Does Illinois sales/use tax apply to tangible personal property an electric-vehicle maker buys to build pre-production test vehicles?

Plain-English summary

This Illinois Private Letter Ruling addresses a U.S. electric-vehicle manufacturer (referred to throughout as "COMPANY") that planned to build a significant quantity of pre-production vehicles -- an electric pickup truck and an electric SUV -- that were not intended for sale to consumers but were built to production-level quality. These pre-production vehicles were going to be used for things like validating manufacturing and assembly processes, quality control, crash testing, on- and off-road durability testing, and other research and development activities aimed at ensuring the final consumer vehicles would be safe, high-quality, and compliant with federal standards.

The Company asked the Department to confirm that the tangible personal property it purchased to build these pre-production vehicles would qualify for Illinois's manufacturing and assembling machinery and equipment exemption. That exemption was recently expanded, effective July 1, 2019 (under Senate Bill 689 / P.A. 101-9, amending 35 ILCS 120/2-45(5)), to cover "production related tangible personal property" -- a broad category that includes property used in a manufacturing facility for research and development, quality control, material handling, and similar production-support activities, regardless of whether that property ends up in the final saleable product.

The Department agreed. Based on the facts described -- that the pre-production vehicles would not be titled or registered under the Illinois Vehicle Code, would not be resold at retail, and would be produced at the Company's in-state manufacturing facility -- the Department concluded that the tangible personal property used to produce these vehicles is used or consumed in research and development and preproduction quality control, and therefore qualifies for the manufacturing and assembling machinery and equipment exemption. This means the purchases are exempt from the Retailers' Occupation Tax (and Use Tax) that would otherwise apply to a retail sale of tangible personal property in Illinois.

The Department did flag one important boundary: property used to produce vehicles that will ultimately be titled and registered as motor vehicles is specifically excluded from the "production related" category under 86 Ill. Adm. Code 130.330(h)(3)(A). That exclusion did not apply here only because the pre-production test vehicles are, by their nature, ineligible to be titled or registered at all -- they exist solely for internal testing and R&D, not for sale or road use as finished consumer products.

What this means for you

Manufacturers building prototype or test units

If your company manufactures products in Illinois and builds pre-production prototypes, test units, or validation units that are never sold to customers, the property you buy to build and test those units may qualify as exempt "production related tangible personal property" -- even if some of that testing happens in public settings (like consumer exposure events), as long as the primary purpose is genuinely R&D or quality control rather than marketing or sales. The key facts the Department relied on were that the test vehicles would not be titled/registered, would not be resold at retail, and were built at an in-state manufacturing facility.

Vehicle and equipment manufacturers specifically

Watch the titling/registration trap: property used to build a vehicle that will ultimately be titled and registered under the Illinois Vehicle Code (625 ILCS 5/) does NOT qualify as production related tangible personal property, per 86 Ill. Adm. Code 130.330(h)(3)(A). This ruling worked in the taxpayer's favor specifically because its pre-production vehicles were not eligible for titling or registration -- if your test vehicles could be titled and registered, this exemption path likely would not apply to them.

Claiming the exemption

To buy qualifying production related tangible personal property tax-free from an in-state supplier, the ruling notes you should give the supplier a properly completed exemption certificate (see 86 Ill. Adm. Code 130.330(j)). If you buy from an out-of-state or unregistered supplier, you must prepare and retain your own exemption certificate in your records (86 Ill. Adm. Code 130.330(j)(3)).

Common questions

Q: What is "production related tangible personal property"?
A: Per 86 Ill. Adm. Code 130.330(h), it's tangible personal property used or consumed in a production-related process in a manufacturing facility, or used in research and development regardless of whether that use is inside or outside a manufacturing facility. It expressly includes items incorporated into real estate within a manufacturing facility, supplies and consumables (fuels, coolants, solvents, oils, lubricants, adhesives), hand tools, protective apparel, fire and safety equipment, and property used in material handling, receiving, quality control, inventory control, storage, staging, and packaging for shipping.

