Product rebates to veterinarians spur tax questions

For honesty's sake, report the money, accountant advises

April 9, 2018 (published)
By Edie Lau

The person posing the question in an online forum posted anonymously, for self-evident reasons.

When you receive a rebate for purchasing certain quantities of a drug, do you report it as income, or pocket the cash without paying the taxes? the person asked on a message board of the Veterinary Information Network, an online community for the profession.

Everyone who replied to the question played it straight, most saying that their accountant takes care of the issue, usually by subtracting the value of the rebate from the cost of goods sold (COGS in accounting lingo). No one confessed to treating rebates like a tax-free windfall.

Not that it hasn't happened. "Back in the old days, rebates were cash and weren't tracked," said Dr. Paul Gustafson, a veterinarian in Newport News, Virginia. "Merial had really good deals on large purchases (17 percent rebate, not the piddling 2 to 3 percent they give now) and the rep. brought it to us in $100 bills, great motivation to make a large purchase."

Although the size and form of the rebates may have changed, the question of whether they're taxable is perennial. Rich Morris, chief educational officer at The Veterinary Cooperative, a buying group that enables independent veterinary practices to obtain bulk discounts on goods and services, said the issue has come up periodically over the years because not all purchasing groups issue 1099 tax forms that document miscellaneous payments made. Lack of documentation makes it easier for recipients to overlook the money when filing their tax returns. Morris said TVC does issue 1099 statements to its members for rebates they've received.

Whether the companies or organizations that pay rebates provide 1099s, the receiver is responsible for accounting for them properly on their taxes, according to Rich Johnston, a CPA in Woodland, California, who serves as the accountant for VIN.

"Regardless of whether a 1099 is issued or not, there's no question that is a taxable event," Johnston told the VIN News Service.

Businesses, including veterinary practices, may account for rebates by adding them to income or subtracting them from expenses. Either way, they should be reflected in tax filings, Johnston said.

Are companies that don't provide 1099s neglecting their duty? Johnston said the answer to that question is less clear-cut: It depends in part upon the legal structure of the organization providing the payment, as well as who or what entity is receiving the payment. And it so happens that for the veterinary sector, Johnston said, the rules are especially convoluted.

The bottom line for veterinarians, he said, is: "You're responsible for reporting all your income regardless of if you get some kind of tax statement or not."

Sounds simple enough, but it isn't, necessarily.

Dr. Sam Morris, owner of a veterinary practice in Illinois, said she's received rebates on drug or vaccine purchases in the form of debit cards, which can be difficult to apply to business expenses.

For example, on one recent busy day, she tried to use a rebate debit card to buy pizza for her staff at lunchtime. She discovered too late that "when you have a pizza delivered, they can't run that card." The pizzeria, she explained, requires that the card be presented on-site with identification, "but these debit/credit cards have no names on them."

She added, "I did get one to work like a credit card at the self-checkout at Home Depot for a few paint supplies for the clinic, since no one checks IDs there. It would have been easy enough for personal use, though. All-in-all, they are a pain. I would rather have a check to the clinic."

Further complicating matters, the debit card expires after four months. "So if you get one and they expire ... potentially you should have paid income tax on it, but you never cashed it," Morris lamented. "It's a ball of worms!"

Johnston, the CPA, said rebates lost through expired debit cards are the equivalent of rebates never issued. There's no need to declare them as income or subtract their value from expenses paid.

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