Does a South Carolina medical professional charge sales tax for copies of a patient's medical records?

Plain-English summary

South Carolina Revenue Ruling #04-5 drew a line between record copies that were part of medical care and copies sold as a separate retail transaction.

When a medical professional charged a patient for records—for the patient's own files, a referral to a specialist, or another medical opinion—the charge was not subject to sales and use tax. The Department treated the copies as incidental to the medical services already rendered.

When the medical professional charged a third party, such as a personal-injury attorney or a departing practitioner, the copy charge was exempt only if it was a casual or isolated sale. If the medical professional regularly sold copies or other tangible personal property, the charge was taxable.

The Department said the regularity question had to be decided case by case and required looking beyond record copies to the professional's other retail sales, if any.

What this means for you

Physicians and other medical professionals

Patient-requested copies connected with the medical relationship were treated as part of the professional service. That was different from operating a regular side business selling records, medicines, supplements, supplies, or other property.

Law firms and other third-party requesters

A copy sold to a third party was not automatically exempt merely because it contained confidential medical information. The medical professional's overall retail-sales activity determined whether the casual-sale exception applied.

Medical-record fulfillment companies

This ruling expressly excluded separate businesses hired to supply copies and related products or services. A third-party records vendor cannot assume the medical-professional result applies to it.

Common questions

Q: Was a patient's personal copy of the medical record taxable?
A: No, when supplied by the medical professional as an incidental part of the medical services rendered.

Q: What about copies used for a specialist referral or second opinion?
A: Those charges were also treated as nontaxable parts of the medical service.

Q: Was a copy sold to an attorney taxable?
A: It was exempt only if the medical professional's sale qualified as casual or isolated; otherwise it was taxable.

Q: How did the Department test a casual or isolated sale?
A: It considered whether sales occurred without regularity and reviewed all tangible-personal-property sales by the medical professional, not only record copies.

Citations and references

• S.C. Code Ann. §§ 12-36-910(A) and 12-36-1310(A) — sales and use tax
• S.C. Code Ann. § 12-36-60 — tangible personal property
• S.C. Code Ann. §§ 44-115-80 through 44-115-100 — medical-record charge provisions discussed
• S.C. Regulation 117-308 — professional services and true-object analysis
• S.C. Regulation 117-322 — casual or isolated sales

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR04-5.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org

SC REVENUE RULING #04-5

SUBJECT:

Charges for Copies of Medical Records by a Medical
Professional
(Sales and Use Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous advisory opinions and any oral
directives in conflict herewith.

REFERENCES:

S. C. Code Ann. Section 12-36-910(A) (2000)
S. C. Code Ann. Section 12-36-1310(A) (2000)
S. C. Code Ann. Section 12-36-60 (2000)
SC Regulation 117-308
SC Regulation 117-322

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2000)
S. C. Code Ann. Section 1-23-10(4) (Supp. 2003)
SC Revenue Procedure #03-1

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to
the public and to Department personnel. It is a written
statement issued to apply principles of tax law to a specific
set of facts or a general category of taxpayers. A Revenue
Ruling is an advisory opinion; it does not have the
force or effect of law and is not binding on the public.
It is, however, the Department’s position and is binding on
agency personnel until superseded or modified by a
change in statute, regulation, court decision, or advisory
opinion.

Questions:

1. If a medical professional charges a patient for a copy of the patient’s records for any of
   the following purposes, are such charges subject to the sales and use tax?
   a) The patient wishes to maintain copies of all his medical records.

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b) The medical professional must make copies of the patient’s records for
purposes of sending the patient to a specialist for further diagnosis and treatment.
c) The medical professional must make copies of the patient’s records because the
patient has requested such copies for purposes of seeking the opinion of another
medical professional.

2. If a medical professional charges a third party (not the patient) for a copy of a patient’s
   records for any of the following purposes, are such charges subject to the sales and use
   tax?
   a) The medical professional charges a personal injury attorney for copies of a
   patient’s records the attorney has requested for purposes having such records
   reviewed by another medical professional who may testify in court as an expert
   witness.
   b) A medical professional leaves a medical practice and as a result of the
   termination of his relationship with that practice, the medical professional is
   charged for copies of patient files of those patients who will remain the patient of
   the departing medical professional.
   Conclusions:
3. If a medical professional charges a patient for a copy of the patient’s records for any of
   the following purposes, then such charges are not subject to the sales and use tax since
   providing the copies is incidental to, and a part of, the medical services rendered by the
   medical professional.
   a) The patient wishes to maintain copies of all his medical records.
   b) The medical professional must make copies of the patient’s records for
   purposes of sending the patient to a specialist for further diagnosis and treatment.
   c) The medical professional must make copies of the patient’s records because the
   patient has requested such copies for purposes of seeking the opinion of another
   medical professional.
4. If a medical professional charges a third party (not the patient) for a copy of a patient’s
   records for any of the following purposes, then such charges are not subject to the sales
   and use tax only if the sale of the copy of the patient’s records by the medical
   professional constitutes a casual or isolated sale as defined in SC Regulation 117-322.
   a) The medical professional charges a personal injury attorney for copies of a
   patient’s records the attorney has requested for purposes having such records
   reviewed by another medical professional who may testify in court as an expert
   witness.

