Connecticut Overhauls ASC Gross Receipts Tax

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Connecticut Overhauls ASC Gross Receipts Tax

Multiyear advocacy effort finds success

Connecticut Governor Ned Lamont (D) signed the two-year state budget implementer bill, SB 1202, into law a couple of weeks ago. The budget implementer contained policy provisions impacting various state laws, including one with big implications for ASCs: an advantageous overhaul of the state’s ASC gross receipts tax.

The current tax, a gross receipts tax of 6 percent on ASCs, was first enacted in 2015. Lisa Winkler, the executive director of the Connecticut Association of Ambulatory Surgery Centers (CAASC), noted that at the time, the state was involved in a dispute with the Connecticut Hospital Association over its tax on hospitals—a dispute which would later make its way to the courts—and part of the General Assembly’s rationale for instituting the tax on ASCs was that it was responding to calls to even the playing field. The tax on ASCs, added late in the budget process, took ASCs by surprise. While the 6 percent tax was the highest—and remains the highest—provider tax imposed on ASCs nationwide, the tax rate itself did not show the full picture of the devastating impact on centers. According to research done by CAASC, since the tax did not allow for deductions for expenses, such as property, sales and use taxes, it resulted in a 30 percent topline tax on centers in the state.

Just as Connecticut was enacting this tax on ASCs in 2015, other states that had similar taxes were repealing them, which was a sign that state legislatures were beginning to recognize the counterproductive nature of such taxes. Rhode Island had recently repealed their taxes on ASCs, Wisconsin would follow suit in 2017 and Florida would do the same three years later, repealing its tax on ASCs during the 2020 legislative session. CAASC immediately went to work pointing out the unfairness of the tax in the hopes that the state legislature would reconsider. CAASC members noted that, unlike hospitals, ASCs already pay taxes that other small businesses pay, like state income, sales and property taxes. While CAASC successfully worked with State Senator John Fonfara (D) to add language to a special session bill that provided an exemption from the tax for the first $1 million in ASC revenues, the General Assembly refused to consider a total repeal of the burdensome tax.

Despite the General Assembly’s unwillingness to repeal the tax, CAASC kept trying to decrease the tax burden placed on centers, working to introduce legislation eliminating the tax in subsequent legislative sessions. While CAASC worked to reduce taxes on ASCs, others in the state were working to increase the impact of the current tax. The result of a legislatively commissioned study on the subject, the 2017 budget implementer bill contained language that would strip ASCs of the existing exemption from the tax for their first $1 million in revenue. This marked the beginning of an annual exercise that has continued all the way up to 2021, as language to eliminate the $1 million exemption would be included in the budget implementer each year, with CAASC repeatedly returning to the General Assembly to successfully make the case against the language.

During the 2021 regular session, CAASC went on the offensive with a proposal that would transform the tax and deliver significant relief to ASCs. The proposal was the product of a collaboration with Fonfara to find ways to increase the number of Medicaid and state employee insurance cases taken by ASCs. Under the bill, ASCs would be subject to a sales tax on ASC services at the rate of 6.35 percent, with Medicaid and Medicare payments and implants and biologicals exempt from the definition of “ASC services,” and the existing $1 million exemption increased to an exemption for the first $1.5 million in revenue. The language also included tax credits to encourage ASCs to take patients using Medicaid and state employees insurance, along with an expense reduction from the current year’s tax for COVID-19 expenses. The language was introduced as SB 1107, but CAASC and its legislative champions were able to eventually amend it into the budget implementer measure, replacing the current year’s version of the language that would have removed the $1 million exemption. However, while Connecticut’s budget implementer is required by law to be passed by July 1, this is not required to happen, and often does not, during the regular session. The 2021 budget implementer failed to gain passage before the General Assembly adjourned its regular session sine die.

When the special session convened on June 15, the new budget implementer bill no longer contained the language CAASC and Fonfara had crafted, but compromise language instead. Under the special session bill, the current 6 percent tax, along with the existing exemption for the first $1 million in revenue, would sunset on July 1, 2023. At that time, the tax would become a 3 percent tax on ASC services—i.e., only those procedures or services included in a facility fee payment—excluding Medicaid and Medicare payments.

Despite insistence from the governor’s office to eliminate the $1 million exemption, Winkler says the rate reduction and the restriction of the tax on facility fees provides significant relief to centers in the state. And while the new language is cause for celebration for Connecticut ASCs, CAASC is not resting on its laurels. Winkler expects efforts to reduce the tax liability of, and expand access to, ASCs during the next legislative session. With the state continuing to grapple with high healthcare costs, Winkler and CAASC see ASCs as a critical part of cost containment efforts in the state. It is a message they have shared with legislators since the passage of the tax in 2015, and one they plan to keep sharing well after ASCs start feeling the benefits of the tax reduction.

Write Stephen Abresch with questions.