sales tax for health care

BDO USA, LLP, a Delaware limited liability partnership, is the U.S.

member of BDO International Limited, a UK company limited by

guarantee, and forms part of the international BDO network of

independent member firms. BDO is the brand name for the BDO

network and for each of the BDO Member Firms.











Sales Tax for Health Care


With You Today!

Experience

More than 28 years of SALT experience

Texas Sales and Use Tax Auditor

15 years Big Four

BDO USA, LLP since 2014

Thomas A. Smith, CPA

Partner in Charge,

State and Local Tax

918.640.4306

[email protected]


For more than 100 years, BDO USA has been recognized as a premier accounting,

tax, and advisory organization for our exceptional client service; experienced,

accessible service teams; focus on quality and efficiency; and our ability to adapt

to, and navigate successfully in, a changing marketplace.

Founded as Seidman & Seidman in New York City in 1910, the firm has grown to

serve clients through over 60 offices and more than 550 independent alliance firm

locations nationwide. Today, BDO USA, LLP, a Delaware limited liability

partnership, is the U.S. Member of BDO International Limited, a UK company

limited by guarantee, which forms part of the international BDO network of

independent member firms.

BDO’s NATIONAL PRESENCE

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BDO is represented in dark shaded countries.

BDO’s GLOBAL REACH

BDO’s seamless global approach allows us to serve clients through a

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across borders – where and when our clients need us.

BDO’s strength is derived from our structure as a cohesive global

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Member Firms are composed of people who are knowledgeable about

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access to our international network can help them do business with a

depth of experience in international matters, significant resources,

and international client service capabilities.Statistics as of and for the year ended 9-30-16.


BDO’s seamless global approach allows us to

serve clients through a central point of

contact, granting access to relevant

experience across borders – where you need

us, when you need us.

BDO’s GLOBAL REACH

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Limited is the world’s

5th largest

accountancy network

1,400+Offices worldwide*

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158Countries within

our global reach

$7.6b BDO International

statistics as of and for

the year ended

9-30-16.


Types of Taxes• Sales taxes are transaction taxes imposed

on transfers of tangible personal property

and taxable services.

• Use tax is imposed on the “use” of property

in a state. It is important to understand

what constitutes a use.


Use Tax


Why didn’t the vendor charge me tax?

Can I just add the tax to the invoice?


Nexus

• The reason they didn’t charge you tax is

because the vendor may not have Nexus.

• If you add the tax to the invoice, more than

likely they have no way to remit the tax to

the proper state.

• Adding tax to invoices will not hold up under

audit.


Nexus• Nexus is defined as the minimum contact an

entity must have in order for a state to

impose a tax.

• Nexus requires sufficient contact between

the state and the business it wants to tax.

• Nexus standards vary depending on the type

of tax involved, therefore it is possible to

have nexus for one tax and not another.


Nexus

• Mail Order – Quill

• Online and catalog retailers only need to

collect sales and use taxes on remote sales for

states where they have nexus

• Due Process Clause and Commerce Clause

definitions of nexus are NOT the same• Minimum Contacts – Due Process

• Same as contact that gives company personal

jurisdiction

• Substantial Nexus – Commerce

• Requires physical presence

Quill Corp. v. North Dakota, 504 U.S. 298 (1992).


Nexus – Developments

• Affiliate Nexus

• Applies generally to any out-of-state person,

typically a vendor or subsidiary, under the

control of a dealer or corporation

• Applies unitary approach to the entire group

of companies


Affiliate Nexus


Nexus Developments

• Click-Through Nexus

• Originated in New York : Law enacted on April 23, 2008, that requires out-of-state

sellers to collect sales tax if they enter into an agreement with a NY resident for

website referrals/links and pay a commission based on sales generated there from

(i.e. click-thru nexus) N.Y. Tax Law § 1101(b)(8)(vi).

