Hospitals, clinics, and other healthcare providers who purchase certain medical supplies used in treating patients may qualify for a sales tax refund at the state or local level. Understanding the situations that may indicate a tax refund opportunity can help these providers reduce their annual tax bills.
Sales & Use Taxes
State and local sales and use taxes vary widely, which is why for-profit healthcare organizations operating across several states often build a tax team to manage compliance. Sales tax exemptions for medical supplies are common, but they are often highly specific, and understanding what qualifies can be time-consuming. While the time investment is important, you need to understand the specifics of each state in which you operate in order to ensure you aren’t overpaying your tax.
Alabama is a prime example. Certain prosthetic devices are exempt from sales tax if Medicare or Medicaid reimburses the healthcare provider for the medical item. In this scenario, the provider would have to pursue a refund from the state for past purchases that fell under Medicare or Medicaid. The tax refund could be significant depending on the volume of business in this area. If you operate for-profit acute care facilities and ambulatory surgery centers in Alabama, you should understand how to pursue a refund.
Florida has a similar situation. Although many medical devices are exempt from sales tax, medical supply vendors continue to charge sales tax in error on some medical devices. The provider can pursue a refund, but more importantly, should take action to ensure the tax will not be charged going forward.
These are just a few examples of sales and use taxes that healthcare organizations should understand in order to avoid overpaying taxes.
Personal Property Tax
Many healthcare facilities overpay personal property tax by over-estimating the length of useful lives of some equipment. If you incorrectly include some personal property with a relatively short useful lifetime in an asset category for property with a longer useful life, you will have a higher property tax bill. Understanding the most appropriate way to classify your property and results in re-categorizing some assets to shorter useful life categories, resulting in lower personal property tax. Imaging centers or acute care hospitals that have MRIs, CT Scanners and other expensive imaging equipment should look into this question to understand if they are overpaying property taxes.
Conclusion
The tax landscape is both complicated and constantly changing. Staying aware of the current rules can help providers improve cash flow and minimize tax bills. If you have any questions regarding sales & use or property taxes for your hospital or clinic, Frazier & Deeter’s Healthcare Group can help.