Medical billing services to become taxable in Texas on April 1, 2020

The Texas Comptroller issued an advisory opinion stating, as of April 1, 2020, medical billing services will be subject to sales and use tax, falling under the longstanding definition of taxable insurance services.

Texas Tax Code Section 151.0039 includes in the definition of taxable insurance services “insurance claims adjustment or claims processing.” Texas Regulations further define “insurance claims adjustments or claims processing” as “any activities to supervise, handle, investigate, pay, settle, or adjust claims or losses.” Tex. Admin. Code Section 3.355(a)(8).

The Comptroller stated medical billing services, including those performed prior to submitting a claim to an insurance company, are taxable insurance services because the preparation of a claim is an inherent part of the insurance claim process.

Taxable medical billing services may include any of the following:

• Assigning codes for the preparation of claims
• Verifying insurance eligibility
• Preparing claim forms for filing
• Providing additional information for a claim
• Filing the claim
• Resubmitting and adjusting claims
• Reviewing and appealing denied claims
• Settling claims
• Posting payment for a claim

Beginning April 1, 2020, this policy change will have a direct sales and use tax impact on companies either providing (i.e., healthcare management companies and third-party medical billing companies) or consuming (i.e., healthcare providers and healthcare-related insurance companies) medical billings services in Texas. The maximum sales tax rate in Texas is 8.25%, so this is an immediate and measurable financial impact.

Discussions and proper planning with your tax advisor should take place now to prevent and mitigate unexpected sales and use tax exposure. Should you have questions regarding this Texas sales and use tax policy change, please contact a member of the Baker Tilly state and local tax team to ensure you are well prepared and in compliance.

For more information on this topic, or to learn how Baker Tilly tax specialists can help, contact our team.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.