Did Illinois rule that dry-film photoresist sold for printed-circuit-board manufacturing qualified for the machinery and equipment exemption?

Plain-English summary

A supplier sold aqueous dry-film etch and plating resist used to make printed circuit boards. The resist protected selected copper while exposed areas were etched, then was removed. The supplier asked IDOR to rule that its sales qualified for the manufacturing machinery and equipment exemption.

IDOR declined. The exemption applied to machinery and equipment used primarily in manufacturing or assembling property for wholesale or retail sale or lease, and qualification depended on how the item was used.

Because the supplier was not the user, the Department would not issue a Private Letter Ruling on whether the supplier's sales were exempt. It did not decide whether the photoresist qualified.

The GIL said a customer could request its own ruling by providing a complete description of its use of the product.

What this means for you

A supplier could not establish this use-based exemption solely from the product's general purpose. The actual manufacturing customer and documented use had to support the claim.

Common questions

Did IDOR exempt the dry-film resist? No determination was made.

Why was the request declined? The supplier was not the product's user.

Who could seek a specific ruling? A customer using the product, with complete use facts.

Citations and references

• 86 Ill. Adm. Code 130.330.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2015.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2015/st-15-0004.pdf

Original ruling text

ST 15-0004-GIL 01/09/2015 MANUFACTURING MACHINERY & EQUIPMENT
This letter discusses the manufacturing machinery & equipment exemption. See 86 Ill.
Adm. Code 130.330. (This is a GIL.)

January 9, 2015

Dear Xxxx:
This letter is in response to your letter dated July 28, 2014, 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:
As counsel for and on behalf of COMPANY (''COMPANY"), we hereby formally request
a Private Letter Ruling, pursuant to 2 Ill. Admin. Code §1200.110, from the Illinois
Department of Revenue (''Department"), confirming that the sale of a chemical
compound, which is applied as a dry film photo resist, is exempt from sales tax under the
manufacturing and equipment exemption. COMPANY is not currently under audit by the
Department regarding this issue. In addition, COMPANY is unaware of any authority
contrary to its views expressed in this request. Furthermore, we ask that our client’s
name, address, and any contract or exhibits attached be kept confidential and deleted
from the publicly disseminated version of the private letter ruling.
FACTS
COMPANY solicits sales of an aqueous processible dry film etch/plating resist used in
the manufacture of printed circuit boards. The resist covers the copper surface in the
production of circuit boards. The resist is applied to the surface of the raw circuit board,
and then is polymerized in some areas to create the desired pattern on the copper
surface. Next, the unpolymerized resist is removed, leaving a pattern on the copper
surface exposed. The resist thus protects the covered portion of the copper and leaves
the balance exposed for the process to create the desired pattern on the circuit board.
The copper is processed (i.e. exposed to acid or caustic), and the exposed copper is

etched to create the circuitry. Without the resist, the acid operation would etch the
entire copper surface and the manufacture of circuit boards would not be possible.
Once the desired pattern is etched into the copper, the dry film is removed.
ILLINOIS LAW
Illinois law exempts the purchase and use of "machinery" and “ equipment" used in
manufacturing or assembling. 86 Ill. Admin. Code 130.330(c)(1). This exemption
includes chemicals or chemicals acting as catalysts if those chemicals effect a direct
and immediate change upon a product being manufactured or assembled for sale or
lease. The Department's regulations provide the following example to illustrate this
"chemical exemption":
Example 1: A chemical acid is used to etch copper off the surface of a printed circuit
board during the manufacturing process. The acid causes a direct and immediate
change upon the product. The acid qualifies for the exemption.
86 Ill. Admin. Code 130.330(c)(6)(A). Example 1 thus expressly provides that the acid
that is used in the same process as the dry film photo resist is exempt from Illinois
sales and use tax under the manufacturing machinery and equipment exemption.
Illinois Department of Revenue General Information Letter ST 02-0186-GIL (8/26/2002)
addresses almost identical facts as those presented by COMPANY. Specifically, the
taxpayer in that general information letter ("GIL") requested guidance as to whether
"'Dry Film Resist' as used in the printed circuit board industry" is exempt from tax.
However, the Department declined to directly address the question, and indicated that
the taxpayer should request a Private Letter Ruling.
In this case, the dry film and the acid are used as part of the same process to etch a
desired pattern onto a copper plate in order to manufacture a circuit board. As Example
1 demonstrates, the acid is undoubtedly exempt from sales tax. Without the dry film
resist, the acid would corrode the entire plate, and the production of a circuit board
would not be possible. Thus, the film is necessary to effect any useful direct and
immediate change on the copper in the circuit board manufacturing process.
On behalf of COMPANY, I contacted [NAME], TITLE at the Illinois Department of
Revenue, for further guidance. [NAME] stated that he does not have authority to bind
the Department, but acknowledged that this is a gray area ripe for a Private Letter
Ruling.
REQUEST FOR RULING
Pursuant to 2 Ill. Admin. Code Section 1200.110, COMPANY respectfully requests that
the Department of Revenue issue a private letter ruling declaring that COMPANY's
sales of the dry film resist are exempt from Illinois sales tax under the
manufacturing machinery and equipment exemption. COMPANY would also like to
confirm that by concluding that the sale of the dry film resist is exempt from tax under
the manufacturing machinery and equipment exemption, the Department agrees that
COMPANY's customers are not subject to tax on the sale or use of the dry film resist so
long as the resist is purchased for the purposes outlined above.

If you concur, please issue your favorable ruling to the undersigned. If you do not
concur, please advise so that we may discuss your reasoning before an adverse ruling
is issued. A Power of Attorney authorizing our representation of COMPANY is enclosed.

DEPARTMENT’S RESPONSE:

The Department’s regulation “Public Information, Rulemaking and Organization”
provides that “[w]hether to issue a private letter ruling in response to a letter ruling
request is within the discretion of the Department. The Department will respond to all
requests for private letter rulings either by issuance of a ruling or by a letter explaining
that the request for ruling will not be honored.” 2 Ill. Adm. Code 1200.110(a)(4). Your
question relates to the application of the manufacturing machinery and equipment
exemption, which can be found at 86 Ill. Adm. Code 130.330. The rule provides that
Retailers’ Occupation Tax does not apply to sales of machinery and equipment used
primarily in the manufacturing or assembling of tangible personal property for wholesale
or retail sale or lease. Because this exemption is use based, determinations regarding
whether an item qualifies for the exemption depend on how the product is used.
The Department cannot issue letter rulings as to whether a supplier’s sales of
machinery and equipment are exempt because suppliers are not the users of such
items. Therefore, the Department declines to issue a Private Letter Ruling in response
to your request. However, if any of your client’s customers have questions about the
taxability of this product, they can submit a request to the Department for a Private
Letter Ruling accompanied by a complete description of how they use the product.
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

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