Does a medical device company's implant system and companion surgical tool for treating obstructive sleep apnea qualify for Illinois's reduced 1% sales tax rate as a 'medical appliance,' and how do local taxes apply?

Plain-English summary

A medical device company (referred to here as COMPANY) headquartered out of state asked the Illinois Department of Revenue for a Private Letter Ruling on the Illinois sales-tax treatment of its products for treating obstructive sleep apnea (OSA). COMPANY's treatment (the "NAME procedure") uses two components sold together as a kit: "The SYSTEM," an FDA 510(k)-cleared Class II device that performs hyoid and/or tongue suspension via implants and is reimbursable by Medicare/Medicaid, sold for $2,625.00; and "The TOOL," a non-reusable Class I FDA-registered instrument used only to place the SYSTEM's implants and to make later adjustments or removal, sold for $275.00. COMPANY itemizes the two components on its invoices but argued they are functionally indivisible, since the SYSTEM can't be implanted without the TOOL and the TOOL has no other use. COMPANY sells the kit to medical practitioners (not directly to patients), and a physician's prescription is required for a patient to receive the procedure. COMPANY asked the Department to confirm whether the SYSTEM and the TOOL each qualify for Illinois's reduced sales-tax rate for medical devices, whether local Illinois sales taxes apply regardless of the state rate, how a kit with one qualifying and one non-qualifying component should be taxed, and whether the TOOL's low dollar value relative to the kit affects the analysis.

Because the request asked the Department to apply the law to COMPANY's specific facts, it was in substance a request for a binding Private Letter Ruling (PLR). The Department determined not to issue a PLR and instead issued this General Information Letter (GIL) -- a lower-tier response that lays out the relevant statutes, regulation, and general framework but does not resolve whether COMPANY's own products qualify.

The Department's response explains that medical devices are taxed under the Retailers' Occupation Tax Act. Tangible personal property that qualifies as a "medical appliance" is taxed at a reduced 1% state rate (35 ILCS 120/2-10); property that doesn't qualify is taxed at the general 6.25% state rate. Local taxes apply in addition to either state rate (35 ILCS 120/14). Under 86 Ill. Adm. Code 130.311(e), a "medical appliance" is an item used to directly substitute for a malfunctioning part of the human body -- including a part lost or diminished because of congenital defects, trauma, infection, tumors, or disease. The regulation's non-exhaustive list of qualifying examples explicitly includes "sleep apnea devices," along with breast implants (for cancer-related or preventive removal), heart pacemakers, artificial limbs, dental prosthetics, crutches and orthopedic braces, dialysis machines (including the dialyzer), wheelchairs, mastectomy forms and bras, and mobility scooters. By contrast, "other medical tools, devices, and equipment such as x-ray machines, laboratory equipment, and surgical instruments" that are used in treating patients but do not themselves directly substitute for a malfunctioning body part do NOT qualify as medical appliances (86 Ill. Adm. Code 130.311(e)(5)). The Department noted that COMPANY's TOOL "may be classified as" a medical tool or surgical instrument under that carve-out, since it does not remain in the body and is not itself a prosthetic device -- but the Department did not definitively rule on the TOOL one way or the other.

For kits combining qualifying and non-qualifying items, the regulation's rule (86 Ill. Adm. Code 130.311(e)(5)) is that the Department will tax the ENTIRE kit's selling price at the reduced 1% rate if the value of the medical appliances in the kit is more than half of the kit's total selling price; conversely, if the non-qualifying items make up more than half the kit's value, the entire kit is taxed at the 6.25% general rate. The Department stated it could not determine this for COMPANY's kit because the request didn't specify exactly what is included in each kit sold and each item's individual value.

On local taxes, the Department explained that local governments generally lack authority to impose additional tax on 1%-rate items like medical appliances (citing the Home Rule Municipal Retailers' Occupation Tax Act, 65 ILCS 5/8-11-1, as an example of a tax that does NOT reach 1%-rate goods). However, two specific transit districts -- the Regional Transportation Authority (RTA) and the Metro East Mass Transit District (MED) -- do have statutory authority to add tax on top of 1%-rate items (70 ILCS 3615/4.03(e); 70 ILCS 3610/5.01(b)). The RTA rate on 1%-rate goods is 1.25% in Cook County and 0.75% in DuPage, Kane, Lake, McHenry, and Will Counties; the MED rate is 0.75% in St. Clair County locations and 0.25% in Madison County locations. If an item is instead taxed at the general 6.25% rate, ordinary local taxes (like Home Rule Municipal Retailers' Occupation Tax) apply as usual, in addition to these same transportation district taxes at the general-merchandise rate.

