Did marketing corn and beans for patrons make a grain elevator a retailer eligible for the replacement-tax investment credit?

Plain-English summary

IDOR could not determine whether the grain elevator was primarily engaged in retailing. The rule said crop and livestock production was not retailing, while marketing those products could be.

But the term “marketing” did not decide the issue. IDOR needed to know whether the company sold services subject to Service Occupation Tax, sold tangible personal property at retail subject to Retailers' Occupation Tax, and what other patron activities it performed.

The primary-engagement test considered all qualifying retailing, manufacturing, and specified mining operations and generally looked to ordinary-course gross receipts. More than 50% had to come from one or more qualifying operations.

What this means for you

Break down every revenue stream and its transaction tax treatment before claiming the credit. A business description such as “marketing grain” is not enough.

Common questions

Q: Did the GIL approve the grain elevator as a retailer?
A: No.

Q: What information was missing?
A: The nature of all operations and their ordinary-course gross receipts.

Citations and references

• 35 ILCS 5/201(e)
• 86 Ill. Adm. Code 100.2101(e)(9)(D), (f)

Subject

Credits – Replacement Tax Investment

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2011/it-11-0022.pdf

Original ruling text

IT 11-0022-GIL 10/31/2011 CREDITS – REPLACEMENT TAX INVESTMENT
General Information Letter:
Taxpayer provided insufficient information for the
Department to provide guidance on qualification as a retailer.
October 31, 2011
Dear:
This is in response to your letter dated June 22, 2011 in which you state the following:
I would like to request a General Information Letter regarding the IITA Section 201(e)(9)(D).
This section deals with what qualifies as retailing in order to determine if the replacement tax
investment credit is allowed assuming all other requirements are met.
As defined in IITA Section 201(e)(9), retailing is defined as the sale of tangible personal
property or services rendered in connection with the sale of consumer goods or commodities.
The consumer goods and property sold must be sold to the ultimate consumer and not for
resale. It states that farming operations related to the production of crops and livestock do not
constitute retailing. However, it goes on to state that the marketing of such products would
constitute a retailing operation.
I have spoken with the Illinois Department of Revenue to obtain a definitive explanation as to
what constitutes “marketing” and was referred to legal services to request more guidance on
this issue as it pertains to grain elevators. COMPANY is primarily in the business of marketing
corn and beans for their patrons. Does this type of marketing fall under the definition of
“marketing” as it relates to IITA Section 201(e)(9)(D)?
According to the Department of Revenue (“Department”) regulations, the Department may issue only
two types of letter rulings: Private Letter Rulings (“PLR”) and General Information Letters (“GIL”).
The regulations explaining these two types of rulings issued by the Department can be found in 2
Ill.Adm.Code §1200, or on the website http://www.tax.illinois.gov/LegalInformation/regs/part1200.
Due to the nature of your inquiry and the information presented in your letter, we are required to
respond with a GIL. GILs are designed to provide background information on specific topics. GILs,
however, are not binding on the Department.
Your letter cites to Section 201(e)(9)(D) of the Illinois Income Tax Act (“IITA”; 35 ILCS 5/101 et seq.)
for the definition of “retailing.” The definition you refer to is not in IITA Section 201(e)(9)(D) but rather
86 Il.Admin.Code Section 100.2101(e)(9)(D) and states as follows:
D)

Farming operations related to crop and livestock production do not constitute retailing.
However, the marketing of such products would constitute a retailing operation.

