Insurance payments for medical equipment

Reporting insurance payments for medical equipment

Generally, sales and rentals of medical equipment (both durable medical equipment and mobility enhancing equipment) are retail sales subject to sales tax. This includes payments made by both the customer and/or health insurance provider.

Payments made by a health insurance provider are presumed to include sales tax, and the medical supply vendor may back out sales tax when both of the following conditions are met:

• The payment is a fixed amount set by contract between the medical supply vendor and the health insurance provider.
• The medical supply vendor is not authorized to collect the balance from the covered person (or other persons).

“Backing out” the retail sales tax

To calculate the taxable amount of a payment that includes retail sales tax, the vendor must:

1. Add 1 to the retail sales tax rate.
2. Divide the amount of the payment by the sum determined above.

Examples

The following scenarios represent how medical supply vendors report sales/rentals of medical equipment. Each scenario that includes an “insured” person assumes that the contracts between the medical supply vendors and the insurance companies are in compliance with RCW 48.43.290. Each scenario also assumes a 9% retail sales tax rate.

Scenario 1

An insured person buys a walking cane from a medical supply vendor. The insurance company is billed for $200 plus retail sales tax of $18. The vendor’s contract with the insurance company states that the insurance company is under no obligation to remit more than the contractual amount of $200 (fixed price). The vendor must accept this as payment in full and is not entitled to collect additional funds from the customer.

Since the vendor will not receive the additional retail sales tax from the insurance company due to the contract language, they may back out the retail sales tax from the amount paid by the insurance company.

The vendor reports $183.49 under both the retailing B&O tax and retail sales tax classifications and remits the $16.51 of retail sales tax.

Scenario 2

An insured person buys medical equipment from a medical supply vendor. The selling price of the equipment is $1,000 plus retail sales tax of $90. The contract between the insurance company and the medical equipment vendor indicates that the insurance payment is not for a fixed amount. The insurance company pays the vendor $1,090.

The vendor reports $1,000 under both the retailing B&O tax and retail sales tax classifications and remits the $90 of retail sales tax collected. Here, there is not an established set price for payment by the insurance company. Therefore, sales tax is calculated on the selling price of the equipment, which is determined by the vendor.

Scenario 3

An insured person buys a wheelchair from a medical supply vendor. The insurance company is billed $200 plus retail sales tax of $18. The medical supply vendor is paid $100 per terms of their contract with the insurance company. Under her private coverage, the purchaser is obligated to pay the vendor the balance of $118, ($218 - the $100 payment by the insurance company).

The vendor reports $200 under both the retailing B&O tax and retail sales tax classifications and remits the $18 of retail sales tax collected. Because the vendor is entitled to collect the remaining balance from the customer, they set the selling price and collect sales tax on that amount.

Definitions

Durable medical equipment is equipment that withstands repeated use to serve a medical purpose. It includes the equipment itself as well as replacement parts and repairs to the equipment. Examples of durable medical equipment include:

• Hospital beds.
• IV stands.
• Heart lung machines.
• X-ray machines. 

Mobility enhancing equipment is used to provide or increase the ability for a person to move from one place to another before, during, or after a medical service. Examples of mobility enhancing equipment include:

• Wheelchairs.
• Walking canes.
• Lifting chairs.
• Crutches.

Health insurance providers include commercial insurers, the Medicaid program, and the Medicare program.

References

WAC 458-20-18801 - Medical substances, devices, and supplies for humans - Drugs prescribed for human use - Medically prescribed oxygen - Prosthetic devices - Mobility enhancing equipment - Durable medical equipment.

RCW 48.43.290 – Coverage for prescribed durable medical equipment and mobility enhancing equipment – sale and use taxes. 

RCW 82.08.050 – Buyer to pay, seller to collect tax.

Special Notice: Sales and use tax exemption for purchases of mobility enhancing equipment