Ruling 2000-2, Sales and Use Taxes / Pathology Proficiency Testing Services / Use Tax on Materials


An out-of-state company (the "Company") is an organization consisting of pathologists. The Company provides "proficiency testing" of Connecticut pathology laboratories. Under 42 U.S.C. §263a, the United States Department of Health and Human Services, or another organization designated by the federal government, must periodically accredit every pathology laboratory in the United States. The Company is one of the organizations designated by the federal government to provide such accreditation.

In order to obtain accreditation, a pathology laboratory must participate in a proficiency testing program. The Company charges the laboratories to participate in its program. In conducting its proficiency testing program, the Company transfers testing materials (specimens) into Connecticut by common carrier. The composition of the testing materials is unknown to the laboratories. The laboratories analyze the materials and report their findings to the Company for processing and evaluation.

The Company purchases testing materials from various retailers and makes no use of them other than providing them to laboratories for analysis. The laboratories dispose of the materials when the analysis is completed.


Whether the Company’s "proficiency testing" is a taxable service enumerated in Conn. Gen. Stat. §12-407(2)(i); and whether the Company is subject to use tax under Conn. Gen. Stat. §12-411 for its purchases of testing materials shipped to Connecticut laboratories as part of its services.


The Company’s proficiency testing is not subject to sales and use taxes under Conn. Gen. Stat. §12-407(2)(i). However, the Company is subject to Connecticut use tax on its purchases of testing materials it uses in providing the services to its Connecticut service recipients.


Taxability of Services

Conn. Gen. Stat. §12-407(2)(i) defines "sale" and "selling" as "the rendering of certain services for a consideration…."

The term "proficiency testing" is not among the list of services enumerated in Conn. Gen. Stat. §12-407(2)(i). However, there is a question as to whether the Company’s services are taxable "business analysis" services enumerated in Conn. Gen. Stat. §12-407(2)(i)(J).

The purpose of the Company’s testing is to assess the ability of a laboratory to perform pathological examinations. Based on the results of the testing, the Company provides conclusions and recommendations to a laboratory on its ability to perform its core business activity of detecting disease; thus, the Company’s services could be viewed as business analysis services under Conn. Gen. Stat. §12-407(2)(i)(J).

However, because the Company’s membership is comprised of pathologists performing pathological testing, the testing services are excluded from tax under Conn. Agencies Regs. §12-407(2)(i)(J)-1(c)(3) because they are performed by a "professional" service provider. Pathologists are members of a "profession" within the meaning of Conn. Agencies Regs. §12-407(2)(i)(J)-1(c)(3) because they are members of an occupation "requiring a degree, license or specialized training…." The Company’s services are rendered by members of a profession, acting in such members’ professional capacity as pathologists, and are commonly associated with pathology. Therefore, the charges for such services are not subject to Connecticut sales and use tax.

Use Tax on Materials

Conn. Gen. Stat. §12-411(1) imposes use tax on the "storage, acceptance, consumption or any other use in this state of tangible personal property purchased from any retailer for storage, acceptance, consumption or any other use in this state…."

"Use" is defined in Conn. Gen. Stat. §12-407(5) as including "the exercise of any right or power over tangible personal property incident to the ownership of that property, except that it does not include the sale of that property in the regular course of business."

Connecticut courts have held that use tax is properly imposed on taxpayers who have "exercised a ‘right or power’" over items of tangible personal property coming into Connecticut from outside the state. See Sharper Image Corp. v. Miller, 240 Conn. 531, 692 A.2d 774 (1997), where the Supreme Court of Connecticut held that a retailer that directed catalogs to be printed, addressed and sent to Connecticut addresses via the United States Postal Service was liable for Connecticut use tax on the retailer’s purchase price for the catalogs.

In this case, at the Company’s direction, a common carrier delivers testing materials to locations within the state. The testing materials provide the means for the Company to administer the testing service to Connecticut pathology laboratories. If not for the use of the testing materials, the Company would be unable to provide the testing and the laboratories would not receive the benefit of obtaining a proficiency rating. The use of the testing materials in Connecticut is an essential aspect of the testing services, without which the services would not exist. Therefore, the materials are used by the Company in Connecticut.

To the extent that the Company purchases testing materials outside the state, and the materials are sent into Connecticut, the Company is entitled to a credit for taxes properly paid to the jurisdiction where the purchases were made. Conn. Gen. Stat. §12-430(5).


February 2, 2000