Dental prosthetics in Michigan: exempt, taxable, and exempt again - Wacky Tax Wednesday

If you don’t dread hearing the words “you need a new crown (or bridge, or dentures, etc.),” you’ve probably never had the pleasure of paying for a dental prosthesis. They rarely make it into a mouth for less than $500 and can cost thousands. In some states, sales and use tax further increases the price tag.

But should they be taxable? Some states aren’t sure. Michigan, for example, has waffled over the matter.

Prostheses generally exempt

According to the Michigan Department of Treasury, retail sales of “any apparatus, device, or equipment used to replace or substitute for a part of the human body” have been exempt from Michigan sales and use tax since 1955. Yet since that time, the taxability of dental prostheses has been refined more than once. 

Dental labs provide an exempt service

In 1985, a Department of Treasury Letter Ruling (1985-20) determined a dental lab provided a non-taxable service when manufacturing devices (dental ceramics) in accordance with specifications provided by a dentist. Sales of dental prostheses were therefore considered exempt. Because of that, dental labs were not eligible to claim the industrial processing exemption.

Dental prosthetics excluded from the exemption

Then, in 2004, Public Acts 172 and 173 refined the definition of “prosthetic device,” specifically excluding contact lenses and dental prostheses from the exemption. Sales of dental prosthetics therefore became subject to Michigan sales and use tax under the letter of the law.

Letter ruling vs. the letter of the law

With the 1985 letter ruling exempting services provided by dental labs, and the 2004 acts excluding dental prostheses from the exemption, the taxability of dental prosthetics was at odds with itself. Generally, the letter ruling took precedence and guided tax policy, meaning sales of dental prosthetics were exempt — until last year.

In June 2017, the Michigan Department of Treasury pointed out that the sales and use tax law had been rewritten in 2004 to tax sales of dental prosthetics. It therefore revoked the 1985 ruling, and dental lab sales of dental prostheses became taxable as of July 1, 2017.

Though perhaps sad news for anyone in need of a dental prosthesis, the revocation offered a silver lining for dental labs. As explained by the Department of Treasury, “Because the transaction will now be treated as a sale at retail, dental labs may claim the industrial processing exemption for property used in manufacturing its products” (provided the property qualifies for the exemption).

A burdensome tax

However, a tax on prosthetic devices didn’t sit well with some folks, notably members of the Michigan Dental Association and the Michigan Chamber of Commerce. Consequently, a package of bills seeking to eliminate the sales and use tax on dental prosthetics was introduced in the fall of 2017: House Bills 5164 and 5173, and Senate Bills 566 and 567.

According to the bill analysis, “Revoking the dental prosthetics tax exemption improperly increases the already burdensome medical costs that consumers face.” It highlights the expense of maintaining oral health, citing the approximate cost of dentures ($2,500) and implants ($3,000+), and calls for reinstatement of the exemption.

All four bills were enacted in late December 2017, officially removing “dental prosthesis” from the short list of items excluded from the sales and use tax exemption. Contact lenses remain taxable.

Chapter 205 of Michigan law now reflects the new policy. It lists as exempt the sale of a dental prosthesis, defined as a “bridge, crown, denture, or other similar artificial device used to repair or replace intraoral defects such as missing teeth, missing parts of teeth, and missing soft or hard structures of the jaw or palate.” Michigan will miss out on approximately $8.1 million in annual sales tax revenue due to this change. However, Senator John Proos notes that it will “help control costs for residents who need dental prosthetics.”  

The exemption is retroactive to July 1, 2017. As a result, it may complicate sales and use tax compliance for dentists and dental labs that complied with the temporary taxation of dental prosthetics. Tax automation software helps simplify sales and use tax compliance for businesses in all industries. Learn more.