What this means for you

Medical device manufacturers and sellers

If you sell a device that directly substitutes for a malfunctioning body part -- the regulation's explicit list includes sleep apnea devices, pacemakers, artificial limbs, dental prosthetics, braces, dialysis machines, wheelchairs, mastectomy forms/bras, and mobility scooters -- it likely qualifies for Illinois's reduced 1% Retailers' Occupation Tax rate rather than the general 6.25% rate. But a companion tool, instrument, or piece of equipment that merely assists in treatment without itself becoming part of the body (the regulation calls out x-ray machines, lab equipment, and surgical instruments) does NOT independently qualify, even if it's essential to using the qualifying device. This GIL flags that risk for a surgical placement tool without resolving it.

Sellers of kits combining qualifying and non-qualifying items

If you sell a bundle where some components qualify as medical appliances and others don't, the whole kit's selling price is taxed at the reduced 1% rate only if the qualifying components make up more than half the kit's total value; otherwise the whole kit is taxed at 6.25%. Know and be ready to document the individual value of each component -- the Department specifically noted it couldn't resolve COMPANY's request because that breakdown wasn't provided. A component's "immaterial" price relative to the whole kit doesn't remove it from this half-value test; the actual dollar values control.

Businesses tracking local and transit-district taxes

Don't assume 1%-rate medical appliances are entirely free of local add-on tax. While most home-rule and other local Retailers' Occupation Taxes cannot reach 1%-rate goods, the RTA (Cook, DuPage, Kane, Lake, McHenry, Will Counties) and MED (St. Clair and Madison Counties) transportation-district taxes specifically can and do apply on top of the 1% rate, at reduced RTA/MED rates lower than their general-merchandise rates.

Accountants and tax professionals

Because this is a GIL and not a PLR, it does not bind the Department as to COMPANY's own products, and it cannot be relied on by any other taxpayer as authority for their own facts. A client wanting a binding answer on whether a specific device or kit qualifies as a medical appliance -- or on a kit's half-value split -- needs to request its own PLR under 2 Ill. Adm. Code 1200.110, with enough factual detail (particularly itemized component values) for the Department to actually rule.

Common questions

Q: What is a "medical appliance" for Illinois sales-tax purposes?
A: Per 86 Ill. Adm. Code 130.311(e), it's an item used to directly substitute for a malfunctioning part of the human body -- including a part lost or diminished due to congenital defects, trauma, infection, tumors, or disease. The regulation lists sleep apnea devices, breast implants (cancer-related/preventive), heart pacemakers, artificial limbs, dental prosthetics, crutches/orthopedic braces, dialysis machines (including the dialyzer), wheelchairs, mastectomy forms and bras, and mobility scooters as qualifying examples.

Q: What tax rate applies to a qualifying medical appliance?
A: 1% State tax under 35 ILCS 120/2-10, instead of the general 6.25% rate, plus any applicable transportation district taxes (RTA or MED, where applicable). Non-qualifying tangible personal property is taxed at 6.25% plus any applicable local taxes.

Q: Does a surgical instrument used only to implant a qualifying device also get the reduced rate?
A: Not necessarily. Per 86 Ill. Adm. Code 130.311(e)(5), tools, devices, and equipment (the regulation names x-ray machines, lab equipment, and surgical instruments) that are used in treating patients but don't themselves directly substitute for a malfunctioning body part do not qualify as medical appliances, even if essential to the procedure. The Department flagged this as a real risk for the TOOL component but did not definitively decide it in this GIL.

