Does the Illinois Enterprise Zone sales tax exemption on building materials cover the components used to build a privately owned solar farm?

Plain-English summary

A Village official, acting as an Enterprise Zone administrator, asked the Illinois Department of Revenue whether two privately owned solar farm projects would qualify for the state's Enterprise Zone Building Materials Exemption from sales and use tax. One project would directly serve the Village's sewer treatment plant, and the other would be a community-based solar program; both were still outside the Enterprise Zone boundary at the time of the request. The official listed the typical construction components of a solar farm — modules, inverters, racking, electrical conduit and wiring, switchgear/transformers, fencing, an access road, and a storage shed — and asked whether these would generally be eligible for the exemption if purchased in Illinois.

The Department explained that Illinois' Retailers' Occupation Tax and Use Tax (together, "sales tax") normally apply to purchases of tangible personal property, but building materials that are permanently incorporated into real estate as part of a qualifying construction project inside an Enterprise Zone can be purchased tax-free — as long as the purchaser holds an active Enterprise Zone Building Materials Exemption Certificate at the time of purchase. Whether a given item qualifies turns on a fact-specific "intention test": is the item affixed to the realty, is it used for the purpose the realty serves, and was it intended to remain permanently affixed? The Department pointed to a long line of prior private letter rulings involving power-generating facilities (natural gas plants, turbine generators, electrical transformers, cabling, and piping) where components were found exempt because they were permanently affixed to real estate, and noted its own past position that fencing and gravel access roads have similarly qualified when permanently installed.

However, the Department stopped short of giving a yes-or-no answer for the solar farm components as a whole. It stated plainly that it "has not issued a letter regarding solar projects" specifically, that "the Department cannot make a binding ruling in a General Information Letter," and that it "would require a more thorough explanation of each of the components" before it could say which parts qualify. In other words, the exemption determination has to be made item by item, and only a Private Letter Ruling — not a GIL — could bind the Department to a specific answer.

What this means for you

Municipalities and Enterprise Zone administrators

If you're evaluating whether to expand an Enterprise Zone boundary to capture a proposed project, this letter is a reminder that the sales tax savings are not automatic or all-or-nothing. Even inside the zone, the purchaser must hold an active Exemption Certificate at the time of purchase, and each category of building material still has to satisfy the "permanently affixed" test on its own facts.

Solar and renewable energy developers, and construction contractors

Components that are bolted down, wired in, and intended to stay in place — think transformers, switchgear, permanent racking incorporated into a foundation, fencing, and gravel access roads — have a track record of qualifying for the exemption in past rulings involving other types of power-generating facilities. But items that are more easily removed or that aren't truly part of the realty (this letter mentions a storage shed, which may or may not be permanently affixed depending on how it's installed) are less certain. Because a GIL isn't binding, a contractor or developer who needs certainty before committing to tax-free purchases should apply for a Private Letter Ruling with a complete, item-by-item description of the materials and how they'll be installed.

Accountants and tax professionals

Note the layered authority here: the underlying exemption comes from the Retailers' Occupation Tax Act at 35 ILCS 120/5k, implemented through 86 Ill. Adm. Code 130.1951, with the certificate requirement in subsection (c)(1) and illustrative examples in subsection (e). The "intention test" cited here (affixation, use consistent with the realty's purpose, and intent to remain) traces back to earlier rulings like ST 00-0156 and has been applied consistently in the power-generation context (e.g., ST 99-0009, ST 00-0013, and the string of 2000s-era PLRs listed in this letter).

Common questions

Q: Does this letter confirm that solar farm equipment is exempt from Illinois sales tax under the Enterprise Zone program?
A: No. The Department declined to give a blanket answer. It said some items "may qualify if they are permanently affixed to the real estate," pointed to fencing and gravel roads as items that have qualified in the past, but said it would need a more thorough explanation of each component and cannot bind itself to an answer in a GIL.

