Were hospital pill containers treated differently for outpatient prescriptions and inpatient ward use?

Plain-English summary

California exempted a pill container transferred to an outpatient with an exempt prescription because the patient received complete possession and control of the medicine and container. The medicine was exempt under section 6369 and the container under section 6364.

For inpatients, the pharmacy delivered the container to the ward, where medical and nursing staff retained control and administered medicine by the dose. The hospital therefore used the container in its operations. If leftover medicine and the small container later went home with the discharged patient, the hospital still could not claim a tax-paid-purchases-resold deduction for the already used container.

Common questions

Why was an outpatient container exempt?

The outpatient received possession and control of the entire filled container.

Why was an inpatient container treated as hospital-use property?

The ward staff controlled it and sold medicine to the patient dose by dose as administered.

Did giving the leftover container to the patient erase the hospital's prior use?

No.

Citations and references

• California Revenue and Taxation Code section 6364 — container exemption applied to outpatient prescription containers
• California Revenue and Taxation Code section 6369 — medicine exemption applied to the outpatient prescription
• Historical California Sales and Use Tax Regulation 1503 — inpatient medicine-sale timing cited in the letter

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/425-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/425-0713.pdf

Original ruling text

425.0713

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
916-445-2705

November 24, 1976

Dear Mr. X------------------,
In your letter of November 15, you questioned the distinction in the application of tax to pill containers which a hospital pharmacy fills and sells to out-patients and similar containers which the pharmacy fills for patients in the hospital. We have made the distinction referred to by the local office. In the sale of the medicine to out-patients, the prescription medicine is placed in the containers, and the whole is transferred to the out-patient, which is thereafter vested with complete possession and control. That sale of medicine is exempted by Revenue and Taxation Code Section 6369 and sale of the containers is exempted by Revenue and Taxation Code 6364. On the other hand, ordinary in-patient hospital practice does not result in such a transfer. The prescription is issued by the pharmacy to the ward. In ordinary practice, the medical and nursing staff asserts and exercise complete control. As a consequence, we regard the container as being used in the hospital operations similar to other hospital personnel operated medication dispensing equipment. When the medicine is sold to the patient, it is sold by the dose. In illustration, the sale of the medicine to the out-patient occurs at the time the bottle of medicine is handed to the patient at the pharmacy. The sale of the medicine to the inpatient does not occur at the time the pharmacy delivers the bottle of medicine to the nursing staff. The sale of medicine to the in-patient, under the circumstances described in Regulation 1503, takes place at the time the nursing staff administers each individual the dose of medicine to the in-patient. In some instances, medicine administered to an in-patient will not be exhausted upon that patient’s discharge and at the attending physician’s direction, the patient will be supplied with the remaining prescription in the small container. That amount of medicine and the container will be regarded as sold and the gross receipts although the sale of the medicine need not be included in the measure of gross receipts. However, the container has still be “used” by the hospital previously, so that the hospital

may not claim a tax-paid purchases resold deduction on medicine containers so used in the ward, and later sold rather than discarded by the hospital. Very truly yours,

Phillip R. Dougherty
Tax Counsel