Did Illinois decide whether an out-of-state seller of prostate immobilization devices had to register and collect tax, or whether the devices qualified for the medical-appliance rate?

Plain-English summary

Illinois did not decide whether the out-of-state distributor had nexus, had to register, or had to collect Illinois tax. The Department said nexus determinations require information often best gathered by an auditor, so it provided only general principles.

Under the framework described in the 2010 letter, an Illinois retailer that accepted orders in Illinois or maintained Illinois inventory and filled orders from it owed Retailers' Occupation Tax and collected the purchaser's Use Tax. A retailer maintaining a place of business in Illinois registered as a Use Tax collector. The letter also said physical presence could include an agent or representative and repetitive delivery and installation, not only an office.

The Department separately explained that medicines and medical appliances were taxed at a reduced 1% state rate plus applicable local taxes in 2010. A medical appliance had to be intended by its manufacturer to directly substitute for a malfunctioning body part. The Department did not say whether the described prostate immobilization balloon satisfied that definition.

What this means for you

Do not use this GIL as a nexus or product-classification approval. An out-of-state medical-device seller needs a current, fact-specific review of its Illinois activities and evidence showing how the product meets any claimed medical-appliance definition.

Common questions

Q: Did shipping devices to Illinois customers by a third-party carrier settle the nexus question?
A: No. The Department declined to make a nexus determination for the seller.

Q: Did use by radiation oncologists automatically make the device a medical appliance?
A: No. The letter said not every item prescribed or used by a health professional qualifies; the item itself must directly substitute for a malfunctioning body part.

Citations and references

• 86 Ill. Adm. Code 150.201(i) and 150.801
• 86 Ill. Adm. Code 130.310 and 130.310(c)(2)
• Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992)
• Brown's Furniture, Inc. v. Zehnder, 171 Ill. 2d 410 (1996)
• 2 Ill. Adm. Code 1200.110 and 1200.120

Subject

Nexus

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2010.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2010/st-10-0068.pdf

Original ruling text

ST 10-0068-GIL 08/10/2010 NEXUS
This letter discusses nexus. See Quill Corp. v. North Dakota, 112 S.Ct. 1904 (1992). (This is a
GIL.)

August 10, 2010

Dear Xxxxx:
This letter is in response to your letter dated July 7, 2010, in which you request 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:
ABC
We are requesting clarification regarding the subject of charging sales tax to clients
within the state of Illinois; specifically, whether we should charge sales tax given our
company profile and the following use of the device.
Background
We are a STATE based company whose main product is a prostate immobilization
device (a balloon like product which is inserted in the rectum during radiation treatments
to restrict movement of the prostate). The use of the balloon is dependent upon the
specifics of the patient’s anatomy and clinical profile; the assessment and decision
being the responsibility of the radiation oncologist.
We sell these medical devices to radiation therapy departments in Illinois. We ship
these devices from our storage facilities in CITY/STATE via a third party vendor (i.e.
FedEx). Furthermore, we do not have a physical office in the state of Illinois, but rather
we are a STATE based company acting in the capacity of a distributor; taking
possession of the product, processing orders and shipping them to our clients.

Can your legal department please send us an email that addresses our question of
whether we have to charge sales tax and maintain a sales tax permit in the state of
Illinois? If you should have a need for clarification, please do not hesitate to let me
know. We thank you for your assistance.

DEPARTMENT’S RESPONSE:
Nexus
The Department declines to make nexus determinations in the context of Private Letter Rulings
or General Information Letters because the amount of information required to make those
determinations is often best gathered by an auditor. The following information outlines the principles
of nexus. We hope it is helpful to you.
An “Illinois Retailer” is one who either accepts purchase orders in the State of Illinois or
maintains an inventory in Illinois and fills Illinois orders from that inventory. The Illinois Retailer is then
liable for Retailers' Occupation Tax on gross receipts from sales and must collect the corresponding
Use Tax incurred by the purchasers.
Another type of retailer is the retailer maintaining a place of business in Illinois. The definition
of a “retailer maintaining a place of business in Illinois” is described in 86 Ill. Adm. Code 150.201(i).
This type of retailer is required to register with the State as an Illinois Use Tax collector. See 86 Ill.
Adm. Code 150.801. The retailer must collect and remit Use Tax to the State on behalf of the
retailer’s Illinois customers even though the retailer does not incur any Retailers' Occupation Tax
liability.
The United States Supreme Court in Quill Corp. v. North Dakota, 112 S.Ct. 1904 (1992), set
forth the current guidelines for determining what nexus requirements must be met before a person is
properly subject to a state's tax laws. The Supreme Court has set out a 2-prong test for nexus. The
first prong is whether the Due Process Clause is satisfied. Due process will be satisfied if the person
or entity purposely avails itself or himself of the benefits of an economic market in a forum state. Quill
at 1910. The second prong of the Supreme Court's nexus test requires that, if due process
requirements have been satisfied, the person or entity must have physical presence in the forum
state to satisfy the Commerce Clause.
A physical presence is not limited to an office or other physical building. Under Illinois law, it
also includes the presence of any agent or representative of the seller. The representative need not
be a sales representative. Any type of physical presence in the State of Illinois, including the vendor’s
delivery and installation of his product on a repetitive basis, will trigger Use Tax collection
responsibilities. Please refer to Brown’s Furniture, Inc. v. Zehnder, 171 Ill.2d 410, (1996).
The final type of retailer is the out-of-State retailer that does not have sufficient nexus with
Illinois to be required to submit to Illinois tax laws. A retailer in this situation does not incur Retailers’
Occupation Tax on sales into Illinois and is not required to collect Use Tax on behalf of its Illinois
customers. However, the retailer’s Illinois customers will still incur Use Tax liability on the purchase of
the goods and have a duty to self-assess and remit their Use Tax liability directly to the State.
Medical Appliances
All gross receipts from sales of tangible personal property in Illinois are subject to Retailers’
Occupation Tax unless an exemption is specifically provided. Medicines and medical appliances are

not taxed at the normal State rate of 6.25% plus applicable local taxes. These items are taxed at a
reduced State rate of 1% plus applicable local taxes. See 86 Ill. Adm. Code 130.310.
The definition of a medical appliance is "an item which is intended by its manufacturer for use
in directly substituting for a malfunctioning part of the body." “Medical appliances” may be prescribed
by licensed health care professionals for use by a patient, purchased by health care professionals for
the use of patients, or purchased directly by individuals. See 86 Ill. Adm. Code 130.310(c)(2). Please
note that not all items prescribed by or used by physicians or other licensed health care professionals
qualify for the low rate. As you can see, in order for a medical appliance to qualify for the reduced
rate, the medical appliance itself must be used in a manner that directly substitutes for a
malfunctioning part of the body.
I hope this information is helpful. If you require additional information, 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:msk