• Presumption – A seller that makes taxable sales of TPP or services in a state has nexus when a

state resident’s website clicks through potential customers to the seller.

• Rationale – Link on the website in New York creates a physical presence for the seller when

the owner of the website is a resident of New York and acts as a sales agent for the seller.

• Amazon and Overstock.com challenged the constitutionality of NY’s vendor nexus

law.

• Does not violate the U.S. Constitution: Overstock.com, Inc. v. New York State Department of

Taxation and Finance, New York State Court of Appeals, Nos. 33 and 34, March 28, 2013.

• Court reasoned that following the Quill case, physical presence in the state itself does not

need to be substantial, but must be more than a “slightest presence” that solicitation in a

state that produces a significant amount of revenue qualifies as more than a “slightest

presence” in the state.


The Marketplace Fairness Act

• Proposed legislation in the United State Congress that would enable state

governments to collect sales taxes and use taxes from remote retailers with

no physical presence in their state

• Legislative history• Bill was originally passed by the Senate in 2013, but never made it out of the House of

Representatives

• The Act was introduced again in 2015, but is still in limbo

• Supported by a large number of people• 90 members of Congress (30 Senators and 67 Representatives)

• 26 Governors (13 Republican, 12 Democrat, and 1 Independent)

• 80 National Trade Associations

• 122 State and Local Trade Associations


Streamlined Sales Tax

• 23 full member states

• Local tax sourced based on destination

• Texas is not a member, due to the fact they will not change

their sourcing rules


Streamlined Sales Tax

• Uniform definitions within tax laws

- Not what is taxable or exempt

- Unified definitions in tax base

• Rate simplification

- Allowed one primary state tax rate

• Also a second rate for limited circumstances

- Local jurisdictions allowed one local rate

• For example, cannot choose to tax one item at a

different rate from all others

- States will provide online rate database


Where is tax due?

• Sales taxes are based on destination in most

states.

• What is the ship to address on the invoice?


Responsibility for Tax

• The Seller has a fiduciary responsibility to collect tax that is legally due for the state.

• This is not the Sellers’ Tax, but the Buyers’.

• The legal incidence of the sales tax is usually on the purchaser, not the retailer.

• However, in most states the retailer is charged with collecting the tax.


Imposition of Tax

Tangible Personal Property

• Most state sales and use tax statutes are written so

that all retail sales of tangible personal property are

subject to tax unless specifically exempted or

excluded by the statute.

Services

• In contrast to the treatment of tangible personal

property, services are generally exempt unless

specifically designated as taxable.


Health Care Issues

• There are many different taxability issues in

Healthcare.

• The taxability of items vary by state.

• Hospitals are big taxpayers.


Health Care Issues

Some items when bought for a specific person are

exempt, however, when purchased by a hospital,

are taxable.

Example: Wheel Chairs

Hospital Beds


What is a drug?

• IV Fluids

• Contrast

• Prostate Seeds

• Gases


Common Issue

Renting / Leasing Equipment:

• Without an Operator – Generally Taxable

• With an Operator – is viewed as a Service,

and you need to look at the taxability of

the service


Health Care Issues

Services vs. Rentals

Liptotripsy

Mobile Image Equipment

Uniform Rentals

Bedding, Floor Mats, Mops


Basic Compliance

• Manual Accruals

• If AP can handle the task…

• Most AP systems have an option to

accrue tax within the AP screen

• Write a “hard line of accrual” into the

tax payable account

• Pull out the questionable invoices for a

decision maker to review

• Use a spreadsheet

• Use a database

• Make copies or scans of invoices


Basic Compliance

• Use an Orderly Process

• Buy a stamp

• Disfigure the invoice


Audits and Assessments

Big Issues in Audits

- Transactions within a corporate

group

- Items brought in from out-of-state

- Hardware/software maintenance

- Contractor issues


Contact Information

Thomas A. Smith, Partner

Email: [email protected]

Phone: 918.640.4306

sales tax for health care

Documents