What does Illinois General Information Letter ST 20-0008-GIL conclude about Manufacturing Machinery & Equipment?

Plain-English summary

A printed circuit board manufacturer wrote to the Illinois Department of Revenue asking which supplies used in its production process now qualify for the sales tax exemption on manufacturing machinery and equipment. The taxpayer described a long list of consumable items used at each stage of making circuit boards: drill bits, aluminum entry and back-up material used in drilling; photographic film, fixer, and developer used to prepare imaging tools; photopolymer "dry film," developer, and stripper used to image the board; lamination aluminum, release sheets, and sprays used to press multi-layer boards; and pre-cleaners, pumice scrubs, acids, strippers, and plating carriers used in wet processing.

The Department explained that, starting July 1, 2019, Illinois expanded the manufacturing and assembling machinery and equipment exemption to include "production related tangible personal property" -- generally, tangible personal property used or consumed in a production-related process at a manufacturing facility, or used in research and development. The Department's regulation at 86 Ill. Adm. Code 130.330(h), amended effective March 16, 2020, gives examples of qualifying items, including supplies and consumables used in the manufacturing process (fuels, coolants, solvents, oils, lubricants, adhesives), hand tools and protective/safety equipment, materials incorporated into real estate within the manufacturing facility, and property used in pre- and post-production material handling, quality control, inventory control, storage, staging, and packing for shipment.

Applying that standard, the Department told the taxpayer that, based on the described uses, its drilling, tooling, imaging, lamination, and wet-processing supplies could generally be considered production related tangible personal property and could qualify for the exemption. However, the Department specifically said that cleaners and soaps used to clean parts and forgings do not appear to be used in a manufacturing process and would not qualify.

The letter also addressed two related questions the taxpayer raised: how to recover sales tax already paid on now-exempt items, and whether a new exemption certificate is needed for every purchase. On the first point, the Department described the claim-for-credit process under 86 Ill. Adm. Code 130.1501 -- only a retailer that has actually paid the tax (and either borne the burden of it or refunded it to the purchaser) can file for credit, and filing is voluntary. On the second point, the Department noted that Public Act 101-604, effective December 13, 2019, eliminated the requirement for a separate exemption certificate on each qualifying purchase, allowing purchasers to use a "blanket" exemption certificate instead.

What this means for you

Manufacturers and production companies

If your business consumes supplies (drill bits, films, chemicals, lubricants, packaging materials, protective equipment, etc.) as part of a manufacturing or graphic-arts production process, review your purchases against 86 Ill. Adm. Code 130.330(h) -- many of these consumables may now be exempt from Illinois sales and use tax even though they are used up rather than becoming part of the finished product. General-purpose cleaning supplies used on parts or equipment outside the manufacturing process itself are treated differently and remain taxable.

Accountants and tax professionals advising manufacturers

Because this expanded exemption only took effect for purchases on or after July 1, 2019 (with the implementing regulation amendment effective March 16, 2020), check purchase dates carefully when evaluating exemption eligibility or refund claims. If a client overpaid tax on now-exempt items, the retailer -- not the purchaser directly -- is the one who must file the claim for credit under 86 Ill. Adm. Code 130.1501, and only after refunding the tax to the purchaser or otherwise bearing the burden of it.

Retailers selling to manufacturers

Since Public Act 101-604 (effective December 13, 2019), you no longer need a separate Form ST-587 exemption certificate for each qualifying sale to a manufacturing customer -- a blanket certificate can now cover multiple purchases, which simplifies recordkeeping on repeat orders.

Common questions

Q: Does this mean all supplies used by a manufacturer are now tax-exempt?
A: No. Only "production related tangible personal property" as defined in 86 Ill. Adm. Code 130.330(h) qualifies -- generally items used or consumed in the production process itself, in research and development, or in related pre-/post-production handling and storage. The Department specifically said cleaners and soaps used to clean parts and forgings do not qualify because they are not used in the manufacturing process.

