Under South Carolina PLR 93-5, were sales of Lupron exempt when dispensed by a pharmacist or sold by the manufacturer to a physician for administration?

Plain-English summary

South Carolina PLR 93-5 reached different results for two ways Lupron reached a patient. A licensed pharmacist's sale made under a medical professional's prescription was exempt as medicine sold by prescription. Lupron qualified as medicine because it treated prostate cancer or endometriosis.

LOP's sale directly to a physician for administration to a patient was taxable. Under the statute, the physician was the retail consumer of drugs used in providing professional services, not a reseller to the patient. The physician's purchase order was not a prescription because it was not a written instruction for preparing and administering medicine.

Common questions

Q: Was Lupron itself considered medicine? Yes.

Q: Why did the channel of sale matter? The exemption required medicine to be sold by prescription. The pharmacist transaction met that condition; the manufacturer's sale to the doctor did not.

Q: Did ordering the drug for a specific patient make the doctor's purchase order a prescription? No.

Citations and references

• S.C. Code Ann. § 12-36-2120(28) (1992 Supp.) — historical medicine-by-prescription exemption
• S.C. Code Ann. § 12-36-110(i) (1992 Supp.) — historical retail treatment of drugs sold to medical professionals
• S.C. Code Ann. §§ 12-36-910 and 12-36-1310 (1992 Supp.) — sales and use tax
• Regulation 117-174.257 — medicine definition discussed in the ruling

Subject

Medicine – Code Section 12-36-2120(28)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR93-5.pdf

Original ruling text

SC PRIVATE LETTER RULING #93-5

TO:

LOP, Inc.

TAX MANAGER:

John P. McCormack

SUBJECT:

Medicine – Code Section 12-36-2120(28)
(Sales and Use Tax)

DATE:

July 29, 1993

REFERENCES:

S.C. Code Ann. Section 12-36-910 (Supp. 1992)
S.C. Code Ann. Section 12-36-1310 (Supp. 1992)
S.C. Code Ann. Section 12-36-2120 (Supp. 1992)
S.C. Code Ann. Section 12-36-110 (Supp. 1992)
S.C. Code Ann. Section 40-15-*280 (1976)

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (Supp. 1992)
SC Revenue Procedure #87-3

SCOPE:

A Private Letter Ruling is a temporary document issued to a taxpayer,
upon request, and it applies only to the specific facts or circumstances
related in the request.
Private Letter Rulings have no precedential value and are not intended for
general distribution.

Questions:

1. Is the sale by a licensed pharmacist of the prescription drug Lupron, pursuant to a
   prescription of a medical professional, exempt from the sales and use tax under Code Section
   12-36-2120(28)?
2. Is the sale by LOP, Inc. to medical professionals of the prescription drug Lupron, for the
   purpose of administering the drug to a patient, exempt from the sales and use tax under Code
   Section 12-36-2120(28)?

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Facts:
Lupron is an injectable prescription drug which is marketed in three different configurations.
Two of the configurations are for the treatment of prostate cancer and the third is for the
treatment of endometriosis.
The cancer treatments are sold in a two (2) or four (4) week kit (Lupron Subcutaneous) which is
self-administered by the patients on a daily basis, and in a depot form (Lupron Depot 7.5 mg.)
which is administered intramuscularly to the patient on a monthly basis by the doctor.
The Lupron treatment for endometriosis is marketed in a depot form (Lupron Depot 3.75 mg.)
which is administered intramuscularly to the patient monthly by the doctor.
Due to the cost of the drug, it is generally ordered by the doctor for specific patients and is not
held in inventory by the doctor.
Discussion:
Code Section 12-36-910(A) states:
A sales tax, equal to five percent of the gross proceeds of sales, is imposed upon every
person engaged or continuing within this State in the business of selling tangible personal
property at retail.
Code Section 12-36-1310(A) states:
A use tax is imposed on the storage, use, or other consumption in this State of tangible
personal property purchased at retail for storage, use, or other consumption in this State,
at the rate of fiver percent of the sales price of the property, regardless of whether the
retailer is or is not engaged in business in this State.
Code Section 12-36-2120(28) exempts form the sales and use tax the sale or purchase of
“medicine…sold by prescription”.
In summary, the sales tax and the use tax apply to sales of tangible personal property at retail, but
medicine sold by prescription is exempt from these taxes.
Regulation 117-174-257 defines “medicine” as “a substance or preparation used in treating
disease”. Lupron is a drug used in the treatment of prostate cancer and in the treatment of
endometriosis; and therefore, is a medicine within the exemption.
The question that must now be addressed is whether Lupron is sold by prescription. In order to
qualify for the exemption from the sales and use tax, Lupron must be “sold by prescription”. In
determining this, the transaction must clearly fall within the exemption.

