Illinois – Product Used to Fill Bone Voids and Repair Fractures Qualifies for 1% Tax Rate

SALT Report 2045 – The Illinois Department of Revenue determined that a biotechnology company’s drug/device used to fill bone voids and repair fractures of the pelvis and extremities qualifies for the 1% sales and use tax rate for drugs, medicines and medical appliances.

The product is made from bovine type I collagen and carbonated apatite, which is a form of calcium phosphate, and resembles the mineral phase of natural human bone. The product is combined with autologous and when hardened provides a moldable “scaffold” to support and promote bone healing. The product is sold for single use in a surgical setting to hospitals and surgery centers.

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 will be taxed at the lower State rate of 1% plus any applicable local taxes. Items that do not qualify for the lower tax rate will be taxed at the general merchandise rate of 6.25% plus any applicable local taxes.

The Department determined that the Taxpayer’s product qualifies for the 1% Illinois sales and use tax rate for drugs, medicines and medical appliances because the product is “for use in directly substituting for a malfunctioning part of the body” as required by 86 Ill. Adm. Code 130.311(d).

For Further Information:

Illinois Department of Revenue – Private Letter Ruling ST 12-0012-PLR