Are fruit trees, nut trees, shrubs, vines, and other nursery stock exempt as Illinois farm machinery or equipment?

Plain-English summary

An agricultural nonprofit asked whether perennial nursery stock—fruit and nut trees, shrubs, vines, and seedlings—qualified as exempt farm machinery or equipment when purchased solely for farm production.

IDOR answered no. 86 Ill. Adm. Code 130.305 exempts qualifying machinery and equipment used primarily in production agriculture, but nursery stock and seedlings are not treated as machinery or equipment. The Department pointed to subsection (k) for examples of qualifying equipment and to Rule 130.2110 for seed-specific rules.

A different exemption can apply when the nursery stock is actually bought for resale. Under Rule 130.1405, the seller must obtain a Certificate of Resale. A bare statement that property was sold for resale is insufficient without corroborating evidence. The certificate must identify the seller and purchaser, describe the items, include an authorized signature and date, and provide an Illinois registration or resale number—or state that an out-of-state purchaser will sell only outside Illinois. Agricultural producers who resell products such as seeds and fertilizer may receive an automatic resale number under Rule 130.1415(f)-(g).

What this means for you

Farmers and nurseries

The size or capital nature of a perennial planting does not turn the plant into exempt equipment. Treat production-use purchases separately from genuine resale inventory.

Sellers

For a resale claim, collect and retain a complete certificate. Without the required number and certification, the sale is presumed not to be for resale, although other evidence may rebut that presumption.

Common questions

Are fruit-tree seedlings exempt farm equipment? No. The GIL expressly says nursery stock and seedlings are not farm machinery or equipment.

Can nursery stock be sold tax-free for resale? Yes, if the transaction is genuinely for resale and is properly documented.

Is the buyer's verbal statement enough? No. IDOR requires a Certificate of Resale or other corroborating evidence.

Citations and references

• 86 Ill. Adm. Code 130.305 and 130.305(k)
• 86 Ill. Adm. Code 130.2110
• 86 Ill. Adm. Code 130.1405 and 130.1415(f)-(g)
• 86 Ill. Adm. Code 130.101 and 150.101

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2014.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2014/st-14-0014.pdf

Original ruling text

ST 14-0014-GIL 04/04/2014 FARM MACHINERY & EQUIPMENT
Nursery stock is not considered equipment under the farm machinery and equipment exemption. See 86 Ill.
Adm. Code 130.305 (This is a GIL.)

April 4, 2014
Dear Xxxx:
This letter is in response to your letter dated December 13, 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:
The ORGANIZATION is an Illinois non-profit corporation that works to facilitate the
development of woody, perennial agriculture in the Midwestern U.S., especially tree
crops such as fruit and nut trees. One significant issue that we have come across in our
work is the lack of specificity in the state regulations regarding sales tax on nursery
stock sold to farmers for agricultural production.
Regulations already exist that describe the exemption of farm machinery and equipment
from sales and occupation tax as long as the farm machinery or equipment is explicitly
used for agricultural production (Title 86 Part 130 Section 130.305). Our central
question is: Does the definition of “equipment”, as used in Title 86 Part 130 Section
130.305 encompass nursery stock (seedlings) of perennial plants such as fruit and nut
trees, shrubs, and vines if these plants are to be explicitly and solely used for
agricultural production on a farm?
To a farmer growing perennial plants, the purchase of young nursery stock is a
significant capital investment, just as a tractor might be. Almost all other states in the
Midwest specifically include perennial plants and other nursery stock under a similar
“equipment” sales tax exemption for farmers. Similarly, the IRS allows farmers to treat
fruit and nut trees as capital that can be depreciated over their lifetime.
All precedent seems to signify that nursery stock of perennial plants sold to farmers in
Illinois for agricultural production should be exempt of sales tax at the time of purchase.
However, Title 86 Part 130 Section 130.305 does not explicitly state nursery stock of
perennial plants as included under this exemption. Therefore, the ORGANIZATION
requests a written ruling on whether sales of nursery stock of perennial plants to
farmers for agricultural production are exempt from sales tax in Illinois. Furthermore, if

Page 2
April 4, 2014

the sales are exempt from sales tax, what steps must a nursery or nursery dealer
(reseller) take to ensure proper documentation of the tax-exempt sales?
DEPARTMENT’S RESPONSE:
The Illinois Retailers' Occupation Tax (ROT) Act imposes a tax upon persons engaged in this
State in the business of selling tangible personal property to purchasers for use or consumption. See
86 Ill. Adm. Code 130.101. In Illinois, Use Tax is imposed on the privilege of using, in this State, any
kind of tangible personal property that is purchased anywhere at retail from a retailer. See 86 Ill. Adm.
Code 150.101. These taxes comprise what is commonly known as "sales" tax in Illinois. If the
purchases occur in Illinois, the purchasers must pay Use Tax to the retailer at the time of purchase.
The retailers are then allowed to retain the amount of Use Tax paid to reimburse themselves for the
ROT liability incurred on those sales.
Under 86 Ill. Adm. Code 130.305 “Farm Machinery and Equipment”, Illinois Retailers’
Occupation Tax does not apply to the sale of machinery and equipment, both new and used and
including that manufactured on special order, used or leased for use primarily in production
agriculture or for use in State or Federal agricultural programs. Nursery stock or seedlings are not
considered farm machinery or equipment used in production agriculture. Please see 86 Ill. Adm.
Code 130.305(k) for examples of items that qualify as “Equipment” under the regulation. Please see
86 Ill. Adm. Code 130.2110 for specific regulations concerning the sale of seeds.
However, if you are making sales of nursery stock for resale, these sales would not be taxable.
See 86 Ill. Adm. Code 130.1405. When sales for resale are made, sellers must obtain a Certificate of
Resale from the purchaser. Mere statements by sellers that property was sold for resale will not be
accepted by the Department without corroborative evidence. Certificates of Resale may be made a
part of purchase orders signed by the purchaser.
A Certificate of Resale is a statement signed by the purchaser that the property purchased by
him is purchased for purposes of resale. Provided that this statement is correct, the Department will
accept Certificates of Resale as prima facie proof that sales covered thereby were made for resale.
Failure to present an active registration number or resale number and a certification to the seller that
a sale is for resale creates a presumption that a sale is not for resale. This presumption may be
rebutted by other evidence that all of the seller’s sales are sales for resale, or that a particular sale is
a sale for resale (Section 2c of the Act). In addition to the statement, a Certificate of Resale must
contain:
1)

the seller’s name and address;

2)

the purchaser’s name and address;

3)

a description of the items being purchased for resale;

4)

purchaser’s signature, or the signature of an authorized employee or agent of the
purchaser, and date of signing;

5)

Registration Number, Resale Number, or Certificate of Resale to Out-of-State

Page 3
April 4, 2014

purchaser:
a) purchaser’s registration number with the Illinois Department of Revenue; or
b) purchaser’s resale number issued by the Department of Revenue; or
c) a statement that the purchaser is an out-of-State purchaser who will sell only to
purchasers located outside the State of Illinois.
Please note that the Department assigns an automatic resale number to agricultural producers
who will resell products like seeds and fertilizer but who are not registered with the Department as
retailers. Please see 86 Ill. Adm. Code 130.1415(f)-(g).
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,

Cara Bishop
Associate Counsel