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Ohio's and Michigan's Sales and Use Taxes on Medicaid Managed Care Organization Services Do Not Meet Broad-Based Requirement

If a State taxes Medicaid managed care organizations (MCOs), the tax must extend to both Medicaid and non-Medicaid MCOs (i.e., be broad based) to comply with Federal requirements. At the time of our audit in 2016, two States did not meet Federal requirements stating that taxes on MCOs be broad based. Specifically, Ohio and Michigan continued to tax only Medicaid MCOs under their sales and use tax programs. Ohio stated that it would work with the Centers for Medicare & Medicaid Services (CMS) to address changes that might need to be made to its tax.

Two States, California and Pennsylvania, implemented new MCO tax programs effective July 1, 2016, to conform to the Deficit Reduction Act of 2005 (DRA). Four States (Georgia, Kentucky, Missouri, and Oregon) discontinued collecting their Medicaid MCO-only tax on September 30, 2009, to conform to the DRA.

We recommended that CMS monitor Ohio's and Michigan's use of revenues from their sales and use tax on Medicaid MCOs as part of the State share of Medicaid program expenditures after December 31, 2016, and verify that they conform to Federal requirements that such taxes be broad based. CMS concurred with our recommendation and stated that it granted Ohio a waiver that would bring the State's proposed MCO tax into compliance. In addition, CMS stated that Michigan discontinued its tax on December 31, 2016, which also brings it into compliance.

Filed under: Center for Medicare and Medicaid Services