CARC 235 Active

CO-235: Sales Tax Not Reimbursable

TL;DR

Sales tax is a contractual write-off. Remove tax from future claims and write off the current amount.

Action

Resubmit

Who Pays

Provider

Appeal

Patient Impact

None

Disclaimer

This content is for informational purposes only and does not constitute professional billing advice. Always verify information against your payer contracts and current coding guidelines. Consult a certified billing specialist for specific claim issues.

What Does CO-235 Mean?

CO-235 means the sales tax is a contractual adjustment that the provider must absorb. The payer does not reimburse sales tax and the provider cannot pass this charge to the patient under the contractual agreement. The tax amount must be written off.

CARC 235 is straightforward: the payer identified sales tax charges on the claim and is denying reimbursement for that portion. Most payers do not reimburse sales tax because it is not considered a healthcare service charge. This typically comes up on claims for medical supplies, durable medical equipment (DME), and pharmacy items where sales tax may be applicable under state law.

The issue usually stems from the provider's billing system automatically adding sales tax to the line item charges without distinguishing between what the payer will and will not reimburse. In some states, medical supplies are tax-exempt, and the tax should not have been charged at all. In other states, sales tax is legitimate but the payer simply does not cover it.

CARC 235 can appear with CO (provider absorbs the tax as a write-off) or PR (the patient is responsible for paying the tax directly). The resolution depends on which group code is used and whether the tax was correctly applied in the first place.

Common Causes

Cause	Frequency
Sales tax included in claim charges The provider included sales tax as part of the billed charges on the claim, but the payer does not reimburse sales tax as it is not considered a covered healthcare service charge	Most Common
Incorrect sales tax calculation on medical supplies The provider used an outdated or incorrect tax rate when calculating sales tax on medical supplies or DME, or failed to account for applicable healthcare tax exemptions in the state	Common
Missing tax exemption documentation The claim includes sales tax that should have been exempt based on the type of medical supply or the patient's insurance status, but the exemption certificate or supporting documentation was not on file	Common
Billing system automatically adding sales tax The provider's billing software automatically added sales tax to medical charges without distinguishing between taxable and non-taxable healthcare items or services	Occasional

How to Resolve

Remove sales tax from the claim charges if included in error, or write off (CO) or bill the patient (PR) for the legitimate tax amount.

Remove tax from the claim If the sales tax was included in error on the claim charges, remove it and resubmit. If the payer simply does not reimburse sales tax, write off the amount.
Update billing system settings Configure your billing system to exclude sales tax from claim charges for payers that do not reimburse it.

Do Not Appeal This Code

This is a standard contractual adjustment. The amount is a provider write-off per your payer contract.

Common RARC Pairings

The RARC code tells you exactly what triggered the CO-235:

RARC	Description
N130	Remainder of charges are the patient's responsibility.
N657	Sales tax is not a covered charge.

How to Prevent CO-235

Configure billing systems to separate sales tax from claim charges automatically
Maintain current knowledge of state tax exemptions for medical supplies and DME
Audit billed charges periodically to ensure tax is not inadvertently included

General Prevention

Configure billing systems to exclude sales tax from claims submitted to payers that do not reimburse it
Maintain current knowledge of state-specific sales tax rules for healthcare products and services
Obtain and keep on file all applicable sales tax exemption certificates for medical supplies
Conduct periodic audits of billed charges to ensure sales tax is not inadvertently included on payer claims
Train billing staff on the distinction between taxable and non-taxable healthcare items in your state

Also Filed As

The same CARC 235 may appear with different Group Codes:

PR-235

Related Denial Codes

CO-24 — Charges Covered Under Capitation or Managed Care CO-44 — Prompt-Pay Discount CO-45 — Charge Exceeds Fee Schedule / Maximum Allowable CO-59 — Multiple / Concurrent Procedure Payment Reduction CO-66 — Blood Deductible

Sources

https://www.mdclarity.com/denial-code/235
https://x12.org/codes/claim-adjustment-reason-codes
Codes maintained by X12. Visit x12.org for official definitions.