The Texas Legislature in April passed H.B. 1445, which adopted amendments to the Texas sales tax law regarding medical and dental billing. Governor Greg Abbott on April 30, 2021, signed the bill, which aims to clarify the state law that has been in force since 1987.
In a March 24th letter to all of the nation’s Governors, Secretary Alex Azar of the Department of Health and Human Services (“HHS”) called upon states to take immediate action to loosen regulations that present obstacles to the delivery of effective in person and telehealth services during the COVID-19 emergency. In an effort to “carry out a whole-America response to the COVID-19 pandemic,” Secretary Azar asked governors to urgently take steps to “extend the capacity of the health care workforce.”
Texas Comptroller Glenn Hegar announced last week that he will delay the implementation of a sales tax on medical billing services until the Texas Legislature considers the proposed change when it meets in a regular session in 2021. The Comptroller’s staff will work with industry leaders leading up to the 140-day session in order to develop language that could amend the state’s sales tax statutes. The regular session of the Texas Legislature is scheduled to begin January 12, 2021, and end June 1, 2021.
Our prior article discussed the Texas Comptroller’s policy change in the fourth quarter of 2019, which would have rendered medical billing services subject to Texas sales tax, after longstanding reliance on rulings which exempted such services.
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.