Medical Billing Now a Taxable Service

February 27, 2020

Update: 

Texas Comptroller Delays Implementation of New Policy Regarding the Taxability of Medical Billing Services Until After 2021 Legislative Session.  Read more.


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

On November 22, 2019 the Comptroller’s Tax Policy Division issued a notification advising of a change in policy regarding the taxability of medical billing services.  Up until the date of the notification, medical billing services were not taxable for purposes of Texas sales tax. 

This advisory opinion reverses the longstanding policy relating to the taxation of medical billing services. The tax is being imposed under Rule 3.355(b).  Because preparing a claim is “an inherent part of the insurance claim process…medical billing services are insurance services,” the Comptroller wrote. Further, the Comptroller’s office noted that Section 151.0039 does not exclude the process of completing the form for the insured for purposes of claims processing from the definition of insurance claim adjustment or claims processing.  The change in policy was scheduled to be effective January 1, 2020, but was postponed to April 1, 2020.  

The Comptroller has indicated that medical billing services may include assigning codes for the preparation of claims, verifying insurance eligibility, preparing claim forms for filing, filing the claim, resubmitting and adjusting claims, reviewing and appealing denied claims, settling claims, and posting payment for a claim. 

Impact

Beginning April 1, 2020, it is expected that management companies and medical billing companies will begin separately stating the taxable versus non-taxable component of any services rendered; and, any sales tax due will be likely be passed on to the clients.  

Texas imposes a 6.25% tax on all sales, leases, and rentals of most goods, as well as taxable services. Local taxing entities, can impose an additional tax of up to 2%. For taxpayers located in the DFW area the combined sales tax rate is 8.25%.

For more information and the impact on your practice, contact your Beaird Harris advisor.