Are metal alloy ingots sold to a dental laboratory exempt from Kansas sales tax, and which exemption certificate should the lab use?

Plain-English summary

A taxpayer asked whether metal alloy ingots sold to a dental laboratory — used exclusively to fabricate crowns and bridges that dentists buy for patients under prescription orders — are exempt from sales tax, and if so, which exemption certificate the lab should use. The Department's answer: the ingots may be purchased exempt, and the certificate depends on how the lab is registered.

Dental labs are fabricators. A dental lab produces a single product for a single customer rather than running an integrated manufacturing line that makes standardized products packaged, warehoused, and held for wholesale/retail distribution. As a fabricator, a lab may buy the materials that become a component part of the fabricated item exempt, then charge sales tax on the total selling price of any taxable sales. (The Department's analogy: a seamstress buys fabric and thread exempt and charges the homeowner tax on the finished curtains.) So a dental lab may buy the alloys, plastics, and pins that make up a bridge or crown exempt.

The finished crown/bridge sale is exempt too. A retail sale of a crown or bridge to a dentist under a prescription order is not taxable, because of the prosthetic device exemption at K.S.A. 2001 Supp. 79-3606(r).

Which certificate to use:

• Registered to report Kansas sales tax: provide the vendor a resale exemption certificate, Form ST-28A — or, for components, Form ST-28D ("Ingredient or Component Part Exemption Certificate").
• Not registered (only sells crowns/bridges under prescription, so not making taxable retail sales): use Form ST-28 ("Designated or Generic Exemption Certificate"), stating the alloy/plastic/pins are used exclusively to fabricate prosthetic devices sold under prescription. As an alternative, the lab may apply for a Manufacturers' or Processors' exemption number and then use Form ST-28D.

Equipment and tools are taxable. A dental lab's purchases of machinery, equipment, tools, and other items for its own use are subject to sales tax. Dental labs do not qualify for the integrated production exemption in K.S.A. 2001 Supp. 79-3606(kk) — they are not "commonly regarded by the general public as an industrial manufacturing or processing operation," and do not run an integrated operation making standardized products for resale.

What this means for you

Dental laboratories

Buy the alloys, plastics, pins, and other materials that become part of a crown or bridge exempt as component parts, using the certificate that matches your registration (ST-28A/ST-28D if registered; ST-28 or a manufacturer/processor number + ST-28D if not). Crowns and bridges sold to dentists under prescription are exempt as prosthetic devices.

But expect tax on your equipment

Your machinery, equipment, and tools are taxable. Fabricators do not get the manufacturing/integrated-production exemption, so don't claim 79-3606(kk) on lab equipment.

Vendors selling to dental labs

You may accept the appropriate exemption certificate for the alloys and components a lab buys for fabrication — but a lab's purchase of equipment or tools is a taxable sale.

Common questions

Q: Can a dental lab buy alloy ingots without paying sales tax?
A: Yes. Alloys used exclusively to fabricate crowns and bridges are exempt as ingredient or component parts; the lab provides the appropriate exemption certificate.

Q: Which certificate should the lab give the vendor?
A: A registered lab uses Form ST-28A (resale) or ST-28D (ingredient/component). An unregistered lab uses Form ST-28 (designated/generic), or gets a Manufacturers'/Processors' number and uses ST-28D.

Q: Is the finished crown or bridge taxable when sold to a dentist?
A: No. A sale to a dentist under a prescription order is exempt as a prosthetic device under K.S.A. 79-3606(r).

Q: Can a dental lab buy its equipment tax-exempt as a manufacturer?
A: No. Dental labs are fabricators, not integrated manufacturers, so they don't qualify for the 79-3606(kk) exemption; their machinery, equipment, and tools are taxable.

Q: Does this ruling apply to my business?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others, though it shows how the Department treats dental-lab fabrication.

