United States

Wisconsin: Tax Appeals Commission Applies True Object Test; Photocopied Medical Records not Taxable

Jul 20, 2015
From KPMG TaxWatch

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The Wisconsin Tax Appeals Commission recently determined that the provision of photocopied medical records was not a transaction subject to the state’s sales or use tax. The taxpayer, a personal injury law firm, requested medical records from health care providers on behalf of its clients. The law firm paid for these records, but sales tax was not collected and use tax was not remitted. Following an audit, the Wisconsin Department of Revenue assessed use tax on amounts paid for records provided in hardcopy. All parties agreed that records provided electronically were not taxable. The taxpayer appealed the assessment to the Commission.

The Commission noted at the outset that the records were tangible personal property, as they were photocopied documents delivered in tangible form. However, in the Commission’s view, the photocopied medical records were not the true object of the transaction. Under Wisconsin law, the true object test applies to transactions involving the transfer of tangible personal property and the performance of a service if the transaction is not a “bundled transaction” and the service provided is not a specifically enumerated taxable service. After ruling that the provision of medical records was not a bundled transaction and that provision of medical care was not a specifically taxable service, the Commission applied the true object test. It determined that the law firm’s objective when purchasing medical records was not to obtain the paper copies, but was to obtain information―an intangible―on a patient’s medical history. Further, the Commission noted that the provision of medical information was not a separate business activity for the health-care providers involved. In other words, these entities would have no information or records to provide if they were not in primarily in the business of providing medical treatments. The Commission concluded that the true object behind a request for medical information, in whatever form, was to obtain medical information. The transactions at issue primarily involved the professional service of providing medical care and the required production of information relating to that care. As such, the photocopied records were not taxable. For more information on Cannon & Dunphy v. Wisconsin Department of Revenue, please contact Jill Nielsen at 312-665-2794.

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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.