Could a seller use one Illinois ST-587 or resale certificate for repeated manufacturing-equipment purchases?

Plain-English summary

A distributor asked whether customers and construction contractors could use general or blanket documentation for recurring purchases claimed under Illinois's manufacturing machinery and equipment exemption.

The exemption applied to machinery and equipment used primarily—more than 50% of the time—in qualifying manufacturing or assembly for wholesale or retail sale or lease. Qualifying property was exempt from both Retailers' Occupation Tax and the corresponding Use Tax.

Generally, the purchaser had to give the seller an ST-587 or equivalent certificate stating the facts for the exempt transaction. An active registration or resale number could be given instead of the prescribed form in the situation described by subsection 130.330(g)(1).

For a construction contractor installing qualifying equipment for a manufacturer, one sufficiently specific ST-587 could cover multiple purchases made to fulfill the identified construction contract. The certificate needed the manufacturer and registration information and enough detail to identify the machinery and equipment. A form describing only "electrical materials/supplies" was too vague.

When a manufacturer bought components to incorporate into machinery or equipment it would later sell at retail, the seller could accept a resale certificate. That certificate needed the purchaser's information, signature, registration or resale number, and a description of the resale items.

For repeated repair-part purchases, a sufficiently specific ST-587 identifying the machinery being repaired could cover multiple purchases. The letter cautioned that tools, electrical conduit, wiring, and light fixtures did not necessarily qualify; hand tools and general lighting not required by manufacturing were excluded under the provisions discussed.

What this means for you

Reusable documentation was possible, but not as a broad customer-wide exemption. It had to identify the particular construction contract, machinery, equipment, repair project, or resale property with enough specificity to support the claimed treatment.

Common questions

Could one ST-587 cover an entire identified construction contract? Yes, if sufficiently specific.

Was "electrical materials/supplies" specific enough? No.

Which document applied to components going into machinery for retail sale? A properly completed certificate of resale.

Citations and references

• 35 ILCS 120/2-5(14) and 120/2c.
• 35 ILCS 105/3-5(18).
• 86 Ill. Adm. Code 130.330(b), (c), and (g).
• 86 Ill. Adm. Code 130.1405, 130.1940, and 130.2075.
• 86 Ill. Adm. Code 150.301(b).

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-15-0036-gil.pdf

Original ruling text

ST 15-0036 GIL 06/19/2015 MANUFACTURING MACHINERY & EQUIPMENT

This letter discusses the manufacturing machinery and equipment exemption. See 86 III. Adm.
Code 130.330.

June 19, 2015

Dear Mr. XXXX:

This letter is in response to your letter dated March 6, 2015, 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:

COMPANY is a leader in the distribution of high quality electrical, communications and
data networking products. Through our network of more than 250 North American
distribution facilities including locations in Illinois, we stock and sell products from
thousands of manufacturers, helping our customers power, network and secure their
facilities. We are registered as a retailer with the Illinois Department of Revenue for
sales tax purposes. Accordingly, we do our best to comply with Illinois sales and use
tax laws, regulations, and rules.

We are requesting a letter ruling on some questions about Manufacturing
Machinery & Equipment exemptions.

Currently we have several different Manufacturing roles happening and need to clarify
the Departments interpretation on required documentation to exempt the sale and
provide as acceptable for future Audit purposes. We have reviewed the documentation
in Title 86 Part 130 Section 130.330 as well as we have had verbal conversations with
the Business tax line of the Illinois Department of Revenue and have received
conflicting information.

What we are attempting to clarify/verify is if we can accept a general letter from our
customer to address the tax status on their orders. In essence the customer doesn’t
understand if they are exempt on their purchases why the requirement to complete a
letter for each transaction/purchase.

1. A Construction Contractor doing work for Manufacturer where they are under contract to
   install a new piece of machinery, the Contractor is merely involved in the process of

getting the area equipped for the machine to operate so they install Electrical Conduit,
Wiring, and light fixtures, these items are incorporated into real estate.

a. Title 86 Part 130 Section 130.330 Manufacturing and Machinery and
Equipment states, specifically under g) Exemption Certificates, 4) the
purchasing contractor should provide the vendor with a certification that the
machinery or equipment will be transferred to a manufacturer as
manufacturing machinery or equipment in the performance of a construction
contract for the manufacturer.

Business Tax Line Response: We could accept a letter from the Contractor stating they
are under contract with XYZ Company to install XXX machine with Serial Number 123
(etc.), if we receive this we can utilize as a blanket for all purchases to fulfill the contract
to install the particular machine.

Ruling Requested: Is the response we received from the Business Tax Line
acceptable to implement for future Contractor projects, that is a letter per job is
acceptable?

Example tax certificate #1 Attached

. A Manufacturer purchasing items that are used as components to what they produce,
so what they purchase from us is incorporated into their product and then resold.

Title 86 Part 130 Section 130.330 Manufacturing Machinery and Equipment states; 1)
The user of such machinery or equipment and tools shall prepare a certificate of
exemption for each transaction stating facts establishing the exemption for that
transaction....

Ruling Requested: If this is the type of transactions that we repetitively do with
this customer is there another way to document the exempt status as opposed to
each transaction?

. A Manufacturer purchasing items that are used during routine maintenance of their
production machines/facility

Title 86 Part 130 Section 130.330 Manufacturing Machinery and Equipment states; 1)
The user of such machinery or equipment and tools shall prepare a certificate of
exemption for each transaction stating facts establishing the exemption for that
transaction and submit the certificate to the retailer. Further states: If the user has an
active registration or resale number, that number may be given in lieu of the prescribed
certificate.

