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By Jeff Thalachelloor, Transaction Tax | July 14, 2020

The Texas Comptroller of Public Accounts issued Private Letter Ruling No. 20190613133913 on May 15, 2020, to address requested guidance on the taxability of medical review services provided to the insurance industry.  

In this instance, the Taxpayer is hired by an insurance company to review an insured patient’s medical treatment. The Taxpayer provides a state-licensed medical professional, usually a physician, to perform these reviews along with peer reviews of claims and medical records, as well as independent medical examinations to determine the appropriateness of medical treatments provided to a patient. While medical services are not included in the list of services subject to tax in Texas, the question posed to the Comptroller’s office was whether the Taxpayer’s services qualify as taxable insurance services (Tex. Tax Code Ann.  §151.0101(a)). 

Section 151.0039(a) (“Insurance Service”) defines an insurance service as insurance loss or damage appraisal, insurance inspection, insurance investigation, insurance actuarial analysis or research, insurance claims adjustment or processing, or insurance loss prevention service. Rule 3.355(a)(8) further defines “insurance claims adjustment or claims processing” as any activity to supervise, handle, investigate, pay, settle, or adjust claims or losses. Rule 3.355(b) states insurance services performed on behalf of an insurance carrier are taxable.  

In an analysis of the Taxpayer’s services, the Taxpayer’s utilization review service meets the definition of an insurance claims adjustment or claims processing service, which is an insurance service under Rule 3.355(a)(8), and while the Taxpayer’s peer review and independent medical review services involve providing medical services by analyzing medical records and performing medical examinations, these services are performed on behalf of an insurance agency.  

In Comptroller’s Decision No. 27,950 (1991) the Administrative Law Judge concluded that a service provided to an insurer for the purpose of evaluating the validity and scope of an insured client’s claim is taxable insurance services. Thus the Taxpayer’s peer review and independent medical review services are insurance claims adjustment or claims processing services subject to Texas sales and use tax (Rule 3.355(b)). 

Altus Group’s Transaction Tax Team is continually monitoring court cases and letter rulings in Texas and all over the United States to assist our clients needs in several industries, including the medical and insurance fields 

 

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