Is a company's monthly fee for medical credentialing services — collecting documentation, preparing applications, and obtaining insurer credentials for a provider's billing staff using cloud-based software — subject to Colorado sales tax?
Plain-English summary
A company provides medical credentialing services: hospitals and health-care providers hire it to get their billing staff the credentials insurance companies require before the provider can bill those insurers for patient care. The company collects documentation, creates profiles, prepares applications, and obtains the credentials — work performed by its employees using cloud-based software — and charges a monthly fee. Is that fee subject to Colorado sales tax?
The Department's answer is no — it appears to be a nontaxable service. Colorado imposes sales and use tax on tangible personal property and only a limited number of specifically enumerated services (such as energy and telephone service). Two points decide it:
- The company doesn't sell or transfer any tangible personal property to its customers. Credentialing is a process — gathering documents and shepherding applications — not a sale of goods.
- The fact that the company uses software to do the work doesn't change the result: software made available by an application service provider (ASP) — hosted by the provider and accessed by users — is not tangible personal property and isn't taxed.
The Department noted the request gave "very little information," so the conclusion is framed as how credentialing "as described" appears — a service outside the sales tax. (As always with a GIL, it's general guidance, not a binding determination.)
What this means for you
Medical billing and credentialing companies
Charging a monthly fee to handle provider credentialing is generally a nontaxable service in Colorado — you're not selling goods, and using cloud software to do the work doesn't make it a taxable software sale. If you start bundling in tangible deliverables, or sell access to delivered (non-ASP) software, re-examine the analysis.
Health-care providers buying these services
A standalone credentialing service fee shouldn't carry Colorado sales tax. Watch for vendors who bundle credentialing with taxable products or delivered software, where the mix could change the treatment.
Accountants advising service businesses
This is a straightforward "is there a sale of TPP?" analysis: no transferred tangible property + ASP-hosted software = nontaxable service. The thinness of the facts is itself a lesson — the Department hedged ("appears to be") because the description was sparse, which is exactly when a binding private letter ruling is worth the fee. Note the home-rule-city caveat.
Common questions
Q: Are medical credentialing services taxable in Colorado?
A: On these facts, no. They're a nontaxable service — no tangible personal property is sold to the customer, and Colorado taxes only goods and a few enumerated services.
Q: The company uses software to do the credentialing — does that make it taxable?
A: No. Software hosted by an application service provider (ASP) and accessed by users isn't tangible personal property, so charges for access to it aren't subject to sales tax.
Q: When could a service like this become taxable?
A: If the arrangement actually transfers tangible personal property to the customer, or sells delivered (non-ASP) software meeting Colorado's three-part test, the goods component could be taxable.
Q: Can I rely on this letter?
A: Only as general guidance — and the Department expressly noted it had very little information. A General Information Letter is not binding on the Department. For a binding answer on your facts, request a private letter ruling.
Citations and references
Statutes and rules:
- § 39-26-104, C.R.S. (tax on tangible personal property and certain enumerated services)
- § 39-26-102(15), C.R.S. (tangible personal property; ASP-provided software is not TPP)
Source
- Landing page: Colorado Sales & Use Tax Letter Rulings
- Original PDF: GIL-16-015.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
GIL-16-015
August 5, 2016
XXXXXXXXXXXXXXXXX
Attn: XXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
Re: Credentialing Services
Dear XXXXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXXXXX (“Company”) a request for guidance
regarding the application of sales tax to credentialing services.
The Colorado Department of Revenue (“Department”) issues general information letters and
private letter rulings. A general information letter provides a general overview of the relevant tax
issues, but is not binding on the Department. A private letter ruling provides a specific
determination for a specific set of facts, is binding on the Department but not on the taxpayer,
and requires payment of a fee. For more information about general information letters and
private letter rulings, please see Department Rule 1 CCR 201-1, 24-35-103.5.
The Department treats this request as a general information letter. It is important to remember
that general information letters, such as this one, are general discussions of tax law and are not
binding on the Department. If Company would like the Department to issue a private letter
ruling on the issue raised here, Company can submit a request and fee in compliance with
Department Rule 1 CCR 201-1, 24-35-103.5.
Issue
Are charges for credentialing activities engaged in by Company subject to sales tax?
Background
Company is in the business of providing what is described as medical credentialing services.
Company is engaged by hospitals and other health care providers to obtain the proper
documentation and credentials needed to work with health insurance companies. Credentialing
is the process of the medical provider obtaining for its billing staff the credentials required by
insurance companies in order to bill the insurance companies for medical services provided to
patients insured by the insurance company. Company provides credentialing by collecting
documentation, creating profiles, preparing applications, and obtaining credentials for staff. This
credentialing is performed by Company’s employee using a cloud-based computer software
technology. Company charges a monthly fee to its customers for this credentialing.
Structure of Analysis
To determine whether the charge is subject to sales and use tax, the Department will examine
the following questions:
1. Is there a sale of tangible personal property under § 39-26-104, C.R.S.?
Discussion
There is very little information provided by Company about the credentialing activities. Colorado
imposes sales and use tax on the sale, use, storage, and consumption of tangible personal
property and certain services.1 Company has not described any tangible personal property that
is sold or otherwise transferred to customers.2 Computer software provided by an application
service provider is not tangible personal property that is subject to tax.3 The credentialing
process, as described above, appears to be a service that is not subject to sales and use tax in
Colorado.
Miscellaneous
This letter represents the good faith opinion of Department personnel who are knowledgeable
on state taxes issues. However, the Department does not make a specific determination here
on any of the issues raised and the Department is not bound by this general information letter.
The Department administers state and state-administered local sales and use taxes. This letter
does not address sales and use taxes administered by home-rule cities and home-rule counties.
You may wish to consult with local governments which administer their own sales or use taxes
about the applicability of those taxes. Visit our web site at www.colorado.gov/tax for more
information about state and local sales taxes.
Enclosed is a redacted version of this letter. Pursuant to statute and regulation, this redacted
letter will be made public within 60 days of the date of this letter. Please let me know in writing
within that 60 day period whether you have any suggestions or concerns about this redacted
letter.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue
1 § 39-26-104, C.R.S.
Taxable services include energy services and telephone service.
2 § 39-26-102(15), C.R.S.
3 § 39-26-102(15), C.R.S.