Are custom dental devices like anti-snoring mouthpieces and dental bars taxed at Illinois' reduced 1% medical appliance rate, and can dentists buy them for resale?

Plain-English summary

A Canadian dental-products manufacturer asked the Illinois Department of Revenue for a Private Letter Ruling on two custom, prescription-only dental devices it planned to sell to Illinois customers: (1) an FDA-regulated anti-snoring/sleep-apnea mouthpiece made from oral scans and a dentist's prescription, and (2) an FDA-regulated metal dental bar that gets screwed into dental implants and later incorporated into a denture. The company wanted confirmation that both products qualify for Illinois' reduced 1% sales tax rate for medical appliances, and that dentists, dental labs, and denturists could buy them tax-free with a resale certificate.

The Department declined to issue a binding Private Letter Ruling and instead issued this non-binding General Information Letter (GIL). It said the products "would generally qualify as medical appliances" — items that directly substitute for a malfunctioning part of the human body — and are therefore taxed at Illinois' reduced 1% rate rather than the standard 6.25% rate. See 86 Ill. Adm. Code 130.310(a), 130.311.

But the Department did not simply confirm the resale-certificate approach the company proposed. Instead, it walked through the general framework for how dentists, dental laboratories, and denturists (who are "servicemen" providing a service, not "retailers" selling goods) calculate and pay Service Occupation Tax or Use Tax on the medical appliances they transfer to patients, explaining that the correct method — and whether a resale certificate is even appropriate — depends on facts like whether the serviceman is registered and whether they qualify as "de minimis." The letter also flags that the second product involves a multi-service scenario (dentist plus lab or denturist), governed by separate multi-service rules.

What this means for you

Dental device manufacturers and distributors

If you sell custom, prescription-only dental devices into Illinois, this GIL supports treating products that "directly substitute for a malfunctioning part of the human body" — including items inserted/removed from the mouth like this anti-snoring device — as 1%-rate medical appliances rather than general merchandise taxed at 6.25%. But the Department stopped short of blessing a specific resale-certificate arrangement, so you can't assume your dentist-customers can always buy tax-free; that depends on how each dentist or lab is registered and calculates its own tax.

Dentists, dental laboratories, and denturists

You act as a "serviceman" under the Service Occupation Tax Act when you provide dental services and transfer a device (like a custom mouthpiece or dental bar) to a patient as part of that service. Your tax liability is calculated one of four ways: (1) tax on the separately stated selling price of the device, (2) tax on 50% of your entire bill if you don't separately state the price, (3) if you're a registered "de minimis" serviceman (transferring less than 35% of your total service revenue in tangible goods), tax on your cost price, or (4) if you're de minimis and not required to register, Use Tax on your cost price paid to your supplier — in which case you cannot collect resale certificates or charge your patient a separate tax. Which method applies, and whether you can give your supplier a resale certificate, depends on your specific registration and revenue mix.

Multi-service arrangements (dentist + lab + denturist)

The second product (the metal dental bar) typically passes through multiple servicemen — a dental lab or denturist finishes it into a denture before the dentist fixes it in the patient's mouth. The Department notes this is governed by the separate multi-service rules at 86 Ill. Adm. Code 140.145, under which whether tax applies — and to whom — depends on whether each serviceman in the chain is registered and/or de minimis.

Accountants and tax professionals

This is a useful illustration of how Illinois taxes medical appliances differently depending on whether they're sold by a retailer (1% Retailers' Occupation Tax) or transferred incident to a dental service (Service Occupation Tax under one of four calculation methods). Remember this GIL is not a statement of Department policy and is not binding — even on the company that requested it — because the Department specifically declined to issue the binding PLR that was requested.

Common questions

Q: Did the Department confirm the anti-snoring device and dental bar are taxed at 1%?
A: Not with binding force. The GIL states these products "would generally qualify as medical appliances" taxed at the 1% rate, but this is guidance in a non-binding letter, not a ruling the taxpayer (or anyone else) can rely on.