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b) A medical professional leaves a medical practice and as a result of the
termination of his relationship with that practice, the medical professional is
charged for copies of patient files of those patients who will remain the patient of
the departing medical professional.
If a medical professional charges a third party (not the patient) for a copy of a patient’s
records for any of the above purposes, then such charges are subject to the sales and use
tax if the sale of the copy of the patient’s records by the medical professional does not
constitute a casual or isolated sale as defined in SC Regulation 117-322.
The determination as to whether a medical professional is regularly engaged in selling
such copies or other tangible personal property must be determined on a case-by-case
basis. This determination does not only require a review of the sale of copies of patient
records by the medical professional, but requires a review of all sales of tangible personal
property (if any) by the medical professional (e.g. sales of medical information booklets
and pamphlets, sales of juices and soft drinks, sales of medicines, nutritional
supplements, vitamins, medical supplies, and medical devices when such sales are not
incidental to, and a part of, the medical services rendered by the medical professional).
For a definition of a “casual or isolated sale,” see SC Regulation 117-322 in the
“Discussion” portion of this advisory opinion.
Note: For purposes of this document, the term “medical professional” includes medical
practices organized as partnerships, limited liability companies, and corporations. In
addition, the above conclusions only apply to charges for copies by a medical
professional and do not apply to charges by separate businesses hired by the medical
professional to provide copies, and various other products and services, to the medical
professional, his patients, and others.
Discussion:
Code Section 12-36-910(A) imposes the sales tax and 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) imposes the use tax and 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 five percent of the sales price
of the property, regardless of whether the retailer is or is not engaged in
business in this State.

