SALT Report 1740 – The Illinois Department of Revenue issued a General Information Letter regarding a Taxpayer’s medical appliance. The Taxpayer manufactures embolization pledgets that are used by interventional cardiologists and interventional radiologists. The embolization pledgets are made of pre-formed gelatin foam that is delivered through a catheter to embolize blood vessels in hypervascular tumors and arteriovenous malformations. Once inserted into the artery or vein the pledgets help to stop the flow of blood. The pledgets are disposable, single use products sold to hospitals and clinics and are labeled with – “CAUTION: Federal Law (U.S.A.) restricts this device to sale by or on the order of a physician.”
Illinois provides an exemption from sales and use tax for medical appliances under 86 Ill. Adm. Code Section 130.311. The regulation states that exempt products are those that are “intended by its manufacturer for use in directly substituting for a malfunctioning part of the body.” Products that fall within the scope of the regulation 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 any applicable local taxes.
The Department determined that the Taxpayer’s embolization pledgets do not qualify for the reduced tax rate as a medical appliance because they are not “for use in directly substituting for a malfunctioning part of the body” as defined by 86 Ill. Adm. Code 130.311(d).
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