We're a family farm doing production agriculture and got a Form ST-587 exemption certificate from a local business -- can we use it to buy parts for our semis, tractors, and trailers used on the farm without paying sales tax?

Plain-English summary

A family farm engaged in production agriculture wrote to the Department after receiving Form ST-587 (a sales tax exemption certificate) from a local business. They asked whether parts they purchase for their vehicles -- semis, tractors, and trailers -- used in production agriculture on their farm could be claimed exempt under that certificate, so they'd know whether to expect sales tax on future purchases.

The general rule. Illinois Retailers' Occupation Tax normally applies to the total gross receipts a retailer receives from selling tangible personal property to Illinois end users, unless a specific exemption applies (86 Ill. Adm. Code 130.101).

The farm machinery and equipment exemption. Under 86 Ill. Adm. Code 130.305, sales of machinery and equipment -- whether new, used, or built to special order -- are exempt from Retailers' Occupation Tax and Use Tax when the machinery or equipment is used or leased primarily in production agriculture, or primarily in a state or federal agricultural program (35 ILCS 120/2-5(2); 86 Ill. Adm. Code 130.305). The sale of individual replacement parts for that qualifying machinery and equipment is exempt on the same basis. To get the exemption, the purchaser must certify that the machinery or equipment is used primarily in production agriculture (130.305(a)).

What counts as "machinery." The ruling defines machinery as major mechanical machines or machine components that contribute to the production agriculture process, or that are used primarily in a state or federal agricultural program -- giving tractors, combines, balers, irrigation equipment, and cattle and poultry feeders as examples.

What counts as "production agriculture." The statutory definition (35 ILCS 120/2-35) covers raising or propagating livestock; crops for human or livestock consumption; production seed stock; animal husbandry (including blood stock raised as a food source); and floriculture, aquaculture, horticulture, and viticulture. As to crops specifically, it includes mapping fields, applying farm chemicals, tilling, planting, irrigating, cultivating, applying herbicide/insecticide/fertilizer, and harvesting and drying (130.305(f)). It does NOT include clearing land, mowing fence rows or ditches, building ponds or drainage facilities, scouting crops, tile mapping, or storing or transporting crops and produce (130.305(f)).

The bottom line for the farm's question. The Department didn't rule on the specific vehicles case-by-case -- it pointed to the governing regulations and definitions. Whether parts for a semi, tractor, or trailer qualify turns on whether that particular vehicle is used or leased primarily in production agriculture (as defined above), not on the vehicle's type or on simply holding a Form ST-587. Because "production agriculture" specifically excludes storing or transporting crops and produce, vehicles used mainly for hauling or storage -- as opposed to, say, tilling, planting, cultivating, or harvesting -- would fall outside the exemption's core examples given in the letter.

What this means for you

Farms buying vehicle parts under an exemption certificate

Don't assume that holding a Form ST-587 automatically exempts every vehicle part you buy. The exemption in 86 Ill. Adm. Code 130.305 turns on how the specific vehicle is primarily used. Parts for machinery used primarily in production agriculture activities (tilling, planting, irrigating, cultivating, applying chemicals, harvesting, drying) can qualify. Parts for vehicles used primarily to store or transport crops and produce fall outside the definition of production agriculture under 130.305(f), so those purchases may not qualify.

Retailers accepting exemption certificates from farm customers

The purchaser -- not the retailer -- must certify that the machinery or equipment is used primarily in production agriculture (130.305(a)). Retailers should keep in mind that the exemption is tied to primary use, not merely to the buyer being a farm.

Documenting your primary use

Because the certification requirement is about the equipment's primary use, farms should be prepared to describe how each vehicle is actually used (e.g., whether a semi or trailer is used mainly for hauling/storage versus other production agriculture tasks) if that use is ever questioned.

Common questions

Q: Does having a Form ST-587 exemption certificate automatically exempt parts for any farm vehicle?
A: No. The exemption depends on whether the vehicle or machinery is used or leased primarily in production agriculture or in a state/federal agricultural program, and the purchaser must certify that primary use. The certificate itself doesn't override that use-based test.

Q: Are replacement parts for exempt farm machinery also exempt?
A: Yes. 86 Ill. Adm. Code 130.305 states that individual replacement parts for qualifying machinery and equipment are exempt on the same basis as the machinery itself.

