How did Illinois tax a medical-records service that delivered records electronically or as mailed paper copies?

Plain-English summary

A company processed medical-record requests for health-care providers and delivered the records either as paper copies by mail or shipping, or electronically through a web portal or FTP. It asked IDOR to classify a long list of separately stated affidavit, certification, retrieval, per-page, postage, handling, electronic-access, and related charges.

IDOR declined to issue the requested Private Letter Ruling because its regulations were dispositive. It did not assign a separate tax answer to every invoice line. Instead, it classified the transactions as services and explained the treatment of property transferred with them.

Electronic viewing, downloading, or transmission of video, text, and other data was not a transfer of tangible personal property. Paper medical records delivered to a customer were tangible property transferred incident to the service and could create tax liability under one of four methods:

1. Service Occupation Tax on the separately stated selling price of the property.
2. Service Occupation Tax using 50% of the entire bill when the property price was not separately stated, with a floor at the serviceman's cost.
3. For a registered de minimis serviceman, Service Occupation Tax on cost price.
4. For a de minimis serviceman not otherwise required to register, Use Tax on cost price, paid to the supplier or self-assessed.

The de minimis test described in the letter generally required annual property cost below 35% of total service receipts (75% for pharmacists and graphic-arts producers), measured annually rather than transaction by transaction.

Common questions

Was electronic delivery of medical records taxable as a property transfer? No.

Could mailed paper copies trigger tax? Yes, under one of the four serviceman methods.

Did IDOR classify each separate invoice fee? No. It declined the PLR and directed the company to the controlling regulations.

Citations and references

• 86 Ill. Adm. Code 140.101, 140.106, 140.108, and 140.109
• 2 Ill. Adm. Code 1200.110(a)(3)(D), (a)(4)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2012.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2012/st-12-0059.pdf

Original ruling text

ST 12-0059-GIL 11/29/2012 SERVICE OCCUPATION TAX
If tangible personal property is transferred incident to sales of service, this will result in
either Service Occupation Tax liability or Use Tax liability for the serviceman depending
upon his or her activities. See 86 Ill. Adm. Code 140.101. (This is a GIL.)
November 29, 2012
Dear:
This letter is in response to your letter dated July 31, 2012, 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:
COMPANY1, hereinafter (“COMPANY1”) respectfully requests a Private Letter Ruling
from the Illinois Department of Revenue as to the proper application of state and local
sales and use taxes to the transactions identified below.
COMPANY1’s Federal Employer Identification Number is XX. Our Sales Tax License
account number is XXX.
STATEMENT OF FACTS
COMPANY1 processes and fulfills medical record requests (known in the healthcare
industry as the release of information process). We partner with hospitals, health
systems, physician practices, and clinics to process and fulfill medical record requests
and maintain compliance related to releasing medical information to all types of
requesters. COMPANY1, by agreement with the health facility, makes photocopies of
the medical records, furnishes them directly to the requesting party, and bills the
requesting party directly for the copies. The requesting parties typically are patients,
attorneys, insurance companies, governmental entities, or hospitals, hereinafter
(“Customers”).
Here is how the process works. A trained specialist digitally captures the protected
health information from the facility’s electronic or paper medical records through our
technology platform. The digital medical records are then electronically transmitted to
our release of information processing center in CITY, STATE. COMPANY1 uses one of
two methods to deliver the medical records to our customers. With Delivery Method
One, paper copies of the medical records are printed, packaged, mailed and delivered
by the United States Postal Service or shipped and delivered by COMPANY2. With

ST 12-0059-GIL
November 29, 2012
Page 2
Delivery Method Two, we provide the customer access to the medical records
electronically via our web portal or we “push” the records to our high volumes customer
via File Transfer Protocol (FTP).
Due to the strict procedural and highly regulated steps involved in the release of
information process there are associated costs. The fees for our services and/or
products are normally based on rates regulated by state statutes, rules, or policies. If
there is no governing state authority, then COMPANY1 sets reasonable fee for its
services and/or products in accordance with Health Insurance Portability and
Accountability Act of 1996 (HIPAA) guidelines.
DELIVERY METHOD ONE – INVOICE LINE ITEMS
When COMPANY1 is ready to mail or ship paper copies of the medical records to the
customer, we invoice them, and then we release the records. Here are the various
possible line items that could make up a typical invoice, and a short explanation of each
line item.

