In a recently issued private letter ruling, the South Carolina Department of Revenue (DOR) determined that a disease management program provided through the telephone is an exempt data processing service. S.C. Priv. Ltr. Rul. No. 13-1 (Dept. of Revenue Feb. 6, 2013).
The disease management program addressed in the ruling allows doctors and patients to manage long term care efficiently and with minimum manpower. Through the program, patients use their touch-tone telephones to enter pertinent health information. The program tracks that information and provides reports to healthcare providers via a web portal. If an individual's data falls outside specified parameters, the program sends alerts to that patient's care providers. For example, the system enables victims of congestive heart failure to track their weight and, if the patient gains too many pounds in a specified period, the primary care provider is notified. The issue for the DOR was whether the charges to healthcare providers for the disease management program are subject to the sales and use tax.
South Carolina taxes sales of services only if they are specifically designated as taxable, and communications services are designated as taxable. See S.C. Code Ann. sec. 12-36-910(B). Specifically, South Carolina taxes "charges for the ways or means for the transmission of the voice or messages." S.C. Code Ann. sec. 12-36-910(B)(3)(a). However, South Carolina specifically excludes charges for or use of data processingfrom tax. S.C. Code Ann. sec. 12-36-910(C). And, for purposes of the exclusion, "'data processing' means the manipulation of information furnished by a customer through all or part of a series of operations involving an interaction of procedures, processes, methods, person." Id.
Thus, to determine whether the program is subject to tax, the DOR had to decide whether the charges for the program represent the sale of taxable communications services as opposed to non-taxable data processing.
The DOR examined what the program provides, explaining that it "is a service where information furnished by patients of the healthcare provider is manipulated by [the program provider] through all or part of a series of operations involving an interaction of procedures, processes, methods, personnel, and computers." The DOR reasoned that the true object of the service is the manipulation of the patient's information and electronic access to that information, which are elements of data processing. Accordingly, the DOR ruled that the disease management program is exempt data processing.