Preferred Drug Providers are Liable for Service Occupation Tax in Illinois

Illinois service occupation tax (SOT) applies to sales of prescription drugs to prescription drug providers (PDPs) under the Medicare Part D Prescription Plan because the drugs are not sold directly to the government. Sales to Medicare and Medicaid are exempt as sales to a government body. Under the plan, the government provides funds on a per capita basis to the PDPs, and the PDPs act as private insurance companies under contract with the government. The SOT is not considered a premium tax, fee, or other similar assessment that federal law prohibits from being imposed by any state on payments that a PDP makes on behalf of a Part D Plan.(General Information Letter ST 13-0037-GIL, Illinois Department of Revenue, August 2, 2013)

Posted on April 29, 2014