Which of the many separately stated fees a medical-record retrieval company charges -- retrieval, delivery, per-page, postage, handling, certification, notarization, deposition, and electronic storage -- are subject to Utah sales tax?

Plain-English summary

A company that retrieves and copies health and medical records for attorneys, insurers, government entities, patients, physicians, and hospitals asked the Commission how Utah sales tax applies to its long list of separately stated fees. Employees visit hospitals or doctors' offices, either scan records electronically (Method One) or physically photocopy them (Method Two), and deliver the results electronically or by mail. The company's invoices could include up to eleven separate line items: a Basic Retrieval Fee, Quickview Delivery Fee, Per Page Fee, Postage Fee, Handling Fee, E-Disclosure Fee, Certification Fee, Notarization Fee, Deposition Fee, and Docustore Fee -- plus a question about whether its scanners and laptops qualify for a manufacturing exemption.

The Commission's overarching framework: the sale of photocopies (paper or electronic) is taxable as a sale of tangible personal property under Utah Code § 59-12-103(1)(a) and Admin. Rule R865-19S-80. A specific exemption exists for copies of records held by the state itself (§ 59-12-104(45)), but doesn't reach a private company like this one. Whether any particular fee is taxable then turns on the transaction's "primary objective" -- if customers are really paying for a copy of the record, related charges are taxable as part of that sale even when separately stated; if they're paying for a genuinely separate, optional service, that charge stands alone and is nontaxable.

Applying that framework fee by fee:

• Basic Retrieval Fee, Quickview Delivery Fee, Per Page Fee -- taxable. The company confirmed it never charges the Retrieval Fee without an accompanying Per Page Fee, confirming customers are really paying to get copies of records. All three are part of the taxable sale price, separately stated or not, electronic or hard copy.
• Postage Fee -- exempt if a true pass-through (at the time of the ruling). Under Tax Bulletin 5-91 and Admin. Rule R865-19S-71, freight/postage is normally taxable as part of the sale price, but is exempt if the exact freight amount (no markup) is passed on to the customer, as described here. The ruling flags that a recent statutory change would fold postage into the taxable "purchase price" as of a stated effective date -- so this exemption was time-limited even when the ruling issued.
• Handling Fee -- taxable. Handling is not treated as a pass-through cost the way postage can be; it remains part of the taxable sale price both before and after the statutory change.
• E-Disclosure, Certification, Notarization, Deposition fees -- nontaxable, but only if optional. These don't look like charges a customer must pay to get the copies -- they're extras for tracking delivery or authenticating the copies. If truly optional, each is a separate nontaxable transaction. But if any of them is automatically bundled into every order, it becomes part of the taxable purchase price for the copies.
• Docustore Fee (electronic storage) -- nontaxable. Because the customer doesn't possess or control the storage equipment, the arrangement isn't a taxable lease of tangible personal property under § 59-12-104(1)(k).
• Scanners and laptops used to perform the work -- taxable when purchased. The Commission confirmed the manufacturing equipment exemption doesn't apply, because the company isn't a "manufacturer" as that exemption defines it.

What this means for you

Medical record retrieval, copying, or document-processing companies

Line-item your invoice carefully. Charges tied to actually producing the copy (retrieval, delivery, per-page) are taxable as part of the sale, even if broken out separately. Genuinely optional add-ons (certification, notarization, tracking) stay nontaxable only as long as customers can decline them.

Businesses passing freight/postage costs through to customers

An exact-cost postage pass-through can be exempt, but check current law -- Utah has moved toward including postage/handling in the taxable "purchase price" by statute, so a prior exemption may no longer apply.

Service businesses using their own equipment (scanners, laptops, etc.) to perform work

Don't assume equipment used to "process" information qualifies for Utah's manufacturing exemption -- that exemption is limited to entities that meet the statutory definition of a manufacturer, which a records-processing service typically does not.

Common questions

Q: Is charging separately for "retrieval" versus "copying" enough to make the retrieval charge nontaxable?
A: No -- if retrieval and copying are always billed together and customers are really paying for the copies, the retrieval charge is taxable too.

Q: Can a company avoid sales tax on postage by separately stating it?
A: Only if it's a true pass-through of the exact freight cost with no markup, and only under the law as it existed when this ruling issued -- a later statutory change folded postage into the taxable purchase price.

Q: Are optional fees like notarization or certification always nontaxable?
A: Only if genuinely optional. If bundled into every transaction automatically, they become part of the taxable sale price.

Q: Is electronic document storage taxable as a lease of equipment?
A: Not if the customer never possesses or controls the storage equipment -- that keeps it out of the taxable lease definition.

Q: Does using scanners and computers to "process" records qualify for a manufacturing exemption?
A: No, not unless the business itself qualifies as a Utah manufacturer under the statutory definition, which a records-processing company generally doesn't meet.