Q: Does this exemption cover any vehicle a manufacturer builds?
A: No. Trucks, trailers, and motor vehicles required to be titled or registered under the Illinois Vehicle Code (625 ILCS 5/) are specifically excluded from "production related" property under 86 Ill. Adm. Code 130.330(h)(3)(A). The exemption applied here only because the pre-production vehicles were not eligible to be titled or registered at all.

Q: The pre-production vehicles were sometimes shown at public events -- doesn't that make them "marketing," which is excluded from the exemption?
A: The Company argued no, and the Department agreed based on the facts presented. Production related tangible personal property excludes items used in sales or marketing, but the Company explained that public exposure of a brand-new, unproven electric vehicle technology was itself necessary R&D and quality-control activity (testing consumer preferences and real-world durability), not primarily a sales or marketing function. The Department's conclusion rested on the specific facts as described in the ruling.

Q: Can other manufacturers rely on this ruling?
A: No. A Private Letter Ruling binds the Department only as to the specific taxpayer that requested it, and only to the extent the facts recited in the ruling are correct and complete. Other taxpayers may find the reasoning informative, but cannot rely on it directly. This ruling also expires and ceases to bind the Department 10 years after the date of the letter, or earlier if the law or the relevant facts change.

Q: How do I actually claim this exemption when buying supplies?
A: If buying from an Illinois-registered supplier, provide the supplier with a completed exemption certificate under 86 Ill. Adm. Code 130.330(j). If the supplier is not registered to collect Illinois Use Tax, the purchaser must prepare its own exemption certificate and keep it in its records, per Section 130.330(j)(3).

Citations and references

• 35 ILCS 120/2-45(5) (manufacturing and assembling machinery and equipment exemption, as amended by Senate Bill 689 / P.A. 101-9)
• 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)
• 86 Ill. Adm. Code 130.330(h)(3)(A) (exclusion for titled/registered motor vehicles)
• 86 Ill. Adm. Code 130.330(j) and 130.330(j)(3) (exemption certificates)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposition)
• 86 Ill. Adm. Code 150.101 (Use Tax imposition)
• 625 ILCS 5/ (Illinois Vehicle Code, titling and registration)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure and expiration)
• 2 Ill. Adm. Code 1200.120 (General Information Letters)
• 43 Ill. Reg. 13190 (November 18, 2019) (emergency rule adopting 86 Ill. Adm. Code 130.330(j))

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2020.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2020/st20-0001-plr.pdf

Original ruling text

ST 20-0001-PLR 01/28/2020

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 PLR).
January 28, 2020

Dear Xxxx:
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.
Review of your request disclosed that all the information described in paragraphs 1 through 8
of Section 1200.110 appears to be contained in your request. This Private Letter Ruling will bind the
Department only with respect to COMPANY, for the issue or issues presented in this ruling, and is
subject to the provisions of subsection (e) of Section 1200.110 governing expiration of Private Letter
Rulings. Issuance of this ruling is conditioned upon the understanding that neither COMPANY, nor a
related taxpayer is currently under audit or involved in litigation concerning the issues that are the
subject of this ruling request. In your letter you have stated and made inquiry as follows:
This letter is sent on behalf of COMPANY to the Office of Legal Services at the Illinois
Department of Revenue (“IDOR”) seeking a Private Letter Ruling pertaining to the
Retailers’ Occupation Tax, 36 ILSC 120. Specifically, and as outlined in greater detail
below, we believe that COMPANY will qualify for the newly extended research and
development (“R&D”) tax exemption enacted earlier this year by the Illinois legislature
and signed into law by Governor J.B. Pritzker, Senate Bill 689 / P.A. 101-9. As the Vice
President of Public Policy for COMPANY, I have the authority to request this Private
Letter Ruling on behalf of the Company.
Founded in 20XX, COMPANY is an U.S. manufacturer of on and off-highway capable,
all electric adventure vehicles. COMPANY operates from several locations in the
Midwest, including a Vehicle Design and Engineering facility in CITY, STATE and a
manufacturing facility in CITY1, STATE1. COMPANY also has additional R&D facilities
in STATE2. The Company’s first vehicle line will include an all electric pick-up truck
NAME and an all electric sport utility vehicle (“SUV”) NAME1. Utilizing lithium ion cell
technology built into a proprietary battery pack system and incorporating a quad motor
design, COMPANY’s all electric vehicles will have up to 400 miles of range and class
leading towing, payload and operational capabilities. The Company plans to start

