Tax Type
Retail Sales and Use Tax
Description
Services; Professional or Personal; Medical Records
Topic
Taxability of Persons and Transactions
Date Issued
05-01-1992
May 1, 1992
Re: Retail Sales & Use Tax
Dear**************:
This will reply to your letter of November 11, 1991 in which you seek correction of a sales and use tax assessment to your client * * * (the "Taxpayer') for the period January 1988 through June 1990.
FACTS
The Taxpayer which is engaged in the business of reviewing, finding, retrieving, and providing copies of medical records in response to requests made to its hospital clients by third parties was recently audited and found to have failed to collect sales tax on its sales of copies of medical records. The third parties, including attorneys, individuals, insurance companies, etc., are billed directly for the copies provided by the Taxpayer.
The Taxpayer points out that while a request may be for a patient's entire medical history, it usually involves a request for specific and technical diagnostic information. Thus, the process of retrieving medical records is labor intensive and is performed by trained specialists. Once a search is completed, the pertinent record is copied on the Taxpayer's copy machines.
The Taxpayer maintains that it is providing a service exempt from the sales and use tax pursuant to Va. Code § 58.1-608(a)(5)(a) and thus is not required to collect and remit the tax on such. In addition, the Taxpayer contends that since Va. Code § 8.01-413 sets the charges for copying medical records and makes no mention of the sales tax, the General Assembly must have considered it the provision of a nontaxable service. Accordingly, it contests its recent sales and use tax assessment.
DETERMINATION
The department has previously ruled in P.D. 90-224 (12/13/90) that copies of medical records sold to third parties are deemed to be taxable sales of tangible personal property as opposed to nontaxable services based upon an examination of the "true object' test as provided in Virginia Regulation (VR) 630-10-97.1. While the Taxpayer is providing professional services in the rendition of its operations, the "true object' of the transaction is the end product of the Taxpayer's services the tangible copy of the medical records. Therefore, the tax was properly applied in the audit.
However, in instances where the Taxpayer sells copies of medical records to nonprofit hospitals, it may do so exempt from the tax as Va. Code § 58.1-608(A)(7)(d) provides an exemption for tangible personal property for use or consumption by a hospital or a nonprofit licensed nursing home. In addition, copies of medical records provided in response to direct requests of a court are also nontaxable as a sale to a governmental entity exempt from sales taxation pursuant to Va. Code § 58.1-608(A)(1)(e).
While the Taxpayer contends that since Va. Code § 8.01-413 makes no mention of the sales tax, the General Assembly must have considered the provision of copies of medical records the provision of a nontaxable service, sales of tangible personal property generally are taxable unless specifically exempt under Va. Code § 58.1-608. Since there is no exemption under the above Code section and absent language otherwise exempting such sales in Va. Code § 8.01-413, the provision of medical records is deemed a taxable sale.
In addition, while there is no specific mention of this in the Code of Virginia, state agencies generally are required to register for the collection of the tax on sales of tangible personal property as explained in Virginia Regulation (VR) 630-10-45. For example, the department is required to collect the tax on sales of the Code of Virginia as well as various publications. However, sales of "official documents' such as copies of corporate charters, birth and death certificates, etc. are exempt from the tax.
In addition, you referenced a case decided by a deputy commissioner of the Industrial Commission of Virginia which determined that the provision of medical records was a nontaxable service. However, the department was not consulted in connection with this opinion and the determination reached is not binding on the department.
Accordingly, while the tax was appropriately applied in the instant assessment, the Taxpayer's assessment will be revised to remove sales of medical records to nonprofit hospitals and medical records requested directly by a court, if any. A revised Notice of Assessment will be sent to the Taxpayer as soon as practicable.
If you have any questions regarding this matter, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner