Does Illinois' manufacturing machinery and equipment sales tax exemption cover chemical processing aids used to clean, protect, and prepare production equipment before or after a production run?

Subject

Manufacturing Machinery & Equipment

Plain-English summary

A company that makes chemical processing aids for plastics processors asked the Illinois Department of Revenue how the newly expanded manufacturing machinery and equipment exemption applies to its products. Some of the company's chemicals are used during production, but two product categories are also used pre- or post-production to clean, protect, and prepare production equipment for use — and the company wasn't sure whether that pre/post-production use would still qualify as tax-exempt.

The Department explained that, beginning July 1, 2019, Illinois Public Act 101-009 expanded the manufacturing and assembling machinery and equipment exemption to include "production related tangible personal property" — meaning all tangible personal property used or consumed in a production related process by a manufacturer in a manufacturing facility, or by a graphic arts producer, plus anything used or consumed in research and development. See 86 Ill. Adm. Code 130.330(h). The Department had also filed emergency regulations giving examples of qualifying items, including supplies and consumables like fuels, coolants, solvents, oils, lubricants, and adhesives, as well as property used for pre-production and post-production material handling, receiving, quality control, inventory control, storage, staging, and packing for shipping.

Applying that framework, the Department told the company that its chemicals could generally qualify as production related tangible personal property depending on how they are actually used. Because the company's letter did not spell out exactly what "protect and prepare" the production equipment meant, the Department could not give a definitive yes/no answer. It did say, though, that chemicals used to clean production equipment used in a manufacturing process in a manufacturing facility would generally qualify for the exemption.

Because this is a General Information Letter (GIL) rather than a Private Letter Ruling (PLR), it is not binding on the Department and does not resolve the company's specific facts — it simply points the company to the relevant regulation and explains how the Department generally applies it.

What this means for you

Manufacturers and chemical/consumable suppliers

If you sell supplies, consumables, or chemicals used in or around a manufacturing process — including products used to clean, protect, or prepare production equipment — this GIL suggests those sales can qualify for Illinois' manufacturing machinery and equipment exemption as "production related tangible personal property," even if the use is pre- or post-production rather than during the immediate production step itself. The key regulation examples include fuels, coolants, solvents, oils, lubricants, and adhesives.

Resellers of production supplies

If your customers are manufacturers and you're trying to determine whether a sale is exempt, the Department's answer here is a reminder that the analysis turns on how the specific item is actually used in the customer's manufacturing facility — not just what category of product it is. Vague descriptions like "protect and prepare" may not be enough to get a clear answer from the Department; documenting the specific use (e.g., cleaning production equipment used in a manufacturing process) will support an exemption claim.

Accountants and tax professionals

This GIL is a useful pointer to 86 Ill. Adm. Code 130.330(h) and the post-P.A. 101-009 expansion of the manufacturing exemption, but remember it is non-binding and was issued because the taxpayer's facts were not fully developed. For a binding answer on a specific transaction, a taxpayer would need to request a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Common questions

Q: What changed in Illinois' manufacturing exemption on July 1, 2019?
A: Public Act 101-009 expanded the manufacturing and assembling machinery and equipment exemption to include "production related tangible personal property" purchased on or after July 1, 2019, as defined in 86 Ill. Adm. Code 130.330(h).

Q: Does cleaning equipment used in production count as exempt?
A: The Department said that, generally, chemicals used to clean production equipment used in a production related process by a manufacturer in a manufacturing facility would qualify for the exemption.

Q: What if the chemical is used both during and outside of production (pre/post-production)?
A: The regulation's examples specifically include property used for pre-production and post-production material handling, receiving, quality control, inventory control, storage, staging, and packing for shipping — so pre/post-production use doesn't automatically disqualify an item. But the Department noted it was "unclear" from the taxpayer's letter exactly how the chemicals were used, so a general "protect and prepare" description alone wasn't enough for a definitive answer.

Q: Is this GIL binding on the Department?
A: No. A General Information Letter directs a taxpayer to relevant regulations and general guidance but is not a statement of Department policy and is not binding, unlike a Private Letter Ruling (which is binding on the Department, but only for the specific taxpayer and facts presented).

Q: What other examples of exempt production related property does the Department mention?
A: The Department listed: (1) property incorporated into real estate within a manufacturing facility for a production related process; (2) supplies and consumables used in the manufacturing process, including fuels, coolants, solvents, oils, lubricants, and adhesives; (3) hand tools, protective apparel, and fire and safety equipment used within a manufacturing facility; and (4) property used for pre-production/post-production material handling, receiving, quality control, inventory control, storage, staging, and packing for shipping or transportation.

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 (Private Letter Ruling procedures)
• 2 Ill. Adm. Code 1200.120 (General Information Letters)
• Illinois Public Act 101-009 (expanded the manufacturing machinery and equipment exemption effective July 1, 2019)

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/st19-0034-gil.pdf

Original ruling text

ST 19-0034-GIL 12/09/2019 MANUFACTURING MACHINERY & EQUIPMENT
Beginning on July 1, 2019, the manufacturing and assembling machinery and
equipment exemption includes production related tangible personal property
purchased on or after July 1, 2019. 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 August 13, 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 am hoping that you can provide some interpretation for my company
regarding the new sales tax requirements for production related tangible
personal property.
Specifically I am asking for assistance with
understanding Illinois Public Act (P.A.) 101-009 which amends the sales
tax acts, beginning July 1, 2019, to expand the manufacturing machinery
and equipment exemption to include production related tangible personal
property purchased on or after July 1, 2019.
Our company manufactures what are referred to as chemical processing
aids for plastics processors. Our products are used to enhance the
efficiency of the manufacturing process to make it easier and faster. So
the products are definitely used in a manufacturing setting. But 2 of
COMPANY’s product categories can also be used in a pre or postproduction use to help clean, protect and prepare the production
equipment for use. This is the gray area where I would like help with
understanding. Would this pre or post-production use qualify these

ST 19-0034-GIL
December 9, 2019
Page 2
customer purchases as being tax-exempt? I am not sure that we or our
resellers are able to qualify with the customer/user what percentage of the
purchases are used in the immediate production process and what
percentage are used pre or post-production to clean and prepare the
equipment for future use.
We have a number of Illinois-based resellers who are asking my company
for assistance with how to handle these customer purchases. Any
guidance you can provide is appreciated. I can be reached at NUMBER
or EMAIL if you have any questions. Thank you.
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.
Generally, depending on how the chemicals are used, they could be considered
production related tangible personal property and qualify for the manufacturing and
assembling machinery and equipment exemption. As indicated above, tangible
personal property used or consumed in a manufacturing facility for purposes of pre-

ST 19-0034-GIL
December 9, 2019
Page 3
production and post-production material handling, receiving, quality control, inventory
control, storage, staging and packing for ship or transportation qualify for the exemption.
It is unclear from your letter exactly how the chemical processing aids are used.
However, you state that the chemicals are used to help clean, protect and prepare the
production equipment for use. It is unclear what you mean by “protect and prepare” the
production equipment for use. Generally, chemicals used to clean the production
equipment used in a production related process by a manufacturer in a manufacturing
facility in which a manufacturing process takes place would qualify.
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