Does Illinois' farm machinery and equipment sales tax exemption cover corrugated plastic drainage pipe and other water management products used in production agriculture?

Plain-English summary

The Illinois Department of Revenue was asked whether corrugated plastic pipe and related water management accessories (couplers, guards, water control structures, etc.) — used primarily, and often exclusively, in production agriculture for drainage — qualify as exempt "farm machinery and equipment" under 86 Ill. Adm. Code 130.305.

The taxpayer's business sold these products to customers who install them as drainage/water management systems on farms and wanted to accept exemption certificates (Form ST-587) from those customers rather than charging Retailers' Occupation Tax. The taxpayer argued the products fit the regulation's definitions of "equipment" (an independent device or apparatus essential to production agriculture) and were used primarily, if not exclusively, for production agriculture.

The Department disagreed. It explained that machinery and equipment used or leased primarily in production agriculture is generally exempt, but the regulation carves out certain activities and items — specifically, "the clearing of land, mowing of fence rows or ditches, creation of ponds or drainage facilities, scouting crops and tile mapping" are not included in "production agriculture," and improvements of that nature are not exempt. The Department reasoned that corrugated plastic pipe and the related items described in the request serve "the particular purpose of drainage," making them "drainage facilities" under the common meaning of "facility" (something built, installed, or established to serve a particular purpose). Because drainage facilities are expressly excluded, the products are not exempt farm machinery and equipment, regardless of how central they are to a farm's agricultural operations.

What this means for you

Farmers and ag business owners

If you buy corrugated plastic drainage pipe, tile, or related water management components (couplers, guards, water control structures) for use on farmland, you should expect to pay Illinois Retailers' Occupation Tax (or Use Tax) on those purchases. You cannot claim the farm machinery and equipment exemption for these items even if they are essential to your farming operation and used exclusively in production agriculture — the Department treats them as drainage facilities, not exempt machinery or equipment.

Sellers and installers of drainage/water management products

If your business sells corrugated plastic pipe or similar drainage products to farm customers, this letter indicates you should not accept Form ST-587 exemption certificates for these items on the theory that they are farm equipment. Doing so risks a tax assessment, since the Department views drainage facilities as categorically outside the Section 130.305 exemption, distinct from machinery like tractors, combines, balers, irrigation equipment, or feeders (which the Department does treat as exempt).

Accountants and tax professionals

This GIL confirms and reinforces a line of prior GILs (the letter cites ST 16-0060-GIL) holding that drainage facilities fall outside "production agriculture" under 86 Ill. Adm. Code 130.305(f) and 35 ILCS 120/2-35, even where a taxpayer can show the products are used primarily or exclusively on farms certified for production agriculture. When advising clients on farm equipment exemption certificates, treat drainage tile, pipe, and water management structures as taxable, and distinguish them from irrigation equipment and other machinery that remains exempt.

Common questions

Q: Is corrugated plastic drainage pipe exempt as farm equipment in Illinois?
A: No. The Department concluded that corrugated plastic pipe and related water management products used for drainage are "drainage facilities," which are specifically excluded from the farm machinery and equipment exemption under 86 Ill. Adm. Code 130.305, even when used primarily in production agriculture.

Q: Does it matter that the pipe is essential to farming or used almost exclusively on farms?
A: No. The taxpayer argued the products were essential to production agriculture and used for virtually no other purpose, but the Department's decision turned on the nature of the item (a drainage facility) rather than how essential or exclusive its agricultural use was.

Q: What other items are treated the same way as drainage facilities?
A: The ruling notes that Section 130.305(f) also excludes clearing of land, mowing of fence rows or ditches, creation of ponds, scouting crops, and tile mapping from "production agriculture," and that improvements to real estate such as fences, barns, roads, grain bins, silos, and confinement buildings are not exempt farm machinery under Section 130.305(i).

Q: What kinds of purchases DO qualify for the farm machinery and equipment exemption?
A: The Department describes exempt machinery as major mechanical machines or components contributing to the production agriculture process, giving tractors, combines, balers, irrigation equipment, and cattle/poultry feeders as examples, along with individual replacement parts for such machinery, provided the purchaser certifies primary use in production agriculture or a state/federal agricultural program.

Q: Can a seller rely on a customer's Form ST-587 exemption certificate for drainage pipe sales?
A: This letter suggests no — because drainage facilities are categorically excluded from the exemption, a seller who accepts an ST-587 certificate for these products is doing so contrary to the Department's stated position, even if the customer genuinely uses the products in production agriculture.

