Texas Governor Greg Abbott passed a sales tax bill HB 1445 and brought it into law which exempted the “medical or dental billing services” from sales tax. Under the legislation, “medical or dental billing services” are explained as:
“Assigning codes for the preparation of a medical or dental claim, verifying medical or dental insurance eligibility, preparing a medical or dental claim form for filing, and filing a medical or dental claim.”
In the first quarter of 2002, defining the sales tax purposes, the Texas Comptroller’s office came into position to clarify that “medical or dental billing services” cannot be considered as services obligated for taxable data processing.
Years later in 2019, the Comptroller made amendments to the bill by publishing a notice declaring that “medical billing services” will be then treated as taxable “insurance services”. However, the enactment of the bill was delayed till October 2021.
The office of the Comptroller is now able to declare that the definition of “medical billing services” defined in the legislation HB 1445 is narrowed down from the definition Comptroller implied in the recent notice and affirmed that some of the services from the sales tax domain will still be tax-effective according to October 2021 tax legislations.
They also pressed focus on “medical or dental billing services” providing companies to consider the definition of “medical or dental billing services” in the legislative definition and find out where their services fall.
What is exempted from taxes in Texas sales tax?
Before 1961, in Texas, the sales tax was not applied to all the services and goods but was on items such as gasoline and cigarettes only. The sales tax regulated in Texas in 1961 and before was supposed to be the first legislated sales tax in the state. However, the non-excluded items were taxed by 2% by 1990. With the periodic increase in the state sales taxes, the percentage ballooned up to 6.25% by January 2011.
Moreover, sales tax legislation allowed counties and cities to press additional mass transit sales tax of 2% on services. Despite that, Texas did not apply taxes on all of its goods and services.
Items that are exempted as medical billing services and other exemptions in sales tax in Texas are discussed below.
Food and Beverages
Food that can be consumed immediately after purchase is taxable but there are exceptions. If the seller provides pastries on a plate and adds a fork to it, the utensils and the food is taxable. On the other hand, foods that are purchased and taken home to be prepared and eaten are not. Such as if the seller put the same pastries in a box without adding a fork or plate to it, the purchase is exempted from taxes.
Sales tax cannot be applied on the items that are subjected to fall under other tax ranges. Therefore, it does not imply alcoholic beverages.
Medical Supplies and drugs
Drugs that are prescribed by a physician for both animals and humans are not taxable. If OTC drugs are labeled with FDA printed penal, they also are exempted from sales taxes. However, medications for animals that are non-prescribed are taxable. Dietary supplements, medical equipment devices, wound care dressing, diabetic test strips, supplies for ileostomy and hypodermics, and colostomy appliances are also exempted.
Non-taxable items in medical billing services also include corrective glasses, contact lenses, prosthetics and dental equipment, hearing aids, etc.
In Texas, certain services are excluded from taxation. These services include professional services offered by attorneys, physicians, barbers, accountants, interior designers, and services for automobile repair.
Texas sales tax does not apply to agriculture materials and items used in the industry. These items include livestock, equine work animals, livestock (used as food), plants, seeds, animal feed, equipment, machinery, and chemicals. Items that are excluded from Texas sales tax also include machinery used for digging and constructing farm or ranch roads, machines for building water tanks, seeds used to grow food material, and equipment for timber production.
Products for Manufacturing or Resale
Products purchased with an intent to resale are not taxable. They are exempted if the buyer of the products can provide the certificate of sales tax exemption. Also, items that a company uses to pack its items for shipment are not taxable. Non-taxable items also include the material which is necessary for production but is not involved in the making of the finished product.
Newspapers and magazines
In Texas sales legislation, newspapers are not taxable if their average per day value out of 30 days does not exceed $1.50. Subscription for magazines for six months is exempt from sales tax. Braille items and audio recordings if recorded by a historical philanthropic organization or a scientist for impaired individuals are not taxable.