Q: How is a kit taxed when it mixes a qualifying medical appliance with a non-qualifying item?
A: Per 86 Ill. Adm. Code 130.311(e)(5), the Department taxes the entire kit's selling price at the reduced 1% rate if the medical appliances in the kit are worth more than half the kit's total selling price. If the non-qualifying items are worth more than half, the entire kit is taxed at the general 6.25% rate. The value of each item in the kit must be known to make this determination.

Q: Are medical appliances completely exempt from local sales tax?
A: No. Most local Retailers' Occupation Taxes (e.g., Home Rule Municipal Retailers' Occupation Tax under 65 ILCS 5/8-11-1) cannot reach 1%-rate items like medical appliances, but the RTA (in Cook, DuPage, Kane, Lake, McHenry, and Will Counties) and the MED (in St. Clair and Madison Counties) specifically can and do impose additional "transportation district taxes" on top of the 1% rate.

Q: Did the Department decide whether COMPANY's SYSTEM and TOOL qualify for the reduced rate?
A: Not definitively. The Department explained the legal framework and suggested the TOOL "may be classified as" a non-qualifying surgical instrument, but it did not issue a binding determination -- consistent with a GIL, which directs a taxpayer to the relevant rules rather than resolving that taxpayer's specific facts. COMPANY would need a PLR, with complete kit-component valuation, for a binding answer.

Citations and references

Statutes:

• 35 ILCS 120/2-10 (1% reduced tax rate for qualifying tangible personal property, incl. medical appliances; general 6.25% rate otherwise)
• 35 ILCS 120/14 (local taxes apply in addition to the state Retailers' Occupation Tax)
• 65 ILCS 5/8-11-1 (Home Rule Municipal Retailers' Occupation Tax Act -- generally cannot reach 1%-rate items)
• 70 ILCS 3615/4.03(e) (Regional Transportation Authority tax on 1%-rate items)
• 70 ILCS 3610/5.01(b) (Metro East Mass Transit District tax on 1%-rate items)

Regulations:

• 86 Ill. Adm. Code 130.311 (Drugs, Medicines, Medical Appliances and Grooming and Hygiene Products)
• 86 Ill. Adm. Code 130.311(e)(1) (definition of "medical appliance" and qualifying examples, including sleep apnea devices)
• 86 Ill. Adm. Code 130.311(e)(5) (non-qualifying tools/instruments; kit valuation rule)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2024.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2024/ST24-0013-GIL.pdf

Original ruling text

ST 24-0013-GIL 03/22/2024 MEDICAL DEVICES
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 tax rate of 1%
plus any applicable local taxes. 35 ILCS 120/2-10; 35 ILCS 120/14; 86 Ill. Adm. Code 130.311.
(This is a GIL).
March 22, 2024
PERSON
COMPANY
ADDRESS

Email: EMAIL

Dear XXXX:
This letter is in response to your letter dated January 17, 2024, 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. 2 Ill. Adm. Code 1200.120. You may access
our website at https://tax.illinois.gov/ to review regulations, letter rulings and other types of
information relevant to your inquiry.
Whether 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). A private letter ruling will not be issued if the Department's
regulations are dispositive of the subject of the request and the request does not meet the
requirements under 2 Ill. Adm. Code 200.110(b)(1)-(8). The Department determined not to issue a
Private Letter Ruling in response to your request. However, the Department is issuing a General
Information Letter to help address your questions. In your letter you have stated and made inquiry
as follows:
Dear Illinois Department of Revenue:
Please accept this memorandum as a request for a Private Letter Ruling regarding the
application of Illinois sales and use tax to the below described fact pattern.
I.

