Were hospital charges to insurers for patient-care summaries taxable sales of reports or nontaxable professional services?

Plain-English summary

An absent February 13, 1964 letter followed a recent Pasadena meeting and asked two questions. On reports, a hospital's charge to an insurance company for a summary of a patient's care and treatment was nontaxable when hospital personnel used technical or professional skill to prepare it. That part of the response cites no numbered authority.

Examples included deciding what information belonged in the report, evaluating the material, or otherwise exercising judgment. If the work merely copied or duplicated selected records, the letter treated it as a taxable sale of tangible personal property.

The same PDF separately discusses the historical tax treatment of sutures. After a 1963 amendment to section 6369, an initial Ruling 22 draft contained a sentence addressing sutures, bone pins and similar inserted items, but the sentence was deleted before adoption. Counsel read that history as leaving removable sutures outside the exemption and declined to recommend eliminating the dissolvable-versus-removable distinction. The PDF supplies no draft, adoption record, product evidence, report sample, transaction, audit, Board action, or later outcome.

Common questions

Did sending a physical report automatically make the charge taxable?

No. Professional skill and judgment could make the transaction a nontaxable service.

When was the report charge taxable?

When the operation simply copied or duplicated desired records.

Did the source also decide a medical-supply issue?

Yes. It separately addressed removable and dissolvable sutures under historical medicine rules.

Citations and references

• The hospital-report analysis cites no statute, regulation, ruling, case, or other numbered authority
• California Revenue and Taxation Code section 6369 and historical Ruling 22 — cited only in the separate suture analysis; amendment, bill or chapter, complete statute, draft and final rule, adoption materials, minutes, versions, and later history not reproduced in the official PDF
• February 13, 1964 redacted letter following a recent Pasadena meeting and requesting views on dissolvable-versus-removable sutures and hospital charges to insurers for patient-care summaries — request, meeting date, participants, notes or transcript, suture products and procedures, hospital report samples, insurer requests, preparation workflows, invoices, and tax records not reproduced in the official PDF
• February 21, 1964 Tax Counsel E. H. Stetson response declining to recommend eliminating the historic suture distinction and distinguishing nontaxable professional selection, evaluation or judgment in reports from taxable copying or duplication — no requester reply, Board referral or action on sutures, hospital or insurer transaction, return, audit, assessment, refund claim, appeal, or later outcome supplied
• Official Annotation 300.0120's hospital-insurer report, technical-or-professional skill, selection, evaluation, judgment, copying-or-duplication, tangible-property sale, and February 21, 1964 rules — annotation omits the February 13 request and Pasadena-meeting provenance, the entire suture issue, 1963 section 6369 amendment and Ruling 22 draft history, absence of numbered report authority, missing report and transaction records, later outcome, and reliance status and supplies no additional proceeding record

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/300-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/300-0120.pdf

Original ruling text

300.0120

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

February 21, 1964

Gentlemen:
This is in reply to your letter of February 13 requesting our views on two problems which were discussed during our recent meeting in Pasadena. We have carefully reviewed the question of the validity of the distinction between socalled dissolvable sutures and sutures which are ultimately withdrawn from the body. As you point out, when the initial draft of Ruling 22 was prepared, following the 1963 amendment to Section 6369, the following statement appeared therein: "The following items are specifically excluded by section 6369 from the term medicines: "(2) Articles which are in the nature of splints, bandages, pads, compresses, supports, dressings, instruments, apparatus, contrivances, appliances, devices, or other mechanical, electronic, optical or physical equipment or article or the component parts and accessories thereof. This includes such items as sutures, bone pins, or supports, and other similar items even though inserted into and remaining in the body." Before adoption, the last sentence was eliminated. The sentence, however, related to sutures "even though inserted into and remaining in the body". The elimination of this sentence is indicative that the Board was considering only sutures that remain in the body which had been previously considered exempt, and was not considering that the elimination of this sentence would exempt for the first time those sutures which are ultimately withdrawn from the body. Therefore, it appears to us that the Board by the action it took confirmed its previous position that removable sutures should not be considered as falling within the exempt category. It appears to us that in view of the specific exclusion from the exempt category of the articles described in the regulation that any suture, internal or external, might very properly be considered excluded from the exemption. The Board by its decision not to change the previous ruling cannot, in our opinion, be said to have extended the exemption to include external or removable sutures. For these reasons we are unable to recommend to the Board that your request for eliminating the distinction between the two types of sutures be granted.

Concerning your second question, we believe that the taxability of a hospital's charges to insurance companies for a summary of the medical care and treatment of a patient depends upon whether the hospital people actually use their technical or professional skill in preparing these reports, such as making decisions on what should be included in the reports, or in evaluating the reports or otherwise exercising judgment in the preparation of the reports. If the hospital's people do perform these services, we believe the charges in question are not taxable. On the other hand, if the operation simply amounts to a copying or duplicating of certain desired reports, the transaction would, in our opinion, be a sale of tangible personal property to which the tax would apply.

Very truly yours,

E. H. Stetson
Tax Counsel

EHS:fb [lb]