Illinois Issues Ruling on Manufacturing Machinery & Equipment Exemption

On September 9, 2021, the Illinois Department of Revenue (Department) issued Illinois Private Letter Ruling No. ST 21-0005-PLR relating to the Retailers’ Occupation Tax (ROT) manufacturing machinery and equipment exemption.

In this ruling, the taxpayer sold explosives and related services to customers in order to break up rock masses for excavation related to mining and quarrying. In most circumstances, the taxpayer invoices the customer for its services only. However, the taxpayer also makes sales of its products without the provision of services. 

When providing services to its customers, chemicals used by the company have a direct and immediate change on rock masses through detonation reaction, beginning the process of turning large, unusable rock into manageable aggregate that may be further processed for a variety of other construction and landscaping uses. The majority of this aggregate is sold by the taxpayer to third parties or used as an ingredient in an additional manufacturing process.

In confirming the taxpayer’s assertion that its products used in the extractive process of mining or quarrying qualify for the manufacturing machinery and equipment exemption, the Department relied upon the below statutory and regulatory authorities in providing its analysis:

1. Per 35 ILCS Section 120/2-5(14), machinery and equipment used primarily, i.e., greater than 50 percent, to manufacture tangible personal property being sold at wholesale or retail by either the taxpayer claiming the exemption or the entity that owns the materials that are used in the manufacturing process. 
2. Per 35 ILCS §120/2-45(1), the manufacturing process is defined as the production of articles of tangible personal property, whether such articles are finished products or articles for use in the process of manufacturing or assembling different articles of tangible personal property, by procedures commonly regarded as manufacturing, processing, fabricating, or refining that changes some existing material or materials into a material with a different form, use, or name. 
3. Per Illinois Administrative Code §130.330(d), the Department interprets equipment to include chemicals or chemicals acting as catalysts that have a direct and immediate change on the product being manufactured. However, effective July 1, 2019, chemicals only need to be related to the production process to be exempt.

In addition, the Department concluded the taxpayer may provide an exemption certificate to suppliers for single-use items, such as blasting agents, boosters, and high explosives, stating that 80 percent of the items will qualify for the manufacturing machinery and equipment exemption, while the other 20 percent of its items qualify for the resale exemption. 

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