Why Texas Healthcare Companies Should Review Their Sales & Use Tax Policies

Key Takeaways: 

• Texas healthcare companies face complex sales and use tax rules, making regular policy reviews essential. 
• Audits often target high-value purchases, inconsistent reporting, and insufficient documentation of exemptions. 
• Failure to comply can result in significant financial penalties, with audits reaching back up to ten years in some cases. 
• Strong internal controls and proactive documentation help reduce audit risk and protect capital. 
• Partnering with tax experts and conducting routine internal reviews are key steps to mitigate audit exposure. 

How Sales & Use Tax Applies to Healthcare in Texas 

Sales and use taxes can be complicated and costly for healthcare organizations, especially in Texas’ aggressive sales and tax enforcement environment. Texas healthcare organizations must have a clear view of their taxable vs. exempt items, such as medical devices, supplies, mixed-use items, software, and equipment purchases. A major focus area for Texas audits are the exemption and resale certificates. The complexity of the healthcare industry creates high audit risk, and there are common audit triggers. 

Why Healthcare Companies Are Increasingly Audited in Texas 

Many healthcare organizations purchase high-value equipment, supplies, and software that can increase the risk of use tax errors. The healthcare industry is usually targeted with Texas audits due to high transaction volumes and complex tax rules. Common audit triggers include: 

• Inconsistencies in sales or purchase reporting 
• Large refund or exemption claims 
• Information-sharing programs with other agencies 
• Organizations that do not have sales and use tax policies, resulting in unpreparedness for a sales tax audit and larger assessments 

What Texas Sales & Use Tax Audits Look for Healthcare Organizations 

It is common for healthcare businesses to be assessed for unpaid use tax on equipment, supplies, software subscriptions, and maintenance agreements. Texas auditors regularly examine invoices, asset purchases, inventory records, and specialized transaction documentation. During Texas sales and use tax audits, specific healthcare business expense accounts are selected for review.  

The auditors typically select ten to fifteen accounts. Of these accounts, doctors and dentists must be concerned with contractors they pay by 1099s. The Texas sales tax auditors require an invoice or contract describing what personal activities are performed. They will not accept a written statement from the taxpayer describing the activities being done by the person(s). It is critical to check that resale or tax-exempt purchases are properly documented; this is a leading cause of audit assessments. Another factor to consider to reduce audit risk is having strong internal controls. 

Financial Consequences of Non-Compliance 

• Texas can audit up to four years back and in cases of fraud or unpermitted activity, up to ten years. 
• Filing incorrectly, not documenting exemptions, or improper accrual of use tax can lead to major additional financial liability 
• Audits rely on extensive documentation collection and cross-department coordination, which can lead to operational disruption.  

Why Proactive Compliance Is Essential for Healthcare Organizations 

The healthcare industry is a high-volume, high-spend environment. With this activity, small, repeated errors compound over time. To help preserve capital, it is vital to avoid penalties and recapture overpaid taxes. Hence why consistent internal reviews help healthcare organizations reduce exposure to audit findings. 

How Healthcare Companies Can Prepare for and Mitigate Audit Risk 

Take these three steps to ready your company for a potential audit:  

• Conduct routine internal sales and use tax reviews. 
• Strengthen documentation and recordkeeping. 
• Partner with sales and use tax experts. 

Contact Us 

Sales and use tax audits are not only common but increasingly important for healthcare organizations operating in Texas. Proactive compliance protects financial health, reduces audit exposure, and supports long-term operational resilience. Start a conversation with our team today to make sure your healthcare organization is prepared for a sales and use tax audit.