Which patient and non-patient sales by a nonprofit hospital affiliate with an E-number were exempt from Illinois Retailers' Occupation Tax?

Plain-English summary

A nonprofit hospital affiliate with its own Illinois hospital exemption number sold food, medication, casting materials, splints, slings, diabetic shoes, surgical boots, inserts, bandages, nebulizers, and other products in connection with medical services. It also sometimes sold property to non-patients.

IDOR ruled that the affiliate qualified for the hospital exemptions because it met Section 2-9 and held an E-number.

Food and medicine furnished to patients with hospital service were exempt. Products transferred by physicians during care, including grooming and hygiene products furnished in furtherance of patient care, also were exempt. Drugs sold to non-patients were exempt.

After a patient left, later sales of products that were not drugs—generally including grooming and hygiene items—were taxable. Any related or affiliated entity seeking the same exemptions had to obtain its own separate E-number.

What this means for you

Hospital systems should classify the item, whether the buyer was receiving patient care, and which legal entity made the sale. A parent's or affiliate's exemption number did not automatically extend across the system.

This PLR states that it ceases to bind IDOR ten years after August 17, 2016—August 17, 2026—or earlier if relevant law, rules, case law, or facts change.

Common questions

Were products furnished during patient care exempt? Yes, on the ruling's facts.

Were drugs sold to non-patients exempt? Yes.

Could another affiliate use this entity's E-number? No.

Citations and references

• 35 ILCS 120/1 and 120/2-9.
• 86 Ill. Adm. Code 130.2005.
• 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-16-0008-plr.pdf

Original ruling text

ST 16-0008-PLR 08/17/2016

EXEMPT ORGANIZATIONS

This letter explains that hospitals that meet the criteria for an exemption under Section 2-9 of
the Retailers’ Occupation Tax Act (35 ILCS 120/2-9) do not incur Retailers’ Occupation Tax
when selling food, medicine or grooming and hygiene products to their patients in connection
with the furnishing of hospital service to them. See 86 Ill. Adm. Code 130.2005(b)(1)(a) and
130.2005(a)(2)(A). (This is a PLR.)

August 17, 2016

Dear Xxxxx:
This letter is in response to your letter dated March 21, 2016, in which you requested
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 COMPANY 1. for the issue or issues presented in this ruling, and is
subject to the provisions of subsection (e) of Section 1200.110 governing expiration of Private Letter
Rulings. Issuance of this ruling is conditioned upon the understanding that neither COMPANY 1 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 you have stated and made inquiry as follows:
We write to request a private letter ruling from the Illinois Department of Revenue
(“Department”) on behalf of COMPANY 1, pursuant to 2 Ill. Adm. Code 1200.110. This
request concerns the application of the Retailers’ Occupation Tax and related state and
local taxes (“ROT”) to COMPANY 1’s sales of tangible personal property (“TPP”) to
patients as part of its provision of medical services. As described in more detail below
COMPANY 1 believes that its sales of TPP are exempt from ROT under the exclusively
charitable, nonprofit hospital exceptions found in 35 ILCS 1201/1 and 86 Ill. Adm. Code
130.2005. A completed Power of Attorney authorization (Form IL-2848) is enclosed as
Exhibit A.

I.

Statement of Facts
A. General Background

COMPANY 2 is a multi institutional health care system comprised of 13 hospitals and
an integrated physicians network across Illinois and STATE. As its name implies,

