Which catheters and cardiovascular products qualified for Illinois's reduced medical-appliance tax rate?

Plain-English summary

A cardiovascular-products manufacturer asked IDOR to classify its chest drains, thoracic catheters, autotransfusion devices, synthetic-artery products, stents, and other products. IDOR did not classify every attached item; it gave the governing test and catheter examples.

A medical appliance qualified for the lower 1% state rate plus applicable local taxes only if the manufacturer intended it to directly substitute for a malfunctioning part of the body. A prescription alone did not make an item a medical appliance. Diagnostic, treatment, and rehabilitative equipment generally did not qualify when it did not directly replace a body function.

IDOR explained that some catheters could qualify:

• Catheters introducing fluids into the body, such as those pumping blood back into circulation during open-heart surgery or hemodialysis and enteral catheters, could receive the low rate.
• Catheters removing fluids, including urological, drainage, and specified neurological catheters relieving intracranial pressure, could also qualify.
• Diagnostic catheters, including interventional angioplastic catheters, and catheters used as medical tools or part of a drug-delivery system did not qualify and were fully taxable.

The letter also warned that federal 501(c)(3) status alone did not exempt an Illinois purchaser. A qualifying organization needed an Illinois exemption identification number (“E number”), and the exemption applied to sales to the organization, not automatically to its individual members.

Common questions

Did every prescribed medical product receive the low rate? No. It had to directly substitute for a malfunctioning body part.

Could a catheter qualify? Yes, when it directly performed the relevant fluid-introduction or fluid-removal function described by IDOR.

Were diagnostic catheters low-rate medical appliances? No. The letter treated them as fully taxable.

Was federal nonprofit status enough for an exempt purchase? No. The organization needed an Illinois E number.

Citations and references

• 86 Ill. Adm. Code 130.311(d), (d)(7)
• 86 Ill. Adm. Code 130.2007

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-12-0064.pdf

Original ruling text

ST 12-0064-GIL 12/27/2012 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.)
December 27, 2012
Dear:
This letter is in response to your letters dated August 23, 2012, and October 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 letters you have stated and made inquiry as follows:
Our Company is engaged in the manufacture and distribution of cardiovascular blood
management products such as chest drains used after open-heart surgery, thoracic
catheters, auto-transfusion devices, synthetic artery products as well as STENTS.
From time to time we may sell our products to for-profit and/or not-for-profit healthcare
organizations within your state. We are sending this letter in an effort to determine the
state sales tax laws governing our products in each of the may states our Company
operates in.
For your convenience, our website X, is available to help identify the products that we
manufacture. The products are listed by product line with a complete description. This
information should assist you in answering any questions your state’s tax regulation
representative may have regarding the taxability of products for your State.
Please complete the attached form with your state, phone and contact information and
return it along with this letter to COMPANY, at your earliest convenience either by fax
XX), scanned email – PDF format to XXX or postal mail to the following address: XXXX
Please feel free [sic] contact me if you have any questions at XXXXX.
DEPARTMENT’S RESPONSE:
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.

ST 12-0064
December 27, 2012
Page 2

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." Please note that 86 Ill. Adm. Code
130.311(d)(7) provides that 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. Note, though, not all items prescribed by physicians or other
licensed health care professionals qualify for the low rate. 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, even if prescribed by a licensed health care
professional, because such items are not "for use in directly substituting for a malfunctioning part of
the body," 86 Ill. Adm. Code 130.311(d).
You can determine the tax status of the products listed in the attachment to your letter by applying the
principles set forth in the Regulation cited above. You may also want to review some of the letter
rulings provided on our website regarding this topic.
Further, for your information, the Department has ruled that some catheters can qualify as medical
appliances. Catheters that directly substitute for a malfunctioning part of the body, that is, catheters
that introduce fluids into the body (for instance, catheters used to pump blood back into the circulatory
system in open heart surgery or in hemodialysis, or enteral catheters) or remove fluids from the body
(urological or drainage catheters, or neurological catheters relieving intracranial pressure in
hydrocephalics) are subject to the low rate of tax.
Catheters that are used diagnostically (e.g., interventional angioplastic catheters) or as medical tools
(e.g., as part of a drug delivery system) do not qualify for the low rate and are fully taxable.
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.
Organizations that are recognized as non-profit under Internal Revenue Code Section 501(c)(3), are
not necessarily exempt organizations pursuant to Illinois tax law. Such organizations must obtain an
exemption identification number (an “E number”) to qualify. See 86 Ill. Adm. Code 130.2007.
Organizations that make application to the Department of Revenue and are determined to be
exclusively religious, educational, or charitable, receive an E number. The E number evidences that
the Department recognizes the organizations as exempt from incurring Use Tax when purchasing
tangible personal property in furtherance of their organizational purposes. If an organization does not
have an E number, then its purchases are subject to tax. Please be aware that currently only sales to
organizations holding the E number are exempt, not sales to individual members of the organization.
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.

ST 12-0064
December 27, 2012
Page 3
Very truly yours,

Debra M. Boggess
Associate Counsel