Are a medical-records company's retrieval and copying fees taxable in Colorado, and must the company collect tax?

Plain-English summary

An out-of-state company provides copies of medical records to whoever is authorized to request them — patients, insurers, physicians, attorneys, government agencies. A hospital forwards a request; the company verifies the requester's authority, pulls the provider's records (paper, electronic, or microfilm), and delivers them as a paper copy, fax, PDF by email, or a secure download. It charges a per-page fee (its principal charge), plus a per-year-searched fee and a retrieval fee; where law caps what it can bill the requester, it bills the provider for the shortfall. It asked four questions: are the charges taxable across those delivery formats; is it a dealer that must collect tax; are any taxable charges limited to records delivered within Colorado; and how do local taxes apply when a requester (e.g., an insurer) has both in-state and out-of-state locations.

The Department's answer across the board: the charges are a non-taxable service.

• Not taxable, any format. The fees for retrieving and providing records are not subject to sales tax whether delivered as printed copy, fax, or PDF emailed electronically.
• Not a dealer. Because it's a service provider, the company is not required to collect tax.
• In or out of Colorado — same answer. The charges aren't taxable regardless of delivery location, because it's a service.
• No local tax either. The charges aren't subject to state-administered local sales or use taxes, because they're for non-taxable services (so the in-state/out-of-state-locations question doesn't change the result).

Why. The Department had just decided the same issue in PLR 13-002, relying on Treece, Alley, Musat & Bosworth, P.C. v. Denver Dept. of Finance (Colo. App., No. 11CA0026, Nov. 23, 2011), which held — on substantially similar facts — that the true object of a release-of-information transaction is the sale of a service, not tangible personal property: the dominant cost is labor, the paper's value is nominal, and the object is information (intangible) whose use is strictly controlled. The Department acknowledged the counter-view — that the true object is the documents themselves (a reference book is bought for its information yet is still taxable) — but reasoned that since patients and their agents could retrieve the records themselves and instead pay the company to compile them, what they're really buying is the service, like a custom market survey made for one customer (GIL-07-27). The Department stressed it is not bound by, and does not agree with, the Court of Appeals' application of every A.D. Stores factor in Treece, but conceded the issue is close and will not challenge applying the Treece result here.

What this means for you

Medical-records and release-of-information companies

Colorado treats retrieval-and-copying of records as a non-taxable service, so you generally don't charge or collect sales tax — and the delivery format (paper, fax, PDF, download) doesn't change that. As a service provider you're not a "dealer," and there's no state-administered local tax on the fees. (This is a private ruling — see the reliance note.)

Service businesses delivering information

The decisive factor is true object: customers paying for your labor to locate and compile information are buying a service, even though a tangible copy changes hands. But note the Department's caution — it's a close call, and a transaction whose real object is the document/good itself (like a reference book) can still be taxable.

Accountants and tax professionals

This PLR applies PLR 13-002 / Treece to a second taxpayer and extends the answer to the dealer-collection, in-state-vs-out-of-state delivery, and local-tax questions — all resolved by the service characterization. Note the Department's express reservations about the court's A.D. Stores-factor analysis while still declining to challenge the result. Watch the home-rule-city caveat below.

Common questions

Q: Are medical-records retrieval and copying fees taxable in Colorado?
A: In this ruling, no. The true object is a non-taxable service, so the fees aren't subject to sales tax — whether the records are delivered as paper, fax, or PDF by email.

Q: Does the company have to collect Colorado sales tax?
A: No. As a service provider it isn't a "dealer" required to collect tax.

Q: Does it matter whether the records go to a customer in Colorado or out of state?
A: No. Because the charges are for a service, they aren't taxable regardless of delivery location, and no state-administered local tax applies.

Q: Isn't the customer really buying the documents?
A: The Department weighed that view (a reference book is bought for information yet is taxable) but concluded that paying someone to retrieve and compile records you could get yourself is buying a service. It called the question close.

Q: Can my company rely on this ruling?
A: No. A private letter ruling binds the Department only as to the taxpayer and facts it was issued to and cannot be relied upon by anyone else. It's also void if the taxpayer's representations were inaccurate.

Citations and references

Statutes and authority:
- §§ 39-26-104(1)(a), 202, C.R.S. (sales/use tax on tangible personal property, not services)
- Colorado PLR 13-002 (prior ruling on the same release-of-information question)
- Treece, Alley, Musat & Bosworth, P.C. v. Denver Dept. of Finance, No. 11CA0026 (Colo. App. Nov. 23, 2011) (medical-records release = service)
- A.D. Stores v. Department of Revenue, 19 P.3d 680 (Colo. 2001) (true-object factors)
- Colorado GIL-07-27 (custom market survey treated as a service)

Related rulings: [[plr-13-002-private-letter-ruling]] (the directly controlling prior ruling), [[gil-15-009-services-in-connection-with-retrieving-and-copying-medical-records]], [[gil-14-001-promotional-videos]] (true-object test).

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-13-005.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

PLR-13-005

August 21, 2013

xxxxxxxxxxxxx
Attn: XXXXXXXXX
xxxxxxxxxxxxx
xxxxxxxxxxxxx
Re: Private Letter Ruling
Dear XXXXXXXXX,
XXXXXXXXX submitted on behalf of XXXXXXXXXX ("Company") a request for a private
letter ruling to the Colorado Department of Revenue ("Department") pursuant to Regulation
24-35-103.5. This letter is the Department's private letter ruling.

