Are the chemicals a metal-plating and passivation business uses to clean, plate, coat, and treat customers' parts exempt from Illinois sales and use tax as manufacturing chemicals?

Plain-English summary

The Illinois Department of Revenue responded to a metal-plating business that asked whether the chemicals it uses are exempt from Illinois sales and use tax. The business does zinc plating and stainless steel passivation as a service to metal manufacturers: it cleans customers' parts, plates them with zinc, adds a chromate coating and a sealing wax to fight rust, and treats acid-cleaned stainless parts to grow a rust-resistant surface. It also uses chemicals to treat wastewater effluent before discharging it to the sewer.

The Department explained that Illinois's manufacturing machinery and equipment exemption (35 ILCS 120/2-5(14); 86 Ill. Adm. Code 130.330) covers chemicals — not just machinery — when they act as a direct and immediate change agent (or catalyst) on a product being manufactured or assembled for wholesale or retail sale or lease. Since July 1, 2019, the exemption also reaches chemicals that don't cause a direct and immediate change but are still "production related." So the cleaning, plating, chromate-coating, sealing, and passivation-acid chemicals used directly on the customers' parts can potentially qualify, since they change the parts' physical response to the atmosphere (i.e., they change their form or use).

But the chemicals used only to treat the facility's wastewater effluent do not qualify, because the exemption specifically excludes machinery, equipment, and chemicals used primarily in nonproduction, nonoperational activities like waste disposal (86 Ill. Adm. Code 130.330(c)(4)(B)).

Because this is a General Information Letter, the Department did not certify a definitive yes/no answer for this taxpayer's exact facts — it directed the business to the controlling regulation and explained how the exemption and its exceptions work.

What this means for you

Manufacturers and metal-finishing businesses

If your business uses chemicals that physically change a customer's product as part of a manufacturing, plating, coating, or finishing process — and that product is ultimately sold or leased at wholesale or retail — those chemicals may be exempt from Illinois Retailers' Occupation Tax and Use Tax. Chemicals used only for facility support functions, like wastewater or effluent treatment before disposal, are treated as nonproduction activities and are not exempt, even if they're used in the same plant.

Business owners buying exemption certificates

To buy qualifying chemicals or machinery tax-free, you (the purchaser) must give your vendor a completed exemption certificate for each transaction (or use a blanket certificate, or provide an active registration/resale number) under 86 Ill. Adm. Code 130.330(j). Illinois Form ST-587 (Exemption Certificate for Manufacturing, Production Agriculture, and Coal and Aggregate Mining) can be used for this. Keep records — the Department can request the certificates for audit.

Accountants and tax professionals

Watch the line between "production related" chemical use (potentially exempt) and "nonproduction, nonoperational" use like waste disposal (not exempt), since a single facility can have both. Also remember the exemption requires that the manufacturing or assembling process produce tangible personal property for wholesale or retail sale or lease — 86 Ill. Adm. Code 130.330(a)(7) — so a pure service process that never results in a taxable sale of goods by your client needs a closer look.

Common questions

Q: Are all the chemicals this plating business uses exempt?
A: Not automatically. The chemicals used to clean, plate, coat, and passivate customers' parts can qualify because they cause a direct and immediate change to the product (or are otherwise production related after July 1, 2019). The chemicals used only to treat wastewater effluent before disposal do not qualify, since that's a nonproduction, nonoperational activity under 86 Ill. Adm. Code 130.330(c)(4)(B).

Q: Does a business have to make and own the parts to claim this exemption?
A: The ruling doesn't resolve that specific question outright — it's a GIL, so the Department directed the taxpayer to the regulation rather than certifying an answer to their exact facts. The regulation's core requirement is that the manufacturing or assembling process produce tangible personal property for wholesale or retail sale or lease (86 Ill. Adm. Code 130.330(a)(7)).

Q: How does a business register to buy exempt chemicals or equipment?
A: The purchaser prepares a certificate of exemption for each transaction (or uses a blanket certificate) and gives it to the vendor, or provides an active registration or resale number in lieu of a certificate. Illinois Form ST-587 can be used for this purpose. See 86 Ill. Adm. Code 130.330(j).

Q: Is this letter binding on the Department?
A: No. This is a General Information Letter (GIL), which only directs the taxpayer to relevant regulations — it is not a statement of Department policy and is not binding. A binding Private Letter Ruling (PLR) requires following the separate procedures in 2 Ill. Adm. Code 1200.110.

Citations and references

Statutes and rules:

• 35 ILCS 120/2-5(14) (Retailers' Occupation Tax Act manufacturing machinery and equipment exemption)
• 86 Ill. Adm. Code 130.330 (manufacturing machinery and equipment exemption, including subsections (a) product requirement, (b) definition of manufacturing, (c)(4)(B) nonproduction/waste-disposal exclusion, (d) chemicals and catalysts, and (j) exemption certificates)
• 86 Ill. Adm. Code 130.101 (imposition of Retailers' Occupation Tax)
• 86 Ill. Adm. Code 150.101 (imposition of Use Tax)
• 2 Ill. Adm. Code 1200.120 (General Information Letters)
• 2 Ill. Adm. Code 1200.110 (Private Letter Rulings)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2021.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2021/st21-0002-gil.pdf

Original ruling text

ST 21-0002 01/15/2021 MANUFACTURING MACHINERY & EQUIPMENT
Under the Retailers’ Occupation Tax Act, the manufacturing machinery and equipment
exemption is available for chemicals used in the manufacturing process that are production
related. See 86 Ill. Adm. Code 130.330. (This is a GIL.)

