Illinois – Medical Product Qualifies for 1% Tax Rate

SALT Report 2044 – In a private letter ruling, the Illinois Department of Revenue determined that a biotechnology company’s combination drug/device used to heal musculoskeletal injuries and diseases qualified for the 1% Illinois sales and use tax rate for drugs, medicines and medical appliances.

The product acts as a synthetic replacement to autograft in hind foot and ankle surgery.  It consists of two components:  a recombinant human platelet-derived growth factor and a beta-tricalcium phosphate.  It is only sold as a single use product to hospitals and surgery clinics.

86 Ill. Adm. Code Section 130.311 Drugs, Medicines, Medical Appliances, and Grooming and Hygiene Products states that, “products that qualify as drugs, medicines and medical appliances are taxed at a lower State rate of 1% plus any applicable local taxes.  Items that do not qualify for the low tax rate are taxed at the general merchandise rate of 6.25% plus applicable local taxes.”

The Department determined that the Taxpayer’s product qualified as a medical appliance which is defined as “an item that is intended by its manufacturer for use in directly substituting for a malfunctioning part of the body.”  Accordingly, the Taxpayer’s product qualified for the 1% sales tax rate.

For Further Information:

Illinois Department of Revenue – Private Letter Ruling, ST 12-0013-PLR