Did a dissolving, steroid-releasing sinus implant qualify for Illinois' reduced tax rate for medicine or drugs?

Plain-English summary

A manufacturer sold a spring-like implant that a physician inserted after sinus surgery. The implant propped open the ethmoid sinus, gradually released the corticosteroid mometasone furoate directly to sinus tissue, and dissolved. It came in a one-time-use delivery system and was labeled for dispensing only by prescription or a licensed practitioner's order.

IDOR said the implant qualified as a medicine or drug. The decision was based on the sustained drug release, the manufacturer's factual representations, and the submitted instructions for use.

Qualifying medicines, drugs, and medical appliances were taxed at Illinois' reduced 1% state rate plus applicable local taxes, rather than the 6.25% general-merchandise state rate plus local taxes. IDOR cautioned that prescription-only status by itself did not automatically establish the lower rate; the product's label and medicinal claims mattered.

What this means for you

For a medical product, regulatory or prescription status alone was not decisive. IDOR looked at what the product did and what its labeling claimed. Here the sustained delivery of a named drug supported medicine-or-drug treatment.

This PLR states that it ceased to bind IDOR on March 15, 2026, ten years after the letter, or earlier if relevant law, rules, case law, or facts changed.

Common questions

What rate did IDOR assign? The 1% state rate plus applicable local taxes.

Was the implant treated as a medical appliance or a drug? IDOR expressly said it qualified as a medicine or drug.

Does prescription-only labeling automatically produce the reduced rate? No.

Citations and references

• 86 Ill. Adm. Code 130.310 and 130.311.
• 2 Ill. Adm. Code 1200.110(e).

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2016.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2016/st-16-0002-plr.pdf

Original ruling text

ST 16-0002-PLR 03/15/16

FOOD, DRUGS & MEDICAL APPLIANCES

This letter discusses the rules regarding the taxability of drugs and medical appliances. See 86
Ill. Adm. Code 130.311. (This is a PLR.)

March 15, 2016

Dear Xxxxx:
This letter is in response to your letter dated January 26, 2016, 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.
Review of your request disclosed that all the information described in paragraphs 1 through 8
of Section 1200.110 appears to be contained in your request. This Private Letter Ruling will bind the
Department only with respect to ABC for the issue or issues presented in this ruling, and is subject to
the provisions of subsection (e) of Admin. Code § 1200.110, governing expiration of Private Letter
Rulings. Issuance of this ruling is conditioned upon the understanding that neither ABC, nor a related
taxpayer is currently under audit or involved in litigation concerning the issues that are the subject of
this ruling request.
In your letter dated October 15, 2015, you stated and made inquiry as follows:
I’m writing on behalf of ABC, a medical device manufacturing corporation located
in CITY 1, STATE 1, to request an official ruling as to whether our product is qualified
for sales/use tax exemption in the state of Illinois. We do not have any other physical
location outside of STATE 1. We may have sales representatives who occasionally
travel to Illinois or who reside in Illinois.
Our product “PRODUCT” is approved by FDA and regulated as a medical device.
It is a spring-like steroid-releasing implant that offers localized drug delivery directly to
the sinus tissue, is inserted by a physician to maintain the surgical opening, expands to
prop open the ethmoid sinus and gradually delivers corticosteroid with anti-inflammatory
properties directly to the sinus lining as the implant dissolves. The implant is stored in a
“delivery system” and sold as a bundle, a type of medical tool/procedure kit that is
labeled to be dispensed only by the prescription or order of a licensed practitioner, and

is intended for one-time use on a single patient only. One cannot purchase or use the
implant without a delivery system, as they are simply two integral parts of ONE product.
We now sell to hospitals, ambulatory surgery centers, and doctor’s offices for scheduled
surgeries and/or for inventory stocking.
I found an existing ruling “ST-15-0002-PLR” on a similar medical device product
at Illinois DOR web site, and given it is not exactly the same as our product, we’d like to
request an official ruling directly from your department regarding taxability of our product
in Illinois, and if it turns out to be taxable, the tax rate we shall charge.
More information is available on our website: www.XXXXXXXXXXX.XXX The
video “VIDEO” shows what the product looks like and how it works.
In your letter dated January 26, 2016 you have stated and made inquiry as follows:
Thanks for your response dated XX/23/20XX re: my inquiry submitted on XX/15/20XX.
In the letter you indicated that without more information regarding how the product is
used and without examining the claims made on the label, you cannot determine
whether PRODUCT qualifies for the lower State rate of 1% as either a medical
appliance or a drug. Thus, we are submitting herewith your response letter and our
product inserts (Instructions for Use) for your further review and determination on
qualification of lower tax rate of our product.
And a subsequent question re: the above, should our product is [sic] determined to
qualify for the 1% lower state rate, please confirm we can update our system to charge
1% flat rate for all Illinois customers, as we are out-of-state vendor.

DEPARTMENT’S RESPONSE:
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 basic 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. Items subject to
this lower tax rate include prescription and nonprescription medicines, drugs, medical appliances, and
insulin, urine testing materials, syringes, and needles used by diabetics, for human use.
The Department’s regulation at 86 Ill. Adm. Code Section 130.311 governs Drugs, Medicines,
Medical Appliances and Grooming and Hygiene Products. Products that qualify as drugs, medicines
and medical appliances are taxed at a lower State rate of 1% plus any applicable local taxes. Those
items that do not qualify for the low rate of tax are taxed at the general merchandise rate of 6.25%
plus applicable local taxes.
Simply because a product is sold by “prescription only” does not mean that the product
automatically qualifies for the low rate of tax as a medicine or drug. A medicine or drug is defined as
any pill, powder, potion, salve, or other preparation for human use that purports on the label to have
medicinal qualities. A written claim on the label that a product is intended to cure or treat disease,

illness, injury or pain, or to mitigate the symptoms of such disease, illness, injury or pain constitutes a
medicinal claim. See Section 130.311 for examples of medicinal claims.
The information that you provided indicates that the product provides a sustained release of
the drug mometasone furoate via a bioabsorable sinus implant. Based upon the representations
made in your original letter dated MONTH 15, 20XX as well as your follow up letter dated MONTH 26,
20XX and the additional information you have provided regarding the instructions for use of the
product, we believe that the PRODUCT implant qualifies as a medicine or drug and is eligible for the
lower State tax rate of 1% plus any applicable local taxes.
The factual representations upon which this ruling is based are subject to review by the
Department during the course of any audit, investigation, or hearing and this ruling shall bind the
Department only if the factual representations recited in this ruling are correct and complete. This
Private Letter Ruling is revoked and will cease to bind the Department 10 years after the date of this
letter under the provisions of 2 Ill. Adm. Code 1200.110(e) or earlier if there is a pertinent change in
statutory law, case law, rules or in the factual representations recited in this ruling.
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,

Richard S. Wolters
Chairman, Private Letter Ruling Committee

RW:CB:bkl