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Illinois: Use Tax on Breast Cancer Test Kits

The Illinois Department of Revenue has ruled that a company must pay use tax on breast cancer diagnosis test kits given to physicians at no cost. 

According to Illinois Administrative Code 150.305, "[a]lthough the donee in a gift situation is not a taxable use, the donor who purchases the property and gives it away makes a taxable use of the property when making such a gift."

Private Letter Ruling ST 12-0007 involves a company with no physical presence in the state of illinois other than a sales representative operating out of his home. The sales representative distributes breast diagnosis test kits to physicians, who then use it "as part of their service provided to their Illinois patients."

The test kits are purchased directly from the Company's foreign parent and the tests results are processed in the foreign country. When complete, a report is "uploaded to a computer server and retrieved by the City office … [which] then forwards the report to the requesting physician."

The Company asks:

  • Does the Company have nexus in Illinois?
  • Is the Company subject to sales tax on the processing and distribution of the test results?
  • Is the Company subject to use tax on the distribution of test kits to physicians?

In ST 12-0007-PLR, the Department of Revenue ruled the following:


The Department of Revenue "declines to make nexus determinations in the context of Private Letter Rulings" but outlines "the principles of nexus" in ST 12-0007-PLR. One test of nexus is having a physical presence in the state; and "[u]nder Illinois law, it also includes the presence of any agent or representative of the seller." ST 12-0007-PLR reminds that "Company1 has a sales representative within the state of Illinois."

Sales and Use Tax

"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." (86 Ill. Adm. Code 150.101.) "Therefore, Company1 would owe Use Tax on its cost price of the test kits that are purchased outside the state and brought into Illinois to be given to the physicians." (86 Ill. Adm. Code 150.305(c).)

Service Occupation Tax and Use Tax

"Illinois Service Occupation and Use Taxes do not apply to sales of service that do not involve the transfer of tangible personal property to customers. In Illinois, information or data that is electronically downloaded is not considered the transfer of tangible personal property." (86 Ill. Adm. Code. 130. 2105(a)(3).)

However, the State2 Office of the company in question sends the reports "either by U.S. mail or by Federal Express to the requesting physicians." Thus "those transactions … involve a transfer of tangible personal property" and are subject to Illinois Service Occupation and Use Taxes.

In short, the company is liable for use tax on the breast cancer diagnosis test kits it distributes to physicians in Illinois.

ST 12-0007-PLR stipulates that "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."

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Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.