COMPANY 2 is a healing ministry guided by the historic mission of the GROUP. A
significant part of its mission is to reach beyond the walls of the hospital to provide
benefits to its local communities -- especially those who are in need, poor, and are
under- or uninsured.
COMPANY 2 and COMPANY 1 are tax-exempt nonprofit
corporations under section 501(c)(3) of the Internal Revenue Code. A copy of the I.R.C.
tax-exempt certification for COMPANY 1 is enclosed as Exhibit B.
In 2008, COMPANY 2 organized COMPANY 1 to provide primary and specialty
physician services to the communities COMPANY 2 serves. COMPANY 1 is a critical
component of the COMPANY 2 strategy, which focuses on bringing physicians,
technology, and patients together to improve the overall health of the communities it
serves.
COMPANY 1 is based in CITY, Illinois. It is comprised of more than XXX medical
professionals and nearly YYY associated colleagues. COMPANY 1 is a “hospital
affiliate” within the meaning of the Retailers’ Occupation Tax Act and other similar
statutes (see 35 ILCS 105/3-8, 110/3-8, 115/308 [sic] and 120/2-9). COMPANY 1
provides a wide range of medical services, including family medicine, internal medicine,
pediatrics, gastroenterology, general surgery, infectious disease, oncology, nephrology,
neurosurgery, occupational medicine, orthopaedic surgery, urology and podiatry.
COMPANY 1 conducts its operations in FACILITY and Z stand-alone medical facilities.
Like its parent, COMPANY 1 is a tax-exempt nonprofit corporation under section
501(c)(3) of the Internal Revenue Code. COMPANY 1 also has obtained an Illinois
Hospital Sales Tax Exemption Certificate from the Department, as a hospital affiliate of
COMPANY 2 under the charitable hospital sales tax exemption set forth in 35 ILCS
120/2-9. A copy of the COMPANY 1’s current Illinois Hospital Sales Tax Exemption
Certificate, which was issued in MONTH 20XX, is enclosed as Exhibit C.
B. Sales of TPP
On occasion, COMPANY 1 sells TPP to its patients in connection with its provision of
medical services. The types of TPP sold pursuant to these services include, but are not
limited to, food, medication, casting supplies and materials, splints, slings, diabetic
shoes, surgical boots, foot inserts, bandages, and nebulizers. A detailed list of the
types of TPP currently sold by COMPANY 1 is provided in Exhibit D. The list contains
some items that, if taxable, would be subject to the State rate of 6.25% for general
merchandise, and some items that would be taxed at the State’s 1% rate for
prescription and nonprescription medicines, drugs, medical appliances and food. 35
ILCS 120/2-10. Because the TTP is sold at various locations around the state,
associated with medical care provided by COMPANY 1’s medical professionals at a
variety of locations, if its sales were taxable, a variety of local taxes, imposed by local
governing bodies with home rule authority, likely also would apply to these sales.
On occasion, COMPANY 1 sells TPP to non-patients. One example of such a
transaction would be the sale of footwear to non-patients at a podiatry clinic.

II.

Ruling Requested

COMPANY 1 requests a ruling that for time periods on and after the Department’s
issuance of a Charitable Hospital Sales Tax Exemption to COMPANY 1 (MONTH
20XX), COMPANY 1’s sales of TPP pursuant to the provision of medical services are
exempt from ROT under the exclusively charitable, nonprofit hospital exceptions found
in 35 ILCS 120/1 and 86 Ill. Adm. Code 130.2005.

III.

Authorities and Analysis

The Retailers’ Occupation Tax Act (“Act”) imposes tax “upon persons engaged in the
business of selling at retail tangible personal property…” 35 ILCS 120/2. The Act goes
on to provide that persons “organized and operated exclusively for charitable, religious
or educational purpose” are exempt from tax “to the extent of sale by such person to its
members, students, patients or inmates of tangible personal property to be used
primarily for the purposes of such person”. Id. Pursuant to this provision, the
Department’s administrative regulations delineate three situations in which exclusively
charitable, religious and education organizations are exempt from Retailers’ Occupation
Tax liability. 86 Ill. Adm. Code 130.2005(a)(1)(E) (the “Regulation”). Two of those
exceptions apply here.
A. COMPANY 1’s Sales of TPP Pursuant to the Provisions of Medical
Services are Exempt from any Sales-Based Tax Under Regulation SubPart (a)(2)(A).
Subpart (a)(2)(A) of the Regulation provides that sales by exclusively charitable,
religious and education organizations “are not taxable if they are made to the
organization’s members, or to its students in the case of a school or to its patients in the
case of a nonprofit hospital which qualifies as a charitable institution, primarily for the
purposes of the selling organization.” (emphasis added). COMPANY 1 seeks
confirmation that to the extent it is selling TPP to its patients in connection with the
furnishing of medical services, as a charitable hospital affiliate, it qualifies for this
exemption, and is not obligated to collect or remit tax on such sales.
This conclusion is supported by two recent rulings issued by the Department. In ST 150023-GIL (04/24/2015), the Department was asked to consider whether a University
operating a hospital and healthcare clinics in conjunction with its medical school was
obligated to collect ROT on its sales of skin care products to patients by prescription.
The taxpayer’s hospital and healthcare clinics had been issued a sales tax exemption
certificate by the Department.
In its Response to the taxpayer’s inquiry, the Department noted that while it could not
make determinations regarding the taxability of each product sold without more
information, it directed the taxpayer’s attention to subpart (a)(2)(A) of the Regulation,
stating:
A nonprofit hospital that qualifies as exclusively charitable does not incur
ROT on the sale of drugs to it patients in furtherance of providing its
hospital service to them. Nor will the exempt hospital incur ROT when
selling other grooming and hygiene products to the patient while he/she is

