The Texas Comptroller issued an advisory opinion reversing a longstanding policy relating to Texas sales taxation of medical billing services that will impact all Texas medical management and medical billing companies. Originally set to be effective January 1, 2020, the Comptroller last week delayed the implementation of the new position until April 1, 2020. However, the opportunity exists to work with the Comptroller to amend Texas’ tax law in the 2021 session of the Texas Legislature and prevent the new position from being implemented.
The potential impact of this policy cannot be understated. For both third-party medical billing companies and Texas medical management companies (even those wholly-controlled by the physicians, dentists, and other medical professionals it manages), the scope of “medical billing services” and the extent to which consideration flows for such services needs to be analyzed and a determination made, if required, to begin withholding and charging Texas sales tax on the required component next year. For example, the need to separately account for and state the taxable versus nontaxable component of any agreement that provides for a lump-sum fee is important (the “separately stated” strategy for sales tax compliance). With many management agreements, a fixed amount is paid to cover a broad spectrum of services.