Q: What has to be true for a solar farm to use the Enterprise Zone exemption at all?
A: The property must be located within an Enterprise Zone, and the purchaser must possess an Enterprise Zone Building Materials Exemption Certificate issued by the Department at the time of purchase. Without an active certificate, the exemption doesn't apply, regardless of the materials involved.

Q: How does the Department decide whether a specific component (like an inverter or racking system) qualifies?
A: It applies a three-factor "intention test": (1) whether the item is affixed to the realty, (2) whether the item is used for the purpose to which the realty is put, and (3) the intent of the person installing it — plus whether the item is essential to the real estate's use. The determination is made on an item-by-item basis, not for the project as a whole.

Q: Why couldn't the Department just answer the question directly?
A: Because this is a General Information Letter, not a Private Letter Ruling. A GIL can only point the requester to relevant regulations and past rulings; under 2 Ill. Adm. Code 1200.120, it is not a statement of Department policy and is not binding. Only a Private Letter Ruling, requested under 2 Ill. Adm. Code 1200.110 with complete facts, can bind the Department to a specific answer.

Q: Are there prior rulings on similar power-generation equipment?
A: Yes. The letter cites Private Letter Rulings finding that pipe racks and piping at a natural gas plant (ST 99-0009), and turbine generators, electrical transformers, cabling, and piping at an electricity generating facility (ST 00-0013), qualified for the exemption because they were permanently affixed to real estate — along with a long list of similar rulings through 2019 (ST-19-0002).

Citations and references

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposed on retail sales of tangible personal property)
• 86 Ill. Adm. Code 150.101 (Use Tax imposed on tangible personal property purchased at retail)
• 86 Ill. Adm. Code 130.1951 (Enterprise Zone Building Materials Exemption)
• 86 Ill. Adm. Code 130.1951(c)(1) (Exemption Certificate required for tax-free purchases)
• 86 Ill. Adm. Code 130.1951(e) (examples of qualifying building materials)
• 35 ILCS 120/5k (Retailers' Occupation Tax Act building materials exemption)
• 2 Ill. Adm. Code 1200.110 (procedures for Private Letter Rulings)
• 2 Ill. Adm. Code 1200.120 (General Information Letters)

Subject

Enterprise Zones

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/st20-0011-gil.pdf

Original ruling text

ST 20-0011-GIL 06/24/2020 ENTERPRISE ZONES
This letter discusses the enterprise building materials exemption. 86 Ill. Adm. Code 130.1951.
(This is a GIL.)

June 24, 2020

Dear Xxxx:
This letter is in response to your letter dated July 26, 2018, 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:
As a member of the ENTERPRISE ZONE, the Village of XXXXX is investigating
Enterprise eligibility for two private solar farm projects. The project, which is scheduled
for construction in August, is currently outside the ENTERPRISE ZONE boundary.
Before going through the time and expense to expand the zone to cover the project, we
would like to determine in such a project is eligible for Enterprise Zone benefits,
specifically, the retail sales tax benefit.
COMPANY, is preparing to construct two privately owned and operated solar farms in
the Village of XXXXX. These will be freestanding solar arrays, not a rooftop system.
Project 1 will directly serve the Village of XXXXX Sewer Treatment Plant. Project 2 will
be a community-based program serving any number of users indirectly in the Village
and surrounding region.
Project 1 has a total estimated cost of $$$, with $$$ estimated for construction of the
solar array. Project 2 has total estimated cost of $$$. The solar array construction is
estimated $$$ for Project 2.
The common construction components in a solar farm include:
• Modules (harnesses sunlight)
• Inverters (converts A/C to D/C)
• Racking (holds the solar panels)
• Electrical (conduit, wire, combiner boxes, etc.)
• Switchgear/transformers (for utility interconnection)

ST 20-0011-GIL
Page 2
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•
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Fencing (security)
Access Road (typically gravel)
Storage Shed

