Which grain-bin materials and components qualified for Illinois's farm machinery and equipment exemption?

Plain-English summary

Grain bins and their ordinary building materials did not qualify for the farm machinery exemption. Concrete, steel panels, roof vents, and supplies remained taxable, and contractors permanently incorporating materials into real estate owed Use Tax on their cost.

Equipment used with a bin could qualify when used primarily in on-farm production agriculture. The GIL identified dryers, blowers, augers, temperature monitors, grain spreaders, and grain-level indicators as potentially exempt production equipment.

The same equipment did not qualify when used by a private or cooperative grain elevator, food processor, or other off-farm business after production ended. Grain cleaners followed the same on-farm versus post-production distinction.

What this means for you

Separate the real-estate structure from the production machinery and document who uses each component, where, and at what stage of crop production.

Common questions

Q: Was the grain bin itself exempt farm machinery?
A: No.

Q: Could a grain dryer or auger qualify?
A: Yes, when used primarily in production agriculture and all requirements were met.

Subject

Farm 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-10-0084.pdf

Original ruling text

ST 10-0084-GIL 09/30/2010 FARM MACHINERY & EQUIPMENT

Even though sales may be at retail, the Illinois Retailers' Occupation Tax does not apply to
farm machinery and equipment, both new and used, including that manufactured on special
order, certified by the purchaser to be used primarily in production agriculture or State or
federal agricultural programs. See 86 Ill. Adm. Code 130.305. (This is a GIL.)

September 30, 2010

Dear XXXXxX:

This letter is in response to your letter dated August 3, 2010, 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 an Illinois Contractor that builds grain elevators. Attached is a list of the (21)
common components of a grain elevator. We perform contracts in several states
throughout the country. Materials are purchased in the State of Illinois and also other
States. We also perform repair and maintenance services. In addition, we manufacture
(fabricate) some of the steel components installed as part of the construction contract.

We understand that, a grain elevator is classified as Real Estate, therefore as a grain
elevator construction contractor we should pay sales tax to all of our vendors (where
possible) including on ‘equipment’ that we incorporate into the construction project. We
further understand that if we do not pay sales tax to a vendor that we should pay a use
tax on the item or charge and pay the retail sales tax if it is sold to a customer.

In addition, we understand that when we quote a contract job to our prospective
customer, we can show on our quotes ‘sales tax reimbursement’ as a separate item or
include the sales tax along with our mark up on the materials portion of the quote and
we can bill our customers being careful to either show no sales tax or a ‘sales tax
reimbursement’ which can be no greater than what we have either paid to our vendors
or as a.use tax to the Illinois Department of Revenue.

We are requesting a ruling as to the proper purchases sales/use tax treatment of our
Grain Storage tanks and related grain handling equipment. We would be glad to
provide pictures to explain the common components of the grain storage facility.

Thank you for your help in this matter.
Your Attachment reads as follows:
Key to the most common Components of a Grail Elevator.

Receiving Pit for truck unload.

Building to cover receiving pit.

Receiving conveyor.

Bucket Elevator to elevate grain.

Grain Distributor.

Grain Spouting.

Grain Conveyor to grain bins.

Truss & Catwalk to support grain conveyor.

Tower to support truss & catwalk.

10. Support Tower for bucket elevator and possibly for supporting truss & conveyor.

11. Grain Dryer.

12. Grain Storage Bin with foundation.

13. Grain Cleaner.

14. Fabricated Transitions.

15. Dust Control System.

16. Bin for grain screenings.

17. Fans for grain aeration system.

18. Bulk Weigher for weighing grain in rapid rail loading operations.

19. Grain Sweep used in final clean out of bin — Inside bin, not visible in photo.

20. Gates used in controlling the flow of grain.

21. Temperature System — normally suspended from roof rafters inside the bin, not
    visible in photo, allows for remote reading of grain temperature.

OANA RWNE

DEPARTMENT’S RESPONSE:

Although we cannot give you a specific answer in the form of a General Information Letter, we
hope you find the following helpful.

Even though sales may be at retail, the Illinois Retailers’ Occupation Tax (i.e. sales tax) does
not apply to farm machinery and equipment, both new and used, including that manufactured on
special order, certified by the purchaser to be used primarily in production agriculture or State or
federal agricultural programs. Machinery means major mechanical machines or major components
thereof contributing to the production agriculture process or used primarily in State or Federal
agricultural programs. New or used repair or replacement parts, necessary for the operation of the
machine used in production agriculture or in State or Federal agricultural programs, qualify for the
exemption. Please refer to 86 Ill. Adm. Code 130.305, which can be accessed on the Department's
website.

Your letter inquires about grain bins and several bin accessories and related items. Please
note that Subsection 130.305(i) states that “[flarm machinery would include tractors, combines,
balers, irrigation equipment, cattle, and poultry feeders, but not improvements to real estate such as

fences, barns, roads, grain bins, silos and confinement buildings . . . Certain machines qualify for the
exemption if purchased by farmers directly from retailers, even though they are installed as realty
improvements. Such machines include but are not limited to augers, grain dryers (heaters and fans), .

Therefore, building materials such as concrete and steel panels that are converted into real
estate such as grain bins do not qualify for the exemption. However, certain equipment used in
conjunction with grain bins such as dryers, blowers, and augers can qualify for the exemption if used
primarily in production agricultural. Components of a grain drying system attached to the grain bin
such as temperature monitors, grain spreaders and grain level indicators would be exempt if sold for
use in production agriculture. By contrast, for example, roof vents would be taxable as a common
building material. Additionally, supplies are not exempt, 86 III. Adm. Code 130.305(k).

Note, the definition of production agriculture as set out in the Department's regulation at 86 Ill.
Adm. Code 130.305(b) and (f) with respect to crops covers production activities that end with the
harvesting and drying of crops on the producer’s farm. Therefore, sales of grain bin drying system
components to private or cooperative grain elevators or other businesses such as food processors
would not be eligible for the farm machinery and equipment exemption. Similarly, grain cleaners
would be exempt if used by a producer on his farm in production agriculture, but if used by an off-farm
business after the production of the crop, the exemption would not apply.

Please be advised persons who take tangible personal property and permanently affix it to real
estate in Illinois act as construction contractors and incur Use Tax liability on their cost price of
tangible personal property they physically incorporate into realty. This would include the construction
of grain bins. They owe Use Tax because they are considered the end users of the materials they
take off the market to permanently affix to real estate, G. S. Lyon & Sons Lumber & Mfg. Co. v.
Department of Revenue, 23 Ill.2d 180 (1961). See the Department's regulation at 86 Ill. Adm. Code
130.1940.

When the purchasing construction contractor (whether he is the prime contractor or the
subcontractor) buys the item that he will convert into real estate in finished form, the tax base is what
such construction contractor pays for the item. Construction contractors should pay tax to their Illinois
registered suppliers on building materials they will incorporate into real estate. If such materials are
purchased without paying tax, such as from unregistered out-of-State suppliers, the purchasing
contractors must self-assess and pay the Use Tax directly to this Department. Further, when the
construction contractor/installer (whether he is the prime contractor or a subcontractor) is also the
manufacturer of the finished item that he will incorporate into real estate for his customer, the tax
base is what such construction contractor pays for the materials that he incorporates into such
finished item, plus whatever such construction contractor may pay for nails, screws and other items of
tangible personal property that he buys and incorporates into real estate for his customer in the
course of making the installation of the finished item. See the Department’s regulation at 86 III. Adm.
Code 130.2075(a)(2) of the Department's regulations.

| 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

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