Q: Would parts for a semi or trailer used mainly to haul crops qualify for the exemption?
A: The ruling doesn't say yes or no for a specific vehicle, but it notes that "production agriculture" under 130.305(f) does not include storing or transporting crops and produce. So a vehicle used primarily for that purpose would likely fall outside the exemption's scope, even though tractors and other machinery used in tilling, planting, cultivating, or harvesting are within it.

Q: What is considered "machinery" under this exemption?
A: Major mechanical machines or machine components that contribute to the production agriculture process, or that are used primarily in a state or federal agricultural program -- examples given include tractors, combines, balers, irrigation equipment, and cattle and poultry feeders.

Citations and references

Statutes cited:

• 35 ILCS 120/2-5(2) (exempts sales of tangible personal property used in production agriculture from Retailers' Occupation Tax and Use Tax)
• 86 Ill. Adm. Code 130.101 (general rule: gross receipts from retail sales are taxable unless specifically exempted)
• 86 Ill. Adm. Code 130.305 (Farm Machinery and Equipment exemption, including replacement parts)
• 86 Ill. Adm. Code 130.305(a) (purchaser must certify primary use in production agriculture to obtain the exemption)
• 35 ILCS 120/2-35 (statutory definition of "production agriculture")
• 86 Ill. Adm. Code 130.305(f) (production agriculture activities regarding crops, and excluded activities such as storing/transporting crops)

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/st19-0028-gil.pdf

Original ruling text

ST 19-0028-GIL 12/05/2019 FARM MACHINERY & EQUIPMENT
The sale of certain types of tangible personal property used in production agriculture is
not subject to Illinois Retailers’ Occupation Tax and Use Tax. See 35 ILCS 120/2-5(2)
and 86 Ill. Adm. Code 130.305. (This is a GIL.)
December 5, 2019
Dear XXX:
This letter is in response to your letter dated September 12, 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:
I recently spoke with an individual at the Illinois Department of Revenue on
this topic, and he recommended that I write a letter requesting more
information.
We are a family farm focused in production agricultural. I recently received
form ST-587 from a local business to complete and fill out. My question is
this; can the parts we purchase for vehicles (semis, tractors and trailers) that
are used for production agriculture on our farm be classified under this
exemption certificate? We are wanting to know for future purchases on
whether or not we should be charged with sales tax.
Please let us know either way.

ST 19-0028-GIL
December 5, 2019
Page 2
DEPARTMENT’S RESPONSE:
In general, the Illinois Retailers' Occupation Tax is imposed upon the total gross
receipts received by retailers who make sales of tangible personal property to Illinois end
users. Unless the sales are specifically exempted, such retailers incur Retailers'
Occupation Tax on those sales. See 86 III. Adm. Code 130.101.
In certain cases, the sale of tangible personal property used in production
agriculture is not subject to Illinois Retailers' Occupation Tax and Use Tax. Under 86 Ill.
Adm. Code 130.305 "Farm Machinery and Equipment," Illinois sales tax does not apply
to the sale of machinery and equipment, both new and used and including that
manufactured on special order, used or leased for use primarily in production agriculture
or for use in State or Federal agricultural programs. The sale of individual replacement
parts for such machinery and equipment is also exempt. In order to obtain the
exemption, the purchaser must certify to the use of the equipment or machinery primarily
in production agriculture. See Section 130.305(a).
Machinery means major mechanical machines or machine components thereof
contributing to the production agriculture process or used primarily in State or Federal
agricultural programs. Machinery would include such things as tractors, combines, balers,
irrigation equipment and cattle and poultry feeders.
Production agriculture is defined under the Retailers' Occupation Tax Act as "the
raising of or propagation of livestock; crops for sale for human consumption; crops for
livestock consumption; and production seed stock grown for the propagation of feed
grains and the husbandry of animals or for the purpose of providing a food product,
including the husbandry of blood stock as a main source of providing a food product.
Production Agriculture also means animal husbandry, floriculture, aquaculture,
horticulture, and viticulture." See 35 ILCS 120/2-35. Further, production agriculture, with
respect to crops, includes mapping fields, applying farm chemicals, as well as activities
necessary in tilling the soil, planting, irrigating, cultivating, applying herbicide, insecticide,
or fertilizer, as well as harvesting and drying of crops. Activities such as the clearing of
land, mowing of fence rows or ditches, creation of ponds or drainage facilities, scouting
crops and tile mapping are not included, nor are the operations involved in the storing or
transporting of crops and produce. See, Section 130.305(f).
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,

DMB:rkn

Debra M. Boggess
Associate Counsel