Q: When did this exemption expansion take effect?
A: The expansion to include production related tangible personal property applies to purchases made on or after July 1, 2019. The Department's regulation implementing it, 86 Ill. Adm. Code 130.330, was amended effective March 16, 2020.

Q: Can I get a refund of sales tax I already paid on items that now qualify as exempt?
A: A claim for credit can be filed under 86 Ill. Adm. Code 130.1501, but only by the retailer who actually paid the tax to the Department, and only after the retailer has borne the burden of the tax or unconditionally refunded it to the purchaser. Filing such a claim is voluntary, not required by law, and whether a retailer refunds tax to a purchaser is a private matter between them.

Q: Do I need a new exemption certificate for every purchase?
A: No, not anymore. Public Act 101-604, effective December 13, 2019, removed the requirement that purchasers provide a separate exemption certificate for each qualifying purchase of manufacturing machinery and equipment, allowing use of a "blanket" exemption certificate instead.

Q: Is this letter a binding ruling on the Department?
A: No. This is a General Information Letter (GIL), which directs a taxpayer to relevant regulations and other sources of information but is not a statement of Department policy and is not binding on the Department. A taxpayer wanting a binding answer on its specific facts would need to request a Private Letter Ruling (PLR) 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)
• 86 Ill. Adm. Code 130.1501 (claims for credit)
• 2 Ill. Adm. Code 1200.110 (private letter ruling procedures)
• 2 Ill. Adm. Code 1200.120 (general information letter procedures)
• Public Act 101-604, effective December 13, 2019 (removed per-purchase exemption certificate requirement; permits blanket certificates)
• 44 Illinois Register 5392 (publication of the March 16, 2020 regulatory amendment)

Subject

Manufacturing Machinery & Equipment

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/st20-0008-gil.pdf

Original ruling text

ST 20-0008-GIL 04/21/2020 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 GIL).

April 21, 2020
Dear Xxxx:
This letter is in response to your letter dated March 20, 2020, 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.
Your letter is a follow-up to an email you sent wherein you were asking about clarification regarding
what production related tangible personal property now qualifies for the the manufacturing and
assembling machinery and equipment exemption. In your letter you have stated and made inquiry as
follows:
I do appreciate the time you have devoted on these sales tax issues regarding the ST587. Because of the position our firm has in this industry, we want to “get this right” if
we are going to make structural changes in the invoicing of customers.
There a number, and varied steps involved in the manufacture of Printed Circuit Boards
(not unlike other industries). I want to give you some examples of what we have been
dealing with.
Drilling of Printed Circuit Board (“board”):
To drill the holes in a board, requires drill bits that have a relatively short life (thus not a
repair or replacement item).
Aluminum entry material on top of the board to absorb heat from the drill.
Back-up material on the bottom of the board to absorb the drill bit.
Currently, the drill, entry and back-up are “used/consumed” and discarded. All of these
items are being taxed at this time.

ST 20-0008-GIL
Page 2

Preparation of Tooling to Image a Board:
To make the tooling to image a board requires photographic film, fixer, and developer.
After imaging, the tool, fixer and developer are “used/consumed” and discarded. All of
these items are being taxed at this time.
Imaging of the Board:
To image the board requires a photopolymer “dry film” that is applied to the board,
imaged, developed, etched and stripped.
Currently, the photopolymer dry film, developer, and stripper are “used/consumed” and
discarded. All of these items, except the etchant (direct and immediate effect on the
product), are being taxed at this time.
Lamination of the Printed Circuit Board:
Certain boards have multiple internal layers that have to be heat pressed. This
requires, among other things, lamination aluminum, release sheets and relates sprays.
Currently, the aluminum, release sheets and sprays are “used/consumed” and
discarded. All of these items are being taxed at this time.
Wet processing of the Printed Circuit Board:
For the most part all boards are “wet processed” in one fashion or another and can
include many plating and stripping operations.
These include pre-cleaners, pumice scrubs, acids, strippers, plating carriers, coppers,
tins, slivers and gold among other things.
None of the metals are taxed because they are integrated into the board during
production and “shipped” with the product.
Any of the pre-cleaners, pumice scrubs, acids, strippers plating carriers are
“used/consumed” and discarded. All of these items are being taxed at this time.
There are other examples, but these probably comprise 95% of the operation.
From the looks of h)1) on page 12 of 130.330, none of these products would appear to
be taxable any longer.
If that is the case, changing the ST-587 into an “annual form” makes more sense.
Otherwise, we will have to get one of these filled out for every order we receive.
Per d) on page 7 regarding catalysts is somewhat confusing. I don’t think that
statement needs to be in there if all above stated items are tax exempt from now on.

