When may an Illinois contractor buy materials tax-free for work performed under a contract with an exempt organization?

Plain-English summary

A contractor could buy materials tax-free only when the materials were for incorporation into real estate owned by a qualifying exempt organization or governmental entity with a valid Illinois E number, and the contractor supplied the required certification.

Illinois generally treated construction contractors as the end users of materials incorporated into real property, making them responsible for Use Tax. The stated exception applied to an exempt owner's real estate. To claim it, the contractor had to tell the supplier that the purchase was for conversion into real estate under a contract with the exempt organization or governmental entity, identify that entity by name and address, state the contract date, and provide the entity's E number.

The requester performed weatherization and rehabilitation work in low-income residents' homes and invoiced exempt agencies. The GIL stated the ownership condition but did not expressly find that these particular homes were owned by the agencies or that the requester's purchases qualified.

What this means for you

Confirm who owns the real estate before using an exempt agency's E number. An agency's payment for work or an end beneficiary's relationship to the agency is not a substitute for the ownership and documentation conditions stated in this GIL.

Common questions

Q: Are construction materials automatically exempt because an exempt agency pays the contractor?
A: No. The rule described requires incorporation into real estate owned by the exempt organization or governmental entity and the required documentation.

Q: What must the contractor give the supplier?
A: A certification identifying the exempt owner and contract details, plus the owner's valid Illinois E number.

Q: Did the GIL decide that work on the residents' homes qualified?
A: No. It gave the ownership and certification rules without making that express factual finding.

Subject

Construction Contractors

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0016.pdf

Original ruling text

ST 11-0016-GIL 03/29/2011 CONSTRUCTION CONTRACTORS
Construction contractors who physically incorporate tangible personal property into real estate
owned by exempt organizations or governmental entities that hold tax exempt “E” numbers can
purchase such property tax free by providing their suppliers with the certification described in
86 Ill. Adm. Code 130.2075(d). See 86 Ill. Adm. Code Section 130.2075. (This is a GIL.)

March 29, 2011

Dear Xxxxx:
This letter is in response to your letter received by this office November 12, 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 a for profit contractor that delivers weatherization and rehabilitation services to
low income residents on behalf of several Tax Exempt Agencies. These services are
comprised of the installation of insulation, replacement windows and doors, HVAC
equipment and related products in the homes of Illinois residents. Upon completion of
the projects, we invoice the tax exempt agency for 100% of the services delivered.
Over the past year or so we have received opinions from several people within the
Department of Revenue’s Tax Payer [sic] Systems Division that we are entitled to
present the tax exemption id of these agencies to suppliers of windows and doors who
would normally charge us sales tax on these items. Where we present these exempt
ID’s, we are in effect purchasing on behalf of these agencies and as such are able to
acquire these materials devoid of sales taxes to our company.
I would like something more formal from the agency in the form of a written opinion from
someone in the office in order to assure me that my company is in compliance with the
tax laws of the state. It would also re-assure [sic] those who we are requesting the ID’s
from that this is a legitimate use of their ID.

DEPARTMENT’S RESPONSE:
Sales to exempt organizations (organizations that qualify as exclusively religious, charitable, or
educational) and governmental entities are subject to tax unless the exempt organization or
governmental entity has obtained an active exemption identification number ("E" number) from the
Department. See 86 Ill. Adm. Code 130.2007 and 130.2080. Persons or businesses selling tangible
personal property to these organizations or governmental entities must be provided with an "E"
number for the sales to be tax exempt, unless another exemption can be documented. It is important
to note that only sales of tangible personal property invoiced to the organization or governmental
entity itself are exempt. Sales made to an individual member or client of an exempt organization or
entity are generally subject to tax.
If a person or business is contractually required to purchase tangible personal property for
incorporation into real estate, then that person or business would be acting as a construction
contractor. Construction contractors in Illinois are deemed to be the end users of tangible personal
property purchased for incorporation into real property and owe Use Tax on those materials. 86 Ill.
Adm. Code 130.2075. However, purchases of tangible personal property by a construction contractor
for incorporation into the real estate owned by an exempt organization or governmental entity that
possesses a valid “E” number at the time of sale may be made free of Illinois Retailers’ Occupation
Tax and Use Tax under the provisions of 86 Ill. Adm. Code 130.2075(d).
In claiming the exemption from tax, the construction contractor must provide its supplier with a
certification stating that its purchases are for conversion into real estate under a contract with an
exempt organization or governmental entity, identifying the organization or entity by name and
address and stating on what date the contract was entered into. The construction contractor must
also provide the “E” number issued by the Department to the organization or entity for which the
purchasing contractor is acting. See 86 Ill. Adm. Code 130.2075(d)(4).
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