Did a supermarket's rotisserie oven, cleaner, grease bags, and related equipment qualify for Illinois's manufacturing machinery exemption?

Plain-English summary

An Illinois supermarket bought a deli rotisserie system that slow-cooked up to 60 chickens at a time for retail customers. The system included baskets, a built-in cleaning system, cleaner, and grease-disposal bags required for operation. The store had no dining facilities.

The supermarket argued that the oven and each required component qualified as manufacturing machinery and equipment because they processed food for resale and maintained sanitation.

IDOR ruled that none qualified. Manufacturing required a substantial and significant change produced by a manufacturing, processing, fabricating, or refining procedure. Section 130.330(b)(7) specifically excluded preparation of food and beverages by restaurants, food-service establishments, and other retailers from manufacturing.

Because the supermarket used the rotisserie system and supplies to prepare food for retail sale, the oven, cleaner, grease bags, and described equipment were taxable.

What this means for you

Retail food preparation did not become exempt manufacturing merely because it transformed raw food, used automated equipment, produced items for resale, or required integrated sanitation components.

This PLR states that it ceases to bind IDOR ten years after November 23, 2016—November 23, 2026—or earlier if relevant law, rules, case law, or facts change.

Common questions

Did the absence of on-site dining change the answer? No.

Were the cleaner and grease bags exempt as essential components? No.

Can another supermarket rely on this PLR? No. It binds IDOR only for the requesting taxpayer and its stated facts.

Citations and references

• 86 Ill. Adm. Code 130.101, 130.330(b)(2), 130.330(b)(7), and 150.101.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2016.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2016/st-16-0014-plr.pdf

Original ruling text

ST 16-0014-PLR 11/23/2016 MANUFACTURING
The preparation of food and beverages by restaurants, food service establishments,
and other retailers is not manufacturing. 86 Ill. Adm. Code 130.330(b)(7). (This is a
PLR.)
November 23, 2016
Dear Xxxxx:
This letter is in response to your letter dated August 25, 2016, in which you requested
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.
Review of your request disclosed that all the information described in paragraphs 1
through 8 of Section 1200.110 appears to be contained in your request. This Private Letter
Ruling will bind the Department only with respect to COMPANY, for the issue or issues
presented in this ruling, and is subject to the provisions of subsection (e) of Section 1200.110
governing expiration of Private Letter Rulings. Issuance of this ruling is conditioned upon the
understanding that neither COMPANY, nor a related taxpayer is currently under audit or
involved in litigation concerning the issues that are the subject of this ruling request. In your
letter you have stated and made inquiry as follows:
We are submitting this Private Letter Ruling Request pursuant to 2 Ill. Admin
code 1200.110. We are submitting this request regarding a specific transaction
with one of our vendors that refuses to accept an ST-587 Equipment Exemption
certificate for purchase that qualifies for Exemption.
Statement of Facts:
Taxpayer Information:

1. This Private Letter Ruling (“PLR”) is not requested for
   hypothetical or alternative proposed transactions, but rather to
   determine the taxability for ROT/UT purposes of actual
   transactions engaged in by COMPANY as described below.
   This ruling is sought for all tax periods during which the related
   purchases will occur.

ST 16-0014-PLR

2. COMPANY is not currently under audit by or engaged in
   litigation with the Department with regard to this or any other tax
   matter.
3. The Department has not previously ruled regarding this matter
   for COMPANY.
4. COMPANY has not submitted the same or similar issue to the
   Department and withdrew it before the Department issued its
   ruling.
5. We are aware of no authority contrary to the authorities referred
   to and cited below.
6. COMPANY requests certain information be deleted from the
   PLR prior to dissemination to others. COMPANY requests that
   their respective names, addresses, locations of the facility and
   the name of its representative be deleted.
   Material Facts Relating to Transaction:
   COMPANY is a retail supermarket company, with our corporate
   office in STATE. We operate 12 locations in the State of Illinois
   under the name of COMPANY 1 and COMPANY 2. COMPANY
   purchased a PRODUCT and accompanying accessories for the
   Deli in our CITY location from COMPANY 3, ADDRESS., CITY 1, IL
   ZIPCODE. I am attaching invoice #### dated 12/2/XX that was
   paid on 02/28/XX. We were charged sales tax on the purchase.
   Upon audit we determined that the PRODUCT equipment would
   qualify for an exemption as it is used in the production of food for
   resale. I have requested a credit from the vendor, but they are
   denying the exemption because the end product is a cooked item.
   We do not have dining facilities in this location and sell the chickens
   after cooked to our retail customers. This PRODUCT is used 100%
   of the time to take fresh chicken and slow cook to rotisserie style. It
   roasts up to 60 chickens at a time. The PRODUCT 1 is part of the
   oven’s cooking system, the baskets are to hold the chicken inside
   the oven while it cooks. The oven also has a built in cleaning
   system to maintain the standards of cleanliness for equipment used
   to prepare food. The grease disposal bags and the PRODUCT
   cleaner are an integrated component and the system will not
   operate if these parts are not in place.
   Other Equipment for our bakery was purchased on the same
   invoice, and COMPANY 3 has agreed to issue credit for the tax
   charged on those items. The same invoice has a dishwashing unit
   that we all agree is a taxable purchase. The Purchase amount of
   the PRODUCT component is $$$$ and tax was paid in the amount
   $$$$. See page 9 of invoice ####.
   Ruling Requested:
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ST 16-0014-PLR
COMPANY respectfully requests that the Department issue a
Private Letter Ruling that:

