Does Illinois sales tax exemption for Manufacturing Machinery & Equipment cover oxygen used by a brewery in its brewing process?

Plain-English summary

A production brewery asked the Illinois Department of Revenue whether the oxygen it uses in its brewing process qualifies for the Manufacturing Machinery and Equipment ('MM&E') sales tax exemption. The brewery had read a Department bulletin describing an expansion of the exemption to cover 'consumables primarily used in a manufacturing process in a manufacturing facility,' but was unsure whether oxygen counted, since the exemption technically applies to 'tangible personal property' and oxygen is not tangible in the everyday sense.

The Department explained that, beginning July 1, 2019 (following Illinois Public Act 101-0009), the MM&E exemption was expanded to include 'production related tangible personal property.' Under 86 Ill. Adm. Code 130.330(h), that term covers all tangible personal property used or consumed in a production-related process by a manufacturer in a manufacturing facility, or used or consumed in research and development. The Department had also filed emergency regulations giving examples of qualifying items, including supplies and consumables used in a manufacturing process, such as fuels, coolants, solvents, oils, lubricants, and adhesives.

Applying this to the brewery's question, the Department said it could not determine from the limited facts provided exactly how the oxygen was used in the brewing process. However, it noted that oxygen is often used as a consumable supply in a production-related manufacturing process, and if that is how the brewery used it, the oxygen would qualify for the expanded MM&E exemption.

Because this is a General Information Letter (GIL) rather than a Private Letter Ruling (PLR), the Department did not make a binding, fact-specific determination. It instead pointed the brewery to the relevant regulation and explained the general rule, leaving the ultimate factual determination -- how the oxygen is actually used -- to the taxpayer.

What this means for you

Brewery and manufacturing business owners

If your business uses gases, fuels, solvents, or similar consumable supplies as part of an actual manufacturing or production process at a manufacturing facility, those supplies may be exempt from Illinois sales tax under the expanded MM&E exemption, even though they are consumed rather than becoming part of a finished product. The key question is whether the item is used or consumed in the manufacturing process itself, not simply present somewhere in the facility.

Accountants and tax professionals

This GIL is a useful illustration of how the Department applies 86 Ill. Adm. Code 130.330(h)'s 'production related tangible personal property' category, which was newly added effective July 1, 2019. Because the letter is a GIL, it is not binding and does not resolve the taxpayer's specific facts -- it only restates the regulation and the Department's general view that a consumable like oxygen 'would qualify' if used as described. Clients wanting a binding, fact-specific answer would need to request a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Common questions

Q: Does this letter confirm that oxygen used by breweries is tax-exempt?
A: Not definitively. The Department said oxygen 'would qualify' for the exemption if it is used as a consumable supply in a production-related manufacturing process, but it stated it could not determine from the limited information provided how the brewery's oxygen was actually being used.

Q: What changed on July 1, 2019?
A: The Manufacturing Machinery and Equipment exemption was expanded to include 'production related tangible personal property' -- a new category covering tangible personal property used or consumed in a production-related process at a manufacturing facility, or in research and development, in addition to the machinery and equipment already covered.

Q: What other kinds of items does the Department consider 'production related'?
A: The letter lists several examples from the Department's emergency regulations: property incorporated into real estate within a manufacturing facility for a production-related process; supplies and consumables used in the manufacturing process (such as fuels, coolants, solvents, oils, lubricants, and adhesives); hand tools, protective apparel, and fire and safety equipment used in the facility; and property used for pre- and post-production material handling, receiving, quality control, inventory control, storage, staging, and packing for shipping.

Q: Is a General Information Letter binding on the Department?
A: No. A GIL merely directs a taxpayer to the relevant regulations or other sources of information; it is not a statement of Department policy and is not binding, unlike a Private Letter Ruling, which is binding on the Department as to the specific taxpayer and facts presented.

Q: What should the brewery do to get a definitive answer?
A: Because the Department could not confirm the exemption applied without knowing exactly how the oxygen is used in the brewing process, the brewery would need to either document that use itself against the regulation's standard or request a Private Letter Ruling, which requires a complete and accurate recitation of the specific facts under 2 Ill. Adm. Code 1200.110.

