How did Illinois tax medical-record services delivered on paper, CD, or electronically to in-state and out-of-state recipients?

Plain-English summary

A company supplied hospitals with an online system and Illinois staff to fulfill third-party medical-record requests. It delivered records electronically, on paper, or on CD and asked about requests involving Illinois and out-of-state facilities and recipients.

IDOR could not determine which party owed tax without examining the invoices and could not tell whether the arrangement was a multi-service transaction. It directed the company to the multi-service regulation.

The transactions appeared to be services. Electronic viewing, downloading, and transmission of records did not transfer tangible personal property. Paper or CD records did, so those service transactions could create Service Occupation or Use Tax under one of four methods: separately stated property price, 50% of the bill, Service Occupation Tax on cost for a registered de minimis serviceman, or Use Tax on cost for an otherwise unregistered de minimis serviceman.

The relevant fees could be affected by the chosen service-tax method. De minimis status used annual property-cost percentages, not a transaction-by-transaction test.

A serviceman did not owe Service Occupation Tax on property physically delivered from Illinois to a point outside Illinois, not to be returned to Illinois, when the service agreement required that delivery.

What this means for you

Record format, invoicing among the hospital, service company, and requester, multi-service treatment, and actual delivery destination all mattered. The GIL did not produce a single answer for all three scenarios.

Common questions

Were electronically transmitted records tangible property? No.

Could paper or CD records create tax? Yes.

Did IDOR determine which party owed tax? No.

Citations and references

• 86 Ill. Adm. Code 140.101, 140.106, 140.108, and 140.109.
• 86 Ill. Adm. Code 140.145 and 140.501(b).

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2015.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2015/st-15-0012.pdf

Original ruling text

ST 15-0012-GIL 01/30/2015 SERVICE OCCUPATION TAX
Under the Service Occupation Tax, servicemen are taxed on tangible personal property
transferred incident to a sale of service. See 86 Ill. Adm. Code Part 140. (This is a GIL.)

January 30, 2015

Dear Xxxx:
This letter is in response to your letter dated July 24, 2014, 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:
This letter requests a letter ruling regarding several fact scenarios related to the
activities of a business which assists hospitals in providing copies of medical records to
third parties.
COMPANY, a [STATE 1] based corporation, contracts with medical facilities throughout
the United States to provide a service related to the release of medical record
information to third parties, such as law firms or insurance companies (the Record
Recipient). COMPANY utilizes an online Internet-based system. The steps in the
process are described below.)
1) The medical facility logs a medical record request into the online system.
2) The medical facility staff makes an electronic image of the medical record information
by either scanning paper documents onto the system or by importing electronic
information into the online system. All medical information is stored in image format
(TIF). COMPANY does not own or have any legal right to the medical records.
3) COMPANY provides the medical record information to the Record Recipient using
either paper or a CD, or it transmits the record electronically. If the information is
provided on paper or a CD, COMPANY mails the requested record from its
[CITY,STATE 1], processing center.
4) COMPANY, acting as agent for the medical facility, invoices the Record Recipient.
5) In some instances, COMPANY remits a percentage of the fee to the medical facility

and COMPANY charges each medical facility a flat monthly service fee.
6) In other instances, COMPANY retains all of the fees collected and COMPANY does not
charge the medical facility a monthly service fee.
COMPANY provides the internet-based system to the medical facilities and in the state
of Illinois provides its own staff at the medical facilities.
The questions we are presenting are as follows:
1) An Illinois medical facility contracts with COMPANY to provide copies of records as
requested.
A Record Recipient located in Illinois requests a medical record.
COMPANY provides the copy and invoices the Record Recipient the Illinois statutory
fee. Is the fee subject to Illinois sales tax?
2) An out-of-state medical facility contracts with COMPANY to provide copies of medical
records as requested. A Record Recipient located in Illinois requests the record, and
COMPANY invoices the Record Recipient the fee mandated by that state. Is that fee
subject to Illinois sales tax?
3) An Illinois medical facility contracts with COMPANY to provide copies of medical records
as requested. A Record Recipient who is located outside Illinois requests a medical
record. COMPANY provides the copy and invoices the Record Recipient the Illinois
statutory fee. Is the fee subject to Illinois sales tax?
Thank you for your assistance.

