United States

Ohio: Medical Transcription Services Constituted Taxable Automatic Data Processing Services

Jan 16, 2017
From KPMG TaxWatch

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Recently, the Ohio Board of Tax Appeals upheld the assessment of use tax on the purchase of medical transcription services. The taxpayer at issue, a medical practice, used transcriptionists to transcribe dictation recorded by doctors into written text. Under Ohio law, sales and use tax is imposed on automatic data processing services, but not personal or professional services. In his Final Determination on the matter, the Ohio Tax Commissioner concluded that the medical transcription services were automatic data processing services and not personal or professional services, as argued by the taxpayer.

In reaching its conclusion that the transcription services were taxable data processing services, the Board relied on two previous decisions addressing whether transcription services were personal and/or professional services. In these cases, the key determinant was whether the provider performed a skilled service using the data provided by the customer. Specifically, did the provider apply specialized cognitive skills to study, alter, analyze, interpret, or adjust the data? Consistent with its previous decisions, the Board concluded that the medical transcriptionists hired by the taxpayer simply reduced a physician’s spoken word to written form and did not study, alter, analyze, interpret, or adjust the provided material. The taxpayer attempted to distinguish the prior rulings by pointing to a statement in one of the previous Board decisions that transcription may be a professional service when a taxpayer enters into a written contract specifying that each transcriptionist must hold a certificate from an approved college program. To that end, the taxpayer produced diplomas and certificates indicating that the company from which it obtained these services required completion of coursework in medical transcription and secretarial work. However, the taxpayer provided no written contract establishing that it required these qualifications, no information regarding the nature of the institutions listed on the diplomas/certificates, and no proof that the individuals named on the documents were actually the transcriptionists that provided services to the taxpayer. Therefore, the Board concluded that the taxpayer had not met its burden of demonstrating that the transcription services were personal/professional services. For more information on Ankle & Foot Care Centers LLP v. Testa, contact Dave Perry at 513-763-2402.

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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.