WAC 233

Medical Service Bureaus-Deferred Compensation Cancelled 7/17/2002 - Medical Service Bureaus—Deferred Compensation--This directive explains the tax treatment of income deferred by a physician through a deferred compensation plan sponsored by a medical service bureau. This directive provides inaccurate information and is no longer needed. Tax-reporting instructions for deferred compensation plan sponsoring medical service bureaus and their member physicians are explained in Det. 89-467, 8 WTD 247 (1989).

Hospitals

Tax on international investment management services or other business or service activities.

Tax liability of medical and hospital service bureaus and associations and similar health care organizations. Effective 7/1/70

Tax Exemptions for Temporary Medical Housing Provided by Health or Social Welfare Organizations

B&O TAX -- FEDERAL INSTRUMENTALITY -- MEDICARE INTERMEDIARY. A fiscal intermediary for Medicare is not a federal instrumentality. Receipts from the federal government for administrative fees are subject to service B&O tax.

B&O TAX – DRUGS – SALE OF –ADMINISTRATION. Only those drugs sold and physically administered by the seller are taxable under the services and other activities classifications of the B&O tax. Drugs sold to patients or their caregivers for either patient self –administration or administration by a caregiver other than the seller are taxable under the retailing classification of the B&O tax.

ADVANCES AND REIMBURSEMENTS – INTENT OF PARTIES. Where the contract language is clear and there is no evidence to refute the contract language, the Department will rely on the contract language to determine if Rule 111 applies.

RHO.The decision in Rho holds that where an employer-employee relationship exists and there is an issue as to who is the employer, the Department must consider the actual intent of the parties and not just the contract, to determine the identity of the employer.The Rho decision did not find that an agency relationship exists whenever there is a three-party relationship.

ADVANCES AND REIMBURSEMENTS – ELEMENTS. All three Rule 111 conditions set out in Christensen and Rho must be met for a receipt to qualify for pass-through treatment.

ADVANCES AND REIMBURSEMENTS – BURDEN. The taxpayer must claim, as well as carry the burden of showing qualification for pass-through treatment under Rule 111.

ADVANCES AND REIMBURSEMENTS – ELEMENTS – SUPERVISION AND CONTROL. In a non-employment placement situation, determining whether the taxpayer acted as an agent in paying third parties generally cannot be resolved by an analysis of supervision and control factors set out in Rho and ETA 90-001.

DEDUCTIONS -- ADVANCES & REIMBURSEMENTS -- CAPITATION PAYMENTS. When a taxpayer receives funds to procure services from a third party for services the taxpayer did not or could not provide and the taxpayer is liable to the third party solely as agent for its customer, the amounts received are not considered part of the taxpayer’s gross income.

DEDUCTIONS -- QUALIFIED MEDICAL SERVICE ORGANIZATIONS -- AGENCY. Qualified medical service organizations are entitled to deduct from their gross income amounts paid to physicians and hospitals rendering medical services to subscribers of the organization when the organization contractually acts solely as the agent of the physicians and hospitals.

RCW 82.04.290, RCW 82.04.322, RCW 48.14.021:SERVICE B&O TAX –EXEMPTION – M+C RECEIPTS – “TAXABLE” – FEDERAL PREEMPTION. Because a federal statute preempts a Washington premiums tax on the M+C receipts, the receipts are not exempt from B&O tax because they are not “taxable” under the Washington premiums tax (RCW 48.14.0201).

RCW 82.04.080(1); DET. NO. 88-250, 6 WTD 113 (1988): GROSS INCOME – PUBLIC/NONPROFIT HOSPITAL B&O TAX – EFFECT THAT SOURCE OF COMPENSATION HAS ON TAXABILITY. For purposes of B&O tax, the source of compensation does not affect tax liability. Taxpayer owes B&O tax on amounts it receives from employees for services rendered to them under the employee medical plan. Taxpayer cannot deduct labor costs from the measure of its B&O tax liability.

RCW 82.04.080(1); RCW 82.04.260(10): GROSS INCOME - PUBLIC/NONPROFIT HOSPITAL B&O TAX – MEDICAL SERVICES PROVIDED UNDER AN EMPLOYEE MEDICAL PLAN. Taxpayer’s gross income includes all income from transactions under its employee medical plan where it provides medical services to its employees, exclusive of any deductions, and regardless of whether such income represents gains on such transactions.

B&O TAX -- DEDUCTION -- QUALIFIED MEDICAL SERVICE ORGANIZATIONS -- ACTING SOLELY AS AGENT OF PHYSICIAN. Qualified medical service organizations are entitled to deduct from their gross income amounts paid to physician/clinic who render medical services to subscribers of the organization where the organization contractually acts solely as the agent of the physician/clinic in offering to its subscribers medical services of the physician.

B&O TAX -- DEDUCTION -- MEDICAL BUREAU -- FEES PAID TO MEMBER PHYSICIANS -- PORTION WITHHELD FOR RETIREMENT FUND. The portion of a fee withheld by a retirement fund pursuant to a physician's agreement with a medical bureau is taxable to that physician when withheld, since that doctor has constructively received that portion of the fee. That portion is simultaneously deductible from the gross income of the medical bureau.THIS DETERMINATION HAS BEEN OVERRULED OR MODIFIED IN WHOLE OR PART BY DET.NO. 89-467, 8 WTD 247 (1989).

B&O TAX -- DEDUCTION -- MEDICAL BUREAU -- FEES PAID TO MEMBER PHYSICIANS -- DEFERRED COMPENSATION. Medical service corporation permitted to deduct payments to member physicians and member physicians are obligated to pay B&O tax on such amounts; deferred compensation benefits not deductible by medical service corporation when paid and do not constitute taxable income to the member physicians when withheld or received. Overrules Det. 88-205, 5 WTD 387 (1988).

B&O TAX -- HEALTH CARE ORGANIZATIONS -- PUBLIC HOSPITALS -- CONTRACT STAFF PHYSICIANS ACTING AS AGENTS. Public hospital having no subscribers or members is not a medical service or similar health care organization. Even if such hospital did qualify as a health care organization, hospital payments to contract physicians engaged by hospital to staff hospital facilities for the benefit of all patients do not qualify for deduction.