Is a registered nurse's medical case management and rehabilitation counseling work for insurance companies taxable as an insurance service in Texas, and does that include reimbursed expenses?

Plain-English summary

Note: STAR carries an ALERT on this letter — Senate Bill 1122 (88th Legislature, 2023) later excluded from the definition of taxable insurance services a medical service, examination, or test required or authorized under Chapter 408 of the Texas Labor Code (Workers' Compensation Benefits) for purposes of determining the appropriate level of benefits, effective June 18, 2023. That change postdates this 1994 letter and may narrow what counts as a taxable insurance service in a workers'-compensation context.

The taxpayer was a registered nurse and certified rehabilitation counselor who performed medical case management and rehabilitation counseling. Her work involved gathering information from the patient, physician, and employer, and relaying it to the insurance company responsible for the medical care, along with recommendations on the most cost-effective plan of medical care for the individual patient. She billed an hourly rate for her professional time and was separately reimbursed for expenses.

The Comptroller held that this service is taxable under Rule 3.355, Insurance Services. Because the service is provided to and paid for by an insurance company as part of managing a claimant's medical care, it falls within the taxable insurance services category. The ruling also addressed the scope of the tax base: charges for expenses directly related to and incurred while providing the taxable service are themselves taxable and included in the tax base, per Rule 3.355(i)(3) — so the taxpayer could not treat her professional fee and her reimbursed expenses differently for tax purposes.

What this means for you

Nurses and rehabilitation counselors providing case management to insurers

If you provide medical case management or disability management services to an insurance company — gathering medical information, coordinating with physicians and employers, and recommending cost-effective care plans — the Comptroller treats this as a taxable insurance service under Rule 3.355. You should charge and collect sales tax on your professional fees.

Billing for reimbursed expenses alongside professional fees

Don't assume that expense reimbursements are automatically nontaxable "pass-through" costs. Under Rule 3.355(i)(3), expenses directly related to and incurred while providing the taxable service are included in the taxable sales price along with your professional service charge.

Insurance companies purchasing case management services

If you're an insurer buying medical case management or rehabilitation counseling services to help manage a claimant's care, expect sales tax to apply to the full amount billed, including any reimbursed expenses, unless you have a valid exemption (such as those available to third-party administrators for self-insured plans, discussed in related STAR letters).

Common questions

Q: Is medical case management performed for an insurance company a taxable service in Texas?
A: Yes. The Comptroller ruled that this service is taxable under Rule 3.355, Insurance Services.

Q: Does the tax apply only to the professional fee, or also to reimbursed expenses?
A: Both. Charges for services and for expenses directly related to and incurred while providing the taxable service are taxable and included in the tax base, per Rule 3.355(i)(3).

Q: Does the 2023 workers' compensation carve-out change this result?
A: Possibly, for services tied to determining benefit levels under Labor Code Chapter 408. STAR's ALERT notes that Senate Bill 1122 (2023) excluded certain required or authorized medical services, examinations, or tests performed for that specific purpose from the definition of taxable insurance services, effective June 18, 2023 — a change that postdates this 1994 letter.

Citations and references

• 34 Tex. Admin. Code Rule 3.355 (Insurance Services — basis for taxing medical case management/rehabilitation counseling services provided to an insurance company)
• 34 Tex. Admin. Code Rule 3.355(i)(3) (charges for expenses directly related to and incurred while providing the taxable service are included in the tax base)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9405L1313B10

Original ruling text

ALERT: Senate Bill 1122 (88th Leg. Session, 2023) excluded from the definition of taxable insurance services a medical service, examination or test required or authorized under Chapter 408 of the Texas Labor Code (Workers’ Compensation Benefits) for the purpose of determining the appropriate level of benefits under that chapter. Effective 06/18/2023.

May 24, 1994

Dear **:

I have received your letter regarding the taxability of your services.

Facts: You are a registered nurse and a certified rehabilitation counselor.

You perform medical case management and rehabilitation counselling. The

purpose of your service is to gather information from the patient, physician

and employer and relay that information to the insurance company responsible

for the medical care. You make recommendations regarding the most cost

effective plans of medical care based on an individual patient's situation.

You charge an hourly rate and the charge for your professional time as well

as being reimbursed for expenses incurred.

Question: Is your service taxable under Texas state tax laws? If so, what

is taxable, the professional services alone or reimbursement of expenses as

well?

Response: The service you are providing is taxable under Rule 3.355, Insurance

Services. Charges for services or expenses directly related to and incurred

while providing the taxable service are taxable and included in the tax base.

See Rule 3.355(i)(3).

Enclosed is an edited copy of a letter that addresses the taxability of nurses

providing medical case management and rehabilitation counseling. A sales tax

permit application packet is being mailed under separate cover.

This opinion is based on the facts as stated above. If there are additional

or different facts, the opinion could change.

If you have any questions, please don't hesitate to write the Tax

Administration Division or call one of our tax specialists toll free at

1-800-252-5555.

Sincerely,

Joan Hale

Tax Administration Division

NOTE: Previous Accession Number 9405529L