Does pallet racking, a conveyor system, or forklifts qualify for Illinois's Enterprise Zone building materials sales tax exemption?

Plain-English summary

A company leasing warehouse space from a business that held an Illinois Enterprise Zone Building Materials Exemption Certificate asked the Illinois Department of Revenue (IDOR) whether its "Material Handling Equipment" purchases could be bought sales-tax-exempt under the Enterprise Zone building materials exemption. The equipment list included pallet racking, a conveyor sortation system, 40 picking carts, 1 floor scrubber, 5 "cherry pickers," and 2 reach trucks.

Illinois's Enterprise Zone building materials exemption (35 ILCS 120/5k; 86 Ill. Adm. Code 130.1951) lets a retailer deduct gross receipts from sales of building materials that will be incorporated into real estate in an enterprise zone through remodeling, rehabilitation, or new construction. Two things have to be true: the sale must be a "qualified sale" made under an active Enterprise Zone Building Materials Exemption Certificate, and the items purchased must actually qualify as "building materials" — meaning they are physically incorporated into, and permanently affixed to, the real estate.

IDOR applied its long-standing "intention test" (from ST 08-0003-PLR and ST 00-0156) to decide what counts as permanently affixed: whether the item is affixed to the realty, whether it is applied to the realty's use or purpose, and the intent of the person affixing it. Running the equipment list through that test, IDOR concluded:

• Picking carts, floor scrubber, cherry pickers, and reach trucks — do NOT qualify. These are mobile, portable pieces of equipment, not items that become permanently affixed to real estate.
• Pallet racking and the conveyor sortation system — undetermined. Based on the limited information provided, IDOR could not tell whether these items are permanently affixed to the realty, so it could not say whether they qualify for the exemption.

Nothing on the list received a clear "yes." This is a General Information Letter (GIL), which is non-binding and simply points the taxpayer to the relevant rules — it is not a statement of Department policy.

What this means for you

Warehouse and logistics operators in enterprise zones

Leasing space in an enterprise zone, or even holding a Building Materials Exemption Certificate, does not automatically extend the sales tax exemption to every piece of equipment you buy for the facility. Mobile equipment like carts, scrubbers, cherry pickers, and reach trucks/forklifts is treated as personal property, not building materials, so expect to pay sales tax on it regardless of where the warehouse sits.

Equipment buyers

For items like pallet racking or conveyor systems that sit in a gray area, whether they qualify turns on the "intention test": is the item physically affixed to the building, is it applied to the building's use, and was it intended to stay permanently? Document how the equipment is installed (e.g., bolted to the floor or structure vs. freestanding and movable) before assuming an exemption applies, and get a Private Letter Ruling on your specific facts if the tax exposure is significant — a GIL like this one is not binding and does not resolve the racking/conveyor question either way.

Accountants and tax professionals

This GIL is a useful pointer to the governing framework — 35 ILCS 120/5k and 86 Ill. Adm. Code 130.1951(c)(1), (d)(1), and (e) — and to the intention-test case law (ST 08-0003-PLR, ST 00-0156), but it resolves nothing definitively for racking and conveyors. Because it's a GIL, not a PLR, it isn't binding on IDOR even for the requester. If a client needs certainty on similar equipment, a PLR request with full installation details (attachment method, whether it's bolted/anchored, ease of removal, etc.) is the more reliable path.

Common questions

Q: Does the Enterprise Zone building materials exemption cover warehouse equipment like forklifts?
A: No. IDOR concluded that reach trucks (forklift-type equipment), cherry pickers, a floor scrubber, and picking carts do not qualify, because they are mobile equipment rather than materials permanently affixed to the real estate.

Q: What about pallet racking and conveyor systems?
A: IDOR did not decide either way. Based on the limited facts in the request, it could not determine whether the pallet racking or the conveyor sortation system were permanently affixed to the realty, so it could not say whether they qualify for the exemption.

Q: What test does IDOR use to decide if something is "permanently affixed"?
A: The "intention test" from ST 00-0156: (1) whether the item is affixed to the realty, (2) whether it is applied to the realty's use or purpose, and (3) the intent of the person affixing it, with essentiality to the real estate's use as another common factor.

Q: Is this ruling binding on Illinois or on other taxpayers?
A: No. It is a General Information Letter, issued under 2 Ill. Adm. Code 1200.120. A GIL merely directs a taxpayer to relevant regulations or sources of information; it is not a statement of Department policy and is not binding on the Department, unlike a Private Letter Ruling.

