United States

State tax challenges for the health care industry during COVID-19

INSIGHT ARTICLE  | 

The health care industry is at the center of the current COVID-19 pandemic. There is a lot of uncertainly within the industry with health care professionals working tirelessly on the front lines treating those afflicted with the virus to non-emergency medical providers who have seen a sharp decline in routine visits and elective procedures. Other sectors such as hospitals and emergency services are seeing a sharp increase in activity. Indeed, the work load for many hospitals seems almost unmanageable. Yet, other segments of the industry such as dentists, eye care physicians, surgery centers and non-emergency providers are essentially dormant. Government policies and social distancing have discouraged and actually prevented patients from obtaining non-emergency medical services. Both those sectors on the front lines of the crisis and those sectors unable to see patents are facing economic difficulties.

Until the cases of COVID-19 reach a plateau, it will be difficult if not impossible to fully assess the impact of the virus on the healthcare industry. Moreover, there is uncertainty as to how the U.S. government stimulus package is going to impact the economy in general and the healthcare industry specifically. At the same time, state and some local governments are contemplating economic relief measure for certain industry sectors including health care.

While there will continue to be uncertainty for quite some time, industry tax professionals should consider how proper planning can  help to support your business, provide cash flow and ease the burden created by the current economic environment. A few state and local tax considerations are highlighted below.

Credits and incentives

Many state and local governments are and will be offering various tax credits and incentives to businesses directly affected by the COVID-19 crisis. In addition, there are many credit and incentive programs currently available. Depending on the jurisdiction these programs may offer tax incentives or grants to retain employees and loans. Potential relief is summarized in our article, Middle market relief for businesses impacted by the coronavirus.

Income/franchise tax

As the economy enters a recession, businesses that are contracting may be generating net operating losses (NOLs) that will not be utilized for some time. Until businesses starts to expand and generate revenue again, there may be ways to monetize NOLs through various planning techniques. Identifying refunds for taxes paid in prior periods could create some additional cash flow. Equally important, businesses should remember that with NOLs, one size does not fit all.

Sales and use tax

Many health care companies have substantial sales and use tax liabilities. Carefully assessing the taxability of purchases could lead to substantial savings. And it is possible to identify instances where tax was incorrectly paid on certain purchases. Sales and use tax refunds can result in substantial and much need cash flow for businesses. Among all industries, health care businesses overpay sales and use tax much more frequently than other industries due to the number of available exemptions and the volume of purchases.    

Employment tax

While many businesses will be laying off employees, certain sectors of the health care industry may see a sharp increase in employment to deal with COVID-19. Consideration should be given to employment tax impact from additional hiring, such as proper withholding considerations. To the extent businesses are considering layoffs, there are a number of unemployment tax considerations for the COVID-19 pandemic.

Outsourcing

For most health care industry companies, many accounting and finance personnel are working remotely. Yet, most companies are ill equipped to conduct business remotely for long periods of time. Outsourcing some compliance functions either temporarily or permanently could reduce internal costs.

Takeaways

The COVID-19 crisis is having differing effects on the various sectors of the health care industry. Those effects depend on the sector; they also depend on the location of the operations. Yet, all health care industry firms should know the potential tax risks and opportunities that arise from the current economic crisis. Addressing state and local tax matters during this period can prevent the proliferation of state tax exposures and can even result in substantial tax and/or cash savings for firms that plan appropriately. RSM’s state and local tax (SALT) team has the industry experience required to provide comprehensive services to all sectors of the health care industry at this time.

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