Were radioactive seeds sold to medical providers for prostate-cancer brachytherapy exempt from South Carolina sales tax?

Plain-English summary

The South Carolina Department of Revenue ruled that LHJ, Inc.'s sales of radioactive implant seeds to hospitals, medical centers, and medical practitioners for prostate-cancer treatment were exempt from sales and use tax.

The seeds were rice-sized titanium capsules containing radioactive material. Physicians implanted 40 to 100 seeds directly into the prostate, where they delivered concentrated radiation to the tumor and remained permanently after their radioactivity dissipated. The Department classified them as therapeutic radiopharmaceuticals used in the treatment of cancer.

The PLR also concluded that the associated fee LHJ charged for each radioactive-seed implant procedure was exempt because the underlying seed sale was exempt.

What this means for you

Medical-product suppliers

The ruling turned on the product being a therapeutic radiopharmaceutical and on its use in cancer treatment. A different radioactive product, medical use, or fee structure may produce a different result.

Hospitals and practitioners

The exemption described here did not require the hospital or practitioner to buy the seeds under a patient-specific prescription. The ruling distinguished therapeutic radiopharmaceuticals used for cancer treatment from the general prescription-sale rule.

Tax professionals

The Department treated the medical provider as the user or consumer of supplies furnished as part of patient care, but the specific cancer-treatment exemption removed tax from the seed sale on these facts.

Common questions

Q: What treatment did the seeds provide?
A: Brachytherapy for prostate cancer, using implanted radioactive capsules to deliver localized radiation directly to the prostate.

Q: Did the seeds need to be removed later?
A: No. The ruling says they remained permanently after delivering nearly all radioactivity by the third month.

Q: Was the procedure fee taxable?
A: No, under this PLR's facts. The Department treated it as exempt because the associated seed sale was exempt.

Q: Can another supplier rely on this PLR?
A: No. The ruling binds agency personnel only for LHJ, Inc. and the specific facts represented.

Citations and references

• S.C. Code Ann. § 12-36-2120(28)(a) — therapeutic radiopharmaceuticals used in cancer treatment
• S.C. Code Ann. § 12-36-110(1)(i) — hospitals and medical practitioners as users or consumers of patient supplies
• S.C. Regulation 117-332 — definitions and treatment of medicines and prosthetic devices

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: PLR05-1.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org

SC PRIVATE LETTER RULING #05-1

SUBJECT:

Radioactive Implant Seeds
(Sales and Use Tax)

REFERENCES: S. C. Code Ann. Section 12-36-2120 (2000; Supp. 2003)
S. C. Code Ann. Section 12-36-110 (2000; Supp. 2003)
SC Regulation 117-332 (Supp. 2003)
AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2000)
S. C. Code Ann. Section 1-23-10(4) (Supp. 2003)
SC Revenue Procedure #03-1

SCOPE:

A Private Letter Ruling is a written statement issued to a specific taxpayer by
the Department to apply principles of law to a specific set of facts or a
particular tax situation. A Private Letter Ruling is an advisory opinion; it
does not have the force and effect of law and is not binding on the person
who requested it or the public. It is, however, the Department’s opinion
limited to the specific facts set forth, and is binding on agency personnel only
with respect to the person to whom it was issued and only until superseded or
modified by a change in statute, regulation, court decision, or advisory
opinion, providing the representations made in the request reflect an accurate
statement of the material facts and the transaction was carried out as proposed.

Question:
Are sales of radioactive implant seeds by LHJ, Inc. to hospitals, medical centers and medical
practitioners for use in the treatment of prostate cancer (as described in the facts) exempt from
the South Carolina sales and use tax under Code Section 12-36-2120(28)(a)?
Conclusion:
Sales of radioactive implant seeds by LHJ, Inc. to hospitals, medical centers and medical
practitioners for use in the treatment of prostate cancer (as described in the facts) are sales of
therapeutic radiopharmaceuticals and are exempt from the South Carolina sales and use tax
under Code Section 12-36-2120(28)(a) since they are being used in the treatment of cancer.
Note: Since the sale of radioactive implant seeds by LHJ, Inc. to hospitals, medical centers and
medical practitioners for use in the treatment of prostate cancer (as described in the facts) are
exempt, the associated procedure fee charged for each “radioactive seed implant procedure”
performed by the hospital, medical center or medical practitioner is also exempt from the tax.

