Could a construction contractor claim an Illinois enterprise-zone exemption for tools, safety items, rentals, temporary facilities, and other project purchases?

Plain-English summary

An enterprise-zone certification did not make every purchase at a construction project tax-exempt. Illinois described three different exemptions: building materials physically incorporated into enterprise-zone real estate, property used or consumed in manufacturing or assembling, and property used or consumed in operating a pollution-control facility.

Each exemption had different property and use requirements. The building-materials exemption required at least a certificate from the zone administrator. The manufacturing and pollution-control exemptions required at least certification from the Department of Commerce and Economic Opportunity, plus every other requirement in the regulation.

For example, hand tools did not qualify under the building-materials exemption, but could qualify under the manufacturing exemption if used primarily in manufacturing and all other conditions were met. For a construction contractor, the building-materials exemption was generally the most likely route; manufacturing or pollution-control treatment required the contractor's purchases themselves to be used in those qualifying operations.

The GIL did not give a yes-or-no answer for every item the contractor listed.

What this means for you

Match each purchase to one specific exemption. Keep the required certificate and proof showing where the property went, whether it became part of the real estate, and how it was actually used.

Common questions

Q: Did project location inside an enterprise zone exempt all contractor purchases?
A: No.

Q: Were hand tools exempt as building materials?
A: No, though they could potentially qualify under a different exemption if its use and certification tests were met.

Q: Did the GIL approve the contractor's full list?
A: No.

Subject

Enterprise Zones

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-10-0101.pdf

Original ruling text

ST 10-0101-GIL 10/27/2010 ENTERPRISE ZONES
This letter discusses various enterprise zone exemptions.
(This is a GIL.)

See 86 Ill. Adm. Code 130.1951.

October 27, 2010

Dear Xxxxx:
This letter is in response to your letter dated July 2, 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 wish to request a Department Ruling on construction contractor activity within an
enterprise zone. We are a construction contractor engaged in a project at the
BUSINESS, which has been granted tax-exempt certification from the Illinois
Department of Commerce and Economic Opportunity (see attached).
The exemption also allows the refinery in the enterprise zone exemption from state
taxes on purchases of tangible personal property to be used or consumed in the
manufacturing or assembly process or in the operation of a pollution control facility
within the enterprise zone. Does this allow tax-exemption for the following: small tools,
safety equipment, safety clothing, rental equipment parts, on-site signage, portable
offices, portable restrooms and wash stations, equipment rentals from outside IL, fabric
and filtering pipe (erosion prevention), and offices [sic] related items, which are all
used/consumed at the project site?
Please respond in writing to my attention. If you need any additional information, please
do not hesitate to contact me.
Thank you,

DEPARTMENT’S RESPONSE:

The Department’s regulation governing various enterprise zone exemptions is found at 86 Ill.
Adm. Code 130.1951. Among those exemptions are (i) the exemption for building materials
purchased for physical incorporation into real estate located in an enterprise zone (Section
130.1951(a), (d), (e), and (f)), (ii) the exemption for sales of tangible personal property to be used on
consumed within an enterprise zone in the process of manufacturing or assembling tangible personal
property for wholesale or retail sale or lease (Section 130.1951(g)), and (iii) the exemption for sales of
tangible personal property purchased for use or consumption in the operation of pollution control
facilities within an enterprise zone (Section 130.1951(i)). Eligibility for the building materials
exemption requires, at a minimum, a Certificate of Eligibility for Sales Tax Exemption issued by the
building zone administrator, and eligibility for the manufacturing or assembling exemption and the
pollution control exemption requires, at a minimum, certification from the Department of Commerce
and Economic Opportunity. In addition, all other requirements of the regulation must be met to be
eligible for the exemptions.
Each type of exemption described in Section 130.1951 applies to different items and has its
own criteria. Therefore, whether a given item is eligible for exemption depends on the basis for the
exemption and how the item will be used. For example, hand tools are not eligible for exemption
under the enterprise zone building materials exemption, but may be eligible under the enterprise zone
manufacturing or assembling exemption if used primarily in manufacturing or assembling (and all
other criteria of the exemption are met). In general, the enterprise zone building materials exemption
would be the exemption most likely to apply to purchases made by a construction contractor. The
enterprise zone manufacturing or assembling exemption and the enterprise zone pollution control
exemption would only apply to purchases made by a construction contractor if that construction
contractor is purchasing items that will be used in the manufacturing or assembling process or the
operation of a pollution control facility and the item and its use otherwise meets the requirements of
the exemption. Please consult the specific subsection of Section 130.1951 for examples of specific
items covered by each type of exemption.
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.
Sincerely,

Samuel J. Moore
Associate Counsel
SJM:msk