1. Affidavit Fee: A separately stated flat fee charged fora [sic] written statement
   confirmed by oath or affirmation, for use as evidence in court.
2. Basic Fee: A separately stated flat unregulated fee for searching, retrieving,
   reviewing, and preparing copies [sic] medical records for delivery to the
   requester.
3. Certification Fee: A separately stated flat fee to certify the medical records.
4. Deposition Fee: A separately stated fee to affirm that the information is
   suitable to be utilized in a legal deposition.
5. Handling Fee: A separately stated flat fee distinct from the charge for
   postage, associated with mailing paper copies of the individual’s medical
   record.
6. Labor Fee: A processing service fee (e.g.; an additional fee charged for
   retrieving records stored off-site).
7. No Records Found Fee: A flat fee for conducting a search and no medical
   records were found to provide to the requestor.
8. Notary Fee: A separately stated flat fee to notarize the medical records.
9. Photo Fee: A separately stated fee for each page of the medical record that
   is photocopied.
10. Per Page Fee: A separately stated fee for each page of the medical record
    that is captured by scanning or captured from microfilm.
11. Postage Fee: A separately stated fee for the actual postage cost associated
    with mailing paper copies of the medical record when it is mailed via the
    United States Postal Service or delivery fee for records shipped via
    COMPANY2. This fee does not contain a markup for profit.
12. Retrieval Fee: A separately stated flat regulated fee for searching, retrieving,
    reviewing, and preparing copies [sic] medical records for delivery to the
    requester.
13. Shipping and Handling Fee: A fee charged for postage or COMPANY2
    shipping and handling. This fee does not contain a markup for profit.

ST 12-0059-GIL
November 29, 2012
Page 3

14. Shipping (only) Fee: A fee charged for actual postage cost or COMPANY2
    shipping cost. This fee does not contain a markup for profit.
    DELIVERY METHOD TWO – INVOICE LINE ITEMS
    When COMPANY1 is ready to electronically provide or deliver digital copies of the medical
    records to the customer, we invoice them, and then we release the records. Here are the
    various possible line items that could make up a typical invoice, and a short explanation of
    each line item.
15. Affidavit Fee: A separately stated flat fee charged for a written statement
    confirmed by oath or affirmation, for use as evidence in court.
16. Basic Fee: A separately stated flat unregulated fee for searching, retrieving,
    reviewing, and preparing copies [sic] medical records for delivery to the
    requester.
17. Certification Fee: A separately stated flat fee to certify the medical records.
18. Deposition Fee: A separately stated fee to affirm that the information is
    suitable to be utilized in a legal deposition.
19. Handling Fee: A separately stated flat fee distinct from the charge for
    postage, associated with mailing paper copies of the individual’s medical
    record.
20. Labor Fee: A processing service fee (e.g.; an additional fee charged for
    retrieving records stored off-site).
21. No Records Found Fee: A flat fee for conducting a search and no medical
    records were found to provide to the requestor.
22. Notary Fee: A separately stated flat fee to notarize the medical records.
23. Photo Fee: A separately stated fee for each page of the medical record that
    is photocopied.
24. Per Page Fee: A separately state[sic] fee for each page of the medical record
    that is captured by scanning or captured from microfilm.
25. Quickview Delivery Fee: A separately stated flat fee to electronically access
    and view the contents of the delivered information via our web portal.
26. Electronic FTP Fee: A separately stated fee to electronically receive medical
    records pushed to the customer via FTP.
27. Retrieval Fee: A separately stated flat regulated fee for searching, retrieving,
    reviewing, and preparing copies [sic] medical records for delivery to the
    requester.
    ISSUES
    Since COMPANY1 employees perform the above services within Illinois, COMPANY1
    has concluded that it has nexus for sales and use tax purposes. Consequently,
    COMPANY1 would like the state to provide specific tax advice concerning the following
    transactions:
    Question One: Which of the aforementioned invoice component fees charged for
    services and/or products that COMPANY1 provides using Delivery Method One (mailing
    or shipping) are subject to Illinois sales or use tax?

