Did an FDA-regulated cold-and-compression system qualify for Illinois's reduced medical-appliance tax rate?

Plain-English summary

An out-of-state exhibitor planned to sell an FDA-regulated cold-and-compression system at an Illinois special event. The device was used for joint relief, muscle recovery, circulation, pain, and swelling. The seller argued it should receive the reduced medical-appliance rate.

IDOR disagreed. Under Rule 130.311, a medical appliance qualifies only when it directly substitutes for a malfunctioning part of the human body. The GIL lists artificial limbs, braces, wheelchairs, pacemakers, dialysis machines, hearing aids, and corrective lenses as examples.

Because the cold-and-compression system did not directly substitute for a malfunctioning body part, IDOR applied the high 6.25% state rate stated in the 2013 letter, plus applicable local taxes, rather than the reduced 1% medical-appliance rate.

Common questions

Was FDA regulation enough to qualify? No. Direct substitution for a malfunctioning body part was the controlling test.

Did therapeutic use make the device a medical appliance? Not under this GIL's definition.

Citations and references

• 86 Ill. Adm. Code 130.311

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2013.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2013/st-13-0038.pdf

Original ruling text

ST 13-0038-GIL 08/08/2013 MEDICAL APPLIANCES
This letter discusses the State tax rates applicable to sales of medical appliances. See 86 Ill. Adm. Code
130.311. (This is a GIL.)

August 8, 2013

Dear Xxxxx:
This letter is in response to your letter dated July 18, 2013, 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:
We are an out of state company who will be attending the Expo. We requested and received the
Special Event Tax Collection and Payment Coupon which indicated that the sales tax rate would
be 9.25%. We will be selling a medical device known as DEVICE and we interpret Regulation
under Title 86 part 130 Section 130.311, Medicines, Medical Appliances and Grooming and
Hygiene Product to mean that our product qualifies for the lower rate of tax, i.e., 2.25%.
Section 130.311 gives examples of medical appliances that qualify for the low rate of tax that is
not all inclusive. A couple of examples listed under paragraph 2) are hearing aids and
eyeglasses.
A hearing aid is a medical device (an instrument, apparatus, implant, in vitro reagent, or similar
or related article that is used to diagnose, prevent, or treat disease or other conditions, and does
not achieve its purposes through chemical action within or on the body) that is regulated by the
FDA.
Eyeglasses means lenses for correcting or assisting defective eyesight. Defective means
1.
2.

Imperfect or faulty
Lacking or deficient

Our product, the DEVICE, is a medical device regulated by the FDA. It is a cold and
compressions system for joint relief and muscle recovery. It treats conditions of muscle
recovery, joint injury, poor circulation, muscle and joint pain, reduces swelling and all effects of
Delayed Onset of Muscle Soreness.
The DEVICE can be viewed at EMAIL ADDRESS, product and accessories that will be sold at
the Special Event. A copy of our FDA 510(k) summary can be furnished to you upon request.

Please revisit the sales tax rate of 9.25% that was given to us.

DEPARTMENT’S RESPONSE:
The Department’s regulation regarding the appropriate tax rate for medical appliances can be found at
86 Ill. Adm. Code Section 130.311. Those products that qualify as medical appliances are taxed at a lower
State rate of 1% plus any applicable local taxes. Those items that do not qualify for the lower rate of tax are
taxed at the general merchandise rate of 6.25% plus applicable local taxes.
A medical appliance is an item that directly substitutes for a malfunctioning part of the human body.
Included in the exemption as medical appliances are such items as artificial limbs, dental prostheses and
orthodontic braces, crutches and orthopedic braces, wheelchairs, heart pacemakers, and dialysis machines
(including the dialyzer), as these products directly substitute for a malfunctioning part of the human body.
Corrective medical appliances such as hearing aids, eyeglasses and contact lenses qualify for exemption. The
product about which you inquire does not directly substitute for a malfunctioning part of the human body and,
thus, would be subject to the higher State rate of 6.25% plus 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: