Are medical billing, payment processing, collection, and customer-service functions subject to New York sales tax?

Plain-English summary

Datamedic Corp. provides a billing service to customers who are all medical practices, and has added a "Full Service" tier that also handles patient accounting, collection, and inquiry resolution. Its work includes:

• Payment processing: determining procedure and diagnosis codes so carriers reimburse correctly, entering charge and patient data into its computer system, submitting claims to insurers (electronically and on paper), posting insurance and private payments to the right accounts, and reviewing/challenging carrier payments made incorrectly;
• Collection: contacting patients to request payment; and
• Customer service: answering patient and insurance-carrier phone and mail inquiries, and keeping a permanent patient account history on computer disc to protect the records against fire or theft.

Datamedic asked whether these services are subject to sales tax. The Department's answer: no.

New York's sales tax reaches tangible personal property (unless specifically exempt) and only those services specifically listed in Tax Law § 1105(c). Because Datamedic's billing, payment-processing, collection, and customer-service functions are not among the enumerated services in § 1105(c), the receipts from providing them are not subject to sales tax.

What this means for you

Services are taxable in New York only if the statute lists them

New York does not tax services in general. A service is taxable only if it appears on the specific menu in Tax Law § 1105(c) (for example, information services, certain installation/repair services, and the like). If your service isn't on that list, its charges are outside the sales tax.

Medical billing and collection are non-enumerated services

Coding and submitting insurance claims, posting and reconciling payments, chasing carriers and patients for payment, and fielding patient inquiries are business-support services that the statute does not enumerate — so they are not taxed here.

Watch the line between a service and a taxable information service

This result turned on the work being billing/collection/customer service. Where a business instead sells access to compiled data or reports, that can be a taxable information service under § 1105(c)(1). Keep the two straight: processing a client's own patients' accounts is a service to that client, not the sale of an information product.

Common questions

Q: Does a medical practice owe sales tax on what it pays a billing company?
A: No. Billing, payment processing, collection, and customer-service functions are not enumerated taxable services under § 1105(c), so they aren't subject to sales tax.

Q: Does using computers and keeping records on disc make it taxable?
A: No. The service is still a non-enumerated billing/collection service; performing it with computers or storing account histories on disc doesn't convert it into a taxable sale.

Q: When would a service like this become taxable?
A: If what's actually being sold is an information service — furnishing compiled information — that is enumerated under § 1105(c)(1). Ordinary billing and collection of a client's own accounts is not.

Citations and references

Statutes:

• Tax Law § 1105 — imposes sales tax on sales of tangible personal property unless specifically exempt or purchased by an exempt organization.
• Tax Law § 1105(c) — services are taxable only if specifically enumerated; billing, payment processing, collection, and customer service are not listed.
• Tax Law § 1116 — exempt organizations (referenced in the discussion of what property is exempt).

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_58s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (58)S
Sales Tax
August 22, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910610A

On June 10, 1991 a Petition for Advisory Opinion was received from Datamedic Corp., 20
Oser Avenue, Hauppauge, New York 11788.
The issue raised by Petitioner, Datamedic Corp., is whether its billing, payment processing,
collection and customer services are subject to sales tax.
Petitioner provides a billing service to its customers, all of whom have medical practices.
Petitioner has now developed a new business referred to as "Full Service." Full service customers
are provided patient accounting, collection and inquiry resolution services in addition to an enhanced
billing service.
Petitioners' services consist of the following:
Payment Processing:
1.

Determine procedure codes and diagnosis codes for all charge invoices sent to Petitioner's
office so that the insurance carriers reimburse the doctors at the correct fee and for the proper
services provided.

2.

Input all charge and patient demographic information into Petitioner's computer system.

3.

Submit claims to insurance carriers, both electronically and on paper.

4.

Post insurance and private payments to the correct patient accounts.

5.

Review carrier payments for accuracy and make inquiries of carriers who have paid claims
incorrectly.

Collection:
1.

Contact patients and request payment.

Customer Service:
1.

Answer patients telephone inquiries and mail correspondence.

2.

Answer insurance carriers telephone inquiries and mail correspondence.

3.

Provide a permanent patient account history on computer disc which safeguards patient
records against fire or theft.

-2-

TSB-A-91 (58)S
Sales Tax
August 22, 1991

Section 1105 of the Tax Law imposes a tax on the sales of all tangible personal property
unless such property is specifically exempt or purchased by an exempt organization described in
Section 1116 of the Tax Law. Services are not subject to sales tax unless they are specifically
denoted as being subject to said tax under Section 1105(c) of the Tax Law.
Since the billing, payment processing, collection and customer services provided by
Petitioner do not constitute any of the enumerated services specified under Section 1105(c) of the
Tax Law, the receipts from the providing of said services are not subject to sales tax.

DATED: August 22, 1991

PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.