Illinois – Free Medical Test Kits and Test Results are Taxable

SALT Report 1793 – The Illinois Department of Revenue issued a private letter ruling regarding the taxability of breast cancer test kits. The test kits use a patient’s saliva to detect the absence or presence of certain genetic variations. The tests help physicians assess breast cancer risk in people without a family history of the disease from these genetic markers.

The test kits are assembled out of the country by a foreign manufacturer. The finished product is sent to an out-of-state company who distributes the test kits to Illinois physicians who in turn provide them free of charge to their patients. The out-of-state company requested guidance regarding the taxability of processing and distributing the test results and whether they must pay use tax for distributing the test kits to physicians.

The Department determined that the foreign company did not resell the test kits but, instead, used them by providing them to doctors for free. Therefore, the distribution of the test kits for free are subject to Illinois use tax based on the cost price of the test kits. However, the Department notes that if the foreign company paid sales tax in another state that amount can be credited towards the Illinois use tax liability.

When the test results are provided to a patient or a requesting physician the foreign company delivers them in a written format.  Illinois imposes a service occupation tax or use tax on all sales of service that involve the transfer of tangible personal property to customers. Therefore, the Department notes that the cost to distribute the breast cancer test results in a written format is subject to the service occupation tax because it involves the transfer of tangible personal property. However, because the foreign company is registered as a retailer in Illinois, it can remit service occupation tax based on the cost price of the written test materials, such as paper and ink.

For Further Information:

Illinois Department of Revenue – Private Letter Ruling ST 12-0007-PLR