Is durable medical equipment (DME) still exempt from South Carolina sales and use tax after the Orthofix decision?

Plain-English summary

Durable medical equipment (DME) is now taxable in South Carolina. Sellers must collect and remit South Carolina sales tax on DME sold in the State after June 26, 2024.

The change comes from a court decision, not a new statute. In Orthofix, Inc. v. S.C. Department of Revenue and the companion KCI USA Inc. case (App. Case No. 2023-000318, final June 26, 2024), the South Carolina Supreme Court examined the DME exemption in S.C. Code Ann. § 12-36-2120(74). That exemption applied only to DME sold by a provider "whose principal place of business is located in this State." The Court held that this in-state condition discriminated against interstate commerce — in-state providers got the exemption while out-of-state providers had to charge tax — which the dormant Commerce Clause prohibits.

Although only that one phrase was unconstitutional, the taxpayers could not show it was severable from the rest of the exemption, so the Court struck down the entire exemption. With no valid exemption, DME sales are taxed like other tangible personal property under S.C. Code Ann. § 12-36-910(A).

The letter modifies the Department's earlier DME guidance, SC Revenue Rulings #11-3 and #10-2.

What this means for you

Sellers of durable medical equipment

Charge and remit South Carolina sales tax on DME sold in the State on or after June 26, 2024. The former exemption — even for in-state providers who previously qualified — is gone.

Sales paid by Medicare or Medicaid

Medicare and Medicaid transactions are subject to sales tax, and the seller (not the program) is liable for remitting it, regardless of whether Medicare or Medicaid reimburses the tax. There is one narrowing rule: under S.C. Code Ann. § 12-36-110(j), if the seller is prohibited by law from billing the buyer the difference between the retail price and the amount reimbursed, then only the net amount reimbursed by Medicare or Medicaid is subject to tax.

Federal programs are unchanged

The Court's decision addresses only South Carolina tax. Federal Medicare and Medicaid rules remain in full force.

Common questions

Q: Is DME still exempt in South Carolina?
A: No. The exemption in § 12-36-2120(74) was held unconstitutional and struck in its entirety, so DME is taxable for sales after June 26, 2024.

Q: Why was the exemption invalid?
A: It required the provider's principal place of business to be in South Carolina, which discriminated against out-of-state providers in violation of the dormant Commerce Clause. The offending language was not severable, so the whole exemption fell.

Q: What about DME paid for by Medicare or Medicaid?
A: It is taxable, and the seller must remit the tax. If the seller is legally barred from billing the buyer the unreimbursed difference, only the net amount reimbursed is taxed (§ 12-36-110(j)).

Q: Does this letter change federal law?
A: No — it affects only South Carolina sales and use tax.

Citations and references

Court decision:

• Orthofix, Inc. v. S.C. Dep't of Revenue; KCI USA Inc. v. S.C. Dep't of Revenue, App. Case No. 2023-000318 (S.C. June 26, 2024) — DME exemption held unconstitutional and struck as not severable

Statutes:

• S.C. Code Ann. § 12-36-2120(74) (2014) — the invalidated DME exemption
• S.C. Code Ann. § 12-36-910(A) (2014) — imposition of sales tax on retail sales of tangible personal property
• S.C. Code Ann. § 12-36-110(j) — Medicare/Medicaid-reimbursed sales; net-amount-reimbursed rule
• S.C. Code Ann. § 12-36-1110 — 1% rate increase effective June 1, 2007

Authority:

• S.C. Code Ann. §§ 12-4-320, 1-23-10(4); SC Revenue Procedure #09-3

Modifies: SC Revenue Ruling #11-3; SC Revenue Ruling #10-2

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/IL24-10.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 12265, Columbia, South Carolina 29211

SC INFORMATION LETTER #24-10
SUBJECT:

Durable Medical Equipment—Exemption
(Sales and Use Tax)

EFFECTIVE DATE: The South Carolina Supreme Court’s ruling was final on June 26, 2024. The
change described in this Informational Letter applies to all periods open
under the statute.
MODIFIES:

SC Revenue Ruling #11-3
SC Revenue Ruling #10-2

REFERENCES:

S.C. Code Ann. Section 12-36-910(A) (2014)
S.C. Code Ann. Section 12-36-2120(74) (2014)

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (2014)
S.C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #09-3

SCOPE:

An Information Letter is a written statement issued to the public to
announce general information useful in complying with the laws
administered by the Department. An Information Letter has no precedential
value.

PURPOSE:
In Orthofix, Inc. v. S.C. Dep't of Revenue and KCI USA Inc., v. S.C. Dep’t of Revenue, App. Case
No. 2023-000318 (June 26, 2024), the South Carolina Supreme Court held that the sales and use
tax exemption for durable medical equipment (DME) found in S.C. Code Ann. Section 12-362120(74) is unconstitutional. The Supreme Court found that certain language within the exemption
discriminates against interstate commerce, which is prohibited under the dormant Commerce
Clause. The Supreme Court found the entire exemption to be invalid, determining that this
language is not independent and severable from the remainder of the exemption.
This Information Letter gives notice that the sales and use tax exemption for DME found in S.C.
Code Ann. Section 12-36-2120(74) is now invalid and that sellers of DME are required to collect
and remit sales tax on their sales of DME within this State after June 26, 2024. Additionally, this
Information Letter addresses sales of DME to Medicaid and/or Medicare beneficiaries, where
South Carolina or United States funds under either the Medicaid or Medicare programs are used
to partially or fully pay for the DME on behalf of the beneficiaries.
1

LAW AND DISCUSSION:
South Carolina imposes a “sales tax, equal to [six] 1 percent of the gross proceeds of sales, . . . upon
every person engaged or continuing within this State in the business of selling tangible personal
property at retail.” S.C. Code Ann. Section 12-36-910(A). In 2007, the General Assembly enacted
a sales tax exemption that exempts from sales taxes DME and related supplies:
(a) as defined under federal and state Medicaid and Medicare laws;
(b) which is paid directly by funds of this State of the United States
under the Medicaid or Medicare programs, where state or federal
law or regulation authorizing the payment prohibits the payment
of the sale or use tax; and
(c) sold by a provider who holds a South Carolina retail sales license
and whose principal place of business is located in this State . . ..
S.C. Code Ann. Section 12-36-2120(74) (emphasis added).
DME Exemption Invalidated
In Orthofix, Inc., the South Carolina Supreme Court held that the phrase “whose principal place
of business is located in this State” discriminated against interstate commerce because it treated
out-of-state providers differently than in-state providers. Specifically, the Court found that outof-state providers of DME were required to pay sales tax on its sales of DME in the State, however
in-state providers of DME were exempt from the sales tax. While the Court only found this portion
of the exemption to be unconstitutional, the Respondents (Orthofix and KCI USA) were unable to
show that this unconstitutional portion of the exemption statue was independent and severable
from the remainder of the exemption. The Court therefore deemed the entire exemption invalid.
Because the exemption is invalid, all sellers of DME are now required to pay sales tax on their
sales of DME within this State.
Sales of DME to Medicaid and/or Medicare Beneficiaries
Medicare and Medicaid transactions are subject to the State’s sales tax. 2 Sellers of DME within
this State who are paid partially or fully by Medicaid or Medicare must remit sales taxes on the
sales of DME, regardless of whether Medicaid or Medicare will reimburse the tax. 3

1

Section 12-36-1110 increased the sales and use tax rate by 1% beginning June 1, 2007.

2

See S.C. Code Ann. Section 12-36-110(j).

3

The person engaged in the sale of tangible personal property within this State is liable for
remitting the sales tax. See S.C. Code Ann. Section 12-36-910(A).
2

The South Carolina Supreme Court’s decision has no effect on federal law. Therefore, any laws
regarding DME paid partially or fully by Medicaid or Medicare on behalf of their beneficiaries
remain in full force and effect.
Sellers of DME may be prohibited by law from charging the purchaser the difference between the
retail sale and the amount reimbursed or paid by Medicare or Medicaid. South Carolina’s statute
specifically addresses this issue. S.C. Code Ann. Section 12-36-110(j) states:
Sale at retail and retail sale mean all sales of tangible personal property except those
defined as wholesale sales. . . (1) The terms include: (j) “sales, not otherwise exempted 4,
when reimbursed or paid in whole or in part by Medicare or Medicaid. However, only the
net amount reimbursed by Medicare and Medicaid is subject to the tax, if the vendor is
prohibited by law from charging the purchaser the difference between the retail sale and
the amount reimbursed.”
Accordingly, sellers of DME to Medicaid or Medicare beneficiaries, where the transaction
includes a full or partial payment from Medicaid or Medicare, must remit sales tax on the portion
of the transaction allowed under Section 12-36-110(j).

4

Other exemptions include, but are not limited to, the sale of “tangible personal property
or receipts of any business which the State is prohibited from taxing by the Constitution or laws
of the United States of America or by the Constitution or laws of this State” (S.C. Code Ann.
Section 12-36-2120(1)) and sales of “tangible personal property sold to the federal government”
(S.C. Code Ann. Section 12-36-2120(2)).
3