The Tax Realignment Commission ("TRAC") Sales and Income Taxation Subcommittee met on Monday, June 28, 2010 to announce their recommendations to the full TRAC regarding changes to the sales tax law. By repealing dozens of current sales tax exemptions, including the limited exemption on prescription medication, the subcommittee recommends lowering the sales tax rate in accordance with the higher collections that will result from the broader base. With early and unofficial estimates the TRAC subcommittee believes South Carolina's current 6% sales tax could be lowered to just under 5% as a result of the mass repeal of exemptions.

Among the exemptions repealed was the limited exemption on prescription medication, which currently fully exempts rheumatoid arthritis, cancer, lymphoma, and leukemia medications and prescriptions sold in pharmacies. As noted in testimony the SCMA prepared and presented before the TRAC in November along with about 20 specialty and local societies, a number of prescription medications used by ophthalmologists and allergists, among others, are not exempt at all from sales taxation.

Although the TRAC subcommittee recommended a repeal of the current absolute exemptions for prescriptions, it did lower the rate applied to prescriptions to 50% of the sales tax rate. Based on the unofficial numbers provided by the TRAC subcommittee, this would mean that the sales tax rate applicable to prescription medication, whether administered in physician offices or purchased at the pharmacy, would be approximately 2.5%.

Should the full TRAC adopt the recommendations of this subcommittee, any changes in the law still must go through the legislative process and are not binding on the Legislature. While the TRAC subcommittee is attempting to lighten the sales tax burden on physician-administered medication by lowering it from 6% to 2.5%, this recommendation would end up raising the sales tax burden on existing exempt medication for cancer and arthritis injections. Additionally, consumers who previously have purchased medication at pharmacies sales tax free would now pay a 2.5% sales tax. The fact that the TRAC subcommittee recommended the reduction of sales tax for all other physician administered medication in such dire economic times indicates that it recognizes the importance of this issue to patients receiving quality care in South Carolina. The SCMA will continue to work with all interested parties to communicate to the Legislature the importance of fully exempting all physician-administered medication.