Jan 19, 2015
From KPMG TaxWatch
The Texas Comptroller of Public Accounts recently ruled that a taxpayer’s “credentialing” services were subject to sales and use tax. The taxpayer charged vendors a fee for which it “credentialed” certain individuals, such as pharmaceutical representatives and the vendor’s employees, to allow the individuals to access secure areas of hospitals and healthcare institutions. Vendors seeking to get employees credentialed submitted personal information and accreditations, as required by the relevant medical facility. Using the information, the taxpayer searched government watch lists to determine if the individuals had any past felony convictions or were registered sex offenders. However, the taxpayer did not verify that the documents and information received from the vendors was genuine or valid. After the information was submitted, and ostensibly no red flags were found, the vendor received a badge that enabled its employees to enter secured areas within any medical facility that used the taxpayer’s services. Both the vendor and the medical facility could access the information compiled and maintained by the taxpayer. The taxpayer requested guidance from the Texas Comptroller regarding the taxability of its credentialing services.
Under Texas Tax Code Ann. § 151.0101(a)(12), data processing services, which include word processing, data entry, data retrieval, data search, and information compilation are subject to sales and use tax. Further, under Tex. Admin. Code 3.330(a)(1), data processing services include the processing of information for the purpose of compiling and producing records of transactions, maintaining information, and entering and retrieving information. The taxpayer was paid by vendors to compile and maintain information that allowed the vendor’s employees to access the medical facilities that subscribed to the taxpayer’s service. In the Comptroller’s view, the taxpayer was providing a data processing service subject to Texas sales and use tax. It was not clear in the ruling, but the taxpayer appeared to argue that its service was not taxable because the data being processed was not required by the vendor paying for the service, but was required by the medical facilities. In the Comptroller’s view, the fact that the data being processed was required by the medical facilities but paid for by the vendors did not change the taxability determination because the medical facilities were the beneficiaries of the data processing service. The Comptroller went on to note that access badges and replacement badges could be purchased by the taxpayer as tax-free sale for resale as the badges were an integral part of providing the taxable data processing service. For additional information regarding Texas Private Letter Ruling No. 201501005L please contact Josh Hennessey at (713) 319-2881.
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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.