Tax Type
Retail Sales and Use Tax
Description
Fees charged in connection with health and medical processing services
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
10-29-2004
October 29, 2004
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you request a ruling on the application of the retail sales and use tax to transactions involving your client, ***** (the "Taxpayer"). I apologize for the delay in the Department's response.
FACTS
The Taxpayer, located outside Virginia, provides health and medical processing services to attorneys, insurance companies, governmental entities, patients, physicians, hospitals, and other requesting parties. The Taxpayer utilizes its own equipment, (e.g., laptop computers, scanners, etc.) for use in providing these services. The Taxpayer describes two scenarios in which its services may be provided to Virginia customers, as follows:
1) The Taxpayer obtains the medical information from the patient's hospital, physician's office, or other location where the information is located. The Taxpayer scans the medical information and then electronically transmits the information to the Taxpayer's facility located outside Virginia. The information is processed and, depending on the customer's preference, the information is sent to the customer electronically or in hardcopy form.
2) This scenario is similar to the first except the Taxpayer photocopies the requested medical information and mails the information to the customer directly from the location where the medical records and related information are located.
The Taxpayer invoices the customer for a number of fees provided under these scenarios. These fees are separately stated on the invoice and include: (1) a basic retrieval fee for locating the medical records; (2) a quickview delivery fee to view the delivered information via the Internet; (3) a per page fee for each page of the medical information either scanned or photocopied; (4) a postage fee associated with the mailing of the hard copy of the medical information; (5) a handling fee; (6) an e-disclose fee to track and confirm the status of the information being delivered; (7) a certification fee; (8) a notarization fee, (9) a deposition fee to affirm that the information is suitable for use in a legal deposition; and (10) a docustore fee to store the information electronically.
The Taxpayer requests a ruling on the application of the sales and use tax to the above fees charged in connection with the provision of health and medical processing services. In addition, the Taxpayer questions the application of the tax to scanners, laptop computers, and similar electronic media utilized in the provision of such services.
RULING
Virginia Code § 58.1-609.5 1 provides an exemption from the sales and use tax for "professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made . . . ."
Title 23 of the Virginia Administrative Code (VAC)10-210-4040(D) sets forth the "true object" test to determine whether a particular transaction involves the taxable sale of tangible personal property or the provision of an exempt service. This regulation states:
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- If the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including the charge for any services provided, is taxable.
The Department has previously ruled that the true object of transactions involving the provision of medical records in which a substantial service element is involved constitutes a nontaxable service. See Public Documents 95-265 (10/17/95) and 95-136 (5/26/95).
A review of the Taxpayer's scenarios noted above indicates that the Taxpayer is providing a nontaxable service to its customers. Therefore, the tax would not apply to any of the invoiced items identified in your correspondence. In addition, while the provision of data via a hardcopy involves the transfer of tangible personal property (for which the Taxpayer charges a per page fee), such property is incidental in nature when furnished in connection with the processing services provided. If the Taxpayer, however, makes any sales of tangible personal property outside of its services, such sales are taxable.
As a service provider, the Taxpayer is the user and consumer of all items used in Virginia for providing its services, including laptop computers, scanners, and other equipment and supplies. Accordingly, the Taxpayer is required to pay the tax to its suppliers at the time of purchase. If the supplier is not registered to collect Virginia sales tax, the Taxpayer must remit the use tax directly to the Department on a Consumer Use Tax Return, Form ST-7. The tax is based on the cost price of the property.
The Code of Virginia section, regulation and public documents cited are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions about this ruling, you may Contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Kenneth W. Thorson
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AR/47515T
Rulings of the Tax Commissioner