Could off-road logging and forestry equipment qualify for Illinois's farm-machinery exemption?

Plain-English summary

A timber-harvesting owner-operator asked whether equipment used to fell, extract, process, and load timber—and to reclaim sites and implement forestry practices—qualified for Illinois's farm-machinery exemption.

IDOR said off-road equipment used primarily, meaning more than 50%, in forestry harvesting may qualify as machinery used in production agriculture or in State or federal agricultural programs.

The answer depended on the activity for which each item was used, so not all equipment in a logging operation qualified automatically. To claim the exemption, the purchaser had to give the seller a certificate identifying both parties and stating that the property would be used primarily for a qualifying agricultural purpose.

What this means for you

Forestry businesses should document use by machine rather than claim an operation-wide exemption. Mixed-use vehicles, tools, and equipment need evidence that qualifying forestry activity exceeds 50%.

Common questions

Did all equipment listed by the logger qualify? IDOR did not say that; it required an item-by-item use analysis.

What percentage was "primarily"? More than 50%.

Was an exemption certificate required? Yes.

Citations and references

• 86 Ill. Adm. Code 130.305.

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-16-0022-gil.pdf

Original ruling text

ST 16-0022-GIL-06/02/2016 FARM MACHINERY AND EQUIPMENT

Off-road equipment used primarily in forestry harvesting and timber operations can qualify for
the exemption afforded farm machinery and equipment used primarily in production
agriculture, or in State or Federal agricultural programs. See 86 Ill. Adm. Code 130.305. (This
is a GIL.)

June 2, 2016
Dear XXXXxX:

This letter is in response to your letter dated March 27, 2016 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:

|! am an owner/operator of a timber harvesting operation and am contacting you in
regards to a question concerning sales tax. Is the harvesting of timber as a crop
considered production agriculture, and therefore qualify for sales tax exempt status
under Illinois tax code 130.305 Farm Machinery and Equipment?

Timber harvesting operations primarily consist of felling of trees, extraction, processing,
and loading of timber. Other necessary operations include site reclamation and
implementation of Forestry Best Management practices. Timber is harvested to
improve overall forest health, timber production and provide wood to be used to make
countless finished products. The equipment that used on a daily basis to harvest timber
as accrop includes; log skidder, bull dozer, knuckleboom log loader, wheeled front end
loader, skid steer loader, chainsaws, a side-by-side utv, and a service truck. The log
skidder is used to extract the logs from the forest where they are harvested to a staging
area for processing and loading as well as implementing Forestry Best Management
Practices. The bull dozer is also used for extraction of logs, as well as site reclamation
and implementation of Forestry Best Management Practices. The knuckleboom log
loader is used to process the logs to appropriate lengths and load them onto a road
going truck. The wheel loader and skid steer are also used to transport logs for the

loading of trucks, conditions dictate which machine is better suited for the job.
Chainsaws are used for the felling of timber as well of the processing of logs. The side-
by-side utv is used for the cruising of timber, the carrying of tools for day to day
operations, carrying tools and supplies in the event of a breakdown in a remote location,
carrying debris in the cleanup from operations and many other tasks. The service truck
is used as primary transport to and from the worksite, carrying tools, equipment,
supplies and parts necessary to the timber harvesting operation. Although some of
these machines are specific to the timber harvesting industry, they are necessary and
vital for the day to day operations of harvesting timber as a crop. There is a direct
correlation between the machines used in timber harvesting as to the machines used in
conventional row crop production agriculture.

This question has been presented to the Legal Services Bureau in the past, at that time
it was determined that timber harvesting does qualify as production agriculture. A copy
of the response from the Legal Services Bureau is attached for your viewing. Timber
harvesting is not included in the Farm Machinery and Equipment (130.305) tax code,
therefor causing confusion and misinformation amongst the industry and business
transactions. | greatly appreciate your consideration of the matter at hand, and if timber
harvesting is determined to qualify for sales tax exemption it would be beneficial if it was
added to the Farm Machinery and Equipment exemption. Thank you and | look forward
to hearing back from this department concerning this issue.

DEPARTMENT’S RESPONSE:

The Department's regulations governing "Farm Machinery and Equipment" can be found at 86
Ill. Adm. Code 130.305. This regulation explains that the Retailers' Occupation Tax does not apply to
sales of machinery and equipment used or leased for use primarily (over 50%) in production
agriculture.

Generally, off-road equipment used primarily (over 50%) in forestry harvesting may qualify for
the exemption extended to farm machinery and equipment used primarily (over 50%) in production
agriculture, or in State or Federal agricultural programs. Understand, though, that not all equipment
used in forestry harvesting may qualify for the exemption. It depends upon the nature of the activity
for which the equipment is being used. In order to claim this exemption, you must provide the seller
with an exemption certificate stating the seller's name and address, the purchaser's name and
address and a statement that the property purchased will be used primarily (over 50%) in production
agriculture, or in State or Federal agricultural programs. You may want to visit the Department's
website and look at the Compliance Alert the Department put out in June 2007 concerning the
taxation of ATVs.

| 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,

Debra M. Boggess
Associate Counsel

DMB:bkI