January 15, 2021

Dear NAME:
This letter is in response to your letter dated May 14, 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. In your letter you have stated and made inquiry as follows:
I like to give you details of our Business and our processes and the materials and
chemicals we use in our plating process
Currently we do not claim tax exemption for anything
I own a zinc plating and stainless steel passivation business it is a service industry to
metal manufacturers and uses chemicals to clean customers parts before zinc plate or
passivation our factory also has waste water effluent treatment plant that uses
chemicals
We do not make the parts nor do we own any of the parts.
Our customers make the parts and own the parts
We offer a service to our customers
The chemicals and materials that we use in the business can be split into four different
areas of our facility
We use chemicals to clean the parts prior to plating or passivation This process
removes material contaminants on the surface of our customers parts being grease
metal oxides
We use grease removers and acid cleaning,
For the plating process we buy zinc which is deposited on the customers parts by
electrolysis
The next step is to protect the zinc coating with a liquid chromate coating and improve
rust proofing adding a sealing coat chemical and or wax coating

ST-21-0002
Page 2
January 15, 2021
So the customers parts have zinc, chromate, and sealer / wax deposited on them after
our processing
These chemicals bond to the metal and change its physical response to the atmosphere
improving protection from rusting
In another process involving stainless steel parts
We clean the parts as previously but this time use acids to change the chemical
structure of the surface of the stainless steel making the stainless steel grow a rust
proof surface. The acid is washed off and is not incorporated in the stainless part from
our customers
But having been treated the stainless steel has improved protection from rusting the aid
acts as a catalyst
The last area that we use chemicals and materials is in treating our effluent. We use
materials filters and Chemicals to treat our water before we discharge to the sewer
Can you advise if any or all the chemicals and materials we use in our manufacturing
business are tax exempt in Illinois
And if so how do we proceed
How would we register as Tax Exempt if this is appropriate
Your Help Please
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. Cod 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 a purchase qualifies for an exemption under
Illinois tax law.
Notwithstanding the fact that the sales may be at retail, the Retailers’ Occupation Tax does not
apply to sales of machinery and equipment that will be used by the purchaser, or a lessee of the
purchaser, primarily in the process of manufacturing or assembling tangible personal property for
wholesale or retail sale or lease, whether the sale or lease is made directly by the manufacturer or by
some other person. 35 ILCS 120/2-5(14); 86 Ill. Adm. Code 130.330(a). The Manufacturing
Machinery and Equipment exemption requires that the product produced as a result of the
manufacturing or assembling process be tangible personal property for wholesale or retail sale or
lease. 130.330(a)(7). You have mentioned in your letter that some chemicals are used primarily for
the treatment of effluent prior to disposal. Generally, machinery and equipment used primarily in
nonproduction, nonoperational activities, such as the disposal of waste, will not be considered
exempt. 130.330(c)(4)(B).
The manufacturing process is the production of any article of tangible personal property,
whether the article is a finished product or an article for use in the process of manufacturing or
assembling a different article of tangible personal property, by procedures commonly regarded as
manufacturing, processing, fabricating or refining that changes some existing material or materials
into a material with a different form, use or name. These changes must result from the process in
question and be substantial and significant. 86 Ill. Adm. Code 130.330(b)(1). The process or activity

ST-21-0002
Page 3
January 15, 2021
must be commonly regarded as manufacturing. To be so regarded, it must be thought of as
manufacturing by the general public. Generally, the scale, scope and character of a process or
operation will be considered to determine if the process or operation is commonly regarded as
manufacturing. Manufacturing includes such activities as processing, fabricating and refining. 86 Ill.
Adm. Code 130.330(b)(3).
The exemption includes chemicals or chemicals acting as catalysts but only if the chemicals or
chemicals acting as catalysts effect a direct and immediate change upon a product being
manufactured or assembled for sale or lease. Beginning on July 1, 2019, chemicals that do not make
a direct and immediate change or act as a catalyst may qualify if they are used in a production related
process. 86 Ill. Adm. Code 130.330(d).
A vendor that makes sales of machinery and equipment to a manufacturer or lessor of a
manufacturer incurs Retailers' Occupation Tax on that sale and must collect Use Tax unless the
purchaser certifies the exempt nature of the purchase to the vendor as set out in 86 Ill. Adm. Code
130.330(j). The use of blanket certificates of exemption will be permitted. The user of qualifying
machinery and equipment shall prepare a certificate of exemption for each transaction stating facts
establishing the exemption for that transaction and submit the certificate to the vendor. If the user has
an active registration or resale number, that number may be given in lieu of the prescribed certificate.
Certificates shall be retained by the vendor and shall be made available to the Department for
inspection or audit. If a manufacturer or lessor purchases at retail from a vendor who is not registered
to collect Illinois Use Tax, the purchaser must prepare the completed exemption certificate and retain
it in its files. The exemption certificate shall be available to the Department for inspection or audit. 86
Ill. Adm. Code 130.330(j). Illinois Form ST-587, Exemption Certificate (for Manufacturing, Production
Agriculture, and Coal and Aggregate Mining), may be used for this purpose.
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,
Alexis K. Overstreet
Associate Counsel
AKO:rkn