State sales tax/Insurance question

[Uilleann]

I hope this may be the best place to pose this question? If not, feel free to move/delete as you feel motivated moderator types. :)

So being a VSP provider, they called us today asking what our tax collection policy was for VSP patients and their hardware. Utah requires tax to be collected on all hardware and materials (some states do not tax, but UT does - go figure.) Utah does NOT charge sales tax on services rendered, ie: exams and CL fits. So we have been charging pt's tax based on their lens co-pays, and frame overages only. Not on what would have been the total amount before insurance (usual and customary charges). Does this sound correct?

VSP was asking us if we charged tax on the retail amount of frames in particular, or only the wholesale amount listed in frames data. We really do neither of these as we've only been charging tax based on the actual amount we collect from the patient. We've never taken into account (here at this office) the amount we would be reimbursed from VSP as it seems to be highly variable and impossible to calculate quickly & accurately for every patient. Should we be worried that we're setting ourselves up for an audit with the state? VSP?

Before anyone from the peanut gallery chimes in - it's the doctors decision to panel with VSP and they are in it for the long haul...so please no comments about crooked insurance or how we should get out of the insurance business etc. etc. We get it. Thanks. ;)

How do you guys figure your tax in these situations (for those of you that have to figure it in your state of course.) Appreciate any insight you may offer.

Brian~

[Kyle]

We're lucky - no durable medical goods tax in Georgia, but I would expect any state requiring such would look at the U&C retail as being wholly taxable and not just an overage collected from patient based on a private insurer's fee schedule. Yes, your payments may come from an out of state payer but the initial sales originate in your office. This is purely speculative on my part but you probably could verify it by examining state code.

Best of luck to you!

K

[DC Optix]

We accepted many different insurance plans where I used to practice, and in ALL cases, we calculated tax based on what the patient was paying. I don't believe that what the insurance company pays should have any bearing on what is taxable.

Good luck!

[Uilleann]

Utah tax code is a nightmare to try and navigate - but I expect it should be somewhat similar to other states who collect on medical goods.

I don't understand how the state can make a claim for taxes against monies not collected however.

For example: If a frame that retails for say $200 (U&C)-

But a patient's insurance requires a co-payment of say $64 out of pocket-

How can the state lay claim to tax a sale totaling $200? Which would run: $13.70 in this example.

We've been charging tax based on the actual amount collected from the patient for frame, lens and material co-pay (if any). In this case that would be: $4.38

That difference, $9.32, is pretty big at the end of the year obviously. Just not certain how that would work.

[Uilleann]

Anyone else?? :(

[William Walker]

Sorry I can't offer anything on the tax issue, but in regards to calculating VSP's reimbursement, I found it was very simple. We did a high volume of VSP in my office, and using the EOB that accompanies a reimbursement check, you could easily see what the reimbursement amount was going to be on your most commonly sold lenses and coatings. The frame reimbursement was a simple equation as well.

VSP's reimbursement shouldn't have anything to do with your taxation either, but in a private office, you need to know how the system works to make sure it's not working against you. If you have an idea of what you should be getting back for each patient, you eliminate the possibility of being taken advantage of.

Good luck!

[Mr. Finney]

I think it depends on who you talk to . A couple of years ago I actually posed these questions to our accountant, who in turn asked the Oklahoma Tax Commission. Their response was that we should tax the full amount we receive as payment for goods, and if the insurance company didn't pay the tax, as they usually don't since generally there's a set amount they reimburse per item, then we should collect the full tax from the patient:drop:! So if EyeMed pays us $150 for a pair of glasses, and the patient pays us $25, then the patient also pays tax on $175! Try explaining that to any halfway intelligent consumer:shiner:.

Another insurance company recently said "No, you cannot charge the patient tax on what we pay because it's in your contract to not do so." The only thing in the contract is the usual "you agree that (our) payment shall constitute full payment, less copay and overages". As a matter of principle, I think it's ridiculous to try to collect tax from one party simply because the other party refuses to pay it.

But getting off of my soapbox and back to the original question, we tax the "reduced for insurance purposes" amount, not the original full sales price.:cheers:

[Uilleann]

I follow your thinking exactly Finney. And that's what we're doing here now as well. I fully believe that to collect tax on some mystical number that neither the insurance company will pay, nor the patient (due to what the same insurance company says is the amount they should pay) is insanity.

I can understand presenting it as a straight 'dollar amount off' however. in example: frame costs 100. tax adds say 5. 105 total cost. Insurance pays 50. patient would then be liable for the remaining 55 total.

But in the case of co-payments and calculations and equations of percentages off of U&C etc., that it doesn't make any sense nor seem even remotely legal to collect tax on what the full amount *might* have been.

Thanks for the reply. I wonder if any others out there are having similar questions. This is NOT an audit you want to sneak up on you from behind! I also wonder if we're in the vast minority in charging tax on medical products???

[rdcoach5]

We use Maximeyes and their VSP calculator to automatically figure the tax for our VSP patients. It took awhile and was a pain for our office manager to set up, but now that we have it, we simple enter the Rx and the options selected and frame info and the calculator automatically figures the patient's out-of-pocket, including tax. Nice

[Uilleann]

It's not a question of simply figuring a tax from a dollar amount. Any monkey with a calculator can do that in three seconds. It's a question specifically relating to the amount of tax collected and state tax law on what is to be taxed. Don't get me going on the woes of Maximeyes and VSP "integration"...that's another thread! :shiner: haha

[Fezz]

It's not a question of simply figuring a tax from a dollar amount. Any monkey with a calculator can do that in three seconds.

It took me two minutes and 37 seconds!

[Johns]

I too think it's only paid on what's collected. If you buy a car that is normally $25K, but you only pay $20K, you don't pay on what it normally costs do you?

[obxeyeguy]

I think of this like using a coupon at the store. Most of them sale the customer is responsible for all taxes. The item cost is $4.00, tax $0.32, total $4.32, less dollar coupon, total $3.32. Tax on full amount charged.

Now if the store (insurance co.) had that on sale (discount), that amount is not taxable, as the consumer was not charged that amount. The insurance discount is an amount never collected, but the money they pay is going towards the taxable costs of the eyewear.

[Mr. Finney]

Nice analogy obx :cheers:

[Uilleann]

Right OBX. And basically what we've been doing here. Which is why I didn't understand VSP's phone call asking if we were taking the wholesale, or full retail amount - when the answer is easy: NEITHER. Ah well - I've got a call-back into the lady's answering machine. So we'll see what she has to say if we even hear back sometime next week or two.