Did mold-release lubricant used in automotive-spring production qualify for Illinois's manufacturing machinery exemption?

Plain-English summary

Mold-release agents generally were taxable consumable supplies and did not qualify for the manufacturing machinery and equipment exemption. The GIL compared them with maintenance oils, grease, adhesives, cleaning compounds, antifreeze, and welding flux.

A different exemption could apply to the extent tangible property physically became a component of the product sold. If an item served both taxable and resale-component uses, the purchaser could give the vendor a certificate specifying the tax-free and taxable percentages.

The Department noted that mold-release material transferred to a part often was later washed off or removed. Material that did not remain in the product was taxable rather than purchased for resale.

What this means for you

Document whether any portion of a production chemical remains as a physical component of the finished item. Contact with the product or assistance in production did not, by itself, make a consumable exempt.

Common questions

Q: Did helping the spring separate from the mold make the lubricant exempt machinery?
A: No. The GIL generally classified mold-release substances as taxable supplies.

Q: Could a portion qualify for resale?
A: Yes, to the extent it physically became part of the product sold and was properly documented.

Citations and references

• 86 Ill. Adm. Code 130.330, 130.330(b)(2), 130.330(c)(3), and 130.330(g)
• 86 Ill. Adm. Code 130.210
• 86 Ill. Adm. Code 130.1405

Subject

Manufacturing Machinery & Equipment

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2010.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2010/st-10-0025.pdf

Original ruling text

ST 10-0025-GIL 03/31/2010 MANUFACTURING MACHINERY & EQUIPMENT
Mold release agents generally do not qualify for the manufacturing machinery and equipment
exemption. See 86 Ill. Adm. Code 130.330. (This is a GIL.)

March 31, 2010

Dear Xxxxx:
This letter is in response to your letter dated October 16, 2009, in which you request
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
We are requesting a letter ruling on the following issue.
COMPANY is a manufacturer of automotive springs. As part of our process, we
purchase diecasting lubricant. The lubricant goes into our production molds before the
raw materials are baked in the oven. The lubricants serve two purposes: 1. They
provide a coating that is necessary to facilitate the separation of the product and mold.
If we did not use this, the springs would stick to the mold rendering both useless. 2.
The lubricant coats the spring helping to facilitate to [sic] baking process.
Question: Is the lubricant exempt or taxable? The agent we spoke with at the IL DOR,
could not give us a conclusive answer and suggested that we write in for a letter ruling.
Our understanding is that most chemicals and lubricants for machinery is taxable.
However, if they come into contact with the product to help facilitate a change, they are
exempt. We are unsure under what category. This [sic] fall under.
Please issue any response to our tax office:

DEPARTMENT’S RESPONSE:
Under the Retailers’ Occupation Tax Act and Use Tax Act, machinery and equipment that will
be used by the purchaser primarily in the process of manufacturing or assembling tangible personal

property for wholesale or retail sale or lease is exempt from tax. See the Department’s regulation at
86 Ill. Adm. Code 130.330, which can be found on the Department’s website.
The manufacturing process is the production of any article of tangible personal property,
whether such article is a finished product or an article for use in the process of manufacturing or
assembling a different article 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. These changes must result from the process in
question and be substantial and significant. See Section 130.330(b)(2). A certificate of exemption
must be presented to the seller for each transaction where exempt machinery or equipment is
purchased. See Section 130.330(g).
Consumable materials, in general, do not qualify for the manufacturing machinery and
equipment exemption. See Section 130.330(c)(3). These items, such as maintenance oils, grease,
adhesives, cleaning solutions or compounds, and antifreeze, are considered consumable items and
would be subject to Retailers' Occupation Tax and Use Tax. For example, flux used in a welding
process is generally considered to be a consumable manufacturing supply and is fully taxable. Note,
though, to the extent that an item, such as solder or welding wire, physically becomes a part of the
product being manufactured for sale, it can be purchased for resale.
Similarly, tangible personal property that will become a component part of a product that is
subsequently sold generally will qualify for the resale exemption. See 86 Ill. Adm. Code 130.210.
Persons selling tangible personal property for resale should obtain a Certificate of Resale from
purchasers of this tangible personal property. The requirements for Certificates of Resale are
explained in Section 130.1405. Tangible personal property that will be used to manufacture products,
but will not be incorporated into the product to be resold is taxable. Tangible personal property that
will be used in both capacities, may be sold partly taxable and partly tax-free if the customer gives
vendors certificates of resale specifying what percentage can be bought tax-free and what
percentage is taxable.
Please note that this question has been asked before in the context of the Manufacturing
Machinery and Equipment exemption. See 86 Ill. Adm. Code 130.330. The Department generally
considers mold parting substances fully taxable as supply items. See General Information Letter, ST
07-0135-GIL. Normally, these substances do not become a part of the item being manufactured. In
many instances, the mold release that is transferred to the part is subsequently washed off or
otherwise removed and does not become a part of the item being manufactured.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,

Debra M. Boggess
Associate Counsel
DMB:msk