Medical Appliance versus Diagnostic equipment Illinois sales tax audit
The Department held in a PLR that diagnostic equipment does not qualify as a medical appliance that is entitled to receive a lower sales tax rate. Under Illinois law, products that qualify as medical appliances are subject to a reduced state sales tax rate of 1 percent plus any applicable local taxes. Items that do not qualify for this lower rate are taxed at the general merchandise rate of 6.25 percent plus applicable local taxes. A medical appliance is defined by regulation as an item that directly substitutes for a malfunctioning part of the human body such as artificial limbs, dental prostheses and orthodontic braces, crutches and orthopedic braces, wheelchairs, heart pacemakers and dialysis machines. Corrective medical appliances such as hearing aids, eyeglasses and contact lenses also qualify for the lower state rate. However, diagnostic equipment is not deemed to be a medical appliance.
In this PLR, the taxpayer developed and marketed a lab-on-a-chip system that enables eye care practitioners to improve their standard of care by objectively and quantitatively testing for dry eye disease. The taxpayer proposed that its test product consisting of a single-use, individually packaged, non-sterile, polycarbonate microchip that was designed to work with this system should be subject to the reduced sales tax rate. The Department determined that the test product was part of diagnostic equipment that was not a medical appliance taxed at a lower rate. Thus, the test product would be taxed at the general merchandise rate of 6.25 percent plus any applicable local taxes.
Medical Appliance versus Diagnostic equipment Illinois sales tax audit