BACKGROUND

COMPANY
Page 2
March 22, 2024
COMPANY is a medical device company headquartered in CITY, STATE that
specializes in the treatment of obstructive sleep apnea (“OSA”). Specifically,
COMPANY's treatment of OSA involves their NAME procedure.
OSA is chronic sleep disorder where a person’s upper airway experiences a partial or
complete collapse and results in disrupted sleep and daytime fatigue. The most
common treatment for OSA is the continuous positive airway pressure (“CPAP”) device.
When CPAP treatment is ineffective, upper airway surgery is the next option.
Uvulopalatopharyngoplasty (“UPPP”) has been an established surgical treatment of
OSA but only treats airway obstructions at the level of the palate and therefore has
limited efficacy. COMPANY developed the NAME procedure as a less invasive way to
treat airway obstructions at the level of the tongue base. It can be used as a standalone
intervention or combined with UPPP to treat all levels of the airway.
The NAME procedure involves an integrated set of instruments and implants designed
to treat different causes of OSA. These instruments and implants are the SYSTEM and
TOOL which treat causes of OSA by performing hyoid suspension to the mandible
and/or tongue suspension.
COMPANY sells these components to medical
practitioners, not directly to patients. Also, a physician's prescription is necessary for a
patient to receive the NAME procedure. The SYSTEM is an FDA 510(k) cleared Class
II Device (the FDA has deemed the device safe and effective for OSA treatment) which
is reimbursable by the Centers for Medicare and Medicaid Services (“CMS”) for the
treatment of OSA. The TOOL is a Class I FDA-registered device.
The components of the NAME procedure, The SYSTEM and TOOL, are sold as a kit
although COMPANY itemizes the component charges on their invoices. The SYSTEM
is sold for $2,625.00, while the TOOL is sold for $275.00. Occasionally, COMPANY will
send their customers an additional tool kit for adjustments or removal of The SYSTEM.
The TOOL is designed and used strictly for the NAME procedure and is not reusable.
The TOOL does not remain in the body, so by itself, it is not a prosthetic device. But
there is currently no other instrument available to substitute for the TOOL. It is
COMPANY ’s position that the TOOL’s value is immaterial compared to the overall cost
of the kit. Most of the value of these components is derived from the SYSTEM which
includes the actual implants that perform the hyoid or tongue suspension. Therefore,
the two components are indivisible since the SYSTEM cannot be readily implanted
without use of the TOOL tool, and said tool has no other utility other than to implant the
SYSTEM.
The SYSTEM provides a proprietary suspension and bone anchoring procedure that is
easily adjusted for the effective treatment of treating OSA. It is used almost exclusively
for performing hyomandibular suspension with tongue suspension performing only
occasional (primarily in pediatric patients).
The SYSTEM is implanted in a patient through small incisions in their inferior mandible.
Another small incision is made over the patient’s hyoid bone. The hyoid bone is
stabilized using a tracheal hook. The TOOL passes around the hyoid bone to thread a
suspension line. This suspension line tails around the hyoid bone when the TOOL is
backed out leaving a looped suture above the hyoid bone. The looped suture is secured
to the hyoid bone using a girth hitch knot. The bone anchors have an eyelet through

COMPANY
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March 22, 2024
which the suspension line is threaded. This process is performed twice in a bilateral
fashion from the midline of the mandible resulting in two suspension lines that are
tensioned to suspend the hyoid bone and secured by tightening a lock screw in the
bone anchors. As needed, a suture loop can also be used to prevent a patient's tongue
from blocking their airway.
Unlike UPPP, NAME allows adjustments to the positioning of the hyoid bone or tongue
based on the severity of a patient’s upper airway collapse. Also, this procedure can be
reversed, and the SYSTEM can be removed.
II.

ISSUE

1. Does COMPANY’s sales of the SYSTEM qualify for the state’s medical
   2.
   3.
   4.
   5.

device reduced tax rate?
Does COMPANY’s sales of the TOOL qualify for the for the state’s medical
device reduced tax rate?
Please confirm that local Illinois sales tax rates apply regardless of the
reduced state sales tax rate.
Do the components of COMPANY's NAME procedure meet the state’s
definition of a “medical device”?
a. What evidence is required for it to be considered as prescribed?
If your agency determines The SYSTEM meets the reduced sales tax rate
criteria, but The TOOL does not, would the full sales tax only apply to The
TOOL? Or would the entire sale be considered taxable at the full rate?
a. Does the immaterial value of The TOOL tool affect the state’s taxability
position of COMPANY’s kit sales?
b. What is the state’s position about the true object test of the NAME
procedure's components?

