Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2017
Sales and Use Tax Annotations
120.0000 AUTOMATIC DATA PROCESSING SERVICES AND EQUIPMENT—Regulation 1502
(a) IN GENERAL
120.0406 Processing Healthcare Claim Forms. A taxpayer, who is located out of state, is engaged in the business of processing healthcare claim forms for California customers. The taxpayer receives either an electronic or physical claim from its customers and converts or reformats the claim to the proper format for the ultimate payer of the claim. The taxpayer then transmits the converted or reformatted claim to the appropriate insurance company (payer) for processing and provides its customer with a copy of the claims it processed in a CD ROM format. The taxpayer charges its customers a "claims conversion fee" which includes "data analysis and reporting" and an "archival fee" for providing of a copy of the claim on CD ROM. The data analysis and reporting consist of summarizing or extracting information from customer-furnished claims forms for inclusion in a report wholly separate and apart from the CD ROM provided as part of the taxpayer's archival fee.
When the taxpayer electronically transmits claims to the payer, the customer is charged a "one-way transmittal fee." Also, a "clearinghouse fee" is charged to the customer for electronically transmitting claims from the customer to the taxpayer, repricing the claim and transmitting the claim to the payer. This fee includes data analysis and reporting. Under these facts, tax does not apply to taxpayer's charges for claims conversion since that fee represents a charge for the processing of customer-furnished information. The "clearinghouse fee" is similar to the "claims conversion fee" in that the taxpayer summarizes or extracts information from customer-furnished claims for inclusion in a report wholly separate and apart from the CD ROM provided as part of the taxpayer's archival fee. As such, tax also does not apply to the clearinghouse fee. Also, tax does not apply to "one-way transmittal fee" since this fee only relates to the electronic transmission of a claim from the taxpayer to the payer.
Tax does apply, however, to the taxpayer's "archival fee" since it is only converting a claim from an electronic image to a CD ROM and then selling that CD ROM to its customers. Sales tax applies to this fee when the sale of the CD ROM takes place inside this state and there is some participation in the transaction by a location of taxpayer in California. When sales tax does not apply, use tax is imposed on the sales price of the CD ROM; the taxpayer must collect that amount from its customers and pay it to the Board. 06/24/96.