ST 20-0001-PLR
Page 2
production of the NAME and NAME1 late next year from its CITY1, STATE1 production
facility.
As a company conduction business in the state of Illinois, COMPANY is subject to
Illinois tax obligations, including the Retailers’ Occupation Tax. As noted above, during
the 2019 legislation session, the Illinois legislature enacted and the Governor signed
into state law an amendment to the Retailers’ Occupation Tax Act to extend and expand
the Manufacturing and Assembly exemption. Specifically, under the exemption, certain
types of “production related tangible personal property” purchased on or after July 1,
2019 are now exempt from taxation under the Retailers’ Occupation Tax Act.
Production related tangible personal property is expressly defined in the legislation as
follows:
…all tangible personal property that is used or consumed by the
purchaser in a manufacturing facility in which a manufacturing process
takes place and includes, without limitation, tangible personal property that
is purchased for incorporation into real estate within a manufacturing
facility, supplies and consumables used in a manufacturing facility
including fuels, coolants, solvents, oils, lubricants, and adhesives, hand
tools, protective apparel, and fire and safety equipment used or consumed
within a manufacturing facility, and tangible personal property that is used
or consumed in activities such as research and development,
preproduction material handling, receiving, quality control, inventory
control storage, staging and packaging for shipping and transportation
purposes. (emphasis added).
Senate Bill 689 / P.A. 101-9 at 303, amending 35 ILSC [sic] 120/2-45(5). The
exemption language was expressly expanded to apply to purchases made after July 1,
2019. See Id. at 304. For the following reasons, we believe that this exemption will
apply to our pre-production vehicles scheduled for production in the second half of 2019
and used for various exemption qualified purposes.
COMPANY will be producing a significant quantity of pre-production vehicles that are
not intended for sale to consumers, but will be of production level quality and design.
The types of uses for these vehicles will include (but are not limited to) the following
activities:
•
•
•
•
•

Validation of production processes, including ensuring manufacturing and
assembly equipment operate properly to allow ramp up to serial production of
consumer-saleable vehicles;
Quality control of vehicle manufacturing systems and processes to ensure
appropriate build tolerances;
In-house quality control, assurance and review of pre-production vehicles;
Crash testing or pre-production vehicles in order to ensure compliance with
crashworthiness standards under federal law, including potential adjustments or
modification required prior to full production;
On and off-road testing of pre-production vehicles to ensure consumer-level (or
higher) durability and quality (this may entail both in-house testing, as well as

ST 20-0001-PLR
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•

showing vehicles at various public forums and exposing the vehicles to consumer
test audiences to ensure the vehicles withstand high consumer traffic and use);
Other research and development activities that COMPANY undertake in order to
ensure robust production processes and the highest quality and compliant
vehicles for distribution and sale.

COMPANY believes that all of these uses are accurately characterized as R&D or
quality control activities – precisely the types of activities the Illinois legislature intended
to be covered under the definition of tangible personal property covered by the R&D
exemption to the Retailers’ Occupation Tax Act. Because all of the uses noted above fit
within the exemption, COMPANY believes these vehicles are excused from the
Retailers’ Occupation Tax.
I would note that in at least some circumstances, these pre-production validation
vehicles may be utilized in public forums and for activities that could be characterized as
marketing/sales. I further note that there is an exclusion for tangible personal property
that are used in sales or marketing (i.e., not eligible for tax relief) including in the
definition of “Production related tangible personal property.” See Id. Despite this
provision, COMPANY does not believe that the additional use of these vehicles in public
forums will fall into the exception to the exemption in that the primary purpose of the
vehicles will be for engineering focused research and development, as well as
consumer testing. Specifically, as the NAME and NAME1 are new vehicles based on
new technology by a brand new manufacturer without an established market for this
technology, the dual use of these vehicles at sales and marketing events is intended to
conduct research and development into consumer preferences for this new technology,
as well as to ensure the pre-production vehicles with production-level features are able
to meet the demands of high consumer use and interaction (i.e., quality control). Such
information and data simply cannot be obtained within the confines of in-house
programs alone. This contrasts with established technology such as the use of internal
combustion engines in motor vehicles, which have over a 100 years of public exposure
and market acceptance. Fully electric powered, long-range, highway capable vehicles,
on the other hand, are a relatively new phenomenon with less than ten years of
consumer exposure and in numbers that comprise less than 1% of all vehicles
nationwide. Introduction of COMPANY vehicles will be the first ever market introduction
of all electric pick-up trucks and SUV’s intended for a range of on and off-road uses.
These vehicles will be the first all-electric adventure vehicles ever offered to the
consuming public. As a result, public exposure as part of valid research and
development and quality control is vital to ensuring the success of this new
transportation technology in this segment. Based on these facts, COMPANY believes
that such activities still fall within the R&D exemption of the Retailers’ Occupation Tax
Act.
Given the foregoing, COMPANY believes that the pre-production validation vehicles will
meet the requirements of tangible personal property that are to be used or consumed in
activities such as research and development and quality control, and thus exempt from
the Retailer’s Occupation Tax under the newly enacted legislation. COMPANY
respectfully requests IDOR’s confirmation of this interpretation.

