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Ugly Taxes

It made headlines in 2004 when New Jersey, in a misguided effort to raise state taxes, levied a 6% excise tax on Cosmetic Surgery. Now the nip-tuck tax is getting the axe.

Read My Lips … No Cosmetic Taxes

Today, New Jersey Governor Chris Christie signed legislation calling for the elimination of the state’s 6 percent tax on cosmetic surgery procedures. Medical procedures, like food, have always been tax free, but in 2004, New Jersey enacted the New Jersey Cosmetic Medical Procedures Gross Receipts Tax. A 6% gross receipts tax was required on all cosmetic surgery, hair transplants, cosmetic injections, cosmetic soft tissue fillers, dermabrasion and chemical peels, laser hair removal, laser skin resurfacing, laser treatment of leg veins, sclerotherapy, and cosmetic dentistry. All providers were required to register, report gross receipts and pay the tax quarterly.

This type of tax is called an excise tax. Excise taxes are taxes paid when purchases are made on a specific good. Excise taxes are often included in the price of the product, such as gasoline, alcohol and tobacco. There are also excise taxes on certain activities, such as taxes on wagering or taxes on highway usage by trucks.

Inefficient Taxation

Excise taxes are indirect, because the government does not collect the tax. Instead, and intermediary, like the producer or the merchant, is charged and they in turn pay the government. These types of taxes are inefficient and costly to regulate, and this is likely the reason the tax is being withdrawn. In the case of New Jersey, the annual tax collected was half of what was expected, about 10 million dollars. Furthermore, this was more than offset by an annual loss to the state of about 34 million dollars. This, among other facts, lead Joseph Cryan, the sponsor of the 2004 bill, to lead the repeal.

Who Decides What is Cosmetic Surgery?

There is not always a clear division between cosmetic and reconstructive surgery, and this makes this type of tax arbitrary and difficult to administer. The decision of medical necessity was left to those collecting the tax. This led to the taxation of cosmetic surgeries like those used to improve appearance after disfiguring accidents, port wine stain removal and even keloid scar removal.

A Tax on the Middle Class

With cosmetic procedures becoming more acceptable, it is no longer the exclusive realm of the rich and famous. Research by the American Society of Plastic Surgery found that 71 percent of plastic surgeries were for individuals earning less than $60,000 a year; moreover, only 10 percent of respondents reported household income over $90,000.

A Tax on Women

Research from the American Society for Dermatologic Surgery finds that 83 percent of its members’ minimally invasive cosmetic medical procedure patients are women. The percentage of women accounting for cosmetic surgery procedures approaches 90% in the yearly surgical statistics published by the American Society of Plastic Surgery.

Connecticut’s Cosmetic Taxes

Six months ago, Connecticut passed a 6.35% sales tax on all cosmetic medical procedures. Time will tell if the state suffers the same fate as New Jersey. It seems likely. With Connecticut being a small state, it is estimated that as many as half of Connecticut’s cosmetic patients will seek their care out of state to avoid the tax. This will have a significant negative impact on the state’s corporate tax revenue.

California’s Cosmetic Taxes

California considered a cosmetic tax a few years back, but with a greater appreciation of the complexities involved, the bill was withdrawn and exchanged for a 10% tax on tanning salons. This tax revenue should be reduced a little more this year thanks to a bill signed by Governor Jerry Brown that went into effect on Jan. 1, that bans indoor tanning for anyone under 18.

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