Citations and references

Statutes, rules, and guidance cited:

• Utah Code Ann. § 59-12-103(1)(a) (sales tax on tangible personal property)
• Utah Code Ann. § 59-12-104(45) (exemption for copies of records held by the state or its political subdivisions)
• Utah Code Ann. § 59-12-104(1)(k) (taxable lease of tangible personal property)
• Utah Admin. Rule R865-19S-80 (sale of copies as tangible personal property)
• Utah Admin. Rule R865-19S-71 (freight and handling charges)
• Utah State Tax Commission Tax Bulletin 5-91 (freight and handling charges)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/03-015.pdf

Original ruling text

REQUEST LETTER

03-015

NAME

ADDRESS

Re: Letter Ruling Request

On behalf of our client, TAXPAYER, hereinafter (Taxpayer), COMPANY respectfully requests a letter ruling from the state of Utah as to the proper application of the state and local sales and use taxes to the transactions identified below.

STATEMENT OF FACTS

Taxpayer provides health and medical record processing services to attorneys, insurance companies, governmental entities, patients, physicians, hospitals, and other requesting parties, hereinafter (�Customers�). Taxpayer�s services are performed by Taxpayer�s employees utilizing equipment (i.e. laptop computers, scanners, etc�) provided by Taxpayer. These services are performed by Taxpayer�s employees from hospitals, physicians� offices, or employees� home offices; which are located in the state of Utah.

In practice, upon Taxpayer receiving a request from customers for a copy of a patient�s health and medical records, hereinafter (�Information�), Taxpayer will visit the hospital, physician�s office, or other location where the particular information is located. Upon arriving at the hospital, physician�s office, or similar location where the particular information is located, employees may facilitate the customer�s request by either one of two methods.

METHOD ONE

__

Method one encompasses Taxpayer utilizing a laptop computer, scanner, or other similar electronic medium to electronically �scan� and save the requested information. Upon securing the scanned information, the employee electronically transmits the scanned information to Taxpayer�s facility in CITY, STATE. When the information is received at Taxpayer�s STATE facility, the information is processed and, depending on the customer�s election, either an electronic version of the information is transmitted to the customer or a hardcopy version is printed and mailed to the customer.

METHOD TWO

Method two encompasses an employee visiting the hospital, physician�s office, or location where the medical records and related information are located to physically photocopy the requested information. Upon the requested information being photocopied, the employee will subsequently mail the requested information to the customer from the hospital, physician�s office, or location where the medical records and related information are located.

INVOICE COMPONENTS

Upon providing any of the above services, the Taxpayer invoices the customer a separately stated charge for the requested service. Below please find the various possible components of a typical transaction, and an explanation of each component.

� Basic Retrieval Fee: A separately stated flat fee charged for locating the records.

� Quickview Delivery Fee: A separately stated fee to electronically access and view the contents of the delivered information via the Internet.

� Per Page Fee: A separately stated fee for each page of the medical record that is either scanned or photocopied.

� Postage Fee: A separately stated fee for the postage associated with mailing a hardcopy of the individual�s medical record. This fee does not contain a markup for profit.

� Handling Fee: A separately stated charge, distinct from the charge for postage, associated with mailing a hardcopy of the individual�s medical record.

� E-Disclosure Fee: A separately stated fee to track and confirm the status of the information being delivered.

� Certification Fee: A separately stated fee to certify the information.

� Notarization Fee: A separately stated fee to notarize the information.

� Deposition Fee: A separately stated fee to affirm that the information is suitable to be utilized in a legal deposition.

� Docustore Fee: A separately stated fee to electronically store the information.

ISSUES

Since taxpayer provides employees with tangible personal property (scanners and computers) to perform the above services within the state of Utah, the Taxpayer has concluded that it has nexus for sales and use tax purposes. Consequently, the Taxpayer would like the state�s assistance concerning the following:

1) Are the separately stated �Basic/Retrieval Fees�, as defined above, subject to sales tax?

2) Are the separately stated �Quickview Delivery Fees�, as defined above, subject to sales tax?

3) Are the separately stated �Per Page Fees�, calculated on a per page basis for photocopying information subject to sales tax?

4) Are the separately stated �Per Page Fees� calculated on a per page basis for scanning information into an electronic format subject to sales tax?

5) Are the separately stated �Postage Fees�, as defined above, subject to sales tax?

6) Are the separately stated �Handling Fees�, as defined above, subject to sales tax?

7) Are separately stated �E-Disclosure Fees� as defined above, subject to sales tax?

8) Are separately stated �Certification Fees�, as defined above, subject to sales tax?

9) Are separately stated �Notary Fees�, as defined above, subject to sales tax?

10) Are separately stated �Deposition Fees�, as defined above, subject to sales tax?

11) Are the separately stated �Docustore Fees�, as defined above, subject to sales tax?

12) Are the scanners, laptop computers, and similar electronic media utilized in Method One and/or Method Two services deemed processing equipment so as to be exempt from sales and use tax when purchased?

If the Department/Division of Taxation/Revenue has any questions or requires any additional information from the Taxpayer in order to provide Utah sales and use tax consequences of the above described situations, please contact either NAME at PHONE or NAME at PHONE.

