Most medical billing never touches sales tax. Durable medical equipment, supplies and some retail items are the exception. When a supplier adds tax to a charge and the payer will not pay it, or pays it inside another amount, the remit shows CO-235. It is small money per claim, but across a DME book it adds up, and posting it wrong leaves false balances everywhere. (Primary source: X12 Claim Adjustment Reason Codes)
In brief: CARC 235 reads “Sales Tax”. Check the remark code: N659 means the item is exempt, and N660 means tax was already included in the payment. Confirm your state’s rules and the payer contract, stop adding tax for exempt payers or items, and post the CO-235 amount as a contractual adjustment, not a patient balance.
Part of our denial codes library. Written by Manikandan J, CPC, CRCR, who has reconciled DME and supply remits for home medical equipment suppliers. Published 23 October 2026. Last updated: 23 October 2026. Code wording quoted word for word from X12.
What does CO-235 mean?
| Field | Value |
|---|---|
| Code | 235 |
| Description | “Sales Tax” |
| Start | 06/06/2010 |
Source: X12 Claim Adjustment Reason Codes, checked 23 October 2026.
CO-235 is an adjustment for the sales tax part of a charge. Sales tax exemption means state law or the payer’s status removes the tax; many states exempt prescribed medical equipment, and many government payers are exempt buyers. A fee schedule amount is what the payer allows; CMS publishes Medicare’s on its DMEPOS fee schedule page.
Two remarks explain most CO-235 lines:
- N659: “This item is exempt from sales tax.”
- N660: “Sales tax has been included in the reimbursement.”
Why payers adjust sales tax
- The item is exempt. For example, a prescribed wheelchair in a state that exempts mobility equipment.
- The payer is exempt. Such as a government program that does not pay state tax.
- Tax is built into the rate. The contract or fee schedule already covers it, so a separate tax amount is cut.
- Wrong tax setup. For instance, the billing system applies retail tax to every item.
Example scenario (fictional names), part 1
CO-235 Denial Example: What Happened
Kevin Walsh manages billing for Summit Home Medical, a DME supplier. Every claim for a commercial plan’s members started showing a small CAS*CO*235 line with remark N660, about 7 percent of each charge.
The team had been leaving those amounts open as patient balances. After two months, hundreds of small statements were going to patients for tax on walkers, nebulizers and CPAP supplies.
Who owes the tax? Keep reading, or jump to how the CO-235 denial was resolved.
How to work CO-235
- Read the remark. N659 points to an exemption; N660 means tax is already in the payment.
- Check the contract. Look for language on taxes and whether rates include them.
- Check state rules. Confirm which items and buyers are exempt in your state.
- Fix the charge setup. Stop adding tax where it is not payable.
- Post correctly. Post CO-235 as a contractual write-off, not a patient balance, and refund patients who paid it in error.
No claim box causes CO-235, so there is no claim form correction. The work sits in pricing setup and payment posting.
Example scenario (fictional names), part 2
How the CO-235 Denial Was Resolved
Kevin read the commercial contract. It said allowed amounts included all applicable taxes.
Fix: He had the system stop adding tax on that plan’s claims, wrote off the open CO-235 amounts as contractual adjustments and refunded the patients who had paid tax statements.
Outcome: Patient complaints stopped and the old balances cleared. Summit now maps N660 to an automatic contractual adjustment in its posting rules.
Names and details are illustrative; no real patient data.
CO-235 compared with nearby codes
| Code | Meaning | Patient owes? |
|---|---|---|
| CO-235 | Sales tax adjustment | No, under CO |
| CO-45 | Above the allowed amount | No |
| PR-1, PR-2, PR-3 | Cost sharing | Yes |
| CO-97 | Included in another service | No |
Need help reading remits? See how to read an explanation of benefits.
FAQ
What does CO-235 mean?
It is the sales tax adjustment. The payer did not pay the tax part of the charge, or already included it.
What is remark N659?
It says the item is exempt from sales tax.
What is remark N660?
It says sales tax was already included in the payment.
Can I bill the patient for the tax?
Not under group code CO. Treat it as a contractual adjustment.
Is CO-235 common outside DME?
It is rare. It shows up mostly with equipment, supplies and some pharmacy items.
Sources
How we checked: each code quote on this page was matched word for word with the X12 CARC and RARC lists on 23 October 2026.
- X12, Claim Adjustment Reason Codes (CARC 235). Accessed 23 Oct 2026.
- X12, Remittance Advice Remark Codes (N659, N660). Accessed 23 Oct 2026.
- CMS, DMEPOS Fee Schedule. Accessed 23 Oct 2026.
- CMS, Healthcare Common Procedure Coding System. Accessed 23 Oct 2026.
Last updated: 23 October 2026 ยท Educational content; not legal advice.