Citations and references

• 86 Ill. Adm. Code 130.330 (manufacturing and assembling machinery and equipment exemption)
• 86 Ill. Adm. Code 130.330(h) (definition of production related tangible personal property)
• 2 Ill. Adm. Code 1200.110 (procedures for Private Letter Rulings)
• 2 Ill. Adm. Code 1200.120 (General Information Letters)
• Illinois Public Act 101-0009 (expansion of the Manufacturer's Sales Tax Exemption)

Subject

Manufacturing Machinery & Equipment

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/st19-0032-gil.pdf

Original ruling text

ST 19-0032-GIL 12/09/2019 MANUFACTURING MACHINERY & EQUIPMENT
The Manufacturing Machinery and Equipment exemption (“MM&E”), beginning
July 1, 2019, includes production related tangible personal property.
Consumables used in a manufacturing process in a manufacturing facility are
considered production related tangible personal property. Oxygen is often used
as a consumable supply in a production-related manufacturing process. If this is
the case, it would qualify for the expanded manufacturing and assembling
machinery and equipment exemption. See 86 Ill. Adm. Code 130.330. (This is a
GIL.)
December 9, 2019
Dear XXX:
This letter is in response to your letter dated October 23, 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:
RE: Illinois Public Act (P.A.) 101-0009-IL Manufacturer’s Sales Tax
Exemption
To Whom It May Concern:
We are a production brewery located in CITY and are currently reviewing
the Illinoi Department of Revenue Bulletin from June 2019 regarding
expanded exemptions for production related tangible personal property
within the Manufacturing Machinery and Equipment Exemption.
One of the items we are unsure whether or not applies for sales tax
exemption is oxygen, which we use in the brewing process. The third

ST 19-0032-GIL
Page 2
December 9, 2019
bullet point within the bulletin mentions “consumables primarily used in a
manufacturing process in a manufacturing facility”, which we would
interpret as including something like oxygen. However, the rest of the
bulletin specifies “tangible” personal property, and oxygen is technically
not “tangible”.
Can you please provide some guidance on how we should treat the
purchase of oxygen as it relates to sales tax exemption?
Thank you for your time and consideration.
DEPARTMENT’S RESPONSE:
Beginning on July 1, 2019, the manufacturing and assembling machinery and
equipment exemption includes production related tangible personal property.
Production related tangible personal property means all tangible personal property used
or consumed in a production related process by a manufacturer in a manufacturing
facility in which a manufacturing process takes place or by a graphic arts producer in
graphic arts production. Production related tangible personal property also means all
tangible personal property that is used or consumed in research and development
regardless of use within or without a manufacturing or graphic arts production facility.
86 Ill. Adm. Code 130.330(h).
The Department recently filed emergency regulations that incorporate production
related tangible personal property into the manufacturing and assembling machinery
and equipment exemption which can be found on the Department’s website and
became effective upon filing. The Department included examples of items that the
Department considered to be production related. For example, the Department
provided that the following tangible personal property would be considered production
related: (1) tangible personal property purchased by a manufacturer for incorporation
into real estate within a manufacturing facility for use in a production related process; or
tangible personal property purchased by a construction contractor for incorporation into
real estate within a manufacturing facility for use in a production related process; (2)
supplies and consumables used in a manufacturing process in a manufacturing facility,
including fuels, coolants, solvents, oils, lubricants, and adhesives; (3) hand tools,
protective apparel, and fire and safety equipment used or consumed within a
manufacturing facility; and (4) tangible personal property used or consumed in a
manufacturing facility for purposes of pre-production and post-production material
handling, receiving, quality control, inventory control, storage, staging, and packing for
shipping or transportation.
We cannot determine from the limited information you have provided how the
oxygen is used in the manufacturing process. It is often used as a consumable supply

ST 19-0032-GIL
Page 3
December 9, 2019
in a production-related manufacturing process. If this is the case, it would qualify for the
expanded manufacturing and assembling machinery and equipment exemption.

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,

Debra M. Boggess
Associate Counsel
DMB:rkn