Did Illinois treat prescribed speech-generating devices as medical appliances eligible for the reduced sales-tax rate?

Plain-English summary

Speech-generating devices did not qualify for Illinois's reduced medical-appliance rate. The Department acknowledged that the devices could assist people with physical disabilities but concluded they did not directly substitute for a malfunctioning body part.

The medical-appliance definition required manufacturer intent for direct substitution. A prescription or medical use was not enough. The GIL contrasted qualifying examples such as artificial limbs, braces, wheelchairs, pacemakers, dialysis machines, hearing aids, eyeglasses, and contact lenses with diagnostic, treatment, and rehabilitation equipment that generally did not qualify.

The letter therefore applied the historical ordinary state rate of 6.25% plus applicable local taxes rather than the historical 1% medical rate.

What this means for you

Medical necessity, insurance coverage, and assistance with a disability did not control this GIL. The Department focused narrowly on whether the device directly replaced a malfunctioning body part.

Common questions

Q: Did a physician's prescription make an SGD a medical appliance?
A: No. The GIL said not every prescribed item qualified.

Q: Did the Department accept the manufacturer's wheelchair analogy?
A: No. It concluded the speech device did not directly substitute for a body part.

Citations and references

• 86 Ill. Adm. Code 130.310 and 130.310(c)(2)
• 2 Ill. Adm. Code 1200.110 and 1200.120

Subject

Medical Appliances

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2010.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2010/st-10-0023.pdf

Original ruling text

ST 10-0023-GIL 03/30/2010 MEDICAL APPLIANCES
A medical appliance is defined as an item which is intended by its manufacturer for use in
directly substituting for a malfunctioning part of the body. See 86 Ill. Adm. Code 130.310(c).
(This is a GIL.)

March 30, 2010

Dear Xxxxx:
This letter is in response to your letter dated January 19, 2010, in which you request
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
I serve as corporate counsel for COMPANY a medical device manufacturer and sole
source supplier, located in CITY/STATE. The intent of this correspondence is to
respectfully request a Letter Ruling or GIL from the department regarding whether
speech generating devices (SGDs) can be deemed exempt from sales & use tax in
Illinois. The Food & Drug Administration, FDA, recognized SGDs were medical devices,
‘used for medical purposes.’ This occurred in 1983. The FDA calls SGDs ‘powered
communication systems’ (Sec. 890.3710). The phrase ‘speech generating devices’
(SGDs) was coined by the Medicare Durable Medical Equipment Regional Carrier
(DMERC) medical directors in 2000.
SGDs are recognized by the American Medical Association; American Academy of
Neurology; and American Academy of Physical Medicine and Rehabilitation as an
effective form of treatment for severe expressive communication disabilities, notably
dysarthia, apraxia, aphasia and aphonia.
SGD need and SGD use is most common among individuals with (but not exclusively
associated with):
ALS (amyotrophic lateral sclerosis or Lou Gehrig’s Disease);
Cerebral Palsy;

Locked in syndrome;
Multiple Sclerosis
Parkinson’s disease;
Brain stem stroke;
Traumatic brain injury; and
Severe developmental communication impairments (e.g., autism, mental
retardation and other developmental disabilities)
The ‘medical purpose’ of SGDs and the ‘medical need’ for SGDs, is to treat severe
expressive communication impairment that precludes individuals from meeting all daily
communication needs using natural communication methods.
All daily communication needs are considered equally in determining whether an
SGD is required. There is no priority given to specific conversations. The medical need
for an SGD is not determined by who the individual seeks to communicate with; what
the individual seeks to say; or where the communication will occur.
SGDs serve as a functional by-pass of body parts that are not working due to illness,
injury or disability. To generate speech, the brain must first formulate a message; then,
code the message into language; code motor instructions for the message to be
spoken; transmit the instructions to the diaphragm, lungs, larynx, vocal folds, tongue,
teeth and lips (collectively the speech organs); and those instructions must be executed
correctly. These five steps have been described as a ‘communication chain.’ If, due to
disability, any link in that chain is broken (malfunctions or is non-functional), the
person’s speech will be impaired. In this circumstance, the brain can achieve the
original intent to communicate by re-directing the instructions to the fingers, for
example, which when aided by an SGD, can create or select the message, which the
SGD will then speak. The original intent to communicate is thereby achieved, through a
by-pass of the body parts that are not working and with the use of an SGD. This
functional by-pass for speech is identical to the functional by-pass role served by
wheelchairs for individuals with mobility impairments.
The Food and Drug
Administration as well as numerous funding program decisions recognize the functional
equivalence of SGDs and wheelchairs. SGDs are covered as prosthetic devices by
many insurance companies, including Medicare.
SGD funding is not diagnosis dependent. No funding source – either public or private –
limits SGD coverage to specific neurologic diagnoses by policy guidance or by practice.
The list of common conditions (ALS, CP, etc) is illustrative, not exclusive.
An SGD is specifically intended for use in directly substituting for a malfunctioning part
of the human body as described in 86 Ill. Adm. Code 130.310(c)(2). SGDs are
prescribed by physicians.
The COMPANY is anxious to receive your final ruling as to whether the product is
deemed to qualify for the reduced rate of sales and use tax in the state of Illinois.
Please feel free to contact me at any time to discuss any questions you may have
pursuant to this request for ruling.
Thank you again for your prompt response to the important issue.

DEPARTMENT’S RESPONSE:
All gross receipts from sales of tangible personal property in Illinois are subject to Retailers’
Occupation Tax unless an exemption is specifically provided. Medicines and medical appliances are
not taxed at the normal rate of 6.25% plus applicable local taxes. These items are taxed at a reduced
rate of 1% plus applicable local taxes. See 86 Ill. Adm. Code 130.310. Items subject to this lower tax
rate include prescription and nonprescription medicines, drugs, medical appliances, and insulin, urine
testing materials, syringes, and needles used by diabetics, for human use.
The definition of a medical appliance is "an item which is intended by its manufacturer for use
in directly substituting for a malfunctioning part of the body." “Medical appliances” may be prescribed
by licensed health care professionals for use by a patient, purchased by health care professionals for
the use of patients, or purchased directly by individuals. See 86 Ill. Adm. Code 130.310(c)(2). Please
note that not all items prescribed by or used by physicians or other licensed health care professionals
qualify for the low rate.
Medical appliances that qualify for the reduced rate include such items as artificial limbs,
dental prostheses and orthodontic braces, crutches and orthopedic braces, wheelchairs, heart
pacemakers, and dialysis machines. Other examples of items that qualify for the reduced rate are
corrective medical appliances such as hearing aids, eyeglasses and contact lenses. As a general
proposition, diagnostic, treatment, and rehabilitative equipment items do not qualify for the reduced
rate of tax as medical appliances because such items are not "for use in directly substituting for a
malfunctioning part of the body," 86 Ill. Adm. Code 130.310(c)(2).
Speech generating devices, while they may be used to assist a person with physical
disabilities, do not directly substitute for a malfunctioning part of the body. These types of items do
not fall within the definition of medical appliance and are, therefore, taxed at the state sales tax rate of
6.25% plus any applicable local taxes.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,

Debra M. Boggess
Associate Counsel
DMB:msk