Are a company's sales of biological allergen extracts — testing kits, pre-mixed doses, and bulk extracts administered in a physician's office — exempt from South Carolina sales and use tax as injectable biologics?

Plain-English summary

South Carolina exempts injectable medications and biologics from sales tax when they're administered in a physician's office (Code § 12-36-2120(80)). SC Private Letter Ruling #22-1 applies that exemption to a company (published as KEB Inc.) that makes and sells biological allergen extracts — the liquids allergists use for allergy testing and allergy shots.

The extracts come in three forms, all administered in a physician's office: testing kits (extracts pre-loaded on rows of needles that puncture the skin to check for reactions), pre-mixed doses, and bulk extracts that offices compound for individual patients. Because the extracts are derived from living organisms (nuts, dust mites, molds, pollen), injected, given by or under a physician's supervision, in a physician's office, and used in humans, they fit the statute's definition of exempt injectable biologics — if they are "applicable to the prevention, treatment, or cure of a disease or condition of human beings."

• Pre-mixed doses and bulk extracts clearly qualify: they're used to treat (mitigate) allergies.
• Testing kits required a closer look, because they diagnose rather than treat. The Department looked to the FDA's definition in 21 C.F.R. § 600.3(j), which says a product is "applicable to the prevention, treatment, or cure" of disease even when used "as an aid in diagnosis." So the testing kits also qualify as exempt injectable biologics.

Read this next to RR #22-9. That same-era Revenue Ruling held that injectables used in a hospital or independent surgery center are not exempt under (80), because the exemption is limited to a physician's office or a CMS-certified kidney dialysis facility. Here, the extracts are administered in a physician's office, so they land on the exempt side of that same line. Setting is everything under § 12-36-2120(80).

What this means for you

Allergist practices and their suppliers

Allergen extracts — testing kits, pre-mixed doses, and compounding stock — administered in a physician's office are exempt injectable biologics under § 12-36-2120(80). Diagnostic use doesn't defeat the exemption; the Department treats an "aid in diagnosis" as covered.

Manufacturers and distributors of biologics

The exemption turns on the biologic being derived from living organisms, injected, and administered by/under a physician in a physician's office. Track the administration setting: the same product delivered for use in a hospital or surgery center would fall outside (80) under RR #22-9.

Everyone else

This is a private letter ruling — only KEB Inc. may rely on it. It's a useful window into the Department's reasoning, but your facts (product, setting, use) must actually match, and you can't cite it as your own authority.

Common questions

Q: Are allergy testing kits taxable because they only diagnose?
A: No. In this ruling the Department, following 21 C.F.R. § 600.3(j), treated an "aid in diagnosis" as within "prevention, treatment, or cure," so the testing kits qualified as exempt injectable biologics — administered in a physician's office.

Q: Why do these qualify when RR 22-9 says hospital injectables don't?
A: Because § 12-36-2120(80) is limited to administration in a physician's office (or a CMS-certified kidney dialysis facility). These extracts are given in a physician's office; the RR 22-9 injectables were used in a hospital or surgery center.

Q: Can my practice rely on this PLR?
A: No. A private letter ruling binds the Department only as to the taxpayer who requested it. It shows the Department's approach, but it isn't authority you can rely on for your own facts.

Citations and references

Statutes and regulations:

• S.C. Code Ann. § 12-36-2120(80)(a) — exemption for injectable medications and biologics administered in a physician's office or a CMS-certified kidney dialysis facility; defines "biologics"
• 21 C.F.R. § 600.3(j) — federal definition of "applicable to the prevention, treatment, or cure of diseases or injuries of man," expressly including "aid in diagnosis"

Related Department guidance (described in prose, not linked): the companion Revenue Ruling #22-9 holds the same § 12-36-2120(80) exemption does not reach injectables used in a hospital or independent surgery center; see also PLR #22-2 (chemically-injected pain medication also exempt under (80)).

