Could a beer producer's canning system, can feed table, and conveyor qualify for Illinois's manufacturing machinery exemption?

Plain-English summary

An equipment company bought and leased an operating canning system, empty-can feed table, and conveyor to an Illinois beer producer. The equipment filled and prepared beer cans for distribution to wholesalers, and the lessor asked IDOR to confirm a manufacturing exemption.

IDOR could not give a specific answer on the limited facts. It explained that sales of machinery and equipment used primarily to manufacture or assemble tangible personal property for wholesale or retail sale or lease were exempt. A manufacturing process had to substantially and significantly change material into an article with a different form, use, or name.

Packaging equipment could qualify when used primarily as part of an integrated manufacturing process to place the product into the container, package, or wrapping in which it was normally sold. That rule could cover the described canning operation, but the GIL stopped short of deciding that it did.

The letter also cautioned that equipment did not qualify merely because it was essential or legally required. Foundations and special-purpose buildings, and general ventilation, climate control, lighting, sprinkler systems, and employee facilities, generally did not qualify under the provisions discussed.

What this means for you

The exemption depended on function and primary use, not the equipment's label or business importance. A taxpayer claiming exemption for a canning line needed facts showing how each component participated in the integrated manufacturing and normal-sale packaging process.

Common questions

Did IDOR conclusively exempt the listed canning system? No.

Could normal-sale packaging equipment be exempt? Yes, when used primarily in the stated integrated manufacturing role.

Was practical necessity enough? No.

Citations and references

• 86 Ill. Adm. Code 130.330(b)(2), (c)(2), and (c)(5).
• 86 Ill. Adm. Code 130.330(d)(2), (d)(3)(E), and (d)(4)(H).

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-15-0045-gil.pdf

Original ruling text

ST-15-0045 GIL – 07/10/2015 MANUFACTURING MACHINERY & EQUIPMENT
The use of machinery or equipment to place the tangible personal property to be sold into the container,
package, or wrapping in which this property is normally sold when the machinery or equipment is used
as a part of an integrated manufacturing process will be considered an exempt use of machinery and
equipment when the equipment is used primarily in this manner. See 86 Ill. Adm. Code
130.330(d)(3)(E).

July 10, 2015

Dear Ms. XXXX:
This letter is in response to your letter dated June 21, 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:
I recently submitted an online request for guidance on the application of use taxes on
canning equipment for beer producer. Despite the appearance of state statutes
supporting my position, out of an abundance of caution, I am requesting a letter ruling to
determine whether canning equipment would be exempt from use tax.
Background: COMPANY purchased the following equipment and leased (operating
lease) to an Illinois based beer producer:
 “Complete Canning System” (purge station, filler, lid chute, can external rinser,
can dryer)
 “Empty Can Centrifugal Feed Table” (rotates and feeds cans onto main
conveyor)
 “Conveyor System”
This equipment is used by the producer to “can” the beer for distribution to wholesale
beer distributors.
Machinery that is exempt from use tax includes:

“The use of machinery or equipment to place the tangible personal property to be sold
into the container, package, or wrapping in which this property is normally sold when the
machinery or equipment is used as a part of an integrated manufacturing process.”
Please confirm that this canning equipment would be exempt from use tax.

DEPARTMENT’S RESPONSE:
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.
See 86 Ill. Adm. Code 130.330. The manufacturing process is the production of articles of tangible
personal property or assembling different articles of tangible personal property by procedures
commonly regarded as manufacturing, processing, fabricating, or refining which 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, machinery
and equipment does not include foundations for, or special purpose buildings to house or support,
machinery and equipment. See Section 130.330(c)(5). Generally, items such as the framing for a
building and its walls, ceilings, floors, and doors would not qualify for the exemption.
The fact that particular machinery or equipment may be considered essential to the conduct of
the business of manufacturing or assembling because its use is required by law or practical necessity
does not, of itself, mean that machinery or equipment is used primarily in manufacturing or
assembling. See Section 130.330(d)(2). In addition, machinery or equipment that is used for general
ventilation, heating, cooling, climate control or general illumination, not required by the manufacturing
process would not qualify for the manufacturing machinery and equipment exemption. See Section
130.330(d)(4)(H). Generally, items such as sprinkler systems and employee facilities such as
lunchrooms, restrooms, and locker rooms would not qualify for the exemption.
We cannot provide you a specific response based on the limited information provided in your
letter. However, please be aware that the use of machinery or equipment to place the tangible
personal property to be sold into the container, package, or wrapping in which this property is
normally sold when the machinery or equipment is used as a part of an integrated manufacturing
process will be considered an exempt use of machinery and equipment when the equipment is used
primarily in this manner. See 86 Ill. Adm. Code 130.330(d)(3)(E).
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
CB:mdb