a patient in the hospital or clinic because these products are provided in
furtherance of the patient’s care.
The Department went on to state that if the patient returned to the hospital or clinic to
purchase products that did not meet the definition of “drug,” the taxpayer would incur
ROT when selling such items.
Later in 2015, the Department issued another GIL to the same taxpayer in response to
the taxpayer’s request for clarification regarding the April 23 GIL. ST 15-0066-GIL
(10/16/2015). In its request for clarification, the taxpayer noted that some of the
products it prescribed to patients were available for purchase from other physician’s
offices, pharmacies, or other retail store locations (including online stores) without a
prescription. The taxpayer raised four requests for clarification, including the following:
1) If a patient undergoes a procedure at a clinic/doctor/s office,
would the drugs/medicines/beauty products be exempt from the
sales tax because the products are provided in furtherance of
the patient’s care?
2) If a doctor transfers beauty products incident to services
rendered during an appointment, would sales tax be calculated
and submitted based on one of the four methods per Illinois
Regulation title 86 Part 140.101?
In its response to these inquires, the Department reiterated the statement cited above
and further stated:
In response to your first question, if a patient undergoes a
procedure at a nonprofit hospital or clinic with a valid E-number, the
drugs and products which are provided by the exempt entity in
furtherance of the patient’s care while he/she is receiving care in
the hospital or clinic are exempt from ROT because the products
are provided in furtherance of the patient’s care. See 86 Ill. Adm.
Code 130.205(a)(2)(A). Again, after a patient has left the hospital,
if he/she returns to purchase products which do not meet the
definition of “drug” the hospital will incur ROT when selling such
items. This generally includes grooming and hygiene products.
Regarding your second question, if a physician at a nonprofit
hospital or clinic which has a valid E-number transfers products
incident to service rendered during a patient’s appointment, the
tangible personal property which the physician transfers incident to
a patient’s care in the hospital or clinic is exempt from ROT. See
86 Ill. Adm. Code 130.2005(a)(2)(A).
These recently issued GILs support the conclusion that the TPP sold by COMPANY 1
pursuant to its provision of medical care is exempt from ROT under subpart (a)(2)(A) of
the Regulation. COMPANY 1 is a hospital affiliate that qualifies for the charitable
hospital sales tax exemption under 35 ILCS 120/2-9. It has a valid E-number, as seen
in Exhibit B. The TPP provided by COMPANY 1 is in furtherance of its provision of care

to a patient in a COMPANY 2 facility. Therefore COMPANY 1’s sales of TPP are
exempt from ROT.
B. COMPANY 1’s Sales of Food and Medicine are Exempt from any Sales
Based Tax Pursuant to Regulation Sub-part (b)(1).
COMPANY 1’s sales of food, medicine and drugs to its patients also qualify as tax
exempt under subpart (b)(1)(A) & (B) of the Regulation. Subpart (b)(1)(A) provides that
hospitals which qualify as exclusively charitable institutions are not taxable “when
selling food or medicine to their patients in connection with the furnishing of hospital
service to them.”
Similarly, subpart (b)(1)(A) provides that hospital charitable
institutions are not taxable “when selling drugs to anyone because this is for the relief of
the sick (which is the hospital‘s primary purpose) and so is ‘primarily for the purpose of’
such hospital, thus qualifying such transactions for tax exemption.”
Finally, we wish to advise you that in attempting to determine the correct application of
the ROT to COMPANY 1’s facts, we spoke with Jerilynn Gorden, Deputy General
Counsel, Sales/Excise Tax at the Department. Our communications with Ms. Gorden,
who is copied on this correspondence, lead us to believe that the aforementioned
analysis is consistent with the Department’s views.
IV

Concluding Statements

Consistent with 2 Ill. Adm. Code 1200.110, COMPANY 1 state as follows:

1. COMPANY 1 is unable to locate any authority contrary to the views set for
   the above.
2. COMPANY 1 is not currently under examination by the Department, and its
   issue is not pending in litigation in a case involving COMPANY 1.
3. To the best of the knowledge of both COMPANY 1 and its representative, the
   Department has not previously ruled on the same or a similar issue for
   COMPANY 1 or its predecessor, and neither COMPANY 1 nor its
   representative have previously submitted the same or a similar issue to the
   Department but withdrew the request before a letter ruling was issued.
   COMPANY 1 does not request the deletion of any trade secrets pursuant to 2 Ill. Adm.
   Code 1200.110(c).
   If you have any questions or require any additional information, please contact me at

