I electronically process physicians' medical insurance claims and arrange printing and mailing of patient invoices for a fee -- is that a taxable New York information service?

Plain-English summary

Gateway EDI, Inc., a Missouri corporation licensed to do business in New York, provides information-technology products and services to healthcare providers, including electronic claims submission and remittance posting. After acquiring a New York corporation ("Corporation A") in the same line of business, Gateway EDI began providing services to New York customers and asked whether its charges for those services are subject to New York sales or compensating use tax.

The specific service at issue is an "invoice production service." A physician's office electronically submits a patient's billing information to Gateway EDI, which electronically transmits the claim to the patient's medical insurance company and facilitates electronic payment from the insurer back to the physician. If a balance remains after insurance pays, the physician may ask Gateway EDI to produce a patient invoice. To do that, Gateway EDI electronically sends the patient's billing and mailing information to a printing vendor located outside New York, who prints and mails the invoice to the patient. Gateway EDI bills the physician for this service and separately pays the printing vendor; Gateway EDI supplies only the electronic data to the printer, not printing supplies.

The Department held that none of this is subject to sales tax. Tax Law section 1105(c)(1) taxes charges for "the furnishing of information" — including collecting, compiling, or analyzing information and furnishing reports of it to others — but the Department found that Gateway EDI isn't providing that kind of taxable information service. Its role is simply to electronically transmit physicians' patient information, unchanged in substance, to insurance companies and to a printing vendor; the format of the data may change along the way, but the "intelligence" (the actual content) does not. Citing Finserv v Tully, 94 AD2d 197 (3d Dept 1983), affd 61 NY2d 947 (1984), the Department concluded this kind of pass-through data transmission does not constitute an information service. Because services are taxable in New York only if specifically enumerated under section 1105(c), and Gateway EDI's claims-processing and invoice-production services don't match any of those enumerated categories, the Department concluded Gateway EDI's charges to its clients for these services are not subject to sales tax — consistent with its earlier opinion in Matrix Imaging Solutions, Inc., TSB-A-03(4)S (Jan. 27, 2003).

What this means for you

Healthcare billing and EDI service providers

If your business electronically relays physicians' or other providers' patient billing data to insurers to file claims, and/or forwards billing and mailing data to a third-party printer to generate and mail patient invoices, this opinion supports treating those charges as exempt from New York sales tax — as long as your role is limited to transmitting the data rather than collecting, compiling, or analyzing it and furnishing an independent report to others.

Companies using a subcontracted printing/mailing vendor

Gateway EDI didn't supply any printing-related tangible personal property to its outside printing vendor — it only sent electronic data. The opinion doesn't address what tax result would follow if the service provider itself supplied paper, envelopes, or other printed materials, so businesses whose model differs (e.g., they print and mail invoices themselves, or supply materials to the printer) should not assume the same exempt result applies.

Accountants and tax professionals

This opinion is a useful, narrow application of the "information services" exclusion in Tax Law section 1105(c)(1): pure electronic pass-through of a client's own data (unchanged in substance, only reformatted) to a third party is not a taxable information service, distinct from situations where a vendor collects, compiles, or analyzes data and furnishes an independent report about it to others.

Common questions

Q: Is a company's fee for electronically submitting a physician's insurance claims subject to New York sales tax?
A: No. The Department found this is not a taxable "information service" under Tax Law section 1105(c)(1) because the data's substance isn't changed, only possibly its format, and it doesn't fit any other taxable service category under section 1105(c).

Q: What about the fee for producing and mailing a patient invoice through an outside printing vendor?
A: Also not taxable. Gateway EDI's charge to the physician for this service was treated the same way as its claims-processing charge, since it involves the same kind of electronic data transmission (to the printer instead of an insurer) without altering the information's substance.

Q: Why isn't this considered a taxable "information service"?
A: Under Tax Law section 1105(c)(1) and the case Finserv v Tully, a service that merely transmits a client's own data to a third party, without collecting/compiling/analyzing it and furnishing an independent report to others, does not constitute the taxable furnishing of information.

Q: Does this exemption apply to any electronic data-processing business?
A: Not automatically. This Advisory Opinion binds the Department only as to Gateway EDI, Inc. and only on the facts described — a business that also supplies printing materials, or that compiles/analyzes client data into a separate report furnished to others, could reach a different result.

Q: Does Gateway EDI have to collect tax on its remittance-posting or general electronic claims-submission services?
A: No — the opinion treats all of the described services (electronic claims submission, remittance posting, and invoice production) the same way, concluding none of them fits an enumerated taxable service under section 1105(c).