ST 20-0008-GIL
Page 3

Also, d)1 Example 1 on page 7 is technically incorrect. A chemical acid alone cannot
etch copper off the surface of a printed circuit board. Only an acid in combination with
other chemicals can etch copper, thus the term “etchant”.
On a secondary issue, we also supply cleaners and soaps for cleaning various parts
and forgings. What is the tax status of this process?
Lastly, the ST-587 was instituted in July 2019. Our customers may want to get those
sales taxes back. I would appreciate it if you could provide the procedure to accomplish
this?
Please review and any guidance you can give us will be greatly appreciated.
DEPARTMENT’S RESPONSE:
Although we cannot give you a specific answer in the form of a General Information Letter, we
hope you find the following helpful.
Production Related Tangible Personal Property:
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 amended its manufacturing and assembling machinery and equipment
regulation at 86 Ill. Adm. Code 130.330 to reflect the inclusion of production related tangible personal
property into the manufacturing and assembling machinery and equipment exemption. That
amendment was adopted effective March 16, 2020 and was published at 44 Illinois Register 5392.
You can find a copy of that regulation on the Illinois General Assembly’s website. Go onto that
website, look at the right column and scroll down to the “Rules and Regulations” section, click on
“Illinois Register.” You will find the regulation published in the March 27, 2020 version of the
Register.
As you will see, in that regulation 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-

ST 20-0008-GIL
Page 4
production and post-production material handling, receiving, quality control, inventory control,
storage, staging, and packing for shipping or transportation.
Generally, based on the uses of the materials described in your letter, the materials could be
considered production related tangible personal property and qualify for the manufacturing and
assembling machinery and equipment exemption. However, cleaners and soaps used for cleaning
various parts and forgings do not appear to be used in in a manufacturing process and, thus would
not qualify.
Claim For Credit:
If a taxpayer pays an amount of tax under the Retailers' Occupation Tax Act that is not due,
either as a result of a mistake of fact or an error of law, the taxpayer may file a claim for credit with
the Department. See 86 Ill. Adm. Code 130.1501. Please note that only persons who have actually
paid tax to the Department can file a claim for credit. No credit shall be given the taxpayer unless the
taxpayer shows that he or she has borne the burden of the tax or has unconditionally repaid the
amount of the tax to the purchaser from whom it was collected. In other words, if a purchaser has
paid tax to the retailer, only that retailer can file a claim for credit.
The retailer must first refund tax money paid by the purchaser before proceeding with the
claim. Once the retailer has done this, he or she must apply for the credit in the manner described in
the regulation. Retailers are not required by law to apply for such credits; rather, this procedure is
voluntary. Whether or not the retailer refunds the tax paid and files a claim for credit with the
Department is a private matter between the retailer and the purchaser.
Blanket Certificate Of Exemption:
Public Act 101-604, effective December 13, 2019, removed the requirement that purchasers of
manufacturing machinery and equipment have to provide an exemption certificate for each qualifying
purchase (e.g., purchasers may now use “blanket” exemption certificates).
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