. I would be happy to meet with you at your convenience to respond to any

questions you may have about this request. Please also contact me in advance if you
plan to issue an adverse ruling, so the COMPANY 1 may withdraw this request.
DEPARTMENT’S RESPONSE:
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. See 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. See
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.
A person whose activities are organized and conducted primarily as a not-for-profit service
enterprise, and who engages in selling tangible personal property at retail (whether to the public or
merely to members and their guests) is engaged in the business of selling tangible personal property
at retail with respect to such transactions, excepting only a person organized and operated
exclusively for charitable, religious or educational purposes either (1), to the extent of sales by such
person to its members, students, patients or inmates of tangible personal property to be used
primarily for the purposes of such person, or (2), to the extent of sales by such person of tangible
personal property which is not sold or offered for sale by persons organized for profit. 35 ILCS 120/1.

While the sale of tangible personal property at retail by exclusively charitable, religious and
education organizations is generally subject to Retailers’ Occupation Tax, there are some very limited
exceptions. See 86 Ill. Adm. Code 130.2005. Specifically, with respect to nonprofit hospitals, please
see the Department’s regulation at 86 Ill. Adm. Code 130.2005(b)(1)(A). Under this subpart, nonprofit
hospitals that qualify as exclusively charitable institutions and that have obtained an exemption
identification (“E”) number from the Department are exempt from Retailers’ Occupation Tax (“ROT”)
when selling food or medicine to their patients in connection with the furnishing of hospital service to
them. Such hospitals are not taxable when selling drugs to non-patients as well. 86 Ill. Adm. Code
130.2005(b)(1)(B). They are also exempt from ROT on their operation of restaurant facilities that are
conducted primarily for the benefit of the hospitals’ employees and are not open to the public.
In ST 14-0048 (GIL) the Department advised that hospitals that meet the criteria for exemption
under Section 2-9 of the Retailers’ Occupation Tax Act (35 ILCS 120/2-9) do not incur Retailers’
Occupation Tax on sales of food and medicine to their patients or on sales of food from a cafeteria
that is operated for the benefit of their employees and that is not open to the public.
In ST 15-0023 (GIL), the Department stated that a “nonprofit hospital that qualifies as
exclusively charitable does not incur ROT on the sale of drugs to its patients in furtherance of
providing its hospital service to them. Nor will the exempt hospital incur ROT when selling other
grooming and hygiene products to the patient while he/she is a patient in the hospital or clinic
because these products are provided in furtherance of the patient’s care. See 86 Ill. Adm. Code
130.2005(a)(2)(a). However, after a patient has left the hospital, if he/she returns to purchase
products which do not meet the definition of “drug,” the hospital will incur ROT when selling such
items. This generally includes grooming and hygiene products.”
In ST 15-0066, the Department provided additional guidance.
“In response to your first question, if a patient undergoes a procedure at a nonprofit
hospital or clinic with a valid E-number, the drugs and products which are provided by the
exempt entity in furtherance of the patient’s care while he/she is receiving care in the
hospital or clinic are exempt from ROT because the products are provided in furtherance of

the patient’s care. See 86 Ill. Adm. Code 130.2005(a)(2)(a). Again, after a patient has left
the hospital, if he/she returns to purchase products which do not meet the definition of
“drug,” the hospital will incur ROT when selling such items. This generally includes
grooming and hygiene products.
“Regarding your second question, if a physician at a nonprofit hospital or clinic which
has a valid E-number transfers products incident to service rendered during a patient’s
appointment, the tangible personal property which the physician transfers incident to a
patient’s care in the hospital or clinic is exempt from ROT. See 86 Ill. Adm. Code
130.2005(a)(2)(a).”

The exemptions from Retailers’ Occupation Tax for sales of drugs, grooming and hygiene
products, and tangible personal property made by a nonprofit hospital that qualifies as exclusively
charitable and possesses a valid E-number that are explained in ST 15-0023 and ST 15-0066 also
apply to hospitals that possess a valid E number pursuant to Section 2-9 of the Retailers’ Occupation
Tax Act (35 ILCS 120/2-9). These exemptions only apply to an entity that qualifies for the hospital
exemption under the provisions of Section 2-9 of the Retailers’ Occupation Tax Act and has been
issued an E number by the Department. Since COMPANY 1 of CITY, Illinois qualifies for the hospital
exemption under the provisions of Section 2-9 of the Retailers’ Occupation Tax Act and has been
issued an E number by the Department it qualifies for these exemptions. If another entity related to
or affiliated with COMPANY 1 of CITY, Illinois wishes to qualify for these exemptions, it must obtain a
separate E number from the Department.
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 have further questions related to the Illinois sales tax
laws, 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
RSW:bkl