Transcription services - to Tax or Not to Tax?

Over the last 18 months, some member practices have informed the OSMA that they have been audited by the State Department of Taxation and have been assessed sales/use tax plus interest on the purchase of medical transcription services. Tax Department auditors, although not uniformly across the state, argue that medical transcription that is outsourced to transcription businesses is data processing subject to the state sales tax. If not charged and collected by the service provider, the tax is charged to the practice.

Whether or not tax is due depends on whether tax officials characterize transcriptions services as 1) automatic data processing, computer services, or electronic information services provided for use in a business, or 2) personal/professional services. The former are subject to sales/use tax; the latter are not. See the Tax Department’s Sales/Use tax FAQs, which is available here.

Unfortunately, if a medical practice is audited and the tax auditor determines sales/use tax is due on medical transcription services, the only recourse is for the practice to work with their accountants to appeal the assessment. The good news is that the OSMA is now hearing that practices have been successful in getting these assessments overturned. There is a strong argument to be made that medical transcription is a professional service requiring education and specialized knowledge to transcribe medical terms similar to other professional services, like court reporting, that are not taxed.

The OSMA want s practices to be aware of this argument should you be audited and assessed taxes on medical transcription services.

December 2012

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