How did Illinois classify a tissue bank's cost-plus charges for providing donated non-transplantable human remains for research and training?

Plain-English summary

A tissue bank received donated human bodies, prepared whole cadavers or tissue for medical research and training, and charged cost-plus fees for acquisition, storage, preservation, preparation, and distribution. It did not pay donors or charge for the tissue itself.

IDOR said the company appeared to make sales of service, not retail sales, so it did not incur Retailers' Occupation Tax. A serviceman can still owe Service Occupation Tax or Use Tax on tangible personal property transferred with the service under one of four calculation methods.

The limited facts suggested the company might qualify as an unregistered de minimis serviceman. If so, it would owe Use Tax on its cost price of remains and other transferred property. Because the remains were donated and the company incurred no acquisition cost, the letter said their cost price would be zero.

What this means for you

Charging for processing and preparation can be a service even when tangible material is delivered. The tax analysis then focuses on the serviceman method and actual cost of transferred property.

Common questions

Did IDOR treat the tissue bank as a retailer? No, based on the limited facts.

Did transferring remains eliminate all tax analysis? No. Tangible property transferred with a service can trigger Service Occupation Tax or Use Tax treatment.

What cost did IDOR assign to donated remains? Zero, because the company paid nothing to obtain them.

Citations and references

• 86 Ill. Adm. Code 130.101, 150.101, and 140.101.
• 2 Ill. Adm. Code 1200.110 and 1200.120.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2016.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2016/st-16-0068-gil.pdf

Original ruling text

ST 16-0068 GIL 12/27/2016 SALE OF SERVICE
If tangible personal property is transferred to the customer incident to a sale of service,
then Service Occupation Tax would apply. See 86 Ill. Adm. Code Parts 130 and 140.
(This is a GIL.)

December 27, 2016

RE:

Private Letter Ruling-Transaction Privilege Tax
COMPANY
EIN: ######
ADDRESS
CITY, STATE ZIP CODE

Dear Xxxxx:
This letter is in response to your letter dated June 15, 2016, in which you requested
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 writing to request a Private Letter Ruling from the Department for
COMPANY or the “Company”) and the proper sales and use tax treatment of
transactions involving charges for the service of providing non-transplantable
human tissue for research, training and overall medical advancement. The
company currently is not under audit by the Department.
During the past decade, with advancements in medicine and medical technology,
there has been a growing need for non-transplantable human tissue. COMPANY
is able to meet this essential need by educating the public about the societal and
medical research related benefits of whole body donation, and receives these
donations from donors at a variety of venues including hospitals, funeral homes,
and hospices. These donations are subject to legal consent and authorization
from the donor and/or their next of kin. By donating to COMPANY, donors and