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Facts:
LHJ, Inc. (“LHJ”) charges a hospital, medical center, and medical practitioner for the purchase
of the radioactive seeds used in a “radioactive seed implant procedure” (also known as
“brachytherapy”). LHJ also charges the hospital, medical center, and medical practitioner a
procedure fee for each such procedure that the institution or person performs
The radioactive seed implant procedure is used in the treatment of prostate cancer. It is a
technique of implanting radioactive source seeds directly into a cancerous tumor. This procedure
allows the delivery of a highly concentrated, yet confined, dose of radiation directly to the
prostate. The implanted radioactive seed is a rice-sized titanium capsule that contains a
radioactive substance. Physicians typically implant from 40 to 100 seeds in the prostate gland.
The seeds are injected directly into the prostate using thin, hollow needles inserted through the
skin.
Once implanted, almost all of the radioactivity will be delivered by the third month. When the
seeds are no longer radioactive, they will remain in the prostate permanently. There is no need to
remove the seeds because the capsules are made of a material compatible with the body’s tissue.
Discussion:
Code Section 12-36-2120(28)(a) exempts from the sales and use tax:
medicine and prosthetic devices sold by prescription, prescription medicines used to
prevent respiratory syncytial virus, prescription medicines and therapeutic
radiopharmaceuticals used in the treatment of cancer, lymphoma, leukemia, or related
diseases, including prescription medicines used to relieve the effects of any such
treatment, and free samples of prescription medicine distributed by its manufacturer and
any use of these free samples; (Emphasis added.)
Furthermore, Code Section 12-36-110 defines "retail sale," in part as:
(1)(i) sales of drugs, prosthetic devices, and other supplies to hospitals, infirmaries,
sanitariums, nursing homes, and similar institutions, medical doctors, dentists,
optometrists, and veterinarians, if furnished to their patients as a part of the service
rendered. These institutions, companies, and professionals are deemed to be the users or
consumers of the property;
SC Regulation 117-332 (previously SC Regulation 117-174.257), "Medicines, Prosthetic
Devices and Hearing Aids," states in part:

To assist in the administration of this exemption, the Department has adopted definitions
for the terms "medicine" and "prosthetic devices" as follows:

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"Medicine" - a substance or preparation used in treating disease.
"Prosthetic Device" - an artificial device to replace a missing part of the body.

Based on the above statutes and regulation, it is the opinion of the Department, as stated in SC
Revenue Ruling #03-2, that the application of the above exemption for medicines is as follows:
Medicine sold by prescription. In order for this exemption to be applicable, the
medicine must be of a type that requires a prescription, the sale must require a
prescription, and must actually be sold by prescription. As such, sales of medicine to a
hospital, nursing home, or a similar institution or doctor are not exempt since such sales
do not require a prescription.
Prescription medicines used to prevent respiratory syncytial virus. In order for this
exemption to be applicable, the medicine must be of a type that requires a prescription;
however, the medicine does not need to be sold by prescription. As such, sales of these
medicines (to be used for the above purposes) to a hospital, nursing home, or a similar
institution or doctor are exempt.
Prescription medicines and therapeutic radiopharmaceuticals used in the treatment
of cancer, lymphoma, leukemia, or related diseases. In order for this exemption to be
applicable, the medicine must be of a type that requires a prescription (other than
therapeutic radiopharmaceuticals); however, the medicine does not need to be sold by
prescription. As such, sales of these medicines and therapeutic radiopharmaceuticals (to
be used for the above purposes) to a hospital, nursing home, or a similar institution or
doctor are exempt.
Prescription medicines used to relieve the effects of the treatment of cancer,
lymphoma, leukemia, or related diseases. In order for this exemption to be applicable,
the medicine must be of a type that requires a prescription; however, the medicine does
not need to be sold by prescription. As such, sales of these medicines (to be used for the
above purposes) to a hospital, nursing home or doctor are exempt.
Therefore, sales of therapeutic radipharmaceuticals to doctors, nursing homes, hospitals or
similar institutions for use in the treatment of cancer, lymphoma, leukemia, or related diseases
are retail sales exempt from the sales and use tax.
Finally, the Department’s research indicates that therapeutic radiopharmaceuticals are
radioistopes that generate localized radiation in the required organ to destroy or weaken
malfunctioning cells. In most cases, it is beta radiation that destroys the damaged cells and this is
known as radiotherapy. Brachytherapy is short-range radiotherapy. See Radioisotopes in
Medicines, Nuclear Issues Briefing Paper 26 (May 2004) published by Uranium Information
Centre Ltd of Melbourne, Australia (http://www.uic.com.au/nip26.htm).

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Based on the above, it is the opinion of the Department that sales of radioactive implant seeds by
LHJ, Inc. to hospitals, medical centers and medical practitioners for use in the treatment of
prostate cancer (as described in the facts) are sales of therapeutic radiopharmaceuticals and are
exempt from the South Carolina sales and use tax since they are being used in the treatment of
cancer.
Note: Since the sale of radioactive implant seeds by LHJ, Inc. to hospitals, medical centers and
medical practitioners for use in the treatment of prostate cancer (as described in the facts) are
exempt, the associated procedure fee charged for each “radioactive seed implant procedure”
performed by the hospital, medical center or medical practitioner is also exempt from the tax.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank
Burnet R. Maybank III, Director

January 19
, 2005
Columbia, South Carolina

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