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“An exemption form the sales tax is never presumed but must be expressly and clearly conferred
in plain terms…one who claims exemption form the sales tax must bring himself within the
exemption provision and the letter of the statute…” 68 Am. Jur. 2d Sales and Use Taxes, Section
100.
Code Section 12-36-110 defines the terms “sale at retail” and “retail sale”, in part, to include:
(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;
Therefore, sales of drugs to doctors for use in providing their services to a patient are retail sales.
When a doctor administers a drug to a patient, the doctor is using that drug in providing
professional services and is not selling the drug to the patient. The sale of the drug occurred
when the doctor purchased the drug from the pharmaceutical company.
Furthermore, doctors do not purchase Lupron “by prescription” when it is purchased for use in
providing their professional services.
It is an accepted practice in South Carolina to resort to the dictionary to determine the literal
meaning of words used in statutes. For cases where this has been done, see Hay v. South
Carolina Tax Commission, 273 SC 269, 255 S.E. 2d 837 (1979); Fennell v. South Carolina Tax
Commission, 217 SC 484, 60 S.E. 2d 682 (1950).
The Second College Edition of the American Heritage Dictionary defines “prescription” in part
as:
A written instruction by a physician for the preparation and administration of a medicine.
… A formula directing the preparation of something.
A purchase order is not a prescription from a physician to LOP, Inc. Such an order does not
constitute “a written instruction by a physician for the preparation and administration of a
medicine”.
However, the sale by a licensed pharmacist of the prescription drug Lupron pursuant to a
prescription of a medical professional does constitute the sale of medicine “by prescription”.
Finally, the question has arisen as to the application of the case of Dr. William J. Boykin v.
South Carolina Tax Commission, Court of Common Pleas, Aiken County, Case No. 89-CP-02590 to the purchase of Lupron by a physician for use in providing medical services.

3

In that case the court held that a “work authorization” issued by a dentist to a dental lab,
instructing the lab how to make a dental prosthetic device, was a prescription. For the period in
question (1085 – 1988), dental prosthetic devices were exempt from the tax if “sold by
prescription”. However, prior to the issuance of the court’s finding on November 22, 1989, the
law as amended (effective July 1, 1989) to exempt all “dental prosthetic devices”.
As a result of this law change and considering the economies of litigation, the court’s ruling was
not appealed by the Commission.
While the Commission questions the court’s finding, it is also distinguishable from the facts and
issues addressed in this ruling.
A “work authorization”, as defined in Code Section 40-15-280, is “a written order for dental
technological work which ha been issued by a licensed dentist.” It is required to contain, among
other things, “a description of the work to be done, with diagrams, if necessary” and a
“specification of the type and quality of materials to be used”. The dentist essentially instructs
the dental lab how to construct the prosthetic device. This is a prescription for a prosthetic
device, and not a purchase order, since it is a written instruction by a dentist for the preparation
of the device that is custom made for a particular patient. Therefore, the case of Dr. William J.
Boykin v. South Carolina Tax Commission, supra, is not applicable to the questions addressed in
this document.
Conclusion:

1. The sale by a licensed pharmacist of the prescription drug Lupron, pursuant to a prescription
   of a medical professional, is exempt from the sales and use tax under Code Section 12-362120(28).
2. The sale by LOP, Inc. to medical professionals of the prescription drug Lupron, for the
   purpose of administering the drug to a patient, is not exempt from the sales and use tax under
   Code Section 12-36-2120(28), since it is not “sold [to the physician] by prescription”.

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