Q: Why didn't the Department just answer the resale-certificate question the taxpayer asked?
A: The taxpayer asked for a binding Private Letter Ruling, but the Department "determined that it would decline to issue" one and gave a GIL instead. Rather than confirming the specific resale-certificate arrangement proposed, it explained the general rules governing how servicemen (dentists, labs, denturists) account for tax on tangible property transferred incident to their services — leaving the taxpayer to determine which of the four methods applies to its actual customers.

Q: Can a dentist always buy these devices from the manufacturer with a resale certificate?
A: Not necessarily. Resale certificates are appropriate under two of the four serviceman tax-calculation methods (separately-stated price or 50%-of-bill, and the registered de minimis cost-price method), but not under the fourth method (de minimis and not required to register), where the serviceman instead pays Use Tax to the supplier and cannot use a resale certificate.

Q: Does this letter apply to other manufacturers of similar dental devices?
A: No. It is a General Information Letter, explicitly not a statement of Department policy and not binding on the Department, issued under 2 Ill. Adm. Code 1200.120. It merely points to relevant regulations; it does not carry the taxpayer-specific binding force of a Private Letter Ruling.

Citations and references

• 35 ILCS 120/2 (Retailers' Occupation Tax Act imposition of tax)
• 35 ILCS 120/2-10 (1% low rate for medicines, drugs, and medical appliances)
• 35 ILCS 105/3 (Use Tax Act imposition of tax)
• 35 ILCS 115/3-10 (Service Occupation Tax Act low rate parallel provision)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax Act - nature of tax)
• 86 Ill. Adm. Code 130.310(a) (1% rate on medicines, drugs, and medical appliances)
• 86 Ill. Adm. Code 130.310(c)(2) (corrective medical appliances qualifying for low rate)
• 86 Ill. Adm. Code 130.311 (definition of medical appliance)
• 86 Ill. Adm. Code 140.101 (Service Occupation Tax Act - tax on servicemen)
• 86 Ill. Adm. Code 140.106 (serviceman tax base: separately stated price or 50% of bill)
• 86 Ill. Adm. Code 140.108 (de minimis serviceman paying Use Tax on cost price)
• 86 Ill. Adm. Code 140.109 (registered de minimis serviceman paying tax on cost price)
• 86 Ill. Adm. Code 140.126 (Service Occupation Tax low rate on medical appliances)
• 86 Ill. Adm. Code 140.145 (multi-service transactions)
• 86 Ill. Adm. Code 150.101 (Use Tax Act - nature of tax)
• 86 Ill. Adm. Code 160.101 (Service Use Tax Act)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedures)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2017.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2017/st-17-0034-gil.pdf

Original ruling text

ST 17-0034-GIL 10/03/2017 MEDICAL APPLIANCES
A medical appliance is an item that directly substitutes for a malfunctioning part of the human
body. Products that qualify as medical appliances are taxed at a lower State rate of 1% plus
any applicable local taxes. See 86 Ill. Adm. Code 130.311. (This is a GIL).

October 3, 2017

Dear Xxxxx:
This letter is in response to your letter dated August 22, 2017, 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.
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 to request a Private Letter Ruling from the Illinois Department of
Revenue (“Department”) regarding the application of the Retailer’s Occupation Tax
(“ROT”) to the following specific products that will be sold in a near future to customers
in Illinois by a Canadian corporation, COMPANY. (“COMPANY”), who has its head
office located at ADDRESS.
COMPANY is a manufacturer of dental products custom made under prescription by
health professionals.
We confirm that an audit or litigation is not pending regarding that taxpayer and that, to
the best of our knowledge, the Department has not previously ruled on a similar issue
for the taxpayer nor has it already filed for such a ruling.