ST 12-0059-GIL
November 29, 2012
Page 4

Question Two: Which of the aforementioned invoice component fees charged for
services and/or products that COMPANY1 provides using Delivery Method Two
(electronic delivery) are subject to Illinois sales or use tax?
COMPANY1’S POSITION
When the medical record is transferred to a customer and no other tangible personal
property is transferred to that customer, COMPANY1 incurs no tax on that service
transaction.
If the medical record is delivered to a customer in a hardcopy version, COMPANY1
incurs Illinois Use Tax on the cost price of the documents delivered to its customers in
Illinois.
If the Department has any questions or requires any additional information from
COMPANY1 in order to provide the Illinois sales and use tax consequences of the
above described situations, then please contact me at XXXX.
Thank you in advance for your cooperation and attention to this matter.
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). Further, the Department’s regulations regarding Private Letter Rulings provide
that “[i]f there is case law or there are regulations dispositive of the subject to the request, the
Department will decline to issue a letter ruling on the subject." 86 Ill. Adm. Code 1200.110(a)(3)(D).
The Department declines to issue a Private Letter Ruling since its regulations are dispositive of the
subject of your request.
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in the
business of selling tangible personal property to purchasers for use or consumption. 35 ILCS 120/2;
86 Ill. Adm. Code 130.101. In Illinois, Use Tax is imposed on the privilege of using, in this State, any
kind of tangible personal property that is purchased anywhere at retail from a retailer. 35 ILCS 105/3;
86 Ill. Adm. Code 150.101. These taxes comprise what is commonly known as "sales" tax in Illinois. If
the purchases occur in Illinois, the purchasers must pay the Use Tax to the retailer at the time of
purchase. The retailers are then allowed to retain the amount of Use Tax paid to reimburse
themselves for their Retailers' Occupation Tax liability incurred on those sales. If the purchases occur
outside Illinois, purchasers must self assess their Use Tax liability and remit it directly to the
Department.
Retailers' Occupation Tax and Use Tax do not apply to receipts from sales of services. The
transactions you have described appear to be service transactions. Under the Service Occupation
Tax Act, businesses providing services (i.e. servicemen) are taxed on tangible personal property
transferred as an incident to sales of service. See 86 Ill. Adm. Code 140.101. The purchase of

ST 12-0059-GIL
November 29, 2012
Page 5
tangible personal property that is transferred to the service customer may result in either Service
Occupation Tax liability or Use Tax liability for the servicemen depending upon his activities. The
serviceman’s liability may be calculated in one of four ways:
(1)
(2)
(3)
(4)

separately stated selling price of tangible personal property transferred incident to
service;
50% of the servicemen's entire bill;
Service Occupation Tax on the servicemen's cost price if the servicemen are registered
de minimis servicemen; or
Use Tax on the servicemen's cost price if the servicemen are de minimis and are not
otherwise required to be registered under Section 2a of the Retailers' Occupation Tax
Act.

Using the first method, servicemen may separately state the selling price of each item transferred as
a result of the sale of service. The tax is then calculated on the separately stated selling price of the
tangible personal property transferred. If the servicemen do not separately state the selling price of
the tangible personal property transferred, they must use 50% of the entire bill to the service
customer as the tax base. Both of the above methods provide that in no event may the tax base be
less than the servicemen's cost price of the tangible personal property transferred. See 86 Ill. Adm.
Code 140.106.
The third way servicemen may account for their tax liability only applies to de minimis servicemen
who have either chosen to be registered or are required to be registered because they incur Retailers'
Occupation Tax liability with respect to a portion of their business. See 86 Ill. Adm. Code 140.109.
Servicemen may qualify as de minimis if they determine that the annual aggregate cost price of
tangible personal property transferred as an incident of the sale of service is less than 35% of the
total annual gross receipts from service transactions (75% in the case of pharmacists and persons
engaged in graphics arts production). Servicemen no longer have the option of determining whether
they are de minimis using a transaction by transaction basis. Registered de minimis servicemen are
authorized to pay Service Occupation Tax (which includes local taxes) based upon their cost price of
tangible personal property transferred incident to the sale of service. Such servicemen should give
suppliers resale certificates and remit Service Occupation Tax using the Service Occupation Tax
rates for their locations. Such servicemen also collect a corresponding amount of Service Use Tax
from their customers, absent an exemption.
The final method of determining tax liability may be used by de minimis servicemen that are not
otherwise required to be registered under Section 2a of the Retailers' Occupation Tax Act. Such de
minimis servicemen handle their tax liability by paying Use Tax to their suppliers. If their suppliers are
not registered to collect and remit tax, the servicemen must register, self-assess and remit Use Tax to
the Department. The servicemen are considered to be the end-users of the tangible personal property
transferred incident to service. Consequently, they are not authorized to collect a "tax" from the
service customers. See 86 Ill. Adm. Code 140.108.
Note, the Department does not consider the viewing, downloading or electronically transmitting of
video, text and other data over the internet to be the transfer of tangible personal property. However,
if a company provides services that are accompanied with the transfer of tangible personal property
(e.g., medical records delivered to a customer in a hardcopy version, rather than sent electronically),

ST 12-0059-GIL
November 29, 2012
Page 6
such service transactions are generally subject to tax liability under one of the four methods set forth
above.
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