1. The PRODUCT and equipment defined above qualifies for
   exemption from the Retailers [sic] Occupation and Use Tax.
2. The PRODUCT Cleaner and Grease disposal bags qualify for
   exemption as an independent device or tool separate from
   machinery but essential to an integrated manufacturing or
   assembly process. Also, based on the requirements of the
   industry – (the need to prevent contamination of the food
   product). This a periodic maintenance item that is used on the
   same equipment in other locations we operate.
   Statement of Law:
   The Illinois Retailers’ Occupation Tax (“ROT”) and Use Tax (“UT”)
   (collectively, “ROT/UT”) impose a tax on persons engaged in the
   business of making retail sales of tangible personal property. 35
   ILCS 120/2; 35 ILCS 105/1a. The ROT/UT provides, however, that
   the sales or use of certain tangible personal property may be
   exempt if that property is manufacturing or assembling machinery
   and equipment used primarily in the process of manufacturing or
   assembling process (“MM&E exemption”). 35 ILCS 120/2-5(14); 35
   ILCS 105/3-5(18); 86 Ill. Adm. Code 130.330: 86 Ill. Adm. Code
   150.910 (“In general, the provisions of [86 Ill. Adm. Code 130] shall
   apply to returns under the Use Tax Act.”).
   For purposes of the MM&E exemption, “machinery” means major
   mechanical machines or major components of such machines
   contributing to a manufacturing or assembling process. 35 ILCS
   120/2-45(3); 35 ILCS 105/3-50(3); 86 Ill. Adm. Code 130.330(c)(2).
   “Equipment” includes an independent device or tool separate from
   machinery but essential to an integrated manufacturing or
   assembly process. 35 ILCS 120/2-45(4); 35 ILCS 105/3-50(4); 86
   Ill. Adm. Code 130.330(c)(3).
   The MM&E exemption applies 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(d). 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. 35 ILCS 120/2-45(1); 35 ILCS 105/350(1); 86 Ill. Adm. Code 130.330 (b)(2).
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ST 16-0014-PLR
The production or processing of food is generally considered to
constitute an exempt use for purposes of the MM&E exemption. 86
Ill. Adm. Code 130.330(d)(3)(F).
In Illinois Private Letter Ruling No. ST 88-0136, the Department
established its position that equipment used in food processing
qualifies for the MM&E exemption.
In Illinois Private Letter Ruling No. ST 09-0003, the Department
established its position that Quality control functions in food
processing creates a special situation for the MM&E exemption.
In Illinois General Information Letter No. ST-99-0139, the
Department extended the regulation in cases due to the
requirements of the industry (the need to prevent contamination of
the product) for the MM&E exemption.
Taxpayers Position:
It is the position of COMPANY that each component used in the
PRODUCT unit will be treated as exempt from Illinois Retailer’s
[sic] Occupation Tax because each of the items is a required
component to operate this machine. The equipment is automated
to create and maintain appropriate conditions, including sanitation
and contamination prevention of the food. We do not have dining
facilities in this location and sell the chickens after processed to our
retail customers.
Signature:
Under penalties of perjury, I declare that I have examined this
request, including the accompanying documents, and do to the best
of my knowledge and belief the facts presented in support of the
requested ruling are true, correct and complete.
DEPARTMENT’S RESPONSE:
The Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property at retail to purchasers for use or
consumption. See 86 Ill. Adm. Code 130.101. 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.
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
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ST 16-0014-PLR
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). The preparation of food and
beverages by restaurants, food service establishments, and other retailers is not
manufacturing. See Section 130.330(b)(7).
The PRODUCT, the PRODUCT Cleaner and Grease disposal bags and the equipment
described in your letter are used in the preparation of food by retailers for retail sale and do not
qualify for manufacturing machinery and equipment exemption.
If you have further questions related to the Illinois sales tax laws, 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
Chairman, Private Letter Ruling Committee
RSW:bkl

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