Does donating medical instruments to an Illinois nonprofit hospital avoid Use Tax because a direct sale to the hospital might be exempt?

Plain-English summary

A company made a taxable use of medical instruments when it donated them to nonprofit hospitals. Illinois treated the donor—not the donee—as the end user when purchased property was later given away.

The Department rejected the argument that the donation should be exempt because a direct sale to the hospitals might not have incurred Retailers' Occupation Tax. Donor/donee transactions were different from sales to exempt organizations, and the donee's entity type did not remove the donor's Use Tax liability. Illinois found no factual or legal change and declined to revise its earlier response.

What this means for you

Analyze the donor's purchase and later gift separately from the recipient's exemption status. A donee's ability to buy exempt does not automatically protect the donor.

Common questions

Q: Does the hospital's nonprofit status remove the donor's Use Tax?
A: No, under the rule described here.

Citations and references

• 86 Ill. Adm. Code 150.305(c) and 130.2125(c)
• 2 Ill. Adm. Code 1200.120 (GILs)

Subject

Miscellaneous

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-10-0071.pdf

Original ruling text

ST 10-0071-GIL 08/11/2010 MISCELLANEOUS
This letter references an earlier letter (ST 10-0017-GIL) regarding the Use Tax. 86 Ill. Adm.
Code 150.305(c). (This is a GIL.)

August 11, 2010

Dear Xxxxx:
This letter is in response to your letter dated May 17, 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:
We are writing in reply to your letter of March 12, 2010. We respectfully suggest that
your letter overlooks a critical point raised in our initial request.
Specifically, in our request, we pointed to section 3-65 of the Use Tax Act, which
mandates that if the seller of an item would not be subject to retailers’ occupation tax on
the sale of an item, then the in-state use of that same item is not subject to use tax. 35
ILCS 105/3-65; see also, 86 Ill. Adm Code §§ 150.101(c) and 150.301(b). In First
Chicago Building Corp. v. Department of Revenue, 49 Ill. App. 3d 237 (1st Dist. 1977),
the court ruled that under this provision, a company was not subject to use tax on
materials purchased for use in the construction of a banking facility.
The bank at issue formed a new subsidiary to own, manage and develop the
construction project. Since during the period under review, the retailers’ occupation tax
did not apply to national banking associations, the bank purchased the building
materials and resold them at a markup to its subsidiary. In turn, invoking section 3-65,
the subsidiary did not pay use tax on its purchases because the seller—i.e., its parent, a
national bank, was not subject to the retailers’ occupation tax.
The Department argued that the section 3-65 exemption did not apply and issued a
liability notice accordingly. The Department contended that the statute was intended to
exempt from the use tax only certain types of transactions, such as isolated or

occasional sales. Noting that the plain language of section 3-65 controlled, the court
rejected this contention because the Department’s proposed construction would engraft
onto the statute a condition or limitation not found in its text.
We submit that under the plain terms of section 3-65, as well as its interpretation in First
Chicago Building Corp., our client is not liable for tax as the user of the instruments. As
noted in our initial request, insofar as the company would not be subject to retailers’
occupation tax if it sold the instruments to nonprofit hospitals in Illinois, the company’s
donation of the instruments (i.e., its ‘use’) to these same institutions is likewise not
subject to the use tax.
We look forward to your confirmation of this conclusion.
colleague with questions or comments.

You may call me or my

DEPARTMENT’S RESPONSE:
The Department’s regulations regarding use tax liability in donor/donee situations is well
settled. See 86 Ill. Adm. Code 150.305(c) and 86 Ill. Adm. Code 130.2125(c). When a donor
purchases tangible personal property and then gives it away, the donor has made a taxable use of
the property by making such a gift. As such, it is the donor of the gift who is deemed the end user of
the property and who is subject to the Use Tax, rather than the donee regardless of the type of entity
to whom it was donated. Donor/donee situations in terms of use tax liability differ from sales to
exempt organization in terms of retailers’ occupation and use tax liabilities. As such, your belief that
your client is not subject to use tax on the instruments it donates to nonprofit hospitals because if it
sold the instruments to those hospitals, it would not be subject to retailers’ occupation tax is
misplaced.
However, we reviewed our previous response to you dated March 12, 2010 (ST 10-0017). It
does not appear that anything has factually changed with your client’s situation about which you
inquired, and the law we set forth in our previous response has not changed. Accordingly, we decline
to revise and/or clarify that response.
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