Publication 45, Hospitals and Other Medical Facilities
General Application of Tax

Hospitals and other medical service facilities are predominantly service enterprises for tax purposes and are generally considered consumers, rather than retailers, of tangible personal property. As consumers, hospitals will generally pay tax to their suppliers or use tax directly to us for purchases of property, other than for exempt purchases of medicines (see Does tax apply to my purchases?). However, when hospitals and other medical service facilities act as retailers of tangible personal property, as described below, they are required to file returns, report, and pay tax on their sales to patients and other purchasers.

Does tax apply to my sales?

When you are the retailer of tangible personal property, you are required to report and pay tax unless an exemption applies—for example, under certain conditions, sales of medicines, as defined in Regulation 1591, Medicines and Medical Devices, are exempt from tax, as are other sales described later in this publication. If you lease property to patients, the lease may be considered a taxable sale. For more information, see Equipment Rentals and Leases.

Assuming that an exemption does not apply, you are a retailer and are liable for tax when:

  • You furnish property for a charge to persons other than patients or residents.
  • You make a separately itemized charge for property to patients or residents who intend to remove the property from the premises of the medical facility for use by the patient (for example, solar shield glasses for a patient who will have an outpatient procedure, and the patient or the insurance company receives a copy of the itemized bill).
  • You make a separately itemized charge for the tangible personal property, possession of the property passes to the resident or patient, and your contract with the resident or patient specifically provides that title to the tangible personal property passes to the resident or patient.

Examples of taxable sales

In general, you must report and pay tax on the following transactions:

Examples of nontaxable sales

In general, tax does not apply to charges for the following transactions:

  • Patient services, including room and general nursing services.
  • Meals and food products (including hot prepared food products) provided to patients and outpatients by institutions, including food provided to patients by way of enteral feeding, Total Parenteral Nutrition (TPN) and Intradialytic Parenteral Nutrition (IDPN). See Application of Tax to Food and Beverage Sales—In General.
  • Medicines subject to exemption. See Medicines, Medical Supplies, and Products.
  • Sales to the U.S. government under Part A of the Medicare Act. See Medicare payments.
  • Whole blood or blood plasma sold by a blood center or blood bank. See Blood Centers/Banks.
  • Other miscellaneous charges:
    • Educational programs, such as tuition from nursing schools.
    • Research and other special purpose grants, including grants, gifts, or subsidies specified by the donor for research or educational programs.
    • Rental of space in hospitals, clinics and schools of nursing, and rentals of rooms to employees and others.
    • Recovery of charges for personal telephone calls.
    • Statutory fees received as a result of service of a subpoena duces tecum for copies of medical records. See Photocopies of Medical Records.

Does tax apply to my purchases?

You should normally pay an amount for tax to your suppliers for purchases of property you consume. In general, this includes:

  • Property you use in your business operations, such as office supplies.
  • Property you provide to patients in connection with performing your services.

However, you do not need to pay tax on your purchases of:

  • Medicines whose sales are exempt. For these purchases, you should submit a tax exemption certificate to your supplier (see Exemption Certificates). Otherwise, your supplier will generally collect an amount for tax.
  • Property other than medicines that you will resell and report and pay tax on when it is resold. For these purchases, you should submit a resale certificate to your supplier (see Resale Certificates). Otherwise, your supplier will generally collect the tax.

In some cases, your supplier will not collect an amount for tax because the sale of the item is not subject to tax, such as sales of certain food products. Or, you may purchase an item from an out-of-state supplier who does not collect California tax.

However, if you do not pay tax to your supplier, you could still be liable for California use tax on your purchase. If you do pay tax to your supplier and resell the item before you use it, you could be eligible for a deduction on your return.

See Other tax considerations related to sales and purchases and Deductions and Exemptions for more information.

Examples of purchases subject to tax

Listed below are special items and categories of items that are taxable when purchased by hospitals and other medical service facilities. Generally, these are items that are consumed by hospitals and other medical service facilities and include items you may provide to patients with your services.