Issue
1. Are Company's charges for the provision of medical records subject to sales tax
when distributed in the following formats: printed copies, copy sent by fax, copy sent
by PDF document electronically via email?
2. Is Company a dealer required to collect tax?
3. Are taxable charges, if any, limited to services and medical records distributed to
customers within Colorado?
4. What is the proper application of local sales tax when the requesting party (such as
an insurance company) has locations both in-state and out-of-state?
Conclusion
1. Company's charges for retrieval service and the provision of medical records are not
subject to sales tax, regardless of whether distributed as printed copy, fax copy, or
PDF copy sent electronically via email.
2. Company is a service provider and is not required to collect tax.
3. Charges are not taxable whether distributed within or outside Colorado because
Company is a service provider.

4. Charges are not subject to state-administered local sales or use taxes because the
charges are for non-taxable services.
Background
Company is incorporated in a state outside Colorado and has its headquarters located in
that state. Company is in the business of providing copies of hospitals', physicians', and
other healthcare facilities' medical records to parties requesting copies of such records,
such as patients, insurance companies, physicians, attorneys, federal and state
organizations, and others. A hospital or other healthcare provider will forward requests of
medical records to Company. Company will first verify that the requesting party has the
authority to receive such records. Company then pulls the healthcare provider's medical
record files, which are typically maintained by the provider as paper files, electronic records,
or on microfilm. Company either copies the records to paper or electronically scans the
record and uploads it to the Company's storage system located at its corporate
headquarters. Company makes the medical records available to requesting parties either
as a paper copy, an electronic facsimile, a PDF document, or allows the requesting party to
access the Company's secure electronic storage and download the medical records.
Company charges the requesting party three types of fees. The first and principal fee is
assessed based on the number of pages of a medical record provided to the requesting
party. Company also charges fees that reflect certain variable cost components.
Specifically, Company charges a fee based on the number of years of medical records
searched. For example, if the requesting party asks for a patient's medical records covering
the last five years, a per year fee is multiplied by five. Company also charges a retrieval fee
that applies to every transaction.
In some cases, the fees that Company can charge are limited by law. Where this occurs and
the remuneration is not sufficient, Company will also charge the provider a fee which reflects
that portion of the fee that Company was prohibited from collecting from the requesting
party.
Discussion
The Department recently addressed the issues raised in this request for ruling. In
Department Private Letter Ruling 13-002, the Department ruled that charges by a company
which searches, retrieves, and copies medical records for third-parties are not subject to
Colorado sales taxes. That ruling is based on the decision in Treece, A/fey, Musat &
Bosworth, P.C. v. Denver Dept. Finance, Colo. Ct. App., Dkt. No. 11CA0026, 11/23/2011, in
which Division II of the Colorado Court of Appeals concluded, based on facts substantially
similar to those set forth in this ruling request, that the true object of the transactions in
question is the sale of a service, not the sale of tangible personal property. Among other
conclusions, the Court concluded that the dominant cost in this transaction is the labor and
that the value of the paper was nominal. The Court also emphasized that the object of the

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transaction was information (i.e., patient data), which it characterized as intangible, and that
the use of the information was strictly controlled.
Cases involving bundled transactions and the "true object" test are typically difficult to
resolve. One view is that the "true object" of these transactions is the documents
themselves and that the service to find and copy them is secondary to that purpose.
Moreover, simply because the true object of a transaction is information does not
necessarily mean the transaction is not taxable. A book, particularly a scientific or historical
reference book, is purchased for information but is nevertheless taxable. On the other hand,
medical records are generally available to patients and their agents who could, if they
choose, retrieve these records themselves. By engaging Company, patients and their
agents have elected to pay Company for the service of retrieving, compiling, and copying
the medical information for them. Therefore, the lawyer or insurance company who
purchases the record is arguably interested in the service of compiling the medical
information. Viewed in this light, this service is similar to companies that research and
compile data to create custom reports for their customers, such as a market survey made at
the direction of, and for the specific use of, a customer (as opposed to a market survey
generally made available for public distribution).1 The Treece decision is consistent with this
latter approach.
As noted above, there are a variety of factors to consider in making these determinations
and their application to any given set of facts is often debatable. The Department is neither
bound by nor does it agree with the Court of Appeals' application of some of the factors
identified in AD. Stores to the facts before the court in Treece. Nevertheless, the
Department concedes that the issue is a close one and will not challenge the application of
the Treece conclusion to the facts set forth in this ruling request. Therefore, we rule that
Company's fees are for the provision of a service and, therefore, are not subject to sales
tax.
Miscellaneous
This ruling applies only to sales and use taxes administered by the Department. Please
note that the Department administers state and state-collected city and county sales taxes
and special district sales and use taxes, but does not administer sales and use taxes for
self-collected home rule cities and 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/revenue/tax for more information about state
and local sales taxes.
This ruling is premised on the assumption that Company has completely and accurately
disclosed all material facts. The Department reserves the right, among others, to
independently evaluate Company's representations. This ruling is null and void if any such
representation is incorrect and has a material bearing on the conclusions reached in this
Colorado General Information Letter GIL-07-27,12/04/2007. You can view this ruling at
www.colorado.gov/revenue/tax > Tax Library> Rulings> Topic by Number.
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ruling. This ruling is subject to modification or revocation in accordance to Department
Regulation 24-35-103.5.
Enclosed is a redacted version of this ruling. Pursuant to statute and regulation, this
redacted version of the ruling 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 version of the ruling.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue

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