Is a pharmacy's charge for a pharmacist's comprehensive review of a patient's medication records subject to Colorado sales tax, even though the patient may receive a printed report or medication chart?

Plain-English summary

A retail pharmacy offers customers a comprehensive medication review by a pharmacist — a face-to-face consultation that produces a "Comprehensive Medication Action Plan" (therapy changes, adherence issues, follow-up needs) and, as part of the service, a copy of the patient's personal medication chart. The pharmacy asked whether the charge for this review is subject to sales tax. The Department walked through its framework but, as a GIL, made no determination.

The starting point: Colorado taxes tangible personal property, not services. The first practical question is whether any property is even transferred for a charge. If nothing tangible is sold, sales tax is "clearly inapplicable." The wrinkle is that the patient receives a medication chart and possibly a report.

When a transaction has both a service and tangible property, the Department runs two tests:

1. Separability (the A.D. Stores test). If the service is readily separable and separately stated from the goods, sales tax applies only to the goods — the example is a dress retailer who lists alteration charges separately and taxes only the dress. But if a separable service is lumped into one price with the goods, the entire charge is taxed.
2. True object (Reg. SR-40). If the service and property are inseparable, the Department asks what the transaction is really for. If the true object is the property, the whole price is taxable; if the true object is the service, the charge isn't taxed even though some property changes hands.

Applying this, the Department leaned toward service. It weighs whether the transferred property is incidental to the service and the level of professional expertise involved — and consultations by professionals (doctors, lawyers, accountants, architects) are services even when a report, will, or tax return is handed over. It noted other states reach the same result for pharmacist consultations (Connecticut; a Missouri PLR on a medication-history review with a "plan"). The catch here: the medication chart/report is not separately stated, so if the pharmacy charges for a report, it should test the true object — and a high-expertise pharmacist review points to a non-taxable service. The Department declined to decide on these specific facts.

What this means for you

Pharmacies and clinical-service providers

A pharmacist's professional review and consultation reads as a non-taxable service, even when the patient walks away with a printed plan or medication chart — the paper is incidental to the expertise. Two things protect you: confirm whether you're actually charging for a document at all, and if a service and a document share one price, understand that lumping them together can make the whole charge taxable. Separately stating a genuine service charge is the cleaner path.

Anyone selling "service + a report"

This is the classic mixed-transaction trap. Separately state the service and it's taxed only on the goods; bundle a separable service into one price and the whole thing is taxable. If they're truly inseparable, you fall back to the true object — and professional, expertise-heavy work tends to be a service.

Accountants and tax professionals

Order of operations: (1) Is tangible property transferred for a charge? If no, no tax. (2) If yes, is the service separable and separately stated? (A.D. Stores, 19 P.3d 680.) (3) If inseparable, what's the true object? (SR-40.) Professional consultations are services even with incidental documents (GIL-07-27 distinguishes individual-specific reports from broadly distributed publications). This is a GIL — guidance, not a determination.

Common questions

Q: Does a pharmacist's medication review get taxed in Colorado? A: Probably not. It looks like a non-taxable professional service, similar to advice from a doctor or accountant, even though the patient may receive a printed plan or medication chart. The Department leaned that way but made no determination.

Q: Does handing the patient a printed report change the answer? A: Not necessarily. If the report is incidental to a high-expertise professional service, the true object is still the service. But if you separately charge for a document and it's bundled into one price with the service, the whole charge can become taxable — so how you bill matters.

Q: What if there's no document at all?
A: Then sales tax is clearly inapplicable — there's no tangible personal property being sold. The Department said as much.

Q: Can I rely on this letter?
A: No. This is a General Information Letter — a general good-faith discussion that makes no specific determination and binds no one. For a binding answer, request a private letter ruling under Reg. 24-35-103.5.

Citations and references

Statutes:

• § 39-26-104(1), C.R.S. — sales tax on tangible personal property (not services)

Cases and guidance referenced:

• A.D. Stores v. Department of Revenue, 19 P.3d 680 (Colo. 2001) — separability of services from goods
• Service Enterprise Regulation SR-40 — the "true object" test for inseparable transactions
• GIL-07-27 (12/04/2007) — individual-specific reports vs. broadly distributed publications
• Reg. 24-35-103.5 (general information letters vs. private letter rulings)

Related Colorado rulings (true object / separability / professional services):

• [[gil-13-022-material-safety-data-sheet]]
• [[gil-15-009-services-in-connection-with-retrieving-and-copying-medical-records]]
• [[gil-16-015-credentialing-services]]
• [[gil-12-005-internal-and-external-fabrication-labor-costs]]
• [[gil-18-010-prescription-containers-purchased-by-pharmacies]]

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-12-001.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-12-001

