Sales & Use Tax Blog

South Carolina Sales Tax Exemption for Drugs Paid for via Medicare Part A

South Carolina sales tax law provides an exemption for drugs dispensed to Medicare Part A patients residing in nursing homes. Facilities that were clearly organized exclusively as “nursing homes” have long claimed this exemption, however, the South Carolina Department of Revenue had failed to grant or extend this exemption to those facilities with more complex operations. In reality, many facilities have different segments or divisions that interact with patients in varied ways, including providing skilled nursing services. Many facilities organized in this manner have a portion of their total bedcount dedicated to providing these skilled nursing services. As a result of arguments presented by Agile Consulting Group in mid-2017, facilities organized in this multifaceted manner are now able to reap the benefit provided under this South Carolina sales tax exemption.

This particular South Carolina sales tax exemption is provided in SC Code Ann. §12-36-2120(28)(f) which states that “prescription drugs dispensed to Medicare Part A patients residing in a nursing home are not considered sales to the nursing home and are not subject to the sales tax.” This establishes a limited exemption for qualifying health care facilities because under South Carolina’s definition of “retail sale” the facilities are generally considered the consumers of the property they purchase and furnish to their patients as part of the health services rendered. See SC Code Ann. §12-36-110(1)(i) for South Carolina’s definition of the terms “retail sale” or “sale at retail” for healthcare entities.

The challenge Agile had to overcome was that the South Carolina sales tax statutes and regulations do not define the term “nursing home.” In the absence of a clear definition, the South Carolina Department of Revenue was reluctant to extend this exemption to facilities that carried registrations as hospitals or other health facilities. Agile argued that the South Carolina Department of Health and Environmental Control, also known as DHEC, who is the single entity responsible for the permitting and licensing of healthcare facilities within the state, should use the long-standing, preexisting standards already in place to determine which facilities qualified as “nursing homes.” Agile believed that the aforementioned South Carolina sales tax exemption should be granted to any facility that had received a valid license from DHEC to operate as a nursing home regardless of what other designations the facility may have.

After some deliberation and a reasonable compromise, the South Carolina Department of Revenue agreed to Agile’s proposal. The upshot of this victory is that many facilities who would not consider themselves to be traditional “nursing homes” can now qualify for this beneficial South Carolina sales tax exemption. The only caveat made by the South Carolina Department of Revenue is that the facility must be able to track the drug consumption to the portion of the facility licensed by DHEC as a nursing home. In other words, if the facility has a total of 100 beds and only 35 of them are licensed as nursing home beds then the exemption for drugs dispensed to Medicare Part A patients residing in a nursing home would be limited to those 35 beds, not extended across the entire facility’s footprint.

The DHEC nursing home licenses are issued on an annual basis and there are a number of guidelines which must be met for a facility to receive a valid license as a nursing home. The South Carolina nursing home guidelines and applications can be found online at DHEC’s website.

As with all Sales & Use Tax research, the specifics of each case need to be considered when determining taxability. Additional advice from Agile Consulting Group’s sales tax consultants can be found on our page summarizing South Carolina sales and use tax exemptions.  If you have questions, comments or would like to discuss the specific circumstances you are encountering about this issue or any other Sales & Use Tax issue, please contact us at (888) 350-4TAX (4829) or via email at

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