Does Section 151.353's court reporting services exemption cover the transcription of depositions even when performed by someone other than the licensed court reporter who took the deposition, and is medical dictation transcription taxable?

Plain-English summary

A taxpayer disputed an earlier Comptroller staff opinion (from Mr. John Fitzgibbons) that legal transcription is exempt only when performed by a licensed court reporter. The taxpayer argued Section 151.353 (added by the Texas Legislature in 1995) never actually uses the phrase "licensed court reporter," and that since court reporters had already been exempt from sales tax for years before 1995 (a 1991 Sales Tax Bulletin classified "taking depositions" as nontaxable), the 1995 legislation must have been intended to broaden the exemption -- specifically, to cover the transcription of a deposition tape even when done by someone other than the licensed reporter who took the deposition. On that theory, the taxpayer sought a four-year refund of sales tax it says it mistakenly reported (though didn't collect) on legal transcription work. The taxpayer separately raised confusion about medical dictation transcription, since Mr. Fitzgibbons had stated in one sentence that "transcription of medical dictation is not taxable" and in the next that "transcription of medical records and letters is taxable as data processing services" -- seemingly contradictory, since medical dictation often includes exactly those records and letters.

The Comptroller's response: the 1995 amendment to § 151.353 clarified that court reporting services are nontaxable regardless of DELIVERY FORMAT (paper transcript, audio, video, or computer-readable) -- that's what the act "accomplished." It did NOT extend the exemption to transcription performed by someone other than the licensed court reporter; the statute doesn't say "licensed" because, as the taxpayer itself acknowledged, only licensed court reporters can legally perform court reporting services in the first place. Because the exempt service is nontaxable, the court reporter must pay tax on all taxable inputs (equipment, supplies, data processing services purchased) used to perform it. On medical dictation, the Comptroller resolved the apparent contradiction: transcription of a physician's oral/taped dictation AND transcription of a patient's medical records and letters are BOTH nontaxable medical dictation -- it's the separate preparation of INSURANCE REPORTS that is taxable as an insurance service under Rule 3.355, not medical records/letters generally. Since the taxpayer confirmed all its medical dictation came from taped physician dictation, those charges were not taxable, and refund/credit procedures were outlined. But on the LEGAL transcription refund request, the Comptroller held firm: those transcriptions are exempt only if the taxpayer itself was a licensed court reporter performing court reporting services meeting § 151.353(b)'s requirements -- rejecting the taxpayer's broader reading of the statute. The letter outlined the redetermination-hearing path if the taxpayer's refund claim were denied.

What this means for you

Court reporters and legal transcription services

Section 151.353's exemption for deposition/court-document transcription is tied to being performed by (or as part of the service of) a licensed court reporter -- it does not exempt transcription work generally just because it relates to a legal proceeding. If you're not a licensed court reporter, don't assume your transcription work is covered.

Medical transcription companies

Transcribing a physician's oral or taped dictation, including transcription of a patient's medical records and letters, is nontaxable medical dictation -- but preparing INSURANCE REPORTS is a separately taxable insurance service. Keep these two categories distinct in your billing and tax treatment.

Businesses considering a refund claim based on a broad reading of an exemption statute

This letter shows the Comptroller will hold to a narrower, more literal reading of an exemption (here, requiring the taxpayer to actually BE a licensed court reporter) even when the taxpayer raises a plausible argument about legislative intent -- and that a denied refund claim can proceed to a redetermination hearing before an Administrative Law Judge.

Common questions

Q: Does § 151.353 exempt deposition transcription performed by someone who isn't a licensed court reporter?
A: No, per this letter -- the exemption applies only to court reporting services performed by (or as part of) a licensed court reporter under § 151.353(b), even though the statute's text doesn't use the word "licensed."

Q: What did the 1995 amendment to § 151.353 actually change?
A: Per this letter, it clarified that court reporting services are nontaxable regardless of delivery format -- paper transcript, audio tape, video tape, or computer-readable format.

