Sales Tax Exposure for Healthcare Providers in Texas

What is Sales Tax Exposure for Healthcare Providers in Texas?

Sales tax exposure for healthcare providers arises when they fail to apply the correct sales tax exemptions or fail to account for nexus and use tax obligations. Healthcare providers who misapply tax exemptions or overlook their nexus obligations can face audits, penalties, and significant back taxes.

Nexus Rules for Healthcare Providers in Texas

• Physical Nexus: Healthcare providers with a physical presence in Texas—whether through clinics, hospitals, or staff-are required to collect and remit sales tax on applicable transactions.
• Economic Nexus: Texas also imposes economic nexus on healthcare providers who have over $500,000 in sales within the state. These businesses are required to comply with Texas sales tax regulations even if they don’t have a physical presence in the state.

For more details on nexus rules, visit our Sales Tax Nexus page.

Exemptions for Healthcare Providers in Texas

Texas offers specific sales tax exemptions for medical services, equipment, and supplies. Common exemptions for healthcare providers include:

• Medical services: Services provided by licensed medical professionals (e.g., doctors, nurses, etc.) are generally exempt from sales tax.
• Medical equipment: Certain medical devices and equipment used in patient care may be exempt from sales tax if they meet the required criteria.
• Prescription drugs: Sales of prescription drugs are generally exempt from sales tax.

However, healthcare providers must ensure they apply these exemptions correctly to avoid exposure. For more on sales tax exemptions, visit our Texas Sales Tax Exemptions page.

Special Tax Rules for Healthcare Providers in Texas

Healthcare providers in Texas must be aware of special tax rules that affect their operations, such as:

• Hospitals and clinics: Sales tax rules may apply to certain purchases or sales in hospitals and clinics, especially regarding out-of-state purchases.
• Telemedicine services: The taxability of telemedicine services and consultations may differ from in-person medical services.

Use Tax Exposure for Healthcare Providers in Texas

Healthcare providers often face use tax exposure when they:

• Purchase equipment, supplies, or software from out-of-state vendors who don’t collect Texas sales tax.
• Buy goods or services from out-of-state suppliers and fail to remit the appropriate use tax to the Texas Comptroller’s office.
• Engage in cross-border transactions, especially if goods are delivered to a location that doesn't collect tax.

Healthcare providers may also face use tax exposure on out-of-state purchases. Read about use tax on our Use Tax page.

Common Sales Tax Mistakes for Healthcare Providers in Texas

Healthcare providers often make these mistakes, leading to sales tax exposure:

• Misapplying exemptions: For example, mistakenly charging sales tax on exempt services or equipment.
• Failure to account for use tax: Ignoring out-of-state purchases that would require use tax.
• Misunderstanding nexus: Assuming that nexus only applies to physical locations, without accounting for economic nexus.
• Improper record-keeping: Failing to maintain proper records for exempt sales or purchases, leading to complications in audits.

These mistakes can result in significant exposure and back taxes.

How Sales Tax Exposure Builds Over Time for Healthcare Providers in Texas

Sales tax exposure for healthcare providers in Texas typically develops gradually. Errors in exemption application, nexus determination, or use tax reporting can go unnoticed and add up over time, leading to larger liabilities and potential audits.

Common causes of growing exposure include:

• Incorrect application of exemptions.
• Failure to apply use tax on out-of-state purchases.
• Inadequate record-keeping for exempt transactions.
• Missed nexus filings for businesses meeting the $500,000 threshold.