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Code Section 12-36-60 defines the term “tangible personal property” and states:
“Tangible personal property” means personal property which may be seen,
weighed, measured, felt, touched, or which is in any other manner
perceptible to the senses. It also includes services and intangibles,
including communications, laundry and related services, furnishing of
accommodations and sales of electricity, the sale or use of which is subject
to tax under this chapter and does not include stocks, notes, bonds,
mortgages, or other evidences of debt. Tangible personal property does
not include the transmission of computer database information by a
cooperative service when the database information has been assembled by
and for the exclusive use of the members of the cooperative service.
Based on the above, in order for the sales or use tax to apply, there must be a retail sale of
tangible personal property.
SC Regulation 117-308, concerning professional, personal, and other services, states in
part:
The receipts from services, when the services are the true object of the
transaction, are not subject to the sales and use tax, unless the sales and
use tax is specifically imposed by statute on such services (i.e.
accommodation services, communication services). (Emphasis added.)
The so-called “true object” test is generally used to delineate sales of services from sales
of tangible personal property. Applying this test to the matter at hand, it must be
determined whether the copies or the professional services of a physician are the true
object of these transactions.
The “true object” test is best described in 9 Vanderbilt Law Review 231 (1956), wherein
it is stated:
The true test then is one of basic purpose of the buyer. When the product
of the service is not of value to anyone other than the purchaser, either
because of the confidential character of the product, or because it is
prepared to fit the purchaser's special need — a contract or will prepared
by a lawyer, or the accident investigation report prepared for an insurance
company — this fact is evidence tending to show that the service is the
real purpose of the contract. When the purpose of the contract is to
produce an article which is the true object of the agreement, the final
transfer of the product should be a sale, regardless of the fact that special
skills and knowledge go into its production. Under this analysis, printing
work, done on special order, and of significant value only to the particular
customer, is still a sale. The purchaser is interested in the product of the
services of the printer, not in the services per se. Similarly, it would seem
that contracts for custom-produced articles, be they intrinsically valuable
or not, should be classified as sales when the product of the contract is
transferred.
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The Vanderbilt Law Review article, in quoting Snite v. Department of Revenue, 398 Ill.
41 , 74 N.E. 2d. 877 (1947), also establishes the following general rule:
If the article sold has no value to the purchaser except as a result of
services rendered by the vendor, and the transfer of the article to the
purchaser is an actual and necessary part of the services rendered, then the
vendor is engaged in the business of rendering service, and not in the
business of selling at retail. If the article sold is the substance of the
transaction and the service rendered is merely incidental to and an
inseparable part of the transfer to the purchaser of the article sold, then the
vendor is engaged in the business of selling at retail, and the tax which he
pays ... [is measured by the total cost of the article and services]. If the
service rendered in connection with an article does not enhance its value
and there is a fixed or ascertainable relation between the value of the
article and the value of the service rendered in connection therewith, then
the vendor is engaged in the business of selling at retail and also engaged
in the business of furnishing service, and is subject to tax as to the one
business and tax exempt as to the other.
While the above quotes do not establish rigid rules, they do provide general guidance in
determining the purpose of a transaction, and are particularly helpful in addressing the
issues at hand.
SC Regulation 117-308.1 concerns professional services and states:
Receipts from the performance of professional services are not subject to
the sales tax.
The property used incidental to the performance of such services by
licensed medical doctors, dentists, doctors of veterinary medicine, oculists,
optometrists, lawyers, accountants, civil engineers, and other licensed
professional men is subject to tax on its sale to such persons.
Note however, that a doctor, etc., may in addition to rendering a service,
also be in the business of making sales of tangible personal property. For
instance, a doctor may sell medicines.
In those cases where professional men are regularly engaged in the
business of selling tangible personal property at retail, they must obtain a
retail license and remit the taxes due on such sales.
SC Regulation 117-308.3, concerns physicians specifically, and states:
Doctors are the consumers of the supplies, medicines, office furniture and
fixtures and special tools and equipment they use in the practice of their
profession. Sales of such supplies and equipment to doctors are retail sales
and subject to the sales tax.
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It is only when a doctor has a stock of drugs from which he makes
numerous and substantial retail sales that he is required to have a retail
license and to remit sales tax directly to the department.
A review of the SC Regulations 117-308 and various Department advisory opinions (SC
Revenue Ruling #91-20, SC Private Letter Ruling #90-4 and SC Revenue Ruling #92-15)
indicates that charges for copies and other tangible personal property by a professional,
and other person generally thought of as a service provider, are subject to the sales tax if
such person is not providing the copies as part of services rendered and the sale of the
copy of the patient’s records by the medical professional does not constitute a casual or
isolated sale.
SC Regulation 117-322, concerns casual and isolated sales, and states:
Casual or isolated sales by persons not engaged in the business of selling
tangible personal property at retail are not subject to the sales or use tax.
For purposes of administering this regulation, the term “casual” means
occurring, encountered, acting or performed without regularity or at
random. The term “occasional” and the term "isolated" mean occurring
alone or once, an incident not likely to recur, sporadic.
Finally, Chapter 115 of Title 44, the Physicians’ Patient Records Act, contains the
following provisions:
Code Section 44-115-80:
A physician, or other owner of medical records as provided for in Section
44-115-130, may charge a fee for the search and duplication of a medical
record, but the fee may not exceed sixty-five cents per page for the first
thirty pages and fifty cents per page for all other pages, and a clerical fee
for searching and handling not to exceed fifteen dollars per request plus
actual postage and applicable sales tax. A physician, health care provider,
or other owner of medical records must provide a patient’s medical
records at no charge when the patient is referred by the physician, health
care provider, or an employee, agent, or contractor of the owner of the
record to another physician or health care provider for continuation of
treatment for a specific condition or conditions. The physician may charge
a patient or the patient’s representative no more than the actual cost of
reproduction of an X-ray. Actual cost means the cost of materials and
supplies used to duplicate the X-ray and the labor and overhead costs
associated with the duplication. (Emphasis added.)

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Code Section 44-115-90:
When a request for medical information involves more than making copies
of existing documents, a physician may charge reasonable fees, exclusive
of those fees charged for copying the medical record, for providing this
service.
Code Section 44-115-100
The provisions of Sections 44-115-80 and 44-115-90 do not apply to
requests for medical information necessary to process a health insurance
claim made by a patient or on behalf of the patient by a health insurance
carrier or health insurance administrator for services rendered by the
physician from whom the information is requested.
Based on the above, charges for copies by a medical professional are not subject to the
sales tax if such medical professional is providing the copies as part of medical services
rendered. If the copies are not being provided as part of the medical services rendered,
then the charges for such copies are subject to the sales tax if the sale of the copy of the
patient’s records by the medical professional does not constitute a casual or isolated sale
as defined in SC Regulation 117-322.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank, III
Burnet R. Maybank III, Director

March 30
, 2004
Columbia, South Carolina

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