Are a company's services helping nursing homes with the Medicaid resident-admissions process taxable in Connecticut as business management or business management consulting services?

Plain-English summary

Connecticut taxes a specific list of enumerated services, and among them are "business analysis, business management, management consulting and public relations services" under Conn. Gen. Stat. § 12-407(2)(i)(J). But that tax reaches these services only when they involve a customer's "core business activities" — the things directly related to the customer's own lines of business (making sales, its capital structure, its budgeting and strategic planning).

Here, a company helped nursing homes with the Medicaid resident-admissions process: completing the patient intake form, assigning a caseworker to track each resident's Medicaid admission and eligibility, acting as the admissions liaison with the resident's family, and either completing or assisting residents in completing Medicaid application forms. Ordinarily the nursing home's own social-services or administrative department would do this work. The question was whether hiring it out made those charges taxable business management or consulting services.

DRS said no. A nursing home's core business is providing health care. Determining residents' Medicaid eligibility and helping them complete Medicaid applications fall outside that core business. Because "business management services" and "business management consulting services" are defined by reference to controlling/directing or advising on a service recipient's core business activities, and these Medicaid-admissions services aren't directed at the home's core health-care business, they aren't taxable under § 12-407(2)(i)(J).

DRS pointed to its earlier Ruling Nos. 97-1 and 93-6, where medical-claims-processing services rendered to health-care providers were likewise held not directly related to the recipients' core business. (Those rulings are named here in prose, not linked.)

What this means for you

Companies selling administrative or back-office services

Whether an enumerated "business management" service is taxable in Connecticut turns on what the customer's core business is and whether your service is directed at it. A service that supports a customer but sits outside its core lines of business — like handling a health-care provider's Medicaid paperwork or claims — generally isn't taxed under § 12-407(2)(i)(J). Identify the customer's core business first; the same task can be taxable for one customer and not another.

Nursing homes and health-care providers buying these services

For a health-care provider, the "core business" is providing health care. Outsourced eligibility determination, benefits/claims paperwork, and similar administrative functions are generally outside that core, so charges for them shouldn't carry Connecticut sales tax as business management services. Keep the service description tied to what the vendor actually does.

Accountants and tax professionals

The controlling definitions are in the regulation, not just the statute: "business management services" (Regs. § 12-407(2)(i)(J)-1(e) — controlling or directing core business activities), "business management consulting services" (-1(f) — advice and assistance on managing core business activities), and "core business activities" (-1(h)). Map the vendor's tasks against the recipient's core business; DRS's health-care line runs through Ruling Nos. 97-1 and 93-6.

Common questions

Q: Are all "business management" services taxable in Connecticut?
A: No. Under § 12-407(2)(i)(J) they're taxable only when they control/direct, or advise on, the customer's core business activities — activities directly related to the customer's own lines of business. Services aimed outside that core aren't taxed under this subsection.

Q: Why weren't the Medicaid-admissions services taxable?
A: A nursing home's core business is providing health care. Determining Medicaid eligibility and helping residents complete Medicaid applications fall outside that core business, so the services don't meet the definitions of taxable business management or consulting services.

Q: What is a "service recipient's core business"?
A: Under Regs. § 12-407(2)(i)(J)-1(h), it's the activities directly related to the recipient's lines of business — its sales of products/goods/services, its capital structure, its budgeting, and its short-, long-range or strategic planning.

Q: Does this mean outsourcing paperwork is always tax-free?
A: Not necessarily. It depends on the specific customer and whether the service is directed at that customer's core business. Here the facts (Medicaid admissions for a health-care provider) put the work outside the core, so it wasn't taxable.

Citations and references

Statutes:

• Conn. Gen. Stat. § 12-407(2)(i)(J) (enumerated taxable business analysis, business management, management consulting, and public relations services)

Regulations:

• Conn. Agencies Regs. § 12-407(2)(i)(J)-1(e) (definition of "business management services": controlling or directing a service recipient's core business activities)
• Conn. Agencies Regs. § 12-407(2)(i)(J)-1(f) (definition of "business management consulting services": advice and assistance on managing core business activities)
• Conn. Agencies Regs. § 12-407(2)(i)(J)-1(h) (definition of "core business activities")

Related rulings:

• Ruling Nos. 97-1 and 93-6 (medical-claims-processing services rendered to health-care providers held not directly related to the recipients' core business)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 98-2

Original ruling text

Ruling 98-2, Sales and Use Taxes / Business Management Services / Business Management Consulting Services

FACTS:

A company (the "Company") assists nursing homes with the Medicaid resident admissions process by performing the following functions, which would otherwise be performed by the nursing home’s social services department or by its administrative department:

Completing the resident patient intake form.

Assigning a case worker to the nursing home to track a resident patient’s Medicaid admission process or the patient’s Medicaid eligibility.

Acting as the admission liaison with the resident patient’s family and the nursing home.

Either completing the Medicaid application forms, or assisting the resident patient in completing the forms.

ISSUE:

Whether the Company’s services in furnishing assistance with Medicaid procedures are taxable as business management services or business management consulting services under Conn. Gen. Stat. §12-407(2)(i)(J).

DISCUSSION:

"Business management services" are defined in Conn. Agencies Regs. §12-407(2)(i)(J)-1(e) as "the controlling or directing of . . . all or a portion of the core business activities . . . of a service recipient." "Business management consulting services" are defined in Conn. Agencies Regs. §12-407(2)(i)(J)-1(f) as "furnishing advice and assistance on matters pertaining to the management of core business activities . . . of a service recipient." The term "core business activities" is defined in subsection (h) of the regulation as "activities directly related to a service recipient's lines of business involving sales of products, property, goods or services to others, its capital structure, its budgeting and its short-range, long-range or strategic planning."

The core business of the nursing homes to which the Company renders its services is to provide health care. The determination of the Medicaid eligibility of resident patients and assisting resident patients with the completion of Medicaid applications fall outside the core business of providing health care. (See also Ruling Nos. 97-1 and 93-6 , in which medical claims processing services rendered to health care providers were held not to be directly related to the core business of the service recipients.)

RULING:

The Company’s services in furnishing assistance with Medicaid procedures are not taxable under Conn. Gen. Stat. §12-407(2)(i)(J) either as business management services or business management consulting services.

LEGAL DIVISION

February 24, 1998