CO-235: Sales Tax
A sales tax adjustment was applied. Verify the rate and applicability per state law.
What Does CO-235 Mean?
With CO, the sales tax adjustment is contractual. Verify the tax is correct per state law.
CARC 235 indicates a sales tax component on the claim. Some states impose sales tax on medical products, equipment, or supplies, and this code reflects the tax adjustment in the claim processing. The payer may be adding, adjusting, or denying the sales tax component depending on the jurisdiction and the specific product billed.
Sales tax rules vary significantly by state — some states exempt medical devices and prescription drugs from sales tax, while others impose tax on DME, medical supplies, or over-the-counter products. The treatment of sales tax on insurance claims depends on both state law and the payer's policy.
Common Causes
| Cause | Frequency |
|---|---|
| Sales tax included on claim but not covered by payer The provider included sales tax on items billed to the payer, but the payer does not reimburse sales tax separately | Most Common |
| Tax-exempt payer billed for sales tax The payer (e.g., government program) is tax-exempt and the sales tax should not have been included on the claim | Common |
| Sales tax applied to non-taxable medical services Sales tax was incorrectly applied to medical services or items that are exempt from sales tax in the applicable jurisdiction | Occasional |
How to Resolve
- Verify tax applicability Check if the product is taxable.
- Verify the rate Confirm the correct tax rate.
- Contest if incorrect Submit documentation if the tax was misapplied.
Sales tax is typically not reimbursable by payers, especially tax-exempt government programs. Review your contract for tax policies. Remove sales tax from claims to tax-exempt payers.
Common RARC Pairings
The RARC code tells you exactly what triggered the CO-235:
| RARC | Description |
|---|---|
| N381 | Alert: Consult your contractual agreement for restrictions, billing, and payment information. Review your contract for sales tax reimbursement policies → |
How to Prevent CO-235
- Maintain awareness of state sales tax rules for medical products
- Apply correct tax rates on claims
- Track changes in state sales tax exemptions for medical products
General Prevention
- Understand each payer's policy on sales tax reimbursement before billing
- Identify tax-exempt payers and configure your billing system to exclude sales tax from their claims
- Review state tax exemption rules for medical services and supplies
- Train billing staff on when to include and exclude sales tax on claims
Also Filed As
The same CARC 235 may appear with different Group Codes:
Related Denial Codes
Sources
- https://x12.org/codes/claim-adjustment-reason-codes
- https://portal.ct.gov/-/media/ohs/health-it-advisory-council/apcd-advisory-group/data-submission-guide-workgroup/meeting-materials/6-30-22/carc-codes_final.pdf
- https://www.aapc.com/resources/claim-adjustment-reason-codes
- Codes maintained by X12. Visit x12.org for official definitions.