Which heart-assist devices, accessories, parts, and maintenance agreements qualified for Illinois's reduced medical-appliance rate?

Plain-English summary

A heart-device manufacturer asked Illinois to classify prosthetic devices, external components, a circulatory pump, surgical instruments, supplies, maintenance, labor, parts, and training. Illinois declined the PLR because it lacked necessary information about each specific item and did not classify the nine categories.

Direct-substitution test

A medical appliance had to be intended by its manufacturer to directly substitute for a malfunctioning part of the human body. The GIL listed artificial limbs, dental prostheses, braces, crutches, wheelchairs, pacemakers, dialysis machines, hearing aids, eyeglasses, and contact lenses as examples.

An item that merely enhanced the use of a qualifying appliance did not itself satisfy the direct-substitution test.

Qualifying drugs, medicines, and medical appliances used the reduced 1% Illinois state rate stated in the 2011 letter, plus applicable local tax. Other products used the 6.25% general-merchandise state rate then stated, plus local tax.

Parts and accessories

Repairs, replacement parts, and accessories necessary to operate a qualifying medical appliance generally qualified for the reduced rate only when they were integral to the appliance and part of the qualifying equipment.

The GIL contrasted wheelchair cushions and pack bags sold separately: they used the high rate because they neither directly substituted for a malfunctioning body part nor were necessary to operate the wheelchair.

The response did not specifically classify the requested vests, shower kits, rapid chargers, pump components, or implantation instruments.

Separate maintenance agreements

A maintenance agreement or extended warranty sold separately for a predetermined fee was not taxed to the purchaser. The serviceman instead paid tax to its supplier on the cost of property transferred while completing covered service. The timing of the agreement—at equipment sale or later—did not change that rule.

The response did not separately decide the requester's labor, training, or lump-sum manual charges.

What this means for you

Medical-device sellers

Document the manufacturer's intended function of each device and whether each accessory is integral and necessary, rather than relying on a connection to patient treatment alone.

Service-plan sellers

Separate-agreement treatment depends on the contract being distinct from the equipment's selling price. The provider remains responsible for tax on property transferred during service under the stated rule.

Common questions

Q: Did Illinois approve reduced-rate treatment for all heart-assist products requested?
A: No. It declined to classify the specific categories.

Q: Does an accessory qualify merely because it makes a medical device easier to use?
A: No.

Q: Was a separately sold maintenance agreement taxed to the buyer?
A: No under the rule stated; the serviceman paid tax on the cost of transferred property.

Citations and references

• 86 Ill. Adm. Code 130.311 — medical-appliance definition, examples, and rates.
• 86 Ill. Adm. Code 140.301(b)(3) — separately sold maintenance agreements and property transferred during service.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0064.pdf

Original ruling text

ST 11-0064-GIL 08/16/2011 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 130.311. (This
is a GIL.)

August 16, 2011

Dear Xxxxx:
This letter is in response to your letter dated April 13, 2011, in which you request a Private
Letter Ruling. 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:
On behalf of our client, TAXPAYER, we are requesting a Private Letter Ruling (‘PLR’)
regarding the sale of certain medical devices and related services. An executed Power
of Attorney form authorizing FIRM to represent the Taxpayer in this matter is enclosed.
To the best of the knowledge of Taxpayer and FIRM: (1) the Illinois Department of
Revenue (‘Department’) has not previously ruled on the same or similar issue for the
Taxpayer or a predecessor; (2) the same or similar issue was not previously submitted
and withdrawn by Taxpayer or FIRM prior to the Department’s issuance of a PLR; and
(3) Taxpayer is not under audit by or involved in litigation with the Department.
DESCRIPTION OF SERVICES
The Taxpayer is a provider of device-based therapies for patients with advanced heart
failure. The Taxpayer develops, manufactures and markets these medical devices to
customers in Illinois.
The Taxpayer’s product and service offerings can be segregated into nine distinct
categories, as follows:
(1) Prosthetic Devices

