Did Illinois's graphic-arts machinery exemption cover donor sheets, receptors, and specially coated proofing paper?

Plain-English summary

The described proofing materials generally did not qualify for Illinois's graphic-arts machinery and equipment exemption. The wholesaler asked about donor materials, receptors, and specially coated paper used to create proofs before a print job.

The Department explained that qualifying machinery and equipment used primarily in graphic-arts production could be exempt, including machinery used in a qualifying prepress process. But materials used or consumed in the graphic-arts process were not included. It concluded that, in general, the items described did not qualify because they were not part of the exempt prepress process described in 86 Ill. Adm. Code 130.325(b)(4)(A).

For the 2011 law discussed, qualifying machinery also had to be used primarily to produce tangible personal property for wholesale or retail sale or lease under Public Act 96-116.

What this means for you

Calling an item a "prepress material" does not by itself make it exempt. A seller needed to distinguish exempt machinery or equipment from donor sheets, coated paper, and other materials consumed while making a proof. The purchaser also had to certify the qualifying use to the supplier.

Common questions

Q: Was all equipment used before printing exempt?
A: No. Qualifying prepress machinery could be exempt, but materials used or consumed in the process were not.

Q: Did the Department exempt the described proofing products?
A: No. It said the donor materials, receptors, and specially coated paper generally did not qualify under the described facts.

Q: Is this a binding ruling for another printer or supplier?
A: No. It is a General Information Letter: general guidance only, not binding on the Department.

Subject

Graphic Arts

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-11-0048.pdf

Original ruling text

ST 11-0048-GIL 06/22/2011 GRAPHIC ARTS
This letter discusses the Graphic Arts Machinery and Equipment Exemption. See 86 Ill. Adm.
Code 130.325 and 130.2000. (This is a GIL.)

June 22, 2011

Dear Xxxxx:
This letter is in response to your letter dated February 22, 2011, 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 graphics art supply / equipment wholesaler. One of the products we sell is
proofing materials. Proofing materials can be described as ‘Prepress materials
consumed in the process. This process refers to the creation of a prototype to be
approved by a customer before the actual print job can be started. Materials include
donor, receptors, paper stock (specially coated). According to 86ILAC130.325(b)(4)(A)
Prepress or preliminary processes, we are charging tax to these products. However,
we have a commercial printer customer in IL who is disputing the tax charged. He says
this product is exempt because of the way he uses it. His description of how it is used
is as follows: A segment of our business (approx 20% by sales volume, but probably
40% - 50% of the Final Proofing material purchased) is for prepress only jobs, with the
product we deliver to customers consisting of digital files and the associated proofs.
The balance of our sales are for offset printing jobs with the proofs, sometimes
remaining with the customer, and if retained by us done so only as a customer courtesy.
In either circumstance the proof is a separately identified line item in our customer
quotations.
According to the information supplied, what is the taxability if [sic] proofing materials? If
you need any additional information please feel free to contact me. Thank you for your
help.

DEPARTMENT’S RESPONSE:
The Department’s rules regarding the Graphic Arts Machinery and Equipment Exemption are
set forth at 86 Ill. Adm. Code 130.325. Under the graphic arts machinery and equipment exemption,
Retailers’ Occupation Tax does not apply to sales of machinery and equipment, including repair and
replacement parts, both new and used and including that manufactured on special order to be used
primarily in graphic arts production. The exemption extends to purchases by lessors who will lease
the property for use primarily in graphic arts production. Taxpayers must certify the use of the
equipment they are purchasing to their suppliers. On and after July 30, 2009, P.A. 96-116 imposes
the additional requirement that the qualifying graphic arts machinery and equipment be used primarily
in the production of tangible personal property for wholesale or retail sale or lease.
The Department’s regulation at Section 130.325(b)(1)(D) provides that “[t]he exemption
includes printing by methods of engraving, letterpress, lithography, gravure, flexography, screen,
quick, and digital printing.” Graphic arts machinery and equipment used in the prepress preliminary
process generally are included within the exemption. See Section 130.325(b)(4)(A). However,
materials used or consumed in the graphic arts process are not included within the exemption. 86 Ill.
Adm. Code 130.325(b).
In general, the items you describe do not qualify for the graphic arts machinery and equipment
exemption because they are not part of the prepress process as described in Section
130.325(b)(4)(A).
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,

Richard S. Wolters
Associate Counsel
RSW:msk