As previously reported in a September Action Article, a home care agency reported that an auditor from the Department of Revenue (DOR), in reviewing their records, noted that sales tax must be applied to housekeeping and laundry services provided by home care workers for their clients.  Further, this auditor stipulated that health care providers will need to charge sales tax for the portion of the services identified as laundry and housekeeping AND would likely owe sales taxes retroactively for these services.  In addition, the auditor noted that this policy would be applied not only to all home care agencies, but eventually to all assisted living and nursing facilities.  To our knowledge, cleaning and laundry services provided by caregivers have not previously been subject to state sales tax.  We were concerned about the potentially broad implications such a policy change would have on our members, and requested that Revenue Commissioner Ward Einess review this issue with his staff and meet with us to discuss it.

Background
Although there are Department of Revenue fact sheets on laundry and building cleaning services that delineate certain tasks as taxable, we also know that “medical services” are exempt.  We advocated the position with Commissioner Einess that cleaning and laundry services provided by health care workers are “medical” services, distinctly different from commercial and industrial cleaning services and laundry/dry cleaners, which are subject to sales tax.  In a health care setting, the need for cleaning and laundry services is directly related to the clients' health care condition, and may require special precautions for safety or infection control.  In addition, there are situations where additional laundry and housekeeping services are needed DUE TO the client's medical condition.  It would be nearly impossible to separate out for tax purposes, for example, when linens were washed because it was “wash day” from when they were washed because of an episode of incontinence.

Also, oftentimes because the clients' health care condition results in the need for assistance with cleaning and laundry, these services, along with other supportive and health-related services needed by the clients, are all typically reimbursed by health care programs such as Medical Assistance, Medicare and long-term care insurance.  Typically, these payors bundle the payment for all of the services that clients receive from their health care workers, because all of these services are interwoven to support the client and meet their needs in that setting.

Action
After providing the Department of Revenue with case information and background materials, and after they spent several weeks in internal meetings, we were able to secure a meeting with Commissioner Einess and his sales tax management staff on September 15, 2010.  It was clear from the meeting that the Department would like to be able to resolve this issue with us by issuing a clarification to existing tax policy.  Association President/CEO Patti Cullen, in attendance at this meeting, pledged to respond back in the near future with recommended language that somehow delineates when/how these services can be considered medical services, and thus, exempt from sales tax.  The Department did agree that the clarifications would apply to services delivered prospectively—there would be no retroactive application.

Resolution
The following summary table expresses the resolution of the sales tax issue from the DOR perspective.  A revenue notice is likely to come out in the coming weeks.

** Medical Services means services included in a service package provided by a licensed/certified/registered person and/or agency.

Toby Pearson
952.851.2480
tpearson@careproviders.org

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