I was recently asked by a fellow tax professional whether medical services in general were exempt from sales, use or equivalent taxes in jurisdictions that have an active taxing scheme in place. I thought I would share my research on the matter just in case the topic presents itself to others in the future.
Medical services can be generally defined as services provided by a state board licensed professional in the medical industry, including dentistry, that improve the physical and/or mental well-being of a patient. While most states exempt medical services, there are a few that choose to tax them under certain circumstances.
- Hawaii: the state imposes a general excise tax on gross income derived from most service businesses. (Haw Rev Stat Sec. 237-13(6); HAC No. 18-237-1; HAC No. 18-237-13-06.05(b).) More specifically, Hawaii imposes its excise tax on services provided by doctors and other health care professionals- including dentists. (Haw Rev Stat Sec. 237-13(6).) Taxable gross income derived from these services includes amounts received from both patients and health insurance companies. Health care professionals may collect this tax from their patients at their discretion. (Tax Facts 98-1, Hawaii DOT, April 1998.)
- Michigan: services, other than a few enumerated offerings, are generally exempt from sales and use tax in Michigan. (Sec. 205.51(1)(b), M.C.L.; Sec. 205.52, M.C.L.) Medical services are not listed among the specific enumerated offerings subject to sales and use tax. Effective April 1, 2014, there is an exception to this general rule, however, that subjects medical services to use tax when they are provided by Medicaid managed care organizations. (Sec. 205.93f, M.C.L.)
- New Mexico: the state imposes a gross receipts tax on all services, including medical services, performed in the state unless a specific exemption applies. (126.96.36.199(A) NMAC.) Exemptions are available under the following circumstances:
- Medical services provided by administrators of the Federal Military’s TRICARE program are exempt from tax. (NM Stat Ann Sec. 7-9-77.1.)
- Medical services provided on behalf of the Indian Health Service of the U.S. Department of Health and Human Services are exempt from tax. (NM Stat Ann Sec. 7-9-77.1.)
- Medical services, including lab work and home health services, paid for by the U.S. Government on behalf of Medicare beneficiaries under Title 18 of the Social Security Act are not subject to tax. (NM Stat Ann Sec. 7-9-77.1.)
- Payments received from a managed health care provider, health care insurer for commercial services, or a third-party claims administrator are exempt from tax if the charges are separately stated and related to medical services provided within the scope of the practice of the professional providing the service. (188.8.131.52 NMAC; 184.108.40.206 NMAC; 220.127.116.11 NMAC; NM Stat Ann Sec. 7-9-93.)
- Ohio: services are generally exempt from sales and use tax in Ohio unless they are specifically identified in the law as taxable. Medical services are not identified in the law as taxable. (Sec. 5739.01(B), Ohio R.C.) Medical services are subject to tax, however, under the following circumstance:
- All transactions by which health care services are paid for, reimbursed, provided, delivered, arranged for, or otherwise made available by a Medicaid health insuring corporation pursuant to the corporation’s contract with the state are subject to tax. (Ohio Rev. Code Ann. § 5739.01(B)(11).)
The remaining 41 taxing jurisdictions in the United States generally exempt medical services from tax.
If you have any thoughts or concerns on the forgoing, please feel free to contact me at 855-995-6789 or firstname.lastname@example.org.