May an Illinois construction contractor buy materials tax-free for incorporation into property owned by an exempt organization or government entity?

Plain-English summary

A supplier asked whether its customer could use a contractor exempt-purchase certificate and contract to avoid Illinois tax.

IDOR explained that construction contractors are normally the end users of materials they buy for incorporation into real estate and therefore owe Use Tax. An exception applies when the contractor physically incorporates the property into real estate owned by an exempt religious, charitable, or educational organization or a governmental entity that holds a valid Illinois exemption identification number, commonly called an E number.

To claim the exemption, the contractor must certify to the supplier that the purchase is for conversion into real estate under a contract with the exempt owner. The certification must identify the owner by name and address, state the contract date, and provide the owner's E number. The GIL separately directs sellers of floor coverings to Rule 130.2101.

Common questions

Is the contractor's own purchase automatically exempt because the project owner is exempt? No. The owner must have an active E number, and the contractor must provide the required certification.

Are contractors normally treated as resellers? No. Illinois generally treats them as end users of incorporated materials.

Citations and references

• 86 Ill. Adm. Code 130.2075(d)
• 86 Ill. Adm. Code 130.2007 and 130.2080
• 86 Ill. Adm. Code 130.2101

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2013.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2013/st-13-0068.pdf

Original ruling text

ST 13-0068-GIL 11/27/2013 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.)

November 27, 2013

Dear Xxxxx:
This letter is in response to your letter dated November 20, 2013, 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 would like to verify if our customer COMPANY could use Contractor
Exempt Purchase Certificate and Contract to be exempt from Illinois sales tax.
Attached are copies of our sales order no. XXXX, Contractor Exempt Purchase
Certificate and Contract that COMPANY had provided to us.
We appreciate your written advice in this regard.

DEPARTMENT’S RESPONSE:
For liabilities incurred by sellers of floor coverings, please see 86 Ill. Adm. Code
130.2101entitled “Sellers of Floor Coverings.”
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 posses 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,

Richard S. Wolters
Associate Counsel