Ruling Requested: If this is the type of transactions that we repetitively do with
this customer can we accept an ST-587 or other form completed with their
registration or resale number to exempt all sales not just by transaction?

Example tax certificate #3 Attached

If you wish to discuss this request, of if you require further information, please do not
hesitate to contact me. Your assistance in resolving this issue would be appreciated.

DEPARTMENT’S RESPONSE:

The manufacturing machinery and equipment exemption is extended to machinery and
equipment that is used primarily (over 50% of the time) in the manufacturing or assembling of tangible
personal property for wholesale or retail sale or lease. 86 Ill. Adm. Code 130.330. The
manufacturing process is the production of any article of tangible personal property, whether such
article is a finished product or an article for use in the process of manufacturing or assembling a
different article of tangible personal property, by procedures commonly regarded as manufacturing,
processing, fabricating, or refining that changes some existing material or materials into a material
with a different form, use, or name. These changes must result from the process in question and be
substantial and significant. See Section 130.330(b)(2).

Machinery means major mechanical machines or major components of such machines
contributing to a manufacturing or assembling process, including, machinery and equipment used in
the general maintenance or repair of such exempt machinery and equipment or for in-house
manufacture of exempt machinery and equipment. See Section 130.330(c)(2). However, the use of
machinery or equipment for general ventilation, heating, cooling, climate control or general
illumination, not required by the manufacturing process are generally not considered manufacturing.
See Section 130.330(d)(4)(H).

The requirements to certify eligibility for the exemption are described in subsection (g) of
Section 130.330. A certificate of exemption must be presented to the seller for each transaction
where exempt machinery or equipment is purchased stating the facts establishing the exemption for
the transaction. See Section 130.330(g). A form “ST-587 - Equipment Exemption Certificate” or
other certification containing the information required on that form must be submitted to the seller by
the purchaser for each transaction on which the exemption is claimed. If a user has an active
registration or resale number, that number may be given in lieu of the form ST-587.

A vendor who provides items to a manufacturer who will incorporate the items into machinery
or equipment that will be sold at retail should obtain a Certificate of Resale prepared by the
manufacturer. 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. Please note that the certificate must be signed by the individual making the
purchase. The registration number on the certificate must also be that of the purchaser. 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. 35 ILCS 120/2c. 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) adescription 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

See 86 Ill. Adm. Code 130.1405.

In the case of a vendor who makes sales of qualifying machinery or equipment to a contractor
who will incorporate it into real estate so that he, the contractor, would be the taxable user (See
Sections 130.1940 and 130.2075 of this Part), the purchasing contractor should provide the vendor
with a certification that the machinery or equipment will be transferred to a manufacturer as
manufacturing machinery or equipment in the performance of a construction contract for the
manufacturer. The purchasing contractor should include the manufacturer's name and registration
number on the certification when claiming the exemption. Section 130.330(g)(4). A construction
contractor purchasing qualifying machinery or equipment which he will incorporate into real estate
must provide the seller a certificate of exemption for each transaction where exempt machinery or
equipment is purchased stating the facts establishing the exemption for the transaction.

An item that is exempt from the Retailers’ Occupation Tax as exempt manufacturing machinery
and equipment as provided in 35 ILCS 120/2-5(14) and 86 Ill. Adm. Code 130.330, is also exempt
from the Use Tax, as provided by the corollary exemption provisions in the Use Tax Act (35 ILCS
105/3-5(18). See 86 Ill. Adm. Code 150.301(b). Therefore, neither Retailers’ Occupation Tax nor
Use Tax is incurred on exempt manufacturing machinery and equipment.

In response to your first inquiry, if a vendor obtains a form ST-587 from a contractor that
identifies with sufficient specificity the machinery and equipment subject to the construction contract
between the construction contractor and the manufacturer, the contractor may make multiple
purchases to fulfill the contract using the same form ST-587. One of the form ST-587s you provided
identifies the type of equipment subject to the exemption as “electrical materials/supplies.” This form
does not provide a sufficient description of the machinery and equipment being purchased to
determine whether the items qualify for the exemption. | would also note that supplies generally do
qualify for the exemption. See 130.330(c)(3).

In response to your second inquiry, you may accept a resale certificate from a manufacturer
purchasing items that will be incorporated into machinery and equipment that will later be sold by the
manufacturer at retail. The resale certificate must contain a description of the items being purchased
for resale.

In response to your third inquiry, you may accept a form ST-587. You may also accept an
active registration number or resale number. Section 130.330(g)(1). The form ST-587 should identify
with sufficient specificity the machinery and equipment the parts are being purchased for. If a vendor
obtains a form ST-587 from a manufacturer that identifies with sufficient specificity the machinery and
equipment being repaired, the manufacturer may make multiple purchases of repair parts for the
machinery and equipment using the same form ST-587.

As a final note, the items you describe in your letter — tools, electrical conduit, wiring and light
fixtures — do not necessarily qualify for the exemption. Section 130.330(c)(3) states that he the
exemption does not include hand tools. Section 130.330(d)(4)(H) states that equipment for general
ventilation, heating, cooling, climate control or general illumination not required for the manufacturing
process will not qualify for the exemption.

| 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.

Richard S. Wolters
Associate Counsel

RSW:kd