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CO-235 Denial Code: Sales Tax Adjustment

CO-235 means the adjustment on the line is for sales tax. The payer is reporting that some or all of the sales tax billed was not paid, or is explaining how tax was handled in the payment.

Quick facts

Code
CO-235 (CARC 235)
Status
Active In use since June 6, 2010.
Code set
Claim Adjustment Reason Codes (CARC)
Group codes
  • CO (Contractual Obligation): The sales tax amount is not paid by the payer and is treated as a provider adjustment under the contract or policy.
  • PR (Patient Responsibility): The payer indicates the sales tax may be the patient's responsibility, which depends on plan terms and state tax rules.
Official description
Sales Tax
X12 Claim Adjustment Reason Codes, retrieved September 25, 2026
Last verified
against the official X12 list.

What CO-235 means

CARC 235 simply reads Sales Tax. It shows up when a claim includes sales tax, usually on durable medical equipment, supplies, prosthetics, or other tangible items, and the payer adjusts it rather than paying it as billed.

Sales tax on medical items depends on state law. Some items are exempt, some are taxable, and payers differ on whether they reimburse tax separately, include it in their allowed amount, or exclude it altogether. The remark code usually tells you which situation you are in: the item is exempt (N659), or the tax is already in the payment (N660).

Example: a supplier bills a taxable item plus a sales tax line. The payer’s fee schedule already includes tax, so it pays the item at its allowed amount and reports the separate tax line as CO-235 with N660.

Common causes

  • Tax billed on an exempt item under state law.
  • Payer includes tax in its fee schedule and does not pay a separate tax line.
  • Payer policy excludes sales tax from reimbursement.
  • Tax calculated at the wrong rate or on the wrong base amount.
  • Tax billed on services rather than on taxable goods.

How to fix it

  1. Read the remark code to see whether the item is exempt or tax is included.
  2. Check your state’s tax rules for the specific item and the patient’s location.
  3. Review your payer contract for how tax is reimbursed.
  4. If tax was billed in error, stop billing it for that payer or item. A corrected claim is only needed if the payer requires it.
  5. If the contract says tax is payable separately, request reprocessing with the contract language.
  6. Post the adjustment under the group code reported. Do not move a CO-235 amount to the patient.

How to prevent it

  • Maintain a list of taxable and exempt items for each state where you deliver.
  • Configure billing so tax lines go only to payers that reimburse them separately.
  • Reconcile the tax you collect or remit with the tax payers actually pay.
  • Review tax adjustments on ERAs periodically to catch configuration errors early.

Specialty notes

DME suppliers, pharmacies, and orthotics and prosthetics providers see this code most. Physician practices rarely bill sales tax on claims, so CO-235 in that setting often points to a charge master setup issue.

Remark codes that may appear with CO-235

  • N659 (This item is exempt from sales tax.): The item is exempt from sales tax, so any tax billed was removed.
  • N660 (Sales tax has been included in the reimbursement.): Sales tax was already included in the reimbursement, so a separate tax line was not paid.
  • CO-45 (Charge exceeds fee schedule/maximum allowable or contracted/legislated fee arrangement.): A fee schedule or contracted rate reduction, not specific to tax.
  • CO-212 (Administrative surcharges are not covered): An administrative surcharge that is not covered.
  • CO-96 (Non-covered charge(s).): A general non-covered charge.

CO-235 FAQ

Do health insurers pay sales tax?

Some do for taxable items like certain durable medical equipment or supplies, and some include tax in their fee schedule. Rules depend on the payer, the contract, and state tax law.

Can I bill the patient for sales tax denied with CO-235?

Not under the CO group. If the payer reports it as PR, check the plan terms and your state's tax rules before billing the patient.

What does N660 with CO-235 mean?

It means tax was built into the payment already. Billing it separately would count it twice, so the separate tax line was adjusted.

Should sales tax be a separate line on the claim?

Only if the payer's billing instructions call for it. Some payers expect tax as a separate line with a specific code, some include it in the allowed amount, and some do not recognize it at all.