to the patient which are not made in conjunction with the
physician’s professional services. The physician is a retailer, not a service provider, when making retail
sales, and is required to obtain a sales tax permit.
Tax-Exempt Services to the Patient
The following charges to patients are sales tax exempt:
❖ Charges for a physician’s professional services provided to patients;
❖ Charges directly billed under Part B of Medicare; and
❖ Charges directly billed to and paid by the State of Nebraska, under Medicaid.
Nebraska Sales and Use Tax for Physicians Information Guide, May 10, 2018, Page 3
Purchases by Physicians
Taxable
Physicians are consumers of the supplies, instruments, diagnostic and treatment equipment, and ofce
equipment used in providing their professional services and must pay the Nebraska and any applicable
city or county (local) sales tax to their vendors on all purchases and leases of these items. Purchases of
maintenance or service agreements covering the instruments and equipment are taxable. If the vendor
does not collect the Nebraska and local sales tax, the physician is responsible for paying the state
and local use tax on the cost of the items directly to the Department. This includes purchases made
at trade shows, conventions, and through online vendors. No refund or credit of the sales or use tax
paid is allowed for supplies which are not used by their expiration date and which are later destroyed
ordiscarded.
Tax Exempt
Drugs, excluding OTC drugs, which are dispensed under a prescription, and insulin purchased with or
without a prescription, may be purchased sales tax exempt by physicians even if they are used by the
physician in his or her practice.
Physicians are not required to remit use tax on sample drugs and supplies which are given to them
free-of-charge.
Compounds or solutions which become ingredient or component parts of a prescribed drug, and
which will be sold by the physician or pharmacist, may be purchased exempt from sales tax. However,
compounds or solutions are taxable when they are merely used to prepare the prescribed drug, and do not
actually become an ingredient or component part of the drug.
Documentation Needed by the Physician to Make Tax-Exempt Purchases of Drugs and Insulin, Excluding
OTC Drugs. A Nebraska Resale or Exempt Sale Certicate, Form 13, is not required for purchases of drugs,
excluding OTC drugs. Instead, the physician is required to maintain records, separate from condential
patient records, showing that these products will be dispensed to patients.
Insulin does not require any additional documentation to exempt its purchase.
Prosthetic Devices, Durable Medical Equipment, and Oxygen Equipment. The exemption for prosthetic
devices, durable medical equipment, and oxygen equipment is based on the patient’s use of the product.
Physicians may purchase prosthetic devices, durable medical equipment, oxygen equipment, and any
repair or replacement parts and supplies used with these devices sales tax exempt when dispensed to the
patient under circumstances that meet the following three-part test:
1 It is dispensed by the physician under a prescription;
2 It is only intended for use by a single patient; and
3 It is a type of product that is eligible for coverage under the Nebraska Medical Assistance
Act (Medicaid).
Please refer to the Nebraska DHHS, Nebraska Medicaid Program, Provider Information, Practitioner Fee
Schedules with the appropriate HCPCS code of the device or product to determine if the device or product
is eligible for coverage.
Example. Implantable Neurostimulator, Pulse Generators, any type, is assigned code 000L8679. This code
is not included in the table dated July 1, 2013 for Durable Medical Equipment, Medical Supplies, Orthotics
and Prosthetics. The code is included in the table dated January 1, 2014. Therefore, the item is covered by
Medicaid, but only for purchases made on and after January 1, 2014.
Nebraska Sales and Use Tax for Physicians Information Guide, May 10, 2018, Page 4
Documentation Needed for Exemption Based on the Patient’s Use. The physician must present the
vendors of these products with a completed and signed Form 13. The physician must complete
Section B, Category 2, and complete the description of the product, or products, and the intended use
(i.e., prescribed for use as a prosthetic device).
Use Tax
When the applicable sales tax has not been collected by the vendor, the physician is responsible for
remitting the use tax. Use tax is paid directly to the Department. If the physician takes delivery of these
items within the boundaries of a city or county that has a local sales and use tax, the local use tax must
also be remitted.
The Nebraska and local use tax is remitted as follows:
❖ If you have a sales tax permit, the Nebraska and local use tax is reported on the appropriate use
tax lines of your Nebraska and Local Sales and Use Tax Return, Form 10.
❖ If you do not have a sales tax permit, the Nebraska and local use tax is reported on a Nebraska and
Local Business Use Tax Return, Form 2.
Retail Sales
Products which will later be sold at retail may be purchased tax-exempt for resale. The physician must
collect sales tax on the retail sales price, unless the sale qualies for any of the exemptions listed below.
❖ Medical Records sold to the patient or to a person holding the patient’s health care power of
attorney as provided for under Neb. Rev. Stat. §§ 30-3401 through 30-3432. A power of attorney
for health care authorizes a designated person (for example, spouse, family member) to make
essential health care decisions when the patient is incapable of doing so.
❖ Medical Records sold directly to the governmental unit administering Medicare or Medicaid, and to
other exempt entities.
❖ Medical records directly paid for by an exempt governmental unit listed in Nebraska Sales and Use
Tax Reg-1-093, Govermental Units.
❖ Mobility enhancing equipment, and any repair and replacement parts for the equipment, purchased
with a prescription.
❖ Prosthetic devices purchased with a prescription and of types that are eligible for coverage
by Medicaid.