ST 20-0001-PLR
Page 4
As required by Title 2, section 1200.110(b)(4), concerning requests for Private Letter
Rulings, in my capacity as Vice President of Public Policy for COMPANY, I hereby state
that to the best of my knowledge and the knowledge of the Company, the IDOR has not
previously ruled on the same or a similar issue for COMPANY or any predecessor, and
that the Company has not previously submitted the same or a similar issue to the
Department but withdrew it before a letter ruling was issued.
Thank you for you time and consideration. If you have any questions or concerns
regarding this request, please feel free to contact me.
DEPARTMENT’S RESPONSE:
The Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in the
business of selling tangible personal property at retail 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.
Purchases of tangible personal property are subject to Illinois sales tax unless it qualifies for an
exemption under Illinois tax law.
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.
Notably, the use of trucks, trailers and motor vehicles that are required to be titled or registered
pursuant to the Illinois Motor Vehicle Code (625 ILCS 5/), will not be considered production related
and would not qualify for the manufacturing and assembling machinery and equipment exemption.
See 86 Ill. Adm. Code 130.330(h)(3)(A). In a follow-up email to your request for a private letter ruling,

ST 20-0001-PLR
Page 5
you indicated that the NAME and NAME1 vehicles will not be titled and registered. In fact, you
indicated that as preproduction vehicles, they are ineligible to be titled and registered.
It is the Department’s understanding the preproduction vehicles will not be resold at retail. It is
also the Department’s understanding that all preproduction vehicles will be produced in its CITY1,
STATE1 production facilities Based on the descriptions of the manner in which the tangible personal
property will be used in the production of the NAME and NAME1, the Department agrees the tangible
personal property purchased to produce the preproduction vehicles is used or consumed in activities
such as research and development and preproduction quality control, and the purchase of the
tangible personal property qualifies for the manufacturing and assembling machinery and equipment
exemption. When purchasing tangible personal property to produce the vehicles from an in-state
supplier, the Company should provide the supplier with an exemption certificate. See Emergency
Rule at 86 Ill. Adm. Code 130.330(j); 43 Ill. Reg. 13190 (November 18, 2019). If the Company
purchases tangible personal property at retail from a supplier who is not registered to collect Illinois
Use Tax, the Company must prepare an exemption certificate and retain it in its records. Section
130.330(j)(3).
The factual representations upon which this ruling is based are subject to review by the
Department during the course of any audit, investigation, or hearing and this ruling shall bind the
Department only if the factual representations recited in this ruling are correct and complete. This
Private Letter Ruling is revoked and will cease to bind the Department 10 years after the date of this
letter under the provisions of 2 Ill. Adm. Code 1200.110(e) or earlier if there is a pertinent change in
statutory law, case law, rules or in the factual representations recited in this ruling.
I hope this information is helpful. If you have further questions concerning this Private Letter
Ruling, you may contact me at (217) 782-2844. If you have further questions related to the Illinois
sales tax laws, 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
Chairman, Private Letter Ruling Committee
RSW/DMB:ter