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North Shore MRI Centre v. Illinois Dept. of Revenue

December 16, 1999

NORTH SHORE MRI CENTRE, PLAINTIFF-APPELLANT,
V.
ILLINOIS DEPARTMENT OF REVENUE, AND RAYMOND T. WAGNER, DIRECTOR OF THE ILLINOIS DEPARTMENT OF REVENUE,
DEFENDANTS-APPELLANTS.
SKOKIE VALLEY COMPUTED TOMOGRAPHY CENTER,
PLAINTIFF-APPELLANT,
v.
AND RAYMOND T. WAGNER, DIRECTOR OF THE ILLINOIS DEPARTMENT OF REVENUE, DEFENDANTS-APPELLANTS.



Appeal from the Circuit Court of Cook County. No. 95 L 50047 The Honorable Joanne L. Lanigan, Judge, Presiding. Appeal from the Circuit Court of Cook County. No. 95 L 50916 The Honorable Joanne L. Lanigan, Judge, Presiding.

The opinion of the court was delivered by: Justice Hourihane

In these consolidated administrative appeals, we consider whether a magnetic resonance imaging system (MRI) and a computed tomography machine (CT scanner) qualify for the tax exemption afforded to "medical appliances" under §3 of the Illinois Use Tax Act (Act) (Ill. Rev. Stat. 1985, ch. 120, par. 439.1 et seq.) Because we find that they do not qualify for exemption, we affirm the judgments of the circuit court which affirmed two decisions of the Department of Revenue (Department).

BACKGROUND

The underlying facts are not in dispute. Plaintiffs Skokie Valley Computed Tomography (Skokie Valley) and North Shore MRI Centre (North Shore) purchased a CT scanner and MRI, respectively. Plaintiffs each paid a use tax *fn1 , for which they later sought a credit from the Department. Each claimed that the subject equipment fell within the statutory tax exemption afforded to "medical appliances". See Ill. Rev. Stat. 1985, ch. 120, par. 439.3. The Department denied their claims for credit, and plaintiffs filed timely protests.

At separate administrative hearings, Dr. Leonard Berlin, plaintiffs' general partner, testified that a CT scanner and MRI are diagnostic tools. A representative of the company which manufactured the equipment testified consistently.

In both cases, the Department adopted the recommended decision of the administrative law judge (ALJ), denying plaintiffs' claims for credit. The plaintiffs appealed to the circuit court, which found in favor of the Department. Plaintiffs timely appealed to this court.

ANALYSIS

At the time plaintiffs purchased the MRI and CT scanner, the Act provided a reduced rate of tax for certain goods, including "medical appliances". The Act read in relevant part:

"[W]ith respect to food for human consumption which is to be consumed off the premises where it is sold (other than alcoholic beverages, soft drinks and food which has been prepared for immediate consumption) and prescription and nonprescription medicines, drugs, medical appliances and insulin, urine testing materials, syringes, and needles used by diabetics, for human use, such tax shall be imposed at the rate of 0%." Ill. Rev. Stat. 1985, ch. 120, par. 439.3.

The zero-percent tax rate created, in effect, a tax "exemption". Medcat Leasing Co. v. Whitley, 253 Ill. App. 3d 801, 803-04, 625 N.E.2d 424 (1993) (Medcat).

Significantly, the Act did not (nor does it now) define the term "medical appliance". However, pursuant to the rules and regulations duly adopted by the Department and in force at the time of plaintiffs' purchases, "medical appliance" was explained as follows:

"2) A medical appliance is an item which is intended by the maker to correct any functioning part of the body or which is used as a substitute for any functioning part of the body, such as artificial limbs, crutches, wheelchairs, stretchers, hearing aids, corrective eyeglasses, dental prostheses, and sterile cotton, bandages and bandaids. The term "medical appliance" also includes testing equipment used by an individual to test his or her own medical condition.

3) Medical appliances used by health care professionals and not transferred to their patients in providing medical services do not qualify for the reduced rate of tax. 86 Ill. Adm. Code §130.310(c) (1986).

The Department's exclusion of medical appliances used by health care professionals was subsequently rejected by this court in Travenol Laboratories, Inc. v. Johnson, 195 Ill. App. 3d 532, 553 N.E.2d 14 (1990). There, the first district considered whether the sale by plaintiff of a component of a kidney hemodialysis machine to a health care professional was exempt as a "medical appliance" under the Retailers' Occupation Tax Act (ROTA) (Ill. Rev. Stat. 1985, ch. 120, par. 441). *fn2 The Department conceded that the component was a medical appliance. Thus, the only issue before the court ...


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