Citations and references

Statutes and regulations:

• Tax Law §1105(c)(1) (taxable furnishing of information services, and the personal/individual-information exclusion)

Case law and prior opinions referenced:

• Finserv v Tully, 94 AD2d 197 (3d Dept 1983), affd 61 NY2d 947 (1984) (data transmission without substantive change is not an information service)
• Matrix Imaging Solutions, Inc., Adv Op Comm T&F, January 27, 2003, TSB-A-03(4)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2008.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a08_39s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Taxpayer Guidance Division

TSB-A-08(39)S
Sales Tax
August 25, 2008

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S071004A

On October 4, 2007, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Gateway EDI, Inc., One Financial Plaza, 501 North Broadway, Third
Floor, St. Louis, MO 63102. Petitioner, Gateway EDI, Inc., provided additional information
pertaining to the Petition on February 5, 2008.
The issue raised by Petitioner is whether charges to its clients for the services described
below are subject to sales or compensating use tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is a Missouri corporation licensed to conduct business in New York State.
Petitioner is engaged in the business of providing information technology-related products and
services to healthcare providers, including electronic claims submission, remittance posting, and
related services.
Petitioner has acquired a New York State corporation (“Corporation A”). Corporation A
is also engaged in the business of providing information technology-related products and
services to health care providers, including electronic claims submission. As a result of this
acquisition, Petitioner will be providing services to customers in New York.
Petitioner may provide some of the New York customers with an invoice production
service. In performing this service, Petitioner’s customers (physicians) initially submit the
patient’s billing information electronically to Petitioner, and an electronic claim is transmitted by
Petitioner to the patient’s medical insurance company. Petitioner also facilitates electronic
payments from medical insurance companies for the covered medical services to the physician.
The physician may require Petitioner to process a patient invoice at this point if there is a
remaining balance due for which the physician will require a payment from the patient. To
produce a patient invoice Petitioner sends the patient’s billing and mailing information
electronically to a vendor located outside of New York who prints and mails the invoice to the
patient. Petitioner charges the physician for this service and Petitioner pays the vendor for
printing and mailing the invoice. Petitioner only supplies the printer with the electronic billing
and mailing information; Petitioner does not provide any printing-related supplies to the printer.
Applicable law and regulations
Section 1105 of the Tax Law provides, in part:

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TSB-A-08(39)S
Sales Tax
August 25, 2008

Imposition of sales tax. On and after June first, nineteen hundred seventy-one,
there is hereby imposed and there shall be paid a tax . . . upon:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
*

*

*

(c) The receipts from every sale, except for resale, of the following services:
(1) The furnishing of information by printed, mimeographed or multigraphed
matter or by duplicating written or printed matter in any other manner, including the
services of collecting, compiling or analyzing information of any kind or nature and
furnishing reports thereof to other persons, but excluding the furnishing of information
which is personal or individual in nature and which is not or may not be substantially
incorporated in reports furnished to other persons,...
Opinion
Petitioner is in the business of providing physicians with electronic processing of patient
information to file medical insurance claims and issue patient invoices.
Petitioner’s service begins with receiving a physician’s patient billing information
electronically from the physician’s office. Petitioner uses the patient billing information to
prepare and electronically transmit medical insurance claims to the appropriate insurance
provider. After a claim has been processed by the insurance provider Petitioner further
facilitates the electronic transmittal of payments from an insurance provider to physicians.
Petitioner may also be required by the physician to process patient invoices. In such case, the
patient’s billing and mailing information is electronically transmitted by Petitioner to a printer
for printing and mailing of the patient’s invoice.
Petitioner’s service involves electronic transmission of physicians’ patient information, in
electronic form, to medical insurance companies and printing vendors. Petitioner may change
the format of the patient information being transmitted but the intelligence contained in such
information is not changed. Accordingly, the service provided by Petitioner does not constitute
an information service. See Finserv v Tully, 94 AD2d 197 (3rd Dept 1983), affd 61 NY2d 947
[1984].
Services are not subject to sales tax unless they are specifically designated as being
subject to tax under section 1105(c) of the Tax Law. The services described by Petitioner of
providing physicians with electronic processing of patient information to file medical insurance
claims and issue patient invoices do not constitute any of the enumerated services specified
under section 1105(c) of the Tax Law. Therefore, Petitioner’s charges to its clients for providing

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TSB-A-08(39)S
Sales Tax
August 25, 2008

such services are not subject to sales tax. See Matrix Imaging Solutions, Inc., Adv Op Comm
T&F, January 27, 2003, TSB-A-03(4)S.

DATED: August 25, 2008

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.