Q: Does having a Building Materials Exemption Certificate for the enterprise zone automatically make equipment purchases exempt?
A: No. The certificate is one requirement (making the sale a "qualified sale" under 86 Ill. Adm. Code 130.1951(c)(1) and (d)(1)), but the purchased items must separately qualify as "building materials" physically incorporated into and permanently affixed to the real estate under 86 Ill. Adm. Code 130.1951(e).

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2019.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2019/st19-0003-gil.pdf

Original ruling text

ST 19-0003-GIL 02/27/2019 ENTERPRISE ZONES
Under the Enterprise Zone building materials exemption, a deduction from Illinois Retailers’
Occupation Tax liability exists for gross receipts from retail sales of materials that will be
incorporated, by remodeling, rehabilitation, or new construction, into real estate located in an
enterprise zone established by a county or municipality under the Illinois Enterprise Zone Act.
(See 35 ILCS 120/5k and 86 Ill. Adm. Code 130.1951(e).) (This is a GIL.)

February 27, 2019

Dear Xxxxx:
This letter is in response to your letter received February 6, 2019, 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.
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:
We recently signed a lease with BUSINESS in the Enterprise Zone located at ADDRESS.
BUSINESS was awarded a Building Materials Exemption Certificate (certificate number ###). I
was referred to NAME with BUSINESS 1, who suggested to contact you for our Material
Handling Equipment falling under this exemption. Below please find list of what we’d like
consideration for along with descriptions and quotes attached.
•
•
•
•
•
•

Pallet Racking for storage and picking shelves.
Conveyor Sortation System
Quantity 40 – Picking Carts
Quantity 1 – Floor Scrubber
Quantity 5 – Cherry Pickers
Quantity 2 – Reach Trucks

I’m also attaching separate Equipment sheets for each of these items with the estimates
provided by our vendors. I can be reached via email at – E-MAIL or via cell at ### for any
questions you may have.
DEPARTMENT’S RESPONSE:

ST 19-0003-GIL
Page 2
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property 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. If the purchases
occur in Illinois, the purchasers must pay the Use Tax to the retailer at the time of purchase. The
retailers are then allowed to reduce the amount of Use Tax they must remit by the amount of
Retailers' Occupation Tax liability which they are required to and do pay to the Department with
respect to the same sales. See 86 Ill. Adm. Code 150.130.
Under the Enterprise Zone building materials exemption, a deduction from Illinois Retailers’
Occupation Tax liability exists for gross receipts from retail sales of building materials that will be
incorporated into real estate located in an enterprise zone established by a county or municipality
under the Illinois Enterprise Zone Act by remodeling, rehabilitation or new construction. 35 ILCS
120/5k. All “qualified sales” of building materials sold for incorporation into any Illinois enterprise
zone are eligible for the deduction. 86 Ill. Adm. Code 130.1951(d)(1). A “qualified sale” means a sale
of building materials: a) for incorporation into real estate in an Illinois enterprise zone, b) as part of a
building project, c) for which a Enterprise Zone Building Materials Exemption Certificate for sales tax
exemption has been issued by the Department. 86 Ill. Adm. Code 130.1951(c)(1). In order to qualify
for the deduction, the materials being purchased must be building materials. 86 Ill. Adm. Code
130.1951(e).
The Department’s regulation at 86 Ill. Adm. Code 130.1951(e) provides examples of qualifying
building materials. The enterprise zone exemption includes component parts of building materials
that are permanently affixed to realty. While the examples in the Department’s regulation reflect more
conventional buildings, the fundamental concept of the building materials exemption is that to qualify,
provided that the other requirements of the regulation are met, the materials at issue must also be
physically incorporated into real estate.
The Department has invoked the intention test in the context of letter rulings concerning
construction contractors. ST 08-0003-PLR (April 1, 2008) identifies a number of letters invoking the
test. ST 00-0156 sets forth the intention test as follows:
“In determining whether an item is permanently affixed to real estate, a very fact-specific
inquiry must be made regarding whether the item is intended to remain with the realty.
In order to make a finding that the item is permanently affixed, at least three factors
must generally be examined. First, the item must be affixed to the realty. The item
must also be applied to the use or purpose to which the realty is put. Finally, the intent
of the person affixing the item must be examined. Another factor often examined is
whether the item is essential to the use to which the real estate has been put.”
To qualify for the exemption the materials must be affixed to real property located within an enterprise
zone and the purchaser must possess an Exemption Certificate at the time the building materials are
purchased.
Based on the limited information provided in your letter, the Department is unable to determine
whether the pallet racking and conveyor are permanently affixed to the realty and would qualify for
the exemption. The picking carts, floor scrubber, cherry pickers and equipment reach trucks would
not qualify for the exemption.

ST 19-0003-GIL
Page 3

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,

Richard S Wolters
Associate Counsel

RSW:rkn