❖ Medical supplies, equipment, or records to one of the specic health care facilities listed in
Nebraska Sales and Use Tax Reg-1-090, Nonprot Organizations, are sales tax exempt. For a
list of exempt organizations, please see our Information Guide on Nebraska Taxation of
Nonprot Organizations.
Documentation for Tax-Exempt Purchases and Sales
Documentation Needed for Tax-Exempt Sales for Resale. The physician must give the vendors of these
products a completed and signed Form 13. The physician must complete Section A of the Form13.
Documentation Needed for Exemption Based on the Patient’s Use. The physician must present the
vendors of these products with a completed and signed Form 13. The physician must complete SectionB,
Category 2, and complete the description of the product, or products, and the intended use (for example,
prescribed for use as a prosthetic device).
Documentation Needed for Sales to Exempt Governmental Units and Medical Facilities.
Physicians must obtain a properly completed Form 13, Section B, Category 3, from any sales tax-exempt
governmental unit or nonprot organization. The Form 13 must also include the exempt nonprot
organization’s Nebraska exemption number (which begins with the prex “05”). Governmental units are
not issued Nebraska exemption numbers.
Nebraska Sales and Use Tax for Physicians Information Guide, May 10, 2018, Page 5
Obtaining a Permit. If you are making taxable retail sales, you must obtain a Nebraska Sales Tax Permit
by completing a Nebraska Tax Application, Form 20, and returning it to the Department. An online
application is also available for new businesses to register for a sales tax permit.
Release of Information.The total amount charged for Release of Information (ROI) services is subject
to tax when the copies are delivered to a location within Nebraska. ROI services are taxable when the
customer obtains the paper copies or copies by other tangible means (e.g., CD, DVD, ashdrive). Records
which are faxed or sent electronically are not taxable. The total amount subject to tax includes any
stafng, postage, or handling fees included in the charge. ROI services, when acting as agents for a health
care provider, must collect the sales tax on all taxable sales of copies of medical records for the health
care provider. If the ROI service is not acting as an agent for the health care provider, the health care
provider is responsible for collecting the sales tax. The health care provider may purchase the copies from
the ROI service sales tax exempt, with a properly completed Form 13.
General Tax Information
Keeping Records For Tax Purposes. While the Health Insurance Portability and Accountability Act (HIPAA)
restrictions provide for privacy of individual patient health information, the Department has statutory
authority to review physicians’ accounting records for audit and other tax purposes. These records
may include:
❖ General ledgers;
❖ Sales and purchase journals;
❖ Depreciation schedules and other tax records;
❖ Inventory les; and
❖ Invoices.
The physician is responsible for concealing any patient names which may be on these records even if the
records contain one or more patient names. These records may include invoices and accounting records.
These records must be kept for:
❖ Three years if ling a Form 10 or Form 2;
❖ Six years if no sales and use tax return was led; or
❖ Any period for which an extension has been granted.
These records must include the accounting records ordinarily maintained by the physician and the
schedules and working papers used to compute the tax liability.
To document any tax-exempt sales or purchases, you must keep the following:
❖ Sales and purchase invoices;
❖ Receipts;
❖ Medicaid and Medicare billing forms;
❖ Resale and exempt sale certicates; and
❖ Records substantiating that drugs, oxygen, and prosthetic devices were prescribed.
When a sale is made to rell a prescription, the records of the retailer must show the ID number of the
original prescription.
Tips:
❖ Keep adequate documentation for tax purposes to support claimed exemptions; and
❖ Keep exemption documents out of individual patient medical les, which cannot be reviewed
by the Department.
Nebraska Sales and Use Tax for Physicians Information Guide, May 10, 2018, Page 6
In the case of audit or other Department review, these two tips will assist the Department’s staff and
help prevent the physician from paying unnecessary sales and use taxes due to missing or
inaccessible records.
Physicians Operating Medical Facilities
Purchases by for-prot medical facilities are subject to sales and use taxes in the same manner as
purchases by physicians. Purchases by nonprot medical facilities that do not have an exemption
certicate issued by the Department are subject to sales and use taxes in the same manner as purchases
by physicians. These for-prot and nonprot medical facilities must maintain copies of documentation in
the same manner as a physician.
Private Insurance Companies
Items paid for by a private insurance company are not necessarily exempt from sales and use tax. Only
those items that meet the requirements listed above are exempt from sales and use taxes, regardless of
the method of payment.
Resource List
Information Guides
❖ Nebraska Use Tax
❖Nebraska and Local Sales Tax
❖Nebraska Sales and Use Tax Guide for Dentists, Orthodontists, and Oral Surgeons
❖Nebraska Taxation of Nonprot Organizations
Nebraska Sales and Use Tax Regulations
❖Reg-1-023, Component Parts - Manufacturing, Processing, and Fabrication
❖Reg-1-050, Medicines and Medical Equipment
❖Reg-1-051, Physicians and Dentists
Nebraska Statutes
❖Neb. Rev. Stat. § 77-2704.09, Insulin; prescription drugs; mobility enhancing equipment; medical
equipment; exemptions.
❖Neb. Rev. Stat. § 77-2704.12, Nonprot religious, service, educational, or medical organization;
exemption; purchasing agents.
revenue.nebraska.gov
800-742-7474 (NE and IA), 402-471-5729
Nebraska Department of Revenue, PO Box 94818, Lincoln, NE 68509-4818