  • Hospital beds, microscopes, X-ray equipment, apparatus, instruments, contrivances or other mechanical, electronic, optical or physical equipment, or articles or the component parts and accessories thereof.
  • Reusable dinnerware, silverware, and cooking utensils.
  • Stationery, business supplies, forms, and so on.
  • Housekeeping supplies, including bedding.
  • X-ray film and related supplies used in producing diagnostic X-rays. Except for cosmetic purposes, see Laboratories (including X-ray, electrocardiology, and others).
  • Chemicals and supplies used in laboratories and other diagnostic centers within hospitals—for example, electrocardiology. See Specific Hospital and Other Medical Facility Departments and Programs.
  • Educational supplies used in conjunction with educational programs.
  • Articles such as splints, bandages, pads, compresses, supports, dressings, and other items not considered to be medicines that are administered. Hospitals and other medical service facilities are consumers of these articles, even when separate charges for the articles are made, and no other charges are identified as a charge for the administration of the article. See Items excluded from the definition of medicines.
  • Supply items such as disposable drapes or surgeons' gloves used in surgery.

Examples of purchases not subject to tax

In general, tax does not apply to your purchases of the items listed below. As noted on Exemption Certificates, for some purchases you must submit an exemption certificate or a California resale certificate to your supplier; otherwise, your supplier will generally collect tax.

  • Medicines. See Medicines, Medical Supplies, and Products.
  • Meals and food products that are consumed by patients or residents and furnished or served by medical service facilities, including food provided by way of enteral feeding.
  • Disposable items (nonreusable) that become components of meals or food products furnished or served, such as straws, paper napkins, plastic utensils, paper plates, and items used to dispense enteral feeding (TPN and IDPN)—including needles, syringes, cannulas, bags, tubing, filters, locks, tape, clamps, and connectors which are integral to the tubing. See Nonreusable items.
  • Carbonated beverages to be furnished or served as components of patient meals. See Food Service Transactions.
  • Diagnostic substances or preparations intended for use by external or internal application to the human body and furnished by the hospital laboratory, X-ray laboratory, or other diagnostic unit. See Laboratories (including X-ray, electrocardiology, and others).
  • Items that are going to be resold in a gift shop, bookstore, newsstand, pharmacy, or vending machine such as:
    • Medicines whose sales are not specifically exempt and sundry products.
    • Food, soft drinks, and other items to be resold through vending machines. See Coin-operated machines.

If I do not pay California tax on a purchase, can I be held liable for use tax?

Yes. If you purchase tangible personal property without payment of tax and do not make a sale of the property or it does not qualify for an exemption, you generally must report and pay use tax based on the purchase price. For more information about California use tax, see publication 110, California Use Tax Basics.

You may not have paid tax to a supplier because you submitted a resale certificate for your purchase, or you may have purchased the property from an out-of-state seller who did not collect California tax.

Example: You purchase office supplies from an out-of-state retailer that does not collect California use tax. Since you will not be selling the supplies (you are a consumer), you must report the use tax.

To report your tax liability, enter your costs for the items on your sales and use tax return under Purchases Subject to Use Tax.

If I pay tax to my supplier and later make a taxable sale of the item, can I take a deduction for the tax I paid?

"Tax-paid purchases resold" deductions

If you pay tax to a supplier on an item that you later sell and report tax on, you are entitled to a "tax-paid purchases resold" deduction, so long as you did not use the property prior to resale, and the deduction is claimed in the same period in which the sale was made.

You can receive credit for your tax payment by deducting your cost for the items. Enter the amount paid, exclusive of tax, on your sales and use tax return under Cost of Tax-Paid Purchases Resold Prior to Use.

Please note: If you pay sales tax reimbursement to a supplier on a purchase of an exempt medicine that you do not resell, you cannot take a cost of tax-paid purchases resold prior to use deduction. You must request a refund from the supplier. See Filing a Claim for Refund.

Revision June 2026