1. THE PRODUCTS SOLD IN THE NEAR FUTURE
   The first product sold by COMPANY is a FDA regulated anti-snoring and sleep apnea
   device qualified as a therapeutic dental device by the FDA (“Anti-snoring device”). This
   product is patient specific manufactured in Canada under prescription from a health
   professional (dentist) and is an intraoral mandibular advancement device designed to
   alleviate or eliminate or treat snoring and sleep apnea. The device is custom made
   using oral scans and dentist’s specifications on filled-out and signed prescriptions.

ST 17-0034-GIL
Page 2

This device is sold to dental clinics who sell the device to their patients or to dental
laboratories who sell the device to their dental customers.
The label of the product does not specify that the product is to be dispensed only by
prescription but in reality, without a prescription, the product cannot be manufactured
and sold.
The second product sold by COMPANY is a FDA regulated metal dental bar qualified as
a prosthetic dental device by the FDA. This product is patient specific manufactured in
Canada under prescription from a health professional (dentist) and is a dental bar that is
screwed into dental implants already placed in mouth of edentulous patients. The
customers (dental laboratories and denturists) finish a full denture over the dental bar
before it is sent to dentists for fixation in mouth. The product is custom made using oral
scans and dentist’s specifications on filled-out and signed prescriptions.
The product is sold to dental laboratories and denturists who incorporate the product in
a denture sold to dentist, once finished, for fixation in patient’s mouth.
The label of the product does not specify that the product is to be dispensed only by
prescription but in reality, without a prescription, the product cannot be manufactured
and sold.

2. ARGUMENTS IN FAVOR OF THE 1% ROT RATE
   We are of the opinion that the Anti-snoring device is a medical appliance taxed at a 1%
   rate in accordance with Section 130.311 of Part 130 of Title 86 of the Illinois Department
   of Revenue Regulations. On the label of the product it is stated “anti-snoring device”.
   This device is intended to correct a malfunctioning body part (mouth) that causes
   snoring or sleep apnea.
   We consider this device to be a dental prosthetics as it is inserted and removed from
   the patient’s mouth. We also consider that it is a corrective medical appliance since its
   function is to correct the mouth of a patient who has a medical condition, either snoring
   or sleep apnea.
   Finally, as stated in Ruling St 16-0051-GIL, dentures generally qualify for the 1% tax
   rate. Therefore, a mouth piece device such as the one described should also qualify.
   We have no arguments for the application of the 1% tax rate to the metal dental bar.
3. ARGUMENTS IN FAVOR OF THE 6.25% ROT RATE
   Notwithstanding the above, we ignore if snoring is considered as a medical condition or
   disease for the Illinois ROT. We also ignore if a removable device as the one described
   can be considered as substituting for a body part, as dentures are for teeth.
   There, we are not sure if the 1% tax rate stated above applies or not to the Anti-snoring
   device.

ST 17-0034-GIL
Page 3

As for the metal dental bar, we do not think it qualifies for the 1% tax rate.
We are requesting that the Department confirms the Anti-snoring devices is taxable at a
1% rate when sold to clients, under Section 130.311 of Part 130.of Title 86 of the Illinois
Department of Revenue Regulations.
Even though the 1% tax rate applies, we are of the opinion that the Anti-snoring devices
and the meal bars are purchased for resale by servicemen (dentist, dental laboratories
and denturists) as stated in Ruling St 16-0051-GIL, and that a resale certificate needs to
be obtain[sic] from the clients (servicemen) to avoid charging the ROT. We would like a
confirmation on that matter.
If you have any questions regarding this request or would like additional information,
please contact us.
DEPARTMENT’S RESPONSE:
The Department’s regulation “Public Information, Rulemaking and Organization” provides that
“[w]hether to issue a private letter ruling in response to a letter ruling request is within the discretion of
the Department. The Department will respond to all requests for private letter rulings either by
issuance of a ruling or by a letter explaining that the request for ruling will not be honored.” 2 Ill. Adm.
Code 1200.110(a)(4). The Department recently met and determined that it would decline to issue a
Private Letter Ruling in response to your request. We hope, however, the following General
Information Letter will be helpful in addressing your questions.
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. 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 sales of service. 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 serviceman depending upon his activities. The
serviceman’s liability may be calculated in one of four ways:
(1)

separately-stated selling price of tangible personal property transferred incident to
service;

