Could a pharmacy buy prescription labels, patient-use information, and bags tax free when pharmacists compounded chemicals and mixed medicinal solutions?

Plain-English summary

The pharmacy's prescription department compounded raw chemicals into medicines, combined liquids and dry chemicals into medicinal solutions, and prepared liquid solutions for home-health IV use. Texas treated those activities as processing.

Because the prescription department was a processing area, the prescription labels, patient information for use, and bags used to convey the medicines to customers qualified for exemption.

What this means for you

The exemption followed the pharmacy's actual compounding and mixing activity. The letter did not say that every supply used by a pharmacy was exempt.

Common questions

Was drug compounding treated as processing? Yes. Were prescription labels exempt? Yes. What about patient-use information and delivery bags? They were exempt too. Did the letter decide bottle treatment? No; bottles appeared in STAR's subject but not in the operative text.

Citations and references

• The letter does not identify a numbered statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9110L1137A01

Original ruling text

October 8, 1991

Gentlemen:

Thank you for your letter of September 30, 1991, regarding wrapping and
packaging supplies used by the prescription department of a pharmacy.

You stated in your letter that a pharmacist compounds raw chemicals into
medicines. Pharmacists prepare "admixtures," which is the combining
of water or other liquids with dry chemical substances to produce a
medicinal solution. They also prepare liquid solutions for home health
care IV's.

Response:

For tax purposes, the activities of a pharmacist in compounding raw
chemicals into medicines and mixing liquids and solids into medicinal
solutions is processing.

Question.

If the prescription department is therefore viewed as a processing
area, would not the prescription labels, the patient information for
usage, and the bags used to convey the prescription medicines to the
customer then be exempt from the sales tax when purchased?

Response:

Yes.

These responses are based on the facts presented. Other facts, though
similar, may cause the answers to change.

If you have additional questions, please let me know.

Sincerely,

Wanda Hutcheson
Tax Administration Division