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: PLR22-1.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 125, Columbia, South Carolina 29214-0575

SC PRIVATE LETTER RULING #22-1

SUBJECT:

Sales of Allergen Extracts – Injectable Biologics Exemption
(Sales and Use Tax)

REFERENCES:

S.C. Code Ann. Section 12-36-2120(80) (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:

A Private Letter Ruling is an advisory opinion issued to a specific
taxpayer by the Department to apply principles of law to a specific set of
facts or a particular tax situation. It is 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 another
Departmental 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 the retail sales of allergen extracts by KEB Inc., as described in the facts, retail sales of
injectable biologics “applicable to the prevention, treatment, or cure, of a disease or condition of
human beings” and exempt from sales and use tax under Code Section 12-36-2120(80)(a)?
CONCLUSION
The retail sales of allergen extracts by KEB Inc., as described in the facts, are retail sales of
injectable biologics “applicable to the prevention, treatment, or cure, of a disease or condition of
human beings” and exempt from sales and use tax under Code Section 12-36-2120(80)(a).
FACTS
KEB manufactures and sells extracts of various biological allergens. All of the extracts sold by
KEB are derived from living organisms (e.g., nuts, dust mites, molds, pollen), which KEB
refines into liquid form. KEB sells its extracts as three distinct products: (1) as testing kits; (2) as
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pre-mixed doses of extracts; and (3) as bulk extracts for physicians’ offices to compound for
individual patients. Each of the products is administered by or pursuant to the supervision of a
physician in a physician’s office.
A testing kit consists of various extracts pre-loaded onto needles, with the needles arranged in
rows. A testing kit is administered by puncturing an individual patient’s skin with the rows of
needles, causing the needles to force the extracts into the patient’s skin. The patient is observed
to determine whether the extracts in the grid cause an allergic reaction.
A physician will use either pre-mixed doses or the bulk extracts to mitigate the effects of an
individual’s allergies. Both the pre-mixed doses and the bulk extracts are administered by
hypodermic needle and syringe into the patient’s skin.
LAW AND ANALYSIS
Code Section 12-36-2120(80)(a) exempts from sales and use tax the gross proceeds of sales and
sales price of:
… injectable medications and injectable biologics, so long as the medication or
biologic is administered by or pursuant to the supervision of a physician in an
office which is under the supervision of a physician, or in a Center for Medicare
or Medicaid Services (CMS) certified kidney dialysis facility. For purposes of this
exemption, “biologics” means the products that are applicable to the prevention,
treatment, or cure of a disease or condition of human beings and that are produced
using living organisms, materials derived from living organisms, or cellular,
subcellular, or molecular components of living organisms.
Since the allergen extracts are (1) derived from living organisms, (2) administered by injection,
(3) administered by or under the supervision of a physician, (4) administered in an office under
the supervision of a physician, and (5) sold for use in human beings, retail sales of extracts by
KEB are injectable biologics exempt from sales and use tax if they are considered to be
“applicable to the prevention, treatment, or cure, of a disease or condition” under Code Section
12-36-2120(80).
As stated in the facts, the pre-mixed doses of biological allergens and the bulk extracts are used
to mitigate an individual’s allergies, and therefore, are used in the treatment of such allergies. As
such, the retail sale by KEB of pre-mixed doses of extracts and bulk extracts for physicians’
offices to compound for individual patients, as described in the facts, are exempt as injectable
biologics under Code Section 12-36-2120(80).
Now it must be determined if the testing kits, as described in the facts, consisting of various
extracts pre-loaded onto needles are “applicable to the prevention, treatment, or cure, of a disease
or condition of human beings.”

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While not controlling on the Department, the United States Food and Drug Administration’s
definition of the phrase “applicable to the prevention, treatment, or cure of diseases or injuries of
man” provides guidance as to whether the testing kits used in the diagnosis of an allergy are
exempt from the sales and use tax.
The Code of Federal Regulation in 21 CFR Section 600.3(j) defines the phrase “applicable to the
prevention, treatment, or cure of diseases or injuries of man” to include an “aid in diagnosis” and
reads as follows:
A product is deemed applicable to the prevention, treatment, or cure of diseases or
injuries of man irrespective of the mode of administration or application
recommended, including use when intended through administration or application
to a person as an aid in diagnosis, or in evaluating the degree of susceptibility or
immunity possessed by a person, and including also any other use for purposes of
diagnosis if the diagnostic substance so used is prepared from or with the aid of a
biological product. (Emphasis added)
As such, the retail sale by KEB of a testing kit as an aid in diagnosis, as described in the facts, is
“applicable to the prevention, treatment, or cure of a disease or condition of human beings,” and
therefore, is exempt as an injectable biologic under Code Section 12-36-2120(80).
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/W. Hartley Powell
W. Hartley Powell, Director
April 7
, 2022
Columbia, South Carolina

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