Could a copying service treat part of its direct bill for subpoenaed hospital records as a nontaxable statutory fee when the hospital charged it nothing?

Plain-English summary

A hospital received a subpoena or authorization request, sent it to a copying service, and made its records available without charge. The copying service copied the records, delivered them to the requester, and billed the requester directly.

California concluded that every charge by the copying service was taxable. None was merely a pass-through of a statutory fee that the hospital was authorized to impose, because the hospital had not charged the copying service anything.

Separately stating an amount as a statutory fee did not create a nontaxable charge. The service could not pass through a hospital charge that never existed.

The memorandum left open a different result if the hospital actually imposed a valid Evidence Code charge on its copying service. Such facts were to be addressed through the opinion or petition process.

What this means for you

Medical-record copying services

Invoice labels did not control; the vendor needed an actual underlying statutory charge from the records holder to claim a pass-through treatment.

Accountants and tax professionals

Review who received the request, who performed the copying, who billed whom, whether the custodian imposed a valid statutory fee, and whether the copy vendor acted as agent.

Common questions

Q: Were the copying service's direct charges taxable?

A: Yes, on the stated facts.

Q: Did separately stating a statutory fee make it nontaxable?

A: No.

Q: Could the result change if the hospital charged the copying service?

A: Yes, if the hospital imposed a valid statutory charge.

Citations and references

• Former California Evidence Code §§ 1158 and 1563
• California Sales and Use Tax Regulation 1528(a)(2)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0235
• Original supporting opinion: 515.0235 PDF

Original ruling text

State of California

Memorandum

To:

Audit Evaluation and Planning (BDR)

From:

Donald J. Hennessy

Subject:

Regulation 1528(a)(2) – Statutory Evidence Code Charges

Board of Equalization

515.0235

November 30, 1988

Your November 4, 1988 memorandum to me concerns the last four paragraphs (6th through 9th paragraphs) of Regulation 1528(a)(2). You attached a copy of my February 17, 1984 letter, on the same subject, to Mr. A. T--- S---, Attorney for C--- Systems, SR -XX XXXXXX. You state your opinion that a statutory fee pursuant to Evidence Code Sections 1158 or 1563 is always exempt from tax. That is, if the fee is passed on as a separate charge it is exempt, regardless of who bills it. As an example, you state that if a copying service bills a requestor for copies, any separately stated statutory fee previously billed to it by a subpoenaed party is exempt from tax. You ask if this is a correct interpretation. Additionally, you ask whether the subpoenaed party has to invoice the statutory fee in order for the fee to be exempt, or may a copying service acting as the agent of the subpoenaed party invoice the requestor directly, with the statutory fee remaining exempt. You then pointed out that the last paragraph of Regulation 1528(a)(2) indicates that some such billings by a copying service are taxable, but the reasoning for this conclusion is unclear to you. In explanation of the last paragraph of Regulation 1528(a)(2) which is unclear to you, I am attaching a copy of my April 26, 1984 opinion letter, also to C--- Systems Attorney, A. T--S---. My April 26, 1984 letter responds to a factual situation in which the hospital (hereinafter “hospital” includes other persons or entities holding the sought-after records) does not provide the copies, nor does the hospital bill for the copies. Rather, the hospital merely sends the subpoena or authorization letter to a copying service and makes its records available to the copying service; the copying service then performs the copying, delivers the copies to the requesting party, and bills the requesting party. Given such facts, our opinion was that tax applied to all charges by the hospital’s copying service to the requesting party. We concluded that none of the charges by the copying service were a mere passing on of the charges the hospital was authorized to make under the Evidence Code. The incoming facts, as stated by Mr. S---, were that the hospital may or may not impose a charge on its copying service for making its records available. In our response, we stated our belief that in such a factual situation

Audit Evaluation and Planning

-2-

November 30, 1988
515.0235

the hospital would not make any charge to its copying service, and if the hospital makes no charge, then the copying service can make no nontaxable statutory charge, regardless of how such charge is stated to the requesting party. Not hearing further from Mr. S---, the conclusion in our April 26, 1984 letter eventually became the rule stated in the last paragraph of Regulation 1528(a)(2). Granted, the result may change if a hospital did made a valid Evidence Code charge to its own copying service. If any of our audits turn up facts which call the last paragraph of Regulation 1528(a)(2) into question, we should work them out through the opinion writing or petition process. Therefore, the interpretation in your November 4, 1988 memorandum is subject to the rule stated in the last paragraph of Regulation 1528(a)(2), which should be considered in the context of our April 26, 1984 opinion. As to your question on whether who bills the fee can change the result, again, see our opinion of April 26, 1984.

DJH:jb

515.0235.doc