Texas Clarifies Policy Following Letter Ruling that Determined Worker’s Compensation Medical Exams are Subject to Tax

Following a letter ruling released on the subject in October, the Texas Department of Revenue has clarified that doctors performing exams for the state’s Division of Workers’ Compensation are not required to collect sales tax until October 1, 2023, to allow the Worker’s Compensation industry to seek a legislative change. The original letter ruling addressed the taxability of Designated Doctor Examinations, which can be ordered by an injured worker, their insurance agency, or the Texas Department of Insurance’s Division of Worker’s Compensation to resolve issues relating to a worker’s compensation insurance claim. The cost of the exam is covered by the insurance carrier, and the exames are not considered general medical treatment. The Texas Comptroller determined in their letter ruling that the exams do not constitute medical services, but fall under the state’s tax on activities related to insurance claims adjustment and processing that “supervise, handle, investigate, pay, settle, or adjust claims or losses.” The statement of policy recently released by the department supersedes this ruling, but clarifies that the department will begin taxing these services as of October 1, 2023 under similar logic if no legislative changes are made. (Texas Comptroller of Public Accounts, Accession No. 202211002L, 11/10/2022; Texas Comptroller of Public Accounts, Private Letter Ruling 202210014L, 10/20/2022.)

Posted on November 28, 2022