SALT Report 1913 – The Tennessee Department of Revenue issued a Private Letter Ruling regarding the taxability of in-vitro diagnostic reagents. The Taxpayer who requested the ruling sells diagnostic reagents to health care facilities for use in identifying certain properties found in blood to determine compatibility for transfusions.
For example, the diagnostic reagents are used to identify blood groups, blood type, antibodies, antigens, platelet antibodies, and for cross-matching purposes. The testing of blood and blood components prior to transfusion is required by the FDA in order to prevent a potential life threatening reaction.
The diagnostic reagents do not require a prescription; however they are used under the orders of a licensed physician. The Taxpayer requested guidance as to whether the reagents are exempt under TCA § 67-6-320(a) (2011). The regulation states that, “any drug, including over-the counter drugs, for human use dispensed pursuant to a prescription” are exempt from tax if they are all of the following:
- A drug,
- For human use, and
- Dispensed pursuant to a prescription
The Department determined that the diagnostic reagent does not qualify for the sales and use tax exemption for prescription drugs because the drug did not meet two of the requirements. The exemption requires that a drug be used directly by a human and the reagents are used in a laboratory to identify blood properties. While the reagents may be used in conjunction with the treatment of a human, the reagents themselves are not directly consumed, applied, ingested, or otherwise used by a human.
Further, the reagents are not dispensed pursuant to a prescription. While testing may be done under the orders of a physician, it is the laboratory test that is prescribed by the physician. The reagents are a product used to perform a test.
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