DEPARTMENT’S RESPONSE:
Without examining the way that these transactions are invoiced between the
various parties, we are unable to determine which parties may have tax liability based
on the scenarios you have posed. We also cannot determine whether you are engaged
in a multi-service situation. Please refer to 86 Ill. Adm. Code 140.145 for the rules
regarding multi-service transactions. Though we are unable to provide you with a
specific answer based on the limited information contained in your letter, we hope you
will find the following information helpful. The Illinois Retailers' Occupation Tax Act
imposes a tax upon persons engaged in this State in the business of selling tangible
personal property to purchasers for use or consumption. 35 ILCS 120/2; 86 Ill. Adm.
Code 130.101. In Illinois, Use Tax is imposed on the privilege of using, in this State, any
kind of tangible personal property that is purchased anywhere at retail from a retailer. 35
ILCS 105/3; 86 Ill. Adm. Code 150.101. These taxes comprise what is commonly known
as "sales" tax in Illinois. If the purchases occur in Illinois, the purchasers must pay the
Use Tax to the retailer at the time of purchase. The retailers are then allowed to retain
the amount of Use Tax paid to reimburse themselves for their Retailers' Occupation Tax
liability incurred on those sales. If the purchases occur outside Illinois, purchasers must
self assess their Use Tax liability and remit it directly to the Department.

Retailers' Occupation Tax and Use Tax do not apply to receipts from sales of
services. The transactions you have described appear to be service transactions. Under
the Service Occupation Tax Act, businesses providing services (i.e., servicemen) are
taxed on tangible personal property transferred as an incident to sales of service. See
86 Ill. Adm. Code 140.101. The purchase of tangible personal property that is
transferred to the service customer may result in either Service Occupation Tax liability
or Use Tax liability for the servicemen depending upon his activities. The serviceman’s
liability may be calculated in one of four ways:
(1)
(2)
(3)
(4)

separately stated selling price of tangible personal property transferred
incident to service;
50% of the serviceman's entire bill;
Service Occupation Tax on the serviceman's cost price if the serviceman
is a registered de minimis serviceman; or
Use Tax on the serviceman's cost price if the serviceman is de minimis
and is not otherwise required to be registered under Section 2a of the
Retailers' Occupation Tax Act.

Using the first method, servicemen may separately state the selling price of each
item transferred as a result of the sale of service. The tax is then calculated on the
separately stated selling price of the tangible personal property transferred. If the
servicemen do not separately state the selling price of the tangible personal property
transferred, they must use 50% of the entire bill to the service customer as the tax base.
Both of the above methods provide that in no event may the tax base be less than the
servicemen's cost price of the tangible personal property transferred. See 86 Ill. Adm.
Code 140.106.
The third way servicemen may account for their tax liability only applies to de
minimis servicemen who have either chosen to be registered or are required to be
registered because they incur Retailers' Occupation Tax liability with respect to a portion
of their business. See 86 Ill. Adm. Code 140.109. Servicemen may qualify as de
minimis if they determine that the annual aggregate cost price of tangible personal
property transferred as an incident of the sale of service is less than 35% of the total
annual gross receipts from service transactions (75% in the case of pharmacists and
persons engaged in graphics arts production). Servicemen do not have the option of
determining whether they are de minimis using a transaction by transaction basis.
Registered de minimis servicemen are authorized to pay Service Occupation Tax
(which includes local taxes) based upon their cost price of tangible personal property
transferred incident to the sale of service. Such servicemen should give suppliers resale
certificates and remit Service Occupation Tax using the Service Occupation Tax rates
for their locations. Such servicemen also collect a corresponding amount of Service Use
Tax from their customers, absent an exemption.
The final method of determining tax liability may be used by de minimis
servicemen that are not otherwise required to be registered under Section 2a of the
Retailers' Occupation Tax Act. Such de minimis servicemen handle their tax liability by
paying Use Tax to their suppliers. If their suppliers are not registered to collect and remit
tax, the servicemen must register, self-assess and remit Use Tax to the Department.
The servicemen are considered to be the end-users of the tangible personal property

transferred incident to service. Consequently, they are not authorized to collect a "tax"
from the service customers. See 86 Ill. Adm. Code 140.108.
Please note, the Department does not consider the viewing, downloading or
electronically transmitting of video, text and other data over the internet to be the
transfer of tangible personal property. However, if a company provides services that are
accompanied with the transfer of tangible personal property (e.g., medical records
delivered to a customer in a hardcopy version, rather than sent electronically), such
service transactions are generally subject to tax liability under one of the four methods
set forth above. In your letter, you ask about the taxability of fees. We are not clear on
exactly what type of fees you are referring to, but the taxability of certain fees, such as
the one that you mention in your letter, may depend on which method you utilize to
determine your tax liability. Please note that a serviceman does not incur Service
Occupation Tax liability on property which he resells as an incident to a sale of service
under an agreement by which the serviceman is obligated to make physical delivery of
the goods from a point in this State to a point outside this State, not to be returned to a
point within this State, provided that such delivery is actually made. Such sales are
deemed to fall within the protection of the Commerce Clause of the United States
Constitution. See 86 Ill. Adm. Code 140.501(b).
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,

Cara Bishop
Associate Counsel

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