(2)

50% of the serviceman's entire bill;

ST 17-0034-GIL
Page 4
(3)

Service Occupation Tax on the serviceman's cost price if the serviceman is a registered
de minimis serviceman; or

(4)

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 incident to 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 serviceman’s cost price of the tangible personal property transferred. See 86 Ill. Adm.
Code 140.106. These methods result in the customer incurring a Service Use Tax liability. See 86 Ill.
Adm. Code 160.101. Under these methods, servicemen may provide their suppliers with Certificates
of Resale when purchasing the tangible personal property to be transferred as a part of sales of
service.
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 incident to 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 their suppliers resale certificates and remit Service Occupation Tax using the
Service Occupation Tax rates for their locations. This method also results in the customer incurring a
Service Use Tax liability.
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. Under this method the customer incurs no
Service Use Tax liability. However, they generally either seek reimbursement of the tax from their
customers or build the tax into their prices.
Prescription and non-prescription medicines, drugs and medical appliances, for human use,
are not exempt from tax. A tax is imposed on these items at the rate of 1%. 35 ILCS 120/2-10; 86 Ill.
Adm. Code 130.310(a). A medical appliance is an item that is used to directly substitute for a
malfunctioning part of the human body. These items 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. Included in the exemption as medical appliances are such items as
artificial limbs, dental prostheses and orthodontic braces, crutches and orthopedic braces,

ST 17-0034-GIL
Page 5
wheelchairs, heart pacemakers, and dialysis machines (including the dialyzer). Corrective medical
appliances such as eyeglasses and contact lenses qualify for the low rate of tax. See 86 Ill. Adm.
Code 130.310(c)(2). These rules apply to retailers as well as servicemen. See 35 ILCS 115/3-10; 86
Ill. Adm. Code 140.126. The products described in your letter would generally qualify as medical
appliances.
When dentists or dental laboratories render service, they are not subject to Retailers’
Occupation Tax liability. They are, however, subject to liability under the Service Occupation Tax Act
to the extent they transfer tangible personal property incident to their rendering of service.
Servicemen incur tax liability in these transactions under one of the four methods described above.
With respect to transactions involving the first product you described wherein dentists
purchase that product from the manufacturer directly and then sell the product to their patients, the
dentists may purchase the product with a resale certificate and pay Service Occupation Tax at the 1%
rate under the first or second methods described earlier (see Section 140.106). If the dentists are
below the 35% threshold and are otherwise required to be registered under Section 2a of the
Retailers’ Occupation Tax Act, they may pay Service Occupation Tax at the 1% rate on their cost
price as described in Section 140.109. If the dentists are below the threshold and are not otherwise
required to be registered under Section 2a of the Retailers’ Occupation Tax Act, they can pay Use
Tax to their suppliers on their cost price as explained in Section 140.108. No resale certificates are
allowed.
With respect to transactions involving the second product, you appear to be describing a multiservice situation. When a serviceman (e.g., a dentist) contracts out all or a portion of the service that
he will provide, he is acting as a primary serviceman in a multi-service situation. As a primary
serviceman (dentist), he engages the services of a secondary serviceman (laboratory or denturist) in
order to obtain all or part of the product and services desired by the service customer (patient).
Whether the primary and secondary servicemen are registered or not or de minimis or not will
determine what type of tax will be incurred as well as who will incur the tax. The provisions of 86 Ill.
Adm. Code 140.145 explain the different ways in which servicemen may handle their tax liability in
multi-service scenarios.
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:bkl