If purchased in Illinois, would these items be generally eligible for the Illinois Enterprise
Zone sales tax benefit?
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.
A "qualified sale" means a sale of building materials that will be incorporated into real estate as
part of a building project for which an Enterprise Zone Building Materials Exemption Certificate has
been issued to the purchaser by the Department. A construction contractor or other entity shall not
make tax-free purchases unless it has an active Enterprise Zone Building Materials Exemption
Certificate issued by the Department at the time of the purchase. 86 Ill. Adm. Code 130.1951(c)(1).
The Department’s regulation at 86 Ill. Adm. Code 130.1951(e) provides examples of qualifying
building materials. The enterprise zone exemption includes component parts of building materials
that are permanently affixed to realty. While the examples in the Department’s regulation reflect more
conventional buildings, the fundamental concept of the building materials exemption is that, to qualify,
provided that the other requirements of the regulation are met, the materials at issue must also be
physically incorporated into real estate.
The Department has invoked the intention test in the context of letter rulings concerning
construction contractors. ST 08-0003-PLR (April 1, 2008) identifies a number of letters invoking the
test. ST 00-0156 sets forth the intention test as follows:
“In determining whether an item is permanently affixed to real estate, a very fact-specific
inquiry must be made regarding whether the item is intended to remain with the realty.
In order to make a finding that the item is permanently affixed, at least three factors
must generally be examined. First, the item must be affixed to the realty. The item must
also be applied to the use or purpose to which the realty is put. Finally, the intent of the
person affixing the item must be examined. Another factor often examined is whether
the item is essential to the use to which the real estate has been put.”
Although the Department has not issued a letter regarding solar projects, the specific question
of whether the materials used in constructing an electric generating facility qualify for the building
materials exemption under 35 ILCS 120/5k of the Retailers’ Occupation Tax has been addressed in
numerous private letter rulings issued by the Department in recent years. These letters may prove
helpful. In Private Letter Ruling ST 99-0009 (March 9, 1999) the Department ruled that pipe racks,
pipe, supports, and piping tie-ins installed at a natural gas fired power plant qualified for the
exemption because they were permanently affixed to real estate. In Private Letter Ruling ST 00-0013
(July 7, 2000) the Department found that certain materials incorporated into realty within an electricity

ST 20-0011-GIL
Page 3

generating facility qualified for the exemption. The Department found that turbine generators,
electrical transformers, electrical cabling, piping and other materials that are permanently affixed to
real estate qualified for the exemption in 35 ILCS 120/5k and 86 1ll. Adm. Code Sec. 1951(a)(1).
Thereafter, the Department has consistently ruled that these materials qualified for the exemption if it
was demonstrated that they were permanently affixed to the real estate (see, for example, Private
Letter Rulings ST 00-0025 (October 19, 2000); ST 00-0026 (November 3, 2000); ST 00-0033
(December 11, 2000); ST 00-0034 (December 11, 2000); ST 01-0001 (January 9, 2001); ST 01-0012
(April 5, 2001); ST 01-0014 (April 9, 2001); ST 01-0040 (September 24, 2001), ST 01-0045 (October
26, 2001), ST 02-0012 (June 10, 2002), ST 05-0020 (November 18, 2005); ST 08-0003 (April 1,
2008); and ST-19-0002 (July 8, 2019). Generally, the determination of whether an item qualifies for
the exemption must be made on an item-by-item basis.”
To qualify for the exemption the property must be located within an enterprise zone and the
purchaser must possess an Exemption Certificate at the time the building materials are purchased.
It appears that some of the items may qualify if they are permanently affixed to the real estate.
The Department has held in the past that fencing permanently affixed to the real estate and gravel
used on roads qualify for the enterprise zone building materials exemption. However, the Department
cannot make a binding ruling in a General Information Letter. Moreover, the Department would
require a more thorough explanation of each of the components.
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,

Richard S. Wolters
Associate Counsel

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