By Jessica Nunn, Maven Financial Partners

“Nothing is certain except death and taxes.” This famous quote by Benjamin Franklin still rings true for businesses today, including those in the rapidly growing medical spa industry. As a med spa owner, navigating sales tax compliance may not be the most glamorous part of your work, but it is essential to your success.

Mismanaging sales tax can lead to costly penalties, disrupt your operations and even damage client trust. To avoid these pitfalls, it’s crucial to understand how sales tax applies to your products and services and implement processes that keep you compliant. This comprehensive guide will help you get there.

What is sales tax?

Sales tax is a government-imposed tax on the sale of goods and services. The specific rules regarding what is taxable, how much is owed, and how taxes are collected and remitted vary widely across states—and even among local jurisdictions.

For medical spas, the complexity of sales tax compliance stems from the variety of offerings: retail products, medical services and cosmetic treatments. While retail products are almost always taxable, services such as injectables, laser treatments and facials are often subject to nuanced regulations. Understanding these distinctions is vital to protecting your business from non-compliance penalties and ensuring transparency with your clients.

Taxation of retail products

Most med spas sell retail products such as skin care essentials, sunscreens and anti-aging treatments. These are typically subject to sales tax in all states. Common examples include:

• Skin care products: Moisturizers, serums, cleansers and masks.
• At-home devices: LED therapy masks, facial rollers and microneedling tools.
• Cosmetic products: Foundations, concealers and makeup designed for post-treatment care.

Your point-of-sale system should calculate and apply the appropriate sales tax rate automatically for these items. Regularly review these settings to ensure accuracy and compliance.

Taxation of services: A complex landscape

Services offered by med spas fall into a gray area for sales tax purposes, with rules that differ significantly between states.

• Fully taxable services: In some states, all services provided in a med spa setting, whether cosmetic or medical, are taxable.
• Cosmetic services only: Many states tax cosmetic treatments such as Botox for aesthetic purposes, chemical peels and laser hair removal, but exempt medically necessary services.
• Medical services exempt: States that exempt medical services often consider procedures performed for health reasons (e.g. Botox for migraines) non-taxable.

To navigate these complexities, it’s critical to distinguish between medical and cosmetic services and apply the appropriate tax rules. Keep in mind that services bundled with retail products or other treatments may require special tax handling.

Best practices for sales tax compliance

Here are actionable steps to simplify and strengthen your sales tax compliance:

Understand your state’s regulations: Each state has unique rules regarding what is taxable. Stay informed by consulting with a CPA or fractional CFO familiar with med spa operations. They can help you determine:

• Which products and services are taxable;
• How to handle promotions, bundles or discounted services; and
• Local tax rates that apply to your practice.

Use advanced technology: Leverage practice management software (PMS) or electronic health records (EHR) systems to automate sales tax processes. Look for systems that:

• Apply the correct tax rate to products and services;
• Distinguish between taxable and non-taxable transactions; and
• Generate detailed reports for tax filing and audits.

Automation reduces the risk of human error and ensures accurate calculations during checkout.

Maintain accurate records: Clear financial records are essential for compliance. Work with a bookkeeper or CPA to:

• Prepare monthly profit and loss statements and balance sheets;
• Track sales tax collected and remitted; and
• Reconcile your records with PMS or EHR reports to catch discrepancies.

These measures also give you a clearer picture of your practice’s financial health.

Stay updated on changing laws: The med spa industry is growing rapidly, and states are adapting their tax laws to keep pace. Regulations that apply today may change next year, especially as new treatments and technologies emerge. Partner with a financial expert who monitors tax law updates and advises you on necessary adjustments.

Audit your processes regularly: Conduct periodic reviews of your sales tax processes to identify potential issues before they escalate. These reviews include:

• Verifying the tax rates applied at checkout;
• Ensuring compliance with the latest regulations; and
• Confirming timely and accurate tax remittance.

Regular audits reduce the risk of penalties and keep your operations running smoothly.

Consequences of non-compliance

Ignoring or mishandling sales tax obligations can lead to serious repercussions, including:

• Financial penalties: States impose fines for underpayment, late payment or non-payment of sales tax.
• Interest charges: Unpaid taxes accrue interest, increasing your financial liability.
• Audits: Non-compliance may trigger audits, which can be time-consuming and disruptive.

By prioritizing compliance and implementing robust systems, you can avoid these pitfalls and focus on growing your practice.

Partner with experts to simplify compliance

Sales tax compliance can feel overwhelming, but you don’t have to tackle it alone. Maven Financial Partners specializes in helping med spa owners like you navigate the complexities of sales tax, bookkeeping and financial planning.

Whether you’re looking for a one-time assessment or ongoing support, Maven is here to help. Schedule a complimentary discovery call at www.mavenfp.com to take the first step toward stress-free compliance.

Maven Financial Partners is a fractional CFO firm that works with aesthetic practices across the country to help them plan and strategize business decisions to ensure they meet their financial goals. Its team of experts takes a monthly deep dive into your financial data to understand what’s driving your business. Maven believes you can't manage what you don't measure, which is why they analyze everything from your service mix, revenue by provider, expenses and cash flow to get you to your goals.