ST 16-0068- GIL
their families are able to meet their own or loved ones’ wishes to help support
and further the advancement of scientific and medical research.
Founded in 20XX, COMPANY is a non-transplantable human tissue bank that
provides services associated with the processing, storage, preparation and
transportation of tissue specimen to clients for medical research and training
purposes. The Company’s customers include medical facilities, hospitals,
universities, academic medical centers, medical training organizations and
medical device manufacturers, amongst others. COMPANY receives donated
human bodies shortly after the time of death in order to provide the medical
community with either complete, intact cadavers, or portions of human tissue
according to its customers’ specific needs associated with their training and
research requirements. COMPANY makes no payments to a donor’s estate or
their family for the donated remains. Highly skilled experts are used to remove
parts in such a way as to preserve the integrity and usefulness of those bodies
and requested tissue for specific training and research purposes. Any tissues
that are not recovered for a qualified use are cremated and either disposed of or
returned to the next of kin upon request.
In general, public policy and social norms rule out establishing a marketplace for
the sale of vital human organs and body tissue. Commodifying the human body
and its organs, thereby transforming what should be an act of altruism into a
commercial transaction, is viewed as contrary to our basic social values (Public
Policy and the Sale of Human Organs, Cynthia B. Cohen, Kennedy Institute of
Ethics Journal, Vol 12, #1 (2002)). This has resulted in federal and state statutes
and regulations outlawing the sale of human tissue. Specifically, the National
Organ Transplant Act (“NOTA”) of 1984 bans the sale of human organs and
tissue for transplant, but allows tissue banks to charge fees for tissue and
services associated with procuring and preparing tissue. In addition, 42 U.S.
Code § 274e(a) states that “It shall be unlawful for any person to knowingly
acquire, receive, or otherwise transfer any human organ for valuable
consideration for use in human transplantation if the transfer affects interstate
commerce.” Further, the federal Public Health Service Act prohibits the sale of
human fetal tissue as stated in 42 U.S. Code § 289g-2(a), “It shall be unlawful for
any person to knowingly acquire, receive, or otherwise transfer any human fetal
tissue for valuable consideration if the transfer affects interstate commerce.”
Additionally, the Uniform Anatomical Gift Act (noted by Illinois Section 755 ILCS
50/1), governs both tissue for transplantation into living patients as well as the
making of anatomical gifts for the advancement of science. Section 16 of the
Uniform Anatomical Gift Act (2006) sates that “A person my charge a reasonable
amount for the removal, processing, preservation, quality control, storage,
transportation, implantation or disposal of a part.”
These legal parameters have shaped the manner in which human bodies are
gathered and then, in whole or in part, distributed, with no distinction on whether
the parts are used for purposes of research or transplanting. As is customary for
the industry, the Company charges fees to its customers in order to recover the
costs associated with the acquisition, storage, preservation, preparation and
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ST 16-0068- GIL
distribution of the tissue. Cost-plus pricing, rather than supply-demand metrics,
establish service charges invoiced to the Company’s customers. There are no
charges for human tissue. COMPANY is properly following the various
longstanding nationwide legal and social norms which provide that there can be
no sale of a human body or vital body parts. The Illinois legislature has seen fit
to also address this topic in § 720 ILCS 5/12-20, which, like the Uniform
Anatomical Gift Act above, states:
(a) Except as provided in subsection (b), any person who knowingly buys or
sells, or offers to buy or sell, a human body or any part of a human body, is
guilty of a Class A misdemeanor for the first conviction and a Class 4 felony
for subsequent convictions.
(b) This Section does not prohibit:
(1) An anatomical gift made in accordance with the Illinois
Anatomical Gift Act [755 ILCS 50/1 et seq.].
(2) The removal and use of a human cornea in accordance with the
Anatomical Gift Act [755 ILCS 50/1 et seq.].
(3) Reimbursement of actual expenses incurred by a living person
in donating an organ, tissue or other body part or fluid for
transplantation, implantation, infusion, injection, or other
medical or scientific purpose, including medical costs, loss of
income, and travel expenses.
(4) Payments provided under a plan of insurance or other health
care coverage.
(5) Reimbursement of reasonable costs associated with the
removal, storage or transportation of a human body or part
thereof donated for medical or scientific purposes.
(6) Purchase or sale of blood, plasma, blood products or
derivatives, other body fluids, or human hair.
(7) Purchase or sale of drugs, reagents or other substances made
from human bodies or body parts, for use in medical or
scientific research, treatment or diagnosis.
The fees which COMPANY lists and charges are an aggregate reflection of the
services it provides related to its tissue removal, processing, preservation,
storage, transportation and disposal, and are allowable under Illinois statutes.
Similarly, the above statute makes it clear that the company cannot be in the
business of making a sale of human tissue without being subject to substantial
criminal penalties.
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ST 16-0068- GIL
With this in mind, we believe that COMPANY is not involved in a sale, is not a
retailer and should not be taxable under Illinois Section 2, 35ILCS 120/2 or
similar statues. We believe COMPANY is a service provider, and should not be
required to collect sales or use tax on its charges to its clients. To determine
otherwise would contravene public policy and legal designs intent on preventing
a marketplace for body parts to develop. Based on the information above, and
the fact that COMPANY customers are billed for services on a cost-plus basis,
we believe the transactions involving the provision of a human body or body
parts to a third party for research and/or medical advancement purposes should
be exempt from the Illinois sales tax.
We understand that there may be other exemptions from the Illinois sales tax
available to the services in question, including customer exemptions for
transactions involving tissue transfers to hospitals, universities, and medical
research facilities, and possible research and development exemptions for sales
to medical device manufacturers. In this instance, we are requesting the
Department’s opinion on the taxability of these transfers of tissue overall, and the
position that COMPANY should be treated as a service provider and not a
retailer, without considering customer specific exemptions.
We respectfully request that the Department review our facts and reliance on
previous and current regulations, statutes and precedents and provide guidance
as to the tax treatment of these transactions. Additionally, we ask that the
Department not disclose the name of the Taxpayer, COMPANY, in a published
ruling to the public. Should the Department need additional information in order
to make its determination, or would like to discuss any item or issue further, I can
be reached at ###-###-####. Thank you for your consideration of this matter.
We look forward to your reply.
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). The Department recently met and
determined that it would decline to issue a Private Letter Ruling in response to your request.
We hope, however, the following General Information Letter will be helpful in addressing your
question.
The Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property at retail to purchasers for use or
consumption. See 86 Ill. Adm. Code 130.101. 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. See 86 Ill. Adm. Code 150.101. These taxes comprise what is commonly known as
sales tax in Illinois.

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ST 16-0068- GIL
Retailers' Occupation Tax and Use Tax do not apply to sales of service. 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. If no tangible personal property is transferred incident to service, no Service
Occupation Tax is incurred. 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, provided that in no event may the tax base be less than the
serviceman’s cost price of the tangible personal property transferred;
50% of the serviceman's entire bill, provided that in no event may the tax base be
less than the serviceman’s cost price of the tangible personal property
transferred;
Service Occupation Tax on the serviceman's cost price of tangible personal
property transferred incident to service if the serviceman is a registered de
minimis serviceman; or
Use Tax on the serviceman's cost price of tangible personal property transferred
incident to service if the serviceman is de minimis and is not otherwise required
to be registered under Section 2a of the Retailers' Occupation Tax Act.

It appears from your letter that your client is making sales of service and is a
serviceman. As a serviceman, your client does not incur Retailers’ Occupation Tax. Service
Occupation Tax is imposed upon all persons engaged in the business of making sales of
service on all tangible personal property transferred incident to a sale of service and is
calculated as explained above. It appears from the limited information provided in your letter
that your client may qualify as a de minimis serviceman that is not otherwise required to be
registered under Section 2a of the Retailers’ Occupation Tax Act. If this is the case, your client
could remit Use Tax on his cost price of the remains (and any other tangible personal property
transferred incident to service). Your letter indicates that your client incurs no cost to obtain
the remains, as they are donated to your client. Consequently, your client’s cost price would
be zero for these remains.
I hope this information is helpful. If you have further questions concerning this Private
Letter Ruling, you may contact me at (217) 782-2844. If you have further questions related to
the Illinois sales tax laws, 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:bkl
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