This category includes devices that are worn on or in a patient to replace or assist in the
functioning of the human heart. The devices are generally used in patients whose
hearts have been diagnosed with the inability to supply sufficient blood flow to meet the
body’s needs. They provide left, right or bi-ventricular support for advanced heart
failure support.
These devices are intended for long-term use, and the devices may be implantable or
paracorporeal. The paracorporeal devices are attached to the patient at all times.
These devices are sold or provided by the Taxpayer either directly to hospitals, or
prescribed by licensed physicians for the treatment of patients and dispensed
accordingly.
(2) External Component of Prosthetic Devices
This category includes the external components of the prosthetic devices that, together
with the internal device, work interdependently as one device to assist in the functioning
of the heart as described in (1).
These components include power sources, cables, monitors, controller units, etc. which
are attached to the device and necessary to its function.
(3) Circulatory Support Pump and Related Parts
One device provided by the Taxpayer is a pump that provides short-term circulatory
support. This pump provides circulatory support while a patient is hospitalized. The
pump is connected to the patient using standard surgical techniques in which certain
tubing (cannulae) is implanted in the patient. The pump has not been qualified for longterm use (that is, use longer than ten days). The ‘related parts’ sold with the circulatory
support pump are a motor and console which are necessary for it to function.
(4) Medical Instruments Used During Implantation
Certain instruments are used during the implantation of the prosthetic devices. These
instruments are for single-use and are consumed during the surgical process.
(5) Supplies of Prosthetic Devices
The Taxpayer provides certain supplies of prosthetic devices to its patients. Some of
these items assist with the functionality of the prosthetic devices described in (1), and
others are more key to the functionality of the devices. They include, but are not limited
to:
(a)
(b)
(c)

Vests/holsters that allow the external components of the device to be
carried more freely
Shower kits to protect the external components of the device from getting
wet while the patient is bathing
Rapid charger stations that allow the power sources (i.e., the batteries)
described in (2) to be charged more quickly.

(6) Full-Service Maintenance Agreement

The Taxpayer provides maintenance agreements for a flat fee that include service for
any necessary labor and parts as the need arises. This service agreement is optional,
and there is no deductible associated with this agreement. The billing is a lump sum,
and does not specify values for services versus parts.
(7) Service Labor
When requested, the Taxpayer will provide labor on its devices for an hourly rate. This
service is optional.
(8) Service Parts
When requested, the Taxpayer will provide replacement parts on its devices for the cost
of the part. This service is optional.
(9) Training
The Taxpayer provides certain training on the implantation of its devices. This training
is mandatory for providers that are implanting the device for the first time, and optional
otherwise. While certain materials (manuals) may be provided as part of the training,
the charge is billed as a lump sum and no charge is made for the materials/manuals.
RULINGS REQUESTED
(1) Taxpayer’s sales of prosthetic devices (Category 1) are subject to Illinois sales and
use taxes (ROT, SOT, SUT and UT) at a reduced rate when sold in Illinois, because the
devices are qualifying medical appliances.
(2) Taxpayer’s sales of external components of prosthetic devices (Category 2) are
subject to Illinois sales and use taxes (ROT, SOT, SUT and UT) at a reduced rate when
sold in Illinois, because the components are qualifying medical appliances.
(3) Taxpayer’s sales of circulatory support pumps and related parts (Category 3) are
subject to Illinois sales and use taxes (ROT, SOT, SUT and UT) at a reduced rate when
sold in Illinois, because the items are qualifying medical appliances.
(4) Taxpayer’s sales of medical instruments (Category 4) are subject to Illinois sales
and use taxes (ROT, SOT, SUT and UT) at the full rate when sold in Illinois.
(5) We request clarification on the application of Illinois sales and use taxes (ROT,
SOT, SUT and UT) for sales of the following supplies of prosthetic devices (Category 5)
when sold in Illinois:
(a)
(b)
(c)

Supplies that Enhance Use of Device
Supplies that Protect Device from Damage
Supplies that Provide Emergency Support for Device

(6) Taxpayer’s sales of full service maintenance agreements (Category 6) are subject
to Illinois sales and use taxes (ROT, SOT, SUT and UT) and not subject to tax when
sold in Illinois.

(7) Taxpayer’s sales of service labor (Category 7) are subject to Illinois sales and use
taxes (ROT, SOT, SUT and UT) at a reduced rate when sold in Illinois, because the
labor relates to the repair of qualifying medical appliances.
(8) Taxpayer’s sales of service parts (Category 8) are subject to Illinois sales and use
taxes (ROT, SOT, SUT and UT) at a reduced rate when sold in Illinois, because the
parts relate to the repair of qualifying medical appliances.
(9) Taxpayer’s sales of training services (Category 9) are not subject to Illinois sales
and use taxes (ROT, SOT, SUT and UT) when sold in Illinois, because the services are
not enumerated as taxable services.
BASIS FOR OUR RULINGS REQUESTED
(1) Prosthetic Devices
In Illinois, medical appliances are subject to tax at a reduced rate of 1%.1 A medical
appliance is defined as an item that is used to directly substitute for a malfunctioning
part of the human body2 and includes an item that becomes part of the human body by
substituting for any part of the body that is lost or diminished because of congenital
defects or disease such as a heart pacemaker.3 However, medical devices that are
used for diagnostic or treatment purposes do not qualify for the lower tax rate.4
Accordingly, since the prosthetic devices replace the function of the human heart by
providing blood flow to the body, they would be considered medical appliances subject
to tax at the reduced rate.
(2) External Components of Prosthetic Devices
The Department has held that batteries for hearing aids qualify for the reduced rate as a
qualifying medical appliance.5 Generally, accessories which are necessary for the
operation of a qualifying medical appliance qualify for the lower rate of tax.6 Since the
components are necessary to the function of the prosthetic device and assist in
providing blood flow to the body, they would be considered qualifying medical
appliances and subject to tax at the reduced rate.
(3) Circulatory Support Pump and Related Parts
In Illinois, there is no requirement that a device be worn in or on a person to qualify as a
medical appliance. Generally, an item that is used directly to substitute for a
malfunctioning part of a human body would qualify for the reduced rate.7 The
Department does distinguish that items for diagnostics and treatment purposes do not
qualify for the lower tax rate.8 However, the circulatory pump and its related parts are
act [sic] as a pump to provide circulatory support while a patient is hospitalized for
inadequate blood circulation, so its sale would be subject to tax at the reduced rate.
(4) Medical Instruments Used During Implantation
In general, surgical instruments used in the treatment of patients do not qualify for the
reduced rate as they are not used to directly substitute for a malfunctioning part of the
human body.9 In addition, supplies do not qualify for the reduced rate;10 however, the
Department has noted that syringes and needles used in treating diabetes in human
beings,11 sterile dressings, bandages and gauze12 do qualify for the reduced rate of tax.

