ky sales tax

Article Dean Dorton

As we turn the page on 2018, and look forward to the goals and expectations of a new year, many of us will establish resolutions to improve our fitness, diet, and overall personal health. This may include establishing a new exercise plan as well as scheduling preventive check-ups and implementing other wellness programs in our daily lives. We will make concerted efforts to more closely watch our weight, BMI, calorie intake, fitness activity, cholesterol, and the list goes on. This same strategy can be applied to your organization’s revenue cycle.

Below are five key performance indicators that you can monitor to ensure your revenue cycle is performing in accordance with your expectations.

A/R Aging > 90 days

Examine your third party payer A/R aged greater than 90 days from date of service. National benchmarks suggest this should be 15% or less. There could be some variability depending on your payer mix, but if this indicator is significantly greater than 15%, this may be indicative of a sluggish billing and collections process.

Staff performance and productivity

If there are personnel, staffing issues, or general performance concerns within any level of your revenue cycle, address it immediately. Often times, this type of personnel feedback is reviewed only annually, and in some cases, poor performance is tolerated for no good reason. Acknowledge that improvement plans, redesigned roles and responsibilities, or even personnel changes sometimes need to be made to improve results and morale. This extends into leadership roles and contracted vendors.

Cash to charge collections ratio

Review your collections a percentage of your billed charges. High charge months due to increased volumes should equate to increased cash collections in a subsequent period, but take a closer look to understand the collection percentage and not just the dollar amount. Additionally, examine the cash collections as percentage of the prior period’s billed charges to calculate a 30-day lag collection rate. Charge entry, coding, and billing backlogs, as well as staffing shortages can significantly impact your collections rate from month to month. Also, keep a close eye on changes in payer mix as this too, will affect the overall collection rate.

“Backlogs”

Some backlogs within the revenue cycle are inevitable, but they must be monitored and managed accordingly. Keeping these to a minimum and within reasonable ranges are critical to ensuring key performance indicators do not deteriorate. Backlogs related to charge entry, medical coding, claim submission, payment posting, and refunds are of great significance. Establish guard rails for these key tasks and monitor them closely.

Medical coding and documentation

The foundation of each encounter and claim submitted by your organization is the medical documentation and subsequent coding assignment. Changes in physician documentation habits, software upgrades, EHR templates, and coding personnel can impact your outcomes related to coding, and ultimately reimbursement and risk. Evaluate your processes and controls related to auditing medical documentation and coding assignment as well as ongoing provider and team member education to mitigate coding concerns and overall risk. Recurring chart audits can be a helpful tool to better manage potential errors.

Although there are many areas within a revenue cycle that need to be closely monitored, these are five indicators that can be included as part of a successful oversight program. Be committed to monitoring these and identifying potential improvement opportunities within your organization for a successful 2019.

To learn more or for more information, contact Adam Shewmaker, FHFMA, Director of Healthcare Consulting Services at Dean Dorton. ashewmaker@ddafhealthcare.com

Article Dean Dorton

With the 2018 changes to Kentucky’s tax code, there are a few particularly noteworthy for manufacturers: (1) for income tax: conformity with the federal tax changes, and adoption of single sales factor apportionment for multi-state corporations; (2) for sales tax: the taxation of some repair and installation labor, and a narrowing of the exemption for energy in excess of three percent of cost of production; and (3) for property tax: the phase-in of a credit for taxes paid on inventories, and the exemption of custom software.

Income Tax

Kentucky conforms to a majority of the changes to the federal tax code set forth in the Tax Cuts and Jobs Act. This means that the domestic production activities deduction is no longer available. The primary exception to Kentucky’s conformity is the decoupling from the federal depreciation and expensing provisions. Additionally, Kentucky’s income tax rate was changed to a flat 5% rate, and the state adopted single sales factor apportionment.

Single sales factor apportionment applies to multi-state corporations doing business in Kentucky. Previously, multi-state corporations apportioned income to Kentucky using a three-factor (sales, property, and payroll) apportionment formula. Effective for the 2018 tax year, only the sales factor will be used for apportionment purposes. The three-factor formula was retained for providers of communications and multichannel video programming services (cable and satellite TV) and certain financial organizations.

Sales and Use Tax

Kentucky joined 21 states and the District of Columbia in taxing installation and repair labor. This change was made by adding installation and repair labor to the definition of “gross receipts”, which is the tax base for sales and use tax. Specifically, gross receipts includes: “the amount charged for labor or services rendered in installing or applying the tangible personal property, digital property, or service sold.” Three general rules can be drawn from the statutory change.

  1. There is no sales tax on installation or repair labor, unless there is a transfer of tangible property or digital property.
  2. If a manufacturer is involved, there is no sales tax on installation or repair labor if the machinery or equipment is (a) directly used in manufacturing, (b) the labor is separately stated on the invoice, and (c) the customer provides the installer/repairer with a resale certificate.
  3. There is no sales tax on installation or repair labor if the customer is exempt from tax under Section 501(c)(3) of the Internal Revenue Code and the exempt entity gives the installer/repairer an exemption certificate.

The exemption for machinery and equipment directly used in manufacturing described in Rule 2 is critical to manufacturers. Machinery or equipment that is “directly used” in manufacturing is located at and between (i) the place where the raw materials start into a “continuous, unbroken, integrated process”, and (ii) the place at which the finished product is packaged and ready for sale. The manufacturer should provide the installer/repairer with a resale certificate. In the absence of a resale certificate, the installer/repairer should collect and remit sales tax at the 6% rate.

Historically, Kentucky has permitted manufacturers to exempt from sales tax energy purchases in excess of three percent (3%) of their cost of production. Some entities bifurcated the purchase of their raw materials from their other cost of production to maximize the energy exemption. The change to Kentucky’s statute forecloses this planning opportunity by requiring raw materials to be included in the calculation of cost of production, regardless of what entity purchases the raw materials.

Property Tax

The General Assembly also adopted an inventory tax credit to be phased-in over the next four years. The credit is a non-refundable income tax or limited liability entity tax credit allowed for ad valorem taxes timely paid on business inventory. The phase-in is as follows: 2018 – 25% of tax paid; 2019 – 50% of tax paid; 2020 – 75% of tax paid; and 2021 and forward – 100% of tax paid. Additionally, the legislature enacted an exemption from property tax for custom software.