Can a Medicare-related printing/forms contractor buy printed forms, booklets, and publications tax-free with a resale certificate because they're ultimately used for the federal Medicare program?

Subject

Resale Certificates On Medicare Forms — Title Must Pass To The Federal Government

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9310L1270F11

Plain-English Summary

A taxpayer asked the Comptroller about sales tax on certain items used to provide insurance services when the insurance provider is the Federal Government (Medicare). The items at issue were printed forms, booklets, and publications sent to Medicare providers and beneficiaries to convey program changes, provide detail of benefits, and issue claims payments.

The Comptroller's answer turns entirely on title passage: the taxpayer "may issue a resale certificate on items only if its contract with the Federal Government provides that title will pass to the Federal Government upon receipt of the items by [the taxpayer] and no use is made of the items prior to passage of title." In other words, a resale certificate is available only when (1) the contract expressly provides for title to pass to the federal government, and (2) the taxpayer makes no use of the items before that title passage occurs.

The letter is explicit about the default outcome: "Unless your contract specifically provides for this title passage to the Federal Government, tax will be due on these purchases." It also draws a distinction that matters for insurance-related printing: items purchased by the taxpayer and simply provided to health care providers who accept Medicare payment "are not considered items sold to the Federal Government." Finally, the Comptroller noted it was not familiar with any contract language referring persons to the agency regarding an exemption for items costing more than $500, so no ruling was given on that specific point.

What This Means For You

If you print or supply forms, booklets, or publications used in a Medicare-related contract: Do not assume that "the end product goes to the federal government's program" is enough to buy your materials tax-free. The letter conditions the resale certificate specifically on your contract language providing that title to the items passes to the Federal Government upon your receipt of them, and on your not using the items before that title passage.

Check your contract language before issuing a resale certificate: If your contract does not specifically address title passage to the Federal Government, the letter states tax will be due on your purchases of these items.

Distributing items to Medicare-accepting providers doesn't equal a sale to the government: Items you buy and hand off to health care providers who accept Medicare payments are, per this letter, not treated as items sold to the Federal Government — so that distribution alone does not support a resale certificate.

Exemptions tied to a dollar threshold weren't addressed: The letter states the Comptroller was not familiar with the cited contract language referring to an exemption for items costing more than $500, so taxpayers relying on that kind of provision should seek separate, specific guidance rather than relying on this letter.

Q&A

Q: Can a Medicare forms/publications contractor buy its printed materials tax-free with a resale certificate?
A: Only if its contract with the Federal Government provides that title to the items passes to the Federal Government upon the contractor's receipt of the items, and no use is made of the items before that title passage.

Q: What happens if the contract doesn't address title passage to the Federal Government?
A: The letter states that "unless your contract specifically provides for this title passage to the Federal Government, tax will be due on these purchases."

Q: Are items provided to health care providers who accept Medicare payments treated as sold to the Federal Government?
A: No. The letter states that items purchased by the taxpayer and provided to health care providers who accept Medicare payment "are not considered items sold to the Federal Government."

Q: What kinds of items did this ruling address?
A: Printed forms, booklets, and publications sent to Medicare providers and beneficiaries to convey program changes, provide detail of benefits, and issue claims payments.

Q: Did the Comptroller address an exemption for items costing more than $500?
A: No specific ruling was given. The letter states the agency was "not familiar with the cites of your contracts that refers persons to this agency regarding the exemption of items that cost more than $500."

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for Resale (amended 11/01/2017.

October 27, 1993

Dear *:

This is in response to your letter dated October 14, 1993, regarding
sales tax as it applies to certain items used to provide insurance services
when the insurance provider is the Federal Government (Medicare).

The items asked about in your letter are printed forms, booklets and
publications sent to Medicare providers and beneficiaries to convey program
changes, provide detail of benefits, and issue claims payments.

** may issue a resale certificate on items only if its
contract with the Federal Government provides that title will pass to the
Federal Government upon receipt of the items by ** and no use is
made of the items prior to passage of title.

Unless your contract specifically provides for this title passage to the
Federal Government, tax will be due on these purchases.

Items purchased by *** and provided to health care providers
that accept Medicare payment are not considered items sold to the Federal
Government.

We are not familiar with the cites of your contracts that refers persons
to this agency regarding the exemption of items that cost more than $500.

This opinion is based on the facts presented. Different facts, though
similar, may result in different answers. If you have any questions or need
more information, please write or call me at 1-800-531-5441, extension
5-0330, or 512-475-0330.

Sincerely,

Bettie Peterson
Tax Administration Division

NOTE: Previous Accession Number 9311070L.3 and/or 9311070L