Please let us know if you have any questions or need additional information to make a
decision. I can be reached at PHONE, but my preference is email correspondence
(EMAIL).
Thank you for your consideration and assistance.
DEPARTMENT’S RESPONSE:
Medical devices are subject to 1% tax under the Retailers’ Occupation Tax Act. 35 ILCS
120/2-10. Tangible personal property that does not qualify for the low rate of tax is taxed at the rate
of 6.25% of the gross receipts from sales. 35 ILCS 120/2-10. This tax is in addition to any applicable
local taxes. 35 ILCS 120/14. Section 130.311 pertaining to Drugs, Medicines, Medical Appliances
and Grooming and Hygiene Products provides as follows:
e)

Medical Appliances: A medical appliance is an item that is used to directly
substitute for a malfunctioning part of the human body.
1)

For purposes of this Section, an item that becomes part of the human
body by substituting for any part of the body that is lost or diminished

COMPANY
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March 22, 2024
because of congenital defects, trauma, infection, tumors, or disease is
considered a medical appliance. Examples of medical appliances that
will qualify the product for the low rate of tax include, but are not limited
to:
A)
B)
C)
D)
E)
F)
G)
H)
I)
J)

breast implants that restore breasts after removal due to
cancer or for preventative, medical reasons;
heart pacemakers;
artificial limbs;
dental prosthetics;
crutches and orthopedic braces;
dialysis machines (including the dialyzer);
wheelchairs;
mastectomy forms and bras;
mobility scooters; and
sleep apnea devices.

86 Ill. Adm. Code 130.311(e)(1) (emphasis added).
Please note that “other medical tools, devices, and equipment such as x-ray machines,
laboratory equipment, and surgical instruments that may be used in the treatment of patients but that
do not directly substitute for a malfunctioning part of the human body do not qualify as medical
appliances.” 86 Ill. Adm. Code 130.311(e)(5). It appears that the TOOLS may be classified as
medical tools or surgical instruments. With respect to kits, the Department will consider the selling
price of the entire kit to be taxable at the reduced rate when the value of the medical appliances in
the kit is more than half of the total selling price of the kit. See 86 Ill. Adm. Code 130.311(e)(5). It is
unclear in your request what exactly is included in each kit sold. To determine whether the value of
the medical appliances in the kit is more than half of the total selling price of the kit, the value of each
item in the kit must be known and considered. If the value of the items in the kit that do not qualify
as medical appliances constitutes more than half of the total selling price of the kit, the selling price
of the entire kit will be subject to the 6.25% tax rate.
Local governments generally do not have authority to impose tax on the sale of tangible
personal property taxed at the 1% rate under the Retailers’ Occupation Tax Act such as medical
appliances. See e.g., 65 ILCS 5/8-11-1 (Home Rule Municipal Retailers’ Occupation Tax Act).
However, two local taxing jurisdictions, the Regional Transportation Authority (“RTA”) and the Metro
East Mass Transit District (“MED”), do have the authority to impose additional tax on 1% rate items.
See 70 ILCS 3615/4.03(e); 70 ILCS 3610/5.01(b).
The RTA tax rate in Cook County on sales of tangible personal property taxed at the 1% rate
under the Retailers’ Occupation Tax Act is 1.25% and 1% for taxable sales of other tangible personal
property. The RTA tax rate in DuPage, Kane, Lake, McHenry, and Will counties is 0.75% on all
taxable sales of tangible personal property. 70 ILCS 3615/4.03(e). The MED tax rate is 0.75% on all
tangible personal property sold in MED locations in St. Clair County and 0.25% on all tangible
personal property sold in MED locations in Madison County. 70 ILCS 3610/5.01(b). For the sake of
differentiating these taxes from local taxes imposed by other jurisdictions, we will refer to them in this
letter as “transportation district taxes”.
If the items described in this letter are taxed at the rate of medical appliances, then they are

COMPANY
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March 22, 2024
subject to the low rate of tax (1% State tax), plus any applicable transportation district taxes. If this is
not the case, the items in this letter are subject to the high rate of tax (6.25% State tax), plus any
local tax (e.g., Home Rule Municipal Retailers’ Occupation Tax), including transportation district
taxes, at the general merchandise rate.
I hope this information is helpful. If you have further questions related to the Illinois sales tax
laws, please visit our website at https://tax.illinois.gov or contact the Department’s Taxpayer
Information Division at (217) 782-3336.
Very truly yours,

Katarzyna Kowalska
Associate Counsel
KK:slc