IITA Section 201(e) sets forth the statutory requirements to qualify for the Illinois replacement tax
investment credit:
(1) A taxpayer shall be allowed a credit equal to .5% of the basis of qualified property placed in
service during the taxable year …
(2) The term “qualified property” means property which is:
(A) is tangible, whether new or used, including buildings and structural components of
buildings and signs that are real property, …

IT 11-0022-GIL
October 31, 2011
Page 2
(B) is depreciable pursuant to Section 167 of the Internal Revenue Code,
(C) is acquired by purchase
(D) is used in Illinois by a taxpayer who is primarily engaged … in retailing …; and
(E) has not previously been used in Illinois in such a manner and by such a person as
would qualify for the credit provided by this subsection (e) or subsection (f).
(3) …the term “retailing” means the sale of tangible personal property for use or consumption
and not for resale, or services rendered in conjunction with the sale of tangible personal
property for use or consumption and not for resale.
Your letter does not provide enough information for a determination as to whether the COMPANY you
refer to would qualify for the Illinois replacement tax investment credit. As pointed out in (3) above, a
determination is needed as to whether COMPANY you refer to is engaged in the business of selling
their services (which means they pay a Service Occupation Tax) or selling at retail tangible personal
property (which means they pay a Retailers’ Occupation Tax).
You mention that the COMPANY is “primarily in the business of marketing corn and beans for their
patrons.” What other activities does the COMPANY provide to their patrons? In order to determine
whether a taxpayer is primarily engaged in an activity, the department must take into account all of
the business operations in which the taxpayer engages. This is further described in 86 Il.Admin.Code
Section 100.2101(f) which states:
f)

To qualify for the credit, property must be used in Illinois by a taxpayer who is primarily
engaged in manufacturing, or in mining coal or fluorite, or in retailing. It is not required
that the property be used exclusively in manufacturing, mining of coal or fluorite or in
retailing. So long as the taxpayer is primarily, more than 50%, engaged in one of these
operations, all qualified property is eligible for the credit, even if the property is not
actually used in an exempt manufacturing, coal or fluorite mining or retailing process.
The taxpayer must engage primarily in one or more of the operations. In other words, a
taxpayer that is engaged 30% of the time in retailing and 40% of the time in
manufacturing will qualify for the credit, because the taxpayer is engaged primarily in
one or more of the operations. In determining whether a taxpayer is primarily engaged
in an activity the Department will look to the gross receipts of the taxpayer received in
the ordinary course of business by that taxpayer. For example, if more than 50% of the
taxpayer's gross receipts are from manufacturing, the taxpayer is primarily engaged in
manufacturing, or if more than 50% of the gross receipts are from retailing, the taxpayer
is primarily engaged in retailing. The taxpayer (and the Department) will look to the
gross receipts received by the taxpayer in the ordinary course of business. Therefore,
if, for example, the taxpayer suffers a casualty loss and that is compensated for by an
insurance payment, the amount of money so received will not be deemed gross receipts
received in the ordinary course of business, and disqualify the taxpayer from eligibility
and perhaps result in the recapture of credits granted in prior years.

EXAMPLE 1: Corporation A manufactures CD ROM Units for personal computers, which are
sold to others for resale. Corporation A also engages in the retail sale of canned
computer software. Finally, Corporation A develops and sells custom computer
software to various clients. Corporation A receives 20% of its gross receipts from
the manufacturing of CD ROM Units, 40% of its gross receipts from retail sales of
canned software, and 40% of its gross receipts from its custom computer

IT 11-0022-GIL
October 31, 2011
Page 3
software development and sales operations. Corporation A is eligible for the
credit. Corporation A is engaged primarily in manufacturing and retailing,
because the total of its manufacturing and retailing operations is 80% of its gross
receipts. Therefore, the Corporation is eligible for the credit.
EXAMPLE 2: Corporation B operates a hotel. 80% of the gross receipts of Corporation B are
from the renting of rooms, 5% of the gross receipts are from the operation of a
gift shop in the hotel and the remaining 15% of the gross receipts are from the
operation of a restaurant and lounge in the hotel. The renting of rooms is not
retailing. Therefore, Corporation B is ineligible for the credit because it is not
engaged primarily in retailing, even though it does, through the operation of the
gift shop, restaurant and lounge, engage in some retailing activities.
As stated above, this is a general information letter which does not constitute a statement of policy
that either applies, interprets or prescribes tax law. It is not binding on the Department. Please send
additional information for further analysis to my attention.
Sincerely,

Heidi Scott
Associate Counsel -- Income Tax