Q: Is transcribing a physician's medical records and letters taxable?
A: No, per this letter -- that's nontaxable medical dictation; only the separate preparation of insurance reports is taxable, as an insurance service under Rule 3.355.

Q: What happens if a refund request based on this analysis is denied?
A: Per this letter, the taxpayer can request a redetermination hearing before an Administrative Law Judge, following the steps set out in the Credits Verification Section's denial letter.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.353 (exemption for court reporting services, format-neutral since the 1995 clarifying amendment)
• 34 Tex. Admin. Code Rule 3.325 (referenced regarding medical transcription refund procedures)
• 34 Tex. Admin. Code Rule 3.355 (insurance services -- preparation of insurance reports is taxable)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9706551L

Original ruling text

June 27, 1997

Dear ***:

Your letter to Mr. Burrell Lankford has been referred to me for response. I
have restated your fact situation and questions below followed by my response.

You have been dealing primarily with Mr. John Fitzgibbons, but feel his
interpretation of Section 151.353 of the Tax Code recently established by the
Texas State Legislature is not adequately supported.

You enclosed copies of two letters from Mr. Fitzgibbons setting forth his
opinion that it is necessary to be a licensed court reporter to be exempt-from
charging sales tax on the preparation of court documents. Confusion arises from
the fact that court reporters have been exempt from sales tax for several
years. In fact, a Sales Tax Bulletin dated October 1991, classifies "taking
depositions" as a non-taxable service. (See enclosed) As I'm sure you are
aware, licensed court reporters are the only people qualified to take
depositions. If Section 151.353 pertains exclusively to licensed court
reporters, who have been exempt from sales tax since at least 1992, what was
accomplished by this act in 1995? And why is the term licensed court reporter"
not used in Section 151.353?

Section 151.353 very clearly addresses the issue of "Court reporting services."
Part (a) states, "Court reporting services relating to the preparation of a
document or other record in a civil or criminal suit are exempted from the
taxes imposed by this chapter if the document is...," and goes on to clarify
what is meant by "document." This Act never suggests that the licensed court
reporter who took the deposition must be the one who prepares the deposition
document. Again, the licensed court reporter is responsible for taking the
deposition.

Since Section 151.353 addresses "court reporting services," as it relates to
the "preparation" of the document (see enclosed), I contend that the
"preparation" of the document includes the transcription of the tape recording.
I don't believe the attorneys nor the courts would accept a tape recording of
legal proceedings in lieu of a transcribed booklet. Thus, transcription of the
taped deposition or any other legal proceeding is an indispensable part of the
"court reporting service."

Based on the Texas Tax Code Section 151.353 as it is written and the fact that
court reporters have been exempt from sales tax for several years, it is my
contention that the transcription of depositions is exempt from sales tax.

If after your careful review of these issues, you find my interpretation of
the Section 151.353 correct, I would appreciate your consideration regarding
the refund of any applicable monies paid in error. According to a May 30, 1996,
letter from Mr. Karey Barton as well as a July 6, 1996, letter from Glen Hunt,
when medical transcription was ruled a non-taxable service, medical
transcriptionists were allowed to file for refund in accordance with Rule
3.325. (See enclosed.) In this case, I am requesting the following amounts from
the past four years be reimbursed (see enclosed amended returns):

1992, Due January 20, 1993 The statute limitations
is exceeded
1993, Due January 20, 1994 $ ***
1994, Due January 20, 1995 $**
1995, Due January 20, 1996 $*
1996, Due January 20, 1997 $****

TOTAL $***

Regarding medical dictation, I am also baffled by Mr. Fitzgibbons'
interpretation of the taxability of medical dictation. Although Mr. Fitzgibbons
states in his February 25, 1997, letter that "The transcription of medical
dictation is not taxable," he contradicts himself in the next sentence by
stating "The transcription of medical records and letters is taxable as data
processing services." It's my understanding that when a physician dictates a
consult letter, or a chart note (medical records), or a history (medical
records), et cetera, it is considered medical dictation and not data processing
services. Exactly what type of medical dictation does Mr. Fitzgibbons feel is
subject to sales tax and what type is not? For that matter, what type of
medical dictation can not be described as a "medical record" or "letter"? In
essence, Mr. Fitzgibbons' interpretation effectively circumvents the intent of
the exemption. Clarification of this matter would be greatly appreciated.