The medical instruments provided by the Taxpayer are designed for single use and are
consumed during the surgical process. As there does not appear to be a specific
exemption for medical instruments consumed during the surgical process, sales of such
instruments are subject to tax at the full rate.
(5) Supplies of Prosthetic Devices
Although generally medical supplies do not qualify for the reduced rate,13 based on our
reading of the Illinois guidance, the supplies sold by the Taxpayer appear to be akin to
accessories used with the devices. The Department notes that accessories which are
necessary for the operation of a qualifying medical appliance qualify for the lower rate of
tax. However, these parts and accessories must be integral to the operation of the
medical appliance.14
The items sold by the Taxpayer which are supplies include vests, shower kits and rapid
charger stations. The treatment of these items under Illinois law appears quite factspecific, and thus subjective. As such, we request your clarification on how tax applies
to these categories:
(a)
Supplies that Enhance Use of Device
We believe that certain of these supplies, such as the vests which allow the
external components of the device to be carried more freely, serve to enhance
the ease with which the equipment is used.
(b)
Supplies that Protect Device from Damage
Shower kits, which are also a supply provided by the Taxpayer, are slightly
different than a vest or a charger in that they prevent the prosthetic from being
damaged.
(c)
Supplies that Provide Emergency Support for Device
Rapid charger stations allow the power sources (i.e., the batteries) described in
Category (2) to be charged more quickly. There are circumstances in which use
of these charger stations may be crucial to the functionality of the device, and
thus, a patient’s survival.
We request a clarification of the application of sales and use tax to sales of these types
of supplies of prosthetic devices in Illinois.
(6) Full-Service Maintenance Agreement
In Illinois, special service charges sold separately from the tangible personal property
are not considered part of the selling price of the tangible personal property which is
sold.15 The Department has noted that this applies to maintenance agreements which
are sold separately from tangible personal property and sales of such agreements are
not taxable transactions.16 Therefore, the maintenance agreements sold by the
Taxpayer would not be subject to sales or tax [sic].
(7) Service Labor
The service labor provided by the Taxpayer is for the repair of its devices. The
Department has noted that repairs and replacement parts which are necessary for the

operation of a qualifying medical appliance would qualify for the lower rate of tax.17 The
service labor provided by the Taxpayer is separately stated and not bundled with the
service parts described in (8). As such, the service labor provided by the Taxpayer
would not be subject to tax.
(8) Service Parts
The Department has noted that replacement parts and accessories which are
necessary for the operation of a qualifying medical application would generally qualify
for the lower rate of tax.18 The service parts provided by the Taxpayer are separately
stated and not bundled with the service labor described in (7). As such, the service
parts provided by the Taxpayer would be subject to tax at the reduced rate.
(9) Training
Generally, sales of personal services are not subject to tax in Illinois.19 Although
general training charges are not specifically exempted from tax, the statute notes that
charges for training in relation to computer software are not subject to tax.20
Accordingly, the charges for training services would not be subject to tax.
REQUESTED ACTION
We request that the Illinois Department of Revenue review the stated facts and issue a
ruling confirming the Taxpayer’s conclusions regarding the taxability of the
aforementioned items.

A copy of our executed Power of Attorney, Form IL-2848, is enclosed. If you have any
questions, please contact me.

DEPARTMENT’S RESPONSE:
The Department’s regulation “Public Information, Rulemaking and Organization” provides that
“[w]hether to issue a private letter ruling in response to a letter ruling request is within the discretion of
the Department. The Department will respond to all requests for private letter rulings either by
issuance of a ruling or by a letter explaining that the request for ruling will not be honored.” 2 Ill. Adm.
Code 1200.110(a)(4). Due to the lack of pertinent information about each of the specific items subject
to this request which is necessary for the Department to issue a Private Letter Ruling, the Department
has declined to issue a Private Letter Ruling and has decided to respond with a General Information
Letter.
Please see the Department’s regulation at 86 Ill. Adm. Code Section 130.311, which is its
regulations governing Drugs, Medicines, Medical Appliances, and Grooming and Hygiene Products.
Those products that qualify as drugs, medicines and medical appliances are taxed at a lower State
rate of 1% plus any applicable local taxes. Those items that do not qualify for the low rate of tax are
taxed at the general merchandise rate of 6.25% plus applicable local taxes.
As you have noted, a medical appliance is an item that is intended by its manufacturer for use
in directly substituting for a malfunctioning part of the human body. Items that would be considered
medical appliances, and qualify for the low rate, are such items as artificial limbs, dental prostheses

and orthodontic braces, crutches and orthopedic braces, wheelchairs, heart pacemakers, and dialysis
machines (including the dialyzer). Corrective medical appliances such as hearing aids, eyeglasses
and contact lenses also qualify for the low rate.
As you can see, in order for a medical appliance to qualify for the reduced rate, the medical
appliance itself must be used in a manner that directly substitutes for a malfunctioning part of the
body, not items that simply enhance the use of a device that may be intended by its manufacturer for
use in directly substituting for a malfunctioning part of the body.
Generally, a maintenance agreement or extended warranty that is not included as part of the
selling price of tangible personal property, but is sold as a separate agreement for a predetermined
fee, is not subject to tax. The serviceman that provides service under the separate maintenance
agreement or extended warranty is required to pay tax to his supplier on the cost price of the tangible
personal property that is transferred incident to the completion of the maintenance agreement. See
86 Ill. Adm. Code 140.301(b)(3). The purchaser of the separate agreement or warranty is not charged
tax on the labor or tangible personal property that is transferred incident to the completion of the
maintenance agreement. The tax consequences do not change whether the separate agreement is
sold at the time of the sale of the equipment or at a later date.
Regarding accessories or parts, please be advised that repairs, replacement parts, and
accessories which are necessary for the operation of a qualifying medical appliance, generally qualify
for the low rate of tax. Please note, though, that these parts and accessories must be integral to the
operation of the medical appliance and they must be a part of the equipment which qualifies as a
medical appliance. For example, items such as wheelchair cushions or pack bags sold separately
from wheelchairs would be high rate as they do not directly substitute for a malfunctioning part of the
body, nor are they necessary for the operation of the wheelchair.
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
1

Ill. Admin. Code tit. 86, § 130.311(a).
Ill. Admin. Code tit. 86, § 130.311(d).
3
Ill. Admin. Code tit. 86, § 130.311(d)(1).
4
Ill. Dept. of Rev. General Information Letter ST 00-0099-GIL (01/25/2000).
5
Ill. Dept. of Rev. General Information Letter ST 06-0170-GIL (08/11/2006).
6
Ill. Dept. of Rev. General Information Letter ST 97-0369-GIL (07/07/1997).
7
Ill. Admin. Code tit. 86, § 130.311(d).
8
Ill. Dept. of Rev. General Information Letter ST 00-0009-GIL (01/25/2000).
9
Ill. Admin. Code tit. 86, § 130.311(d)(5).
10
Ill. Admin. Code tit. 86, § 130.311(d)(6).
11
Ill. Dept. of Rev. General Information Letter ST 97-0131-GIL (03/05/1997).
12
Illinois Dept. of Rev. General Information Letter ST 99-0178-GIL (05/19/1999); Illinois Dept. of Rev. General Information Letter
ST 99-0397-GIL (12/23/1999).
13
Ill. Admin. Code tit. 86, § 130.311(d)(6); Ill. Admin. Code tit. 86, § 140.141.
2

14

Illinois Dept. of Rev. General Information Letter ST 97-0131-GIL (03/05/1997).
Ill. Admin. Code tit. 86, § 130.450(b).
16
Illinois Private Letter Ruling No. ST 99-0007-PLR (02/24/1999).
17
Illinois Dept. of Rev. General Information Letter ST 95-0063-GIL (02/06/1995); Illinois Dept. of Rev. General Information Letter
ST 97-0369-GIL (07/07/1997).
18
Illinois Dept. of Rev. General Information Letter ST 97-0369-GIL (07/07/1997).
19
Ill. Admin. Code. Tit. 86, § 140.125(c).
20
Ill. Admin. Code. Tit. 86, § 140.125 (x).
15