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OLR Bill Analysis
SB 1107
AN ACT CONCERNING THE TAXATION OF AMBULATORY
SURGICAL CENTER SERVICES.
SUMMARY
Beginning July 1, 2021, this bill terminates the 6% ambulatory
surgical centers (ASC) gross receipts tax and instead subjects ASC
services to 6.35% sales tax, subject to certain exclusions.
Under the bill, the sales tax generally applies to ASC services (i.e.,
procedures and services included in a facility fee payment to an ASC)
rendered by an ASC for consideration. The tax does not apply to,
among other things, (1) the first $1.5 million of gross receipts received
during each 12-month period beginning on July 1 for the provision of
ASC services; (2) Medicaid or Medicare payments; or (3) amounts
received by the ASC for tangible personal property used in connection
with ASC services.
The bill also authorizes a refundable state tax credit against the sales
tax for ASCs, based on a portion of the (1) Medicaid payments the ASC
received or would have been due had services similar to ASC services
been performed by and at a hospital instead and (2) payments received
from ASC services provided to individuals covered under the state
employee health plan or municipal employees health insurance
program (MEHIP).
Lastly, for the period from July 1, 2020, to July 1, 2021, the bill
allows ASCs to deduct certain COVID-19 expenses from their gross
receipts for purposes of the ASC gross receipts tax.
EFFECTIVE DATE: July 1, 2021, and applicable to calendar quarters
beginning on or after July 1, 2021, except that the changes to the
existing ASC gross receipts tax are effective June 1, 2021, and
applicable to calendar quarters beginning on or after July 1, 2020. 2021SB-01107-R000678-BA.DOCX
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§§ 2-5 — SALES TAX ON ASC SER VICES
Beginning July 1, 2021, the bill subjects to sales tax ASC services
performed by ASCs for a consideration, excluding services performed
by an employee for his or her employer.
ASC Services Subject to Tax
Under the bill, “ASC services” are the procedures and services
included in a facility fee payment to an ASC that are (1) associated
with a surgical procedure and (2) not reimbursable ancillary or
professional procedures or services. They (1) include facility services
only and (2) exclude surgical procedures and physicians’, anesthetists’,
radiology, diagnostic, and ambulance services that are separately
reimbursed to an ASC from the facility fee payment.
Gross Receipts for Purposes of the Tax
The bill limits the gross receipts from ASC services that are subject
to sales tax to the amounts received (cash or in kind) from patients,
third-party payers, and others for the provision of ASC services,
including retroactive adjustments under reimbursement agreements
with third-party payers. Gross receipts exclude the following:
1. the first $1.5 million of gross receipts received during each 12-
month period beginning July 1, excluding Medicaid and
Medicare payments, for ASC services (presumably, the ASC
would track its gross receipts and begin applying sales tax after
reaching this threshold);
2. Medicaid or Medicare payments received for ASC services;
3. payer discounts, charity care, and bad debts (as defined below);
4. amounts received by an ASC for tangible personal property
used in connection with an ASC service (e.g., implants, devices,
drugs, and biologicals), regardless of the payer; and
5. amounts received by an ASC that were or are subject to the
current ASC gross receipts tax; 2021SB-01107-R000678-BA.DOCX
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Under the current ASC gross receipts tax, gross receipts exclude (1)
the first $1 million of the ASC’s gross receipts in the applicable fiscal
year, excluding Medicaid and Medicare payments, and (2) gross
receipts from any Medicaid and Medicare payments the ASC receives.
Definition of ASC
By law, and under the bill, an ASC is a distinct entity that (1)
operates exclusively to provide surgical services to patients not
requiring hospitalization, where the services are not expected to take
more than 24 hours; (2) has an agreement with the Centers for
Medicare and Medicaid Services (CMS) to participate in Medicare as
an ASC; and (3) meets the federal requirements to do so.
Payer Discounts, Charity Care, and Bad Debts
“Payer discounts” is the difference between an ASC’s published
charges and the actual payments it received from third-party payers
for a different or discounted rate or payment method. It excludes
charity care and bad debts.
“Charity care” is free or discounted health care services provided to
individuals who cannot afford to pay, including to the uninsured
patient or patients who are not expected to pay all or part of an ASC’s
bill based on income guidelines and other financial criteria established
in statute or in an ASC’s charity care policies on file at its office. It does
not include bad debts and payer discounts.
Reporting Method
The bill allows ASCs to report their sales of ASC services on the
cash basis of accounting, rather than on an accrual basis. It does so by
extending to ASCs an existing provision that allows retailers whose
only sales are certain enumerated services and who report their sales
on the cash basis of accounting for federal income tax purposes to do
so for state sales tax reporting purposes. Under the cash basis method
of accounting, the retailer reports its sales during the filing period in
which the customer provides payment regardless of when the services
were rendered. 2021SB-01107-R000678-BA.DOCX
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Tax Credit
The bill establishes a tax credit against the sales tax for ASCs equal
to the following:
1. the greater of 50% of the aggregate amount of Medicaid
payments (a) the ASC received during the applicable reporting
period for ASC services or (b) that would have been due had
those services been performed by and at a hospital instead (i.e.,
the “Medicaid investment”); plus
2. 25% of the aggregate payments received from or on behalf of
each individual covered under the state employee health plan
or MEHIP for the provision of ASC services (i.e., the “state
health plan investment”).
If the credit amount allowed exceeds the ASC’s sales tax liability for
the reporting period, the ASC must file a refund claim with DRS in the
form and manner the DRS commissioner prescribes. After verifying
the claim, the DRS commissioner must treat the excess as an
overpayment and refund it to the ASC. DRS must add interest to the
overpayment at a rate of 0.67% for each month or fraction of a month;
the accrual period for this interest begins 90 days after DRS receives
the ASC’s refund claim and runs until the date DRS provides notice
that the refund is due.
Under the bill, an ASC that claims this credit and receives a refund
is entitled to retain it for its own account and is not required to refund
or pay it to any user or payer for ASC services.
§ 1 — ASC GROSS RECEIPTS T AX
The bill terminates the ASC gross receipts tax as of July 1, 2021, and
makes conforming changes.
It also allows ASCs to retroactively deduct COVID-19 expenses
from their gross receipts for purposes of the tax for FY 21 (i.e., for
calendar quarters from July 1, 2020, to July 1, 2021). Specifically, they
may deduct any amounts they incurred, directly or indirectly, as a
result of COVID-19, for the ASC’s personnel, patients, service 2021SB-01107-R000678-BA.DOCX
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providers, visitors, facilities, or tangible personal property. This
includes amounts for purchasing, leasing, licensing, or using tangible
or intangible property in connection with COVID-19 tests, protection,
prevention, or treatment.
Under the bill, “COVID-19” means the respiratory disease
designated by the World Health Organization (WHO) on February 11,
2020, as coronavirus 2019 and any related mutation of it that the WHO
recognizes as a communicable respiratory disease.
BACKGROUND
Related Bill
sHB 6443, favorably reported by the Finance, Revenue and Bonding
Committee, contains identical provisions.
COMMITTEE ACTION
Finance, Revenue and Bonding Committee
Joint Favorable
Yea 48 Nay 0 (04/22/2021)