Citations and references

• K.S.A. 2001 Supp. 79-3606(r) — exempts sales of prosthetic devices; a crown or bridge sold to a dentist under a prescription order is exempt.
• K.S.A. 2001 Supp. 79-3606(kk) — the integrated production (manufacturing) exemption; dental labs do not qualify, so their machinery, equipment, and tools are taxable.
• Ingredient/component part exemption — a fabricator (dental lab) may buy alloys, plastics, and pins that become part of the crown/bridge exempt.
• Exemption certificates — Form ST-28A (resale), Form ST-28D (ingredient or component part), Form ST-28 (designated or generic); an unregistered lab may instead obtain a Manufacturers' or Processors' exemption number.
• K.A.R. 92-19-59 — the regulation authorizing Kansas private letter rulings.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2002-101

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

December 15, 2002

XXXX
XXXX
XXXX

RE: Your letter of November 14, 2002

Dear XXXX:

Thank you for your recent letter. In it you ask if metal alloy sold as ingots to a dental laboratory is exempt from sales tax. The alloy is used exclusively to fabricate crowns and bridges that dentists purchase for patients under prescription orders. You also ask that, if the sale of the ingot is exempt, which exemption certificate should a dental labs use. The answer to your question is that these ingots may be purchased exempt from sales and use tax by a dental lab. If the dental lab is registered to report Kansas sales tax, the lab should provide the ingot vendor with a resale exemption certificate, form ST-28A. If the dental lab is not registered to collect Kansas sales tax, it should use a Form ST-28, "Designated or Generic Exemption Certificate," to claim exemption.

Generally, dental labs are viewed as fabricators under Kansas law. They produce a single product for a single customer rather than operating an integrated manufacturing line that manufactures products that are packaged, warehoused, and held for wholesale or retail distribution. As a fabrication businesses, a dental lab may buy the materials that will become a component part of the fabricated item exempt from sales tax. Sales tax is then due on the total selling price for taxable sales. For example, a seamstress who fabricates curtains to the special order of a homeowner should buy the materials and thread exempt and charge the homeowner sales tax on the selling price of the curtain. In the case of a dental lab, the lab may purchase items that make up a bridge or crown, such as the alloys, plastics, and, pins, exempt from sales tax and charge tax on their taxable retail sales. In this case, a retail sale to a dentist under a prescription order is not a taxable sale because of the exemption found at K.S.A. 2001 Supp. 79-3606(r) for sales of prosthetic devices.

Some dental labs are registered retailers because they sell dental supplies and other items to dentists. These labs should be registered to collect and remit sales tax on their taxable retail sales to dentists and others. Labs that are registered Kansas retailers should use Form ST-28A or Form ST-28D, Ingredient or Component Part Exemption Certificate," to claim exemption on their purchases of alloys and other components that become part of the bridges and crowns that they fabricate for sale.

Other labs only sell crowns and bridges to dentists under a prescription order. These labs are not required to be registered to report sales tax since they are not engaged in making taxable retail sales. These labs should use Form ST-28, the Designated or Generic Exemption Certificate. They should indicate that the alloy, plastic, pins and other items that exemption is being claimed for are used exclusively to fabricate into prosthetic devices that are sold pursuant to a prescription order. AS an alternative, the lab could apply to the department for a Manufacturers or Processors' exemption number and, once received, use form ST-28D, Ingredient or Component Part Exemption Certificate.

Please note that a dental labs purchases of machinery and equipment are subject to sales tax, as are purchases of tools and other items that are for use by dental labs. Dental labs do not qualify for the integrated production exemption found at K.S.A. 2001 Supp. 79-3606(kk). Dental laboratories are not what is "commonly regarded by the general public as an industrial manufacturing or processing operation." Similarly, dental labs do not operate an integrated manufacturing operation that fabricates standard products for resale that are packaged, warehoused, and held for resale.

I hope that I have answered all of your questions. If you need to discuss anything further, please call me at 785-296-3081. This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, case law, or a published revenue ruling, that materially affects this private letter ruling.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 12/27/2002 Date Modified: 12/27/2002

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