Thank you in advance for your cooperation and attention to this matter.

COMPANY

RESPONSE LETTER

February 18, 2004

NAME

ADDRESS

RE: Private Letter Ruling Request � Taxability of Health and Medical Record Processing Services

Dear NAME,

This letter is in response to your request for information concerning the taxation of services and items provided by TAXPAYER (the �Taxpayer�) in Utah. The Taxpayer provides health and medical record processing services to its various customers. Per its customers� requests, the Taxpayer�s employees use laptop computers, scanners, and other equipment to copy patient health information at hospitals, doctor�s offices and other locations. It then delivers this information to its customers either electronically or, if a hard copy of the information is requested, by mail.

The sale of photocopies or other copies of records is taxable in Utah as the sale of tangible personal property, whether the copies are delivered in a hard format, such as paper copies, or by electronic means over the Internet, in accordance with Utah Code Ann. �59-12-103(1)(a) and Utah Admin. Rule R865-19S-80. [Utah Code Ann. �59-12-104(45) provides an exemption for the sale of copies of records held or maintained by the State of Utah or its political subdivisions. However, because the Taxpayer is not a political subdivision of the State of Utah, any sales of photocopies or copies of records that it makes would be taxable.]

Whether the Taxpayer�s various charges, as you have described them in your letter, are taxable or not depends upon the primary objective of the underlying transactions. If the primary object is for the Taxpayer to provide its customers copies of the medical records, the transactions associated with this objective are taxable as the sale of tangible personal property. On the other hand, if the primary object of these transactions is the sale of services to locate the records, where the transmittal of the copied records is incidental to this objective, the transactions are nontaxable because the sale of such services is not taxable in Utah.

You have provided by E-mail additional information concerning estimates of the fees charged by the Taxpayer for the services described in your request letter. For example, the Taxpayer charges its customers $$$$$$ as the �Basic Retrieval Fee� to locate a record, $$$$$$ as the �Quickview Delivery Fee� to electronically access and view the contents of information delivered over the Internet, and $$$$$$ as the �Per Page Fee� for each page of the medical record that is either scanned or photocopied. By telephone, you have also informed us that the Taxpayer never charges the Basic Retrieval Fee unless there is an accompanying Per Page Fee also charged.

Based on the description of the services provided and fees charged by the Taxpayer, the Commission believes that the Taxpayer�s customers� primarily want to receive a copy of the requested records and that any charge to locate the records is part of the purchase price of this taxable transaction. Accordingly, the Commission rules that the fees described as Basic Retrieval Fee, Quickview Delivery Fee, and Per Page Fee are all charges associated with the sale of photocopies or copies of records and are taxable charges, even if stated separately from one another and even if the copies are delivered electronically.

In addition, the Taxpayer�s �Postage Fee� and �Handling Fee� would be fees associated with taxable sales. Recent statutory changes will affect the taxable nature of these charges as follows. Effective DATE, all postage fees (including those passed on to the customer in the exact amount) and handling fees are included as part of the �purchase price� of taxable tangible personal property and, thus, would be taxable.

Until the law changes on that date, however, the following is applicable. Utah State Tax Commission Tax Bulletin 5-91 explains that, in accordance with Utah Admin. Rule R865-19S-71, charges for freight and handling are taxable as part of the sales price of the taxable item. Nevertheless, freight charges may be exempt, but only if the exact amount of the charge is passed on to the customer. From your description of the Postage Fee, the exact amount of the freight charge is passed on to the customer. Accordingly, the Taxpayer�s Postage Fee, as described, would be exempt from taxation if stated separately, but again only until DATE. The Handling Fee would remain a taxable charge.

The �E-Disclosure Fee,� the �Certification Fee,� the �Notarization Fee� and the �Deposition Fee� do not appear to be fees that a customer must pay to receive the taxable copies of records. Instead, they appear to be additional, optional fees relating to tracking the delivery of the taxable copies or to the authentication of the copies. If they are optional fees, we rule that the fees represent transactions that are separate from the sale of the taxable copies and, as a result, are themselves nontaxable charges. If, however, the services associated with any of these fees are automatically included in the purchase process, such fees could also be considered part of the taxable purchase price of the copies and would be taxable. The fees are nontaxable only as long as they are optional.

The last fee, the �Docustore Fee,� relates to the electronic storage of information. We assume that the customer does not have possession and control of the equipment on which the information is stored. Under such circumstances, the fee for the storage transaction would not be considered the lease of tangible personal property and, accordingly, would not be taxable under Section 59-12-104(1)(k).

Lastly, you ask if the scanners, laptop computers, and other electronic media used by the Taxpayer to provide copies or records are exempt from taxation in Utah. While an exemption exists for the sale of certain equipment used by a Utah manufacturer in the manufacturing process, the Taxpayer is not a Utah manufacturer as defined under that exemption and, therefore, the equipment you describe would be taxable.

Should you have any other questions, please contact us.

For the Commission,

Marc B. Johnson

Commissioner

MBJ/KC

03-015