February 8, 2012

xxxxxxxxxxxxxxx
ATTN:XXXXXXXXXX
xxxxxxxxxxxxxxx
xxxxxxxxxxxxxxx
Re: Medical review of pharmacy records
Dear XXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXX ("Company") a request for guidance on the application of sales tax on a paid XXXXXXXXXXXXXXXX ("Report") of a patient's medication record by a Company's pharmacist. The Department issues general information letters and private letter rulings. A general information letter provides a general overview of the relevant tax issues and is not binding on the Department. A private letter ruling provides a specific determination for a specific set of facts, is binding on the Department but not the taxpayer, and requires payment of a fee. For more information about general information letters and private letter rulings, please see Department regulation 24-35-103.5 at www.colorado.gov/revenue/tax > Tax Library> Rulings. The Department will initially treat your request as one for a general information letter. If you would like the Department to issue a private letter ruling on the issues you raise, you can resubmit a request and fee in compliance with regulation 24-35-103.5. It is important to remember that general information letters, such as this one, are general discussions of tax law, are not a determination of the tax consequence of any particular action, and are not binding on the Department. Issue Whether a charge by the Company for a medical review of a patient's medication records by a Company pharmacist is subject to state or state-administered local sales tax? Background Company operates retail stores in Colorado and offers to its customers, among other things, a comprehensive review of medication records by a pharmacist. The Report includes a face to face consultation between the patient and pharmacist. The Report procedure is contained

under "Patient Request or Offer of Services" within the Company's Policy and Procedure. As part of the Report, a pharmacist completes a "Comprehensive Medication Action Plan" (Plan). The Plan includes the Report worksheet, any therapy changes that are initiated by the Report, any adherence issue encountered, any type of follow-up needed by the patient to their doctor, any type of follow-up needed by the pharmacist to the patent to monitor the new therapy and/or new administration. The Company's procedure states that the patient receives a copy of his/her personal medication chart as part of the Report. It is unclear from the Company's description of the Report procedure whether the patient actually receives a copy of the Report and/or the Report worksheet generated as part of the service or whether a patient can receive a copy of the personal medication chart without a charge. Discussion Colorado imposes sales tax on the sale of tangible personal property.1 Colorado generally does not impose sales tax on sales of services. When a transaction involves both the performance of a service (or some other nontaxable item) and the transfer of tangible personal property, the Department will determine if the sale of service and tangible personal property are separable. When the service is readily separable and stated separately from the sale of goods (sometimes referred to as a mixed transaction2), then sales tax applies only to the price for the goods. For example, a dress retailer who also provides alteration service should not collect sales tax on the alteration service if the service charge is separately stated on the invoice. In such cases, the service is "separable" from the sale of the dress and, therefore, sales tax is applied only to the sale of the dress if the charge for the service is separately stated. A.O. Stores v Department of Revenue, 19 P.3rd 680 (Colo. 2001). In contrast, where the nontaxable service or item are separable but stated together in one price, the entire transaction is subject to sales tax. If the service and the tangible personal property are inseparable, the Department will then examine the transaction for "true object" of the transaction. See, generally, Service Enterprise regulation SR-40. If the transaction's true object is the transfer of tangible personal property, then the total price paid by the buyer is subject to sales tax even though a portion of the price is for the performance of a service. If, on the other hand, the true object of the transaction is the sale of a service, then the charge is not subject to sales tax even though tangible personal property is transferred to the customer. The Department considers a variety of factors in determining the true object of a transaction, including whether the transfer of tangible personal property is incidental to the service provided and the level of expertise provided in the transaction. In general, a service which involves a more sophisticated level of expertise suggests that the transaction is a sale of 1 §39-26-104(1), C.R.S. It is not clear from the facts presented whether there is a transfer of tangible personal property for which a charge is made. If there is no transfer, then sales tax is clearly inapplicable. If the Report is transferred to the patient or if the Company charges a fee for the patient medication chart, then it becomes important to determine the "true object" of the transaction. 2 Hellerstein, State Taxation (WG&L),,I 12.08[1][c] Services Coupled With a Transfer of Separate Property

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service. For example, a transaction involving consultations and advice of professionals such as doctors, architects, dentists, accountants and lawyers are considered a sale of services even though the transaction may involve the transfer of tangible personal property, such as reports or summaries or even a will or tax return. When the property at issue is a report, the department will also consider whether the report is specific to a particular individual (e.g., a report or survey requested by and for a specific individual) or is intended for broader distribution (e.g., market surveys made generally available to the public). Colorado General Information Letter No. GIL-07-27, 12/04/2007. Other states have found the purchase of pharmaceutical consultations are a sale of services. See, e.g., Connecticut Legal Ruling No. 94-12, 06/24/1994 (a pharmaceutical consultation is not subject to sales tax because pharmacists are a providers of professional services, which are exempt in Connecticut); Missouri Private Letter Ruling No. LR 6956, 11/04/2011 (review of a patient's medication history for appropriateness and recommendations where pharmacist and patient complete a "plan" is not a sale of tangible personal property). Although the tests for the taxability vary, states that have reviewed this issue have concluded that the pharmacist is providing a service to the patient. It is unclear from the information provided in your letter whether there is any transfer of personal property, such as a report, from the retailer to the patient. If transaction does involve a transfer of a report to the patient for which the Company typically charges a fee, and given the fact that there is no separately stated charge for such a report, then the Company should consider whether the "true object" of the transaction is the sale of the report or the sale of a service. As I mentioned earlier, the department does not provide in a general information letter such as this a determination with respect to a specific set of facts. Miscellaneous Pursuant to state law and Department regulation 24-35-103.5, noted above, the Department will make public a redacted version of this letter. Your letter requesting this general information is not made public. I enclosed a proposed redacted version of this letter. Please contact me within 60 days from the date of this letter if you have any questions, comments or objection concerning the redacted letter. I hope this is helpful. Please feel free to contact me if you have any questions. Sincerely,

Office of Tax Policy
Colorado Department of Revenue

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