Gross receipts from healthcare services delivered to dialysis patients were properly sourced to Ohio where the treatments were performed. Accordingly, the patients received the benefit of the dialysis services at the treatment locations in Ohio. Total Renal Care, Inc. v. Harris, Slip Opinion No. 2024-Ohio-5685. Total Renal Care (“TRC”) provided dialysis treatments to patients with kidney disease and end-stage renal disease to clean their blood. These treatment sessions were performed entirely at dialysis centers in Ohio. TRC asserted it was owed a refund on some of its receipts earned from ancillary services performed outside of Ohio, such as laboratory testing and administrative services. The Ohio Supreme Court held that all gross receipts from Ohio treatments were sitused to Ohio and subject to commercial activity tax since patients received the benefit of the healthcare services entirely in Ohio where they were treated, regardless of ancillary services performed outside the state.
TRC conceded at oral argument that its only service was providing dialysis treatments to its patients and that all dialysis treatments occurred in Ohio. While it also performed laboratory and administrative functions as part of the patients’ treatment, those activities “support and exist solely for its provision of dialysis services to patients in Ohio.” Ohio situses receipts from services to the location where the purchaser receives the benefit of the services. R.C. 5751.033(I). Ohio Adm. Code 5703-29-17(C)(28) specifically provides that healthcare services that are performed in Ohio are sitused to Ohio. If healthcare services are provided partly in Ohio and partly elsewhere, “a reasonable allocation must be made.” Id.
Relying on this administrative rule, TRC filed a commercial activity tax refund claim allocating a portion of its gross receipts to Florida based upon the laboratory and administrative services performed there. However, this rule must be applied consistent with the statute and that “the physical location where the purchase ultimately uses or received the benefit of what was purchased is paramount in determining the proportion of benefit the benefit received in Ohio.” The Court explained that the laboratory and administrative services “do not constitute healthcare services provided in Ohio or received by patients in Ohio.” The services were only provided to support the dialysis treatments delivered in Ohio and were not provided as standalone services. As a result, the purchasers of the services received the benefit of the services in Ohio where they were treated.
This decision interprets Ohio’s market-based sourcing rules for commercial activity tax, which focus on the location where the purchaser ultimately receives the benefit of services, not the location where ancillary services may be performed.
