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N659 Remark Code: Item Is Exempt From Sales Tax

N659 means the payer removed or did not pay a sales tax amount because it considers the item exempt from sales tax. The tax charge is adjusted off, while the item itself may still be paid.

Quick facts

Code
N659 (RARC N659)
Status
Active In use since July 15, 2013.
Code set
Remittance Advice Remark Codes (RARC)
Group codes
  • CO (Contractual Obligation): The sales tax amount is not payable and is the provider's adjustment. It should not be passed to the patient if the item is in fact exempt.
Official description
This item is exempt from sales tax.
X12 Remittance Advice Remark Codes, retrieved September 25, 2026
Last verified
against the official X12 list.

What N659 means

Suppliers of durable medical equipment, prosthetics, orthotics, and some other items sometimes bill sales tax along with the item, especially to workers’ compensation, auto, and certain commercial payers that reimburse tax where it applies. N659 says the payer reviewed the tax portion and concluded the item is exempt. The tax line or amount is reduced to zero, usually alongside CARC 235.

Many states exempt prescribed medical equipment, prosthetics, and certain supplies from sales tax, but the rules differ from state to state and item to item. The payer is applying its reading of those rules.

Common causes

  • The item is on the state’s list of exempt medical devices or supplies.
  • A prescription or order on file makes the item exempt under the state’s rules.
  • The supplier’s billing system adds tax automatically to all items.
  • The payer applied the rules of a different state than the one where the item was delivered.

What to do

  1. Check the tax status of the item in the state where it was sold or delivered.
  2. If the item is exempt, accept the adjustment and stop charging tax on that item going forward. Do not bill the tax to the patient.
  3. If the item is taxable, request reconsideration with the relevant state rule and your invoice showing the tax.
  4. Correct your billing setup so the tax flag matches each item’s actual status.

How to prevent it

Maintain a tax status for each item in your billing system by state, and review it when state rules change. Get advice from a tax professional for items where the exemption depends on a prescription or the patient’s circumstances.

Codes that may appear with N659

  • CO-235 (Sales Tax): The sales tax adjustment itself; N659 explains that the item was exempt.
  • N660 (Sales tax has been included in the reimbursement.): The opposite outcome: sales tax was included in the payment.
  • CO-137 (Regulatory Surcharges, Assessments, Allowances or Health Related Taxes.): Regulatory surcharges, assessments, allowances, or health-related taxes, a different category of tax-type adjustment.
  • N649 (Payment based on invoice.): Payment based on the invoice, which may show whether tax was actually charged.

N659 FAQ

Are medical items always exempt from sales tax?

No. Exemptions depend on the state and the type of item, and often on whether there is a prescription. Check your state's tax rules for the specific item.

What if I paid sales tax when I bought the item?

The payer's decision on reimbursement doesn't change what you paid your supplier. Talk to your tax advisor about whether you can claim an exemption or refund from the supplier.

Is the item itself denied?

Not necessarily. N659 addresses the tax amount. Check the other adjustments on the line to see how the item was paid.