The Illinois Department of Revenue (DOR) issued a general information letter addressing the tax treatment of human tissue-based allografts and regenerative medicine products. The letter was issued in response to a request from a company regarding whether these products are subject to Illinois Retailers' Occupation Tax.

The Inquiry and Illinois DOR's Clarification

The company asked whether human tissue-based allografts and regenerative medicine products are subject to the Illinois Retailers' Occupation Tax when sold to hospitals, physicians, clinics, and other healthcare providers. Additionally, if the products are taxable, the company requested guidance on whether they qualify for the reduced tax rate or special treatment available to drugs, medicines, or medical appliances under state law.

The company also sought clarification on whether Illinois has already issued any statute, regulation, General Information Letter, Private Letter Ruling, or other official guidance specifically addressing the taxability of human tissue allografts, amniotic or placental tissue products, and similar regenerative medicine products.

Finally, it asked the DOR to identify any additional product information or documentation that would be needed to make a definitive determination, including the products' composition, intended medical use, method of administration, labeling, FDA status, and how healthcare professionals use them in patient treatment.

The Illinois DOR clarified that Retailers' Occupation Tax applies to businesses that sell tangible personal property at retail in the state. AT the same time, Use Tax applies when tangible personal property is purchased at retail and used in Illinois. The DOR added that tangible personal property is generally taxed at 6.25% plus applicable local taxes. 

However, the DOR confirmed that qualifying medical appliances are subject to Illinois' reduced 1% tax rate. It also clarified that certain items, such as sterile band-aids, dressings, bandages, and gauze, qualify because they function as substitutes for skin. Nonetheless, products transferred as part of elective cosmetic procedures are excluded from the reduced rate and are not considered medical appliances.

Key Takeaway

The key issue for the company's human tissue-based products is whether they can be viewed as medical appliances that substitute for or become part of a damaged or missing human body part. If they meet that definition, they may qualify for Illinois' 1% reduced rate. Otherwise, the standard 6.25% rate plus applicable local taxes would generally apply.