The Texas Comptroller’s most recent policy change that causes medical billing services to be taxed as insurance services, effective April 1, 2020 unless pushed back again, illustrates the difficulty Texas taxpayers face with respect to the taxability of services.
Ambiguity in the Healthcare Sector
Texas taxes many services that can be difficult to define such as data processing, information services and insurance services. The ambiguity around what constitutes a taxable service is particularly complex in the health care sector. For example, while taxable insurance services are defined as “insurance loss or damage appraisal, insurance inspection, insurance investigation, insurance actuarial analysis or research, insurance claims adjustment or claims processing, or insurance loss prevention service” (Sec. 151.0039 Texas Tax Code), medical billing services had been excluded from that definition for over fifteen years.
The Texas Comptroller has modified that policy and will now tax such services. Since most health care providers do not sell taxable services, they do not necessarily have in-house sales tax experts to monitor and manage these changes. In fact, it is likely that some health care providers do not fully understand that when they buy taxable goods and services (such as medical equipment, data processing services and insurance services), they are responsible for “self-paying” any taxes owed on purchases that their supplier did not charge.
Emerging Sales Tax Issues for Healthcare Companies
Given the fact that medical equipment may come from out of state in addition to the ambiguity around taxable services, health care providers and their vendors may have growing sales and use tax obligations that, upon audit, will become a painful reality.
It should be noted that there are intercorporate exemptions for certain services including data processing, information and insurance services. If these services are charged to members of an affiliated group as defined by the federal tax code, these charges may not be taxable. There are other tax positions and documentation requirements that can drastically reduce potential sales tax liabilities.
If you are a medical services provider, or provide goods and services in the health care sector, please feel free to reach out for a no-obligation phone conversation about the possible implications for your practice.