Because Mr. Fitzgibbons did not supply documentation supporting his
interpretations of the Texas Tax Code as it pertains to either legal
transcription or medical transcription, I am requesting a copy of the recent
legislation documenting the medical transcription exemption as well as the
ruling proclaiming ''taking depositions" as a non-taxable service as presented
in the October 1991, Sales Tax Bulletin.

Questions

1. If Section 151.353 pertains exclusively to licensed court reporters, who
   have been exempt from sales tax since at least 1992, what was accomplished by
   this act in 1995? And why is the term licensed court reporter" not used in
   Section 151.353?

Response: The amendment to the tax law clarifies that court reporting services
are not taxable whether provided as a paper transcript, audio, or video tape,
or in a computer readable format. The term "licensed" court reporter is not
used because as you state only "licensed" court reporters can perform court
reporting services. Because services, set out in 151.353, performed by a
court reporter are nontaxable, a court reporter is responsible for paying tax
on all taxable items purchased to perform that service. This would include the
court reporter's equipment, supplies, and any taxable services (i.e., data
processing) purchased to perform this nontaxable service.

2. Exactly what type of medical dictation does Mr. Fitzgibbons feel is subject
   to sales tax and what type is not? For that matter, what type of medical
   dictation can not be described as a "medical record" or "letter"?

Response: The transcription of medical dictation is not taxable. Medical
dictation includes the transcription of a physician's oral or taped dictation
and the transcription of a patient's medical records and letters. The
preparation of insurance reports is taxable as insurance services under Rule
3.355.

3. I am requesting a copy of the recent legislation documenting the medical
   transcription exemption as well as the ruling proclaiming "taking depositions"
   as a non-taxable service as presented in the October 1991 Sales Tax Bulletin.

Response: I am enclosing three edited letters from 1988 that first address the
nontaxability of court reporting services.

The exemption for medical transcriptions is included in a draft of a rule that
is in the process of being proposed. Once proposed in the Texas Register, the
public may submit comments regarding the proposed rule. There is no recent
legislation concerning medical transcriptions.

4. Refund request.

Response: Based on the above, your transcription of court documents are
exempt only if you are a licensed court reporter performing court reporting
services as set out in 151.353(b). Your medical dictation services are exempt
only if they involve the transcription of the oral or taped medical dictation
of a physician or a patient's medical records and letters.

In our conversation of June 4, 1997, you stated that all medical dictation that
you transcribe is from taped dictation of physicians. If this is the case,
your charges for these services would not be taxable.

If you collected and reported tax on medical dictation services, you may issue
your customers a refund, or with the customer's permission, a credit memo, of
taxes collected in error. After refunding or crediting the tax to your
customers, you may adjust a current return, amend a prior return, or request a
refund from the state for the taxes refunded.

If you have questions about refund procedures, please contact our Credit
Verifications Section at 512/463-4545 or extension 3-4545. Refund requests
should be mailed to the following address:

Comptroller of Public Accounts
Credit Verifications/Revenue Accounting
P. O. Box 13528
Austin, TX 78711-3528

My understanding from your letter is that the dollar amounts that you are
seeking a refund on (restated on page two of this letter) consist solely of
taxes that you reported, but did not collect, on legal transcriptions. Our
position still remains that these transcriptions would only be exempt if they
were performed by a licensed court reporter and otherwise meet the requirements
found in 151.353.

In order to proceed to a redetermination hearing, you will need to request a
refund of these amounts from our Credits Verification Section at the address
noted above. Once your refund request is denied you may request a
redetermination before an Administrative Law Judge. The denial letter from the
Credits Verification Section will set out the steps you need to take to request
a redetermination.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts. My Internet address is:
[email protected].

Sincerely,

Gilbert Zamora
Tax Policy Division

cc: Burrell Lankford
John Fitzgibbons