Were hospital plant-and-equipment appraisals taxable insurance services when performed for acquisitions, financing, mergers, or Medicare and Medicaid qualification?

Plain-English summary

The hospital appraisal services were not taxable. The company appraised hospitals being considered for acquisition, financing, or merger and also appraised nonprofit hospital plant and property for Medicare or Medicaid provider qualification and depreciation schedules.

Rule 3.355 required the covered appraisal or analysis to be performed on behalf of an insurance carrier, its insured, its policyholders, or others in connection with an insurance policy. The letter found no such direct link because the firm worked for a hospital or its operator for healthcare-provider purposes.

What this means for you

The historical letter did not treat every valuation associated with healthcare financing or reimbursement as an insurance service. The client, purpose, and connection to a policy controlled the result.

Common questions

Were merger, financing, and acquisition appraisals taxable? No.

Were appraisals used for Medicare or Medicaid provider qualification taxable? The letter said they did not appear taxable.

Why did Rule 3.355 not apply? The work was for a healthcare provider rather than on behalf of an insurer or another person connected with an insurance policy.

Citations and references

• 34 Tex. Admin. Code Rule 3.355 (insurance services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8801l0900C01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

February 3, 1988

Dear ***:

On behalf of Mr. Bullock, I hope you'll accept my apology for the delay
in
answering your question involving changes in the sales tax law. This
isn't
the way we normally do business.

Our people were, and still are, swamped by a deluge of inquiries as they
attempted to interpret provisions of the new law and draft rules which
would
not adversely impact business. In many instances, an answer to a
question
just wasn't available when the question arrived.

To make sure we have a common understanding of the facts on which your
in-
quiry is based, I will briefly restate the facts you presented in your
let-
ter and in ***'s telephone conversation with Ms. Church of our
office.

COMPANY A performs several types of plant and equipment audits. It ap-
praises hospitals being considered for acquisition, those whose operators
are seeking financing or to merge.

In addition to these services, COMPANY A appraises the plant and property
of non-profit hospitals seeking to become Medicare or Medicaid providers.

Since 1966, hospitals wishing to include all overhead costs within their
fees must have some type of appraisal or evaluation of their property.
The
company also helps a hospital set up an appropriate depreciation
schedule.
The appraisal firm's client is either the hospital or the corporation or
group who operates the hospital.

The appraisals performed for hospital corporation mergers, financing and
acquisition are not taxable. The appraisals of a hospital's plant and
equipment do not appear to be taxable since the services are not
performed
for any of the types of entities covered by the new tax on insurance
services. Specifically, the services must be performed "on behalf of an
insurance carrier, its insured, its policyholders, or others pertaining
to a
policy or policies of insurance." Comptroller's Rule 3.355. Your firm
is
performing services for a health-care provider in order to qualify it to
receive Medicare or Medicaid reimbursements from patients entitled to
those
benefits, so it does not have the direct link to the insurance provider
required by the tax law.

This opinion is based on the facts you presented. If there are
additional
or different facts, this opinion may change.

Please feel free to contact me if you have additional question. You may
write me, or call toll free 1-800-252-5555 from anywhere in Texas or
phone
512/463-4600. I'm enclosing for your information a copy of Comptroller's
Rule 3.355.

Sincerely,
Eddie Washington
Tax Policy Division