Citations and references

Statutes and rules:

• 86 Ill. Adm. Code 130.305 (farm machinery and equipment exemption; subsections (a) certification requirement, (f) definition/exclusions for production agriculture, (h) and (k) machinery/equipment definitions, (i) real estate improvements not exempt)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposition)
• 86 Ill. Adm. Code 150.101 (Use Tax imposition)
• 35 ILCS 120/2-35 (statutory definition of "production agriculture")
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• ST 16-0060-GIL (prior Department letter cited for the drainage-facility exclusion)

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/st21-0014-gil.pdf

Original ruling text

ST 21-0014 03/11/2021 FARM MACHINERY & EQUIPMENT
Corrugated plastic pipe and other water management products used in
production agriculture for drainage are not considered equipment under the farm
machinery and equipment exemption. See 86 Ill. Adm. Code 130.305 (This is a
GIL.)
March 11, 2021
Dear NAME.:
This letter is in response to your letter dated November 25, 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:
COMPANY1 requests a ruling on the proper treatment of corrugated
plastic pipe and related apparatus used primarily in production
agriculture as qualifying farm equipment exempt from the Retailers'
Occupation Tax under Section 130.305.
1.

STATEMENT OF FACTS AND OTHER PERTINENT INFORMATION
a.

Identification of All Interested Parties
The interested parties include the taxpayer, NAME. as the single
member of COMPANY1 and the customers of COMPANY1, one of
which is the affiliated entity COMPANY2., a Limited Liability
Company organized in the State of Illinois.

b.

Business Reasons for the Transaction
The business reason for the transaction is to accept exemption
certificates from customers so that they can avoid paying the
Retailers' Occupation Tax on corrugated plastic pipe primarily used
in, and in most cases, essential for production agriculture.

c.

Detailed Description of the Transaction

COMPANY/NAME
March 11, 2021
The transactions involve the sale of corrugated plastic pipe and
many related accessories (e.g. couplers, guards, water control
structures, etc.) to customers who are using these products in
water management systems installed for use primarily in, and most
often, exclusively in, production agriculture.
d.

Analysis of the Relation of the Material Facts to the Issues
The issue is that COMPANY1 and its customers have been led to
believe, via issuance of various General Information Letters (see
Item #6 below) and a general consensus in the industry (likely the
result of such and similar letters) that corrugated plastic pipe (or
"drain/age tile") [sic] used in production agriculture settings are not
exempt from the Retailers' Occupation Tax as qualifying farm
machinery and equipment. COMPANY1 believes that this view
doesn't align with Section 130.305 as written, and that it limits
COMPANY1's level of comfort in accepting Forms ST-587
from customers claiming this exemption, thereby limiting the
end-user's ability to properly take advantage of the incentive.

2.

CONTRACTS, LICENSES, AGREEMENTS, INSTRUMENTS OR OTHER
DOCUMENTS RELEVANT TO THE REQUEST
To the taxpayer's knowledge, and exclusive of contracts, licenses,
agreements, instruments or other documents that may be identified
elsewhere in this request, no contracts, licenses, agreements,
instruments or other documents are relevant to this request.

3.

IDENTIFICATION OF THE TAX PERIOD AT ISSUE AND DISCLOSURE OF
AUDIT OR LITIGATION
The tax period at issue is the calendar year ending DATE and all future
tax years.
At the time of this request, the identical issue is not involved in the
taxpayer's return for an earlier period, nor is the issue being
examined as a part of a Department audit, nor is the issue pending in
litigation in a case involving the taxpayer or a related taxpayer in
which the Department is named as plaintiff or defendant.

4.

STATEMENT REGARDING PREVIOUS SUBMISSIONS OR RULINGS
To the best of the knowledge of both the taxpayer and the
taxpayer's representative the Department has not previously ruled
on the same or a similar issue for the taxpayer or a predecessor,
nor has the taxpayer or any representatives previously submitted
the same or a similar issue to the Department but withdrew it before
a letter ruling was issued.

COMPANY/NAME
March 11, 2021
5.

STATEMENT OF AUTHORITIES SUPPORTING THE TAXPAYER'S
VIEWS
a.

Statement of authorities supporting the taxpayer's views,
explanation of the grounds for that conclusion, and relevant
authorities to support that conclusion
The primary authority supporting inclusion of corrugated
plastic pipe and other water management products used
primarily in production agriculture as exempt farm machinery
and equipment is Section 130.305. Specifically:

1. Section 130.305b: "Production Agriculture is the raising of
   or propagation of: Livestock, crops for sale for human
   consumption; crops for livestock consumption; and
   production seed stock grown for the propagation of feed
   grains and the husbandry of animals or, for the purpose of
   providing a food product, including the husbandry of blood
   stock as a main source of providing a food product."
   a. The water management products purchased from
   COMPANY1 and used by its Agriculture market
   customers are most often, if not always, used in
   product ion agriculture as defined above.
2. Section 130.305f: "Production Agriculture, with respect to
   crops, is limited to activities necessary in tilling the soil,
   planting, irrigating, cultivating, applying herbicide, insecticide
   or fertilizer, harvesting and drying of crops."
   a. The water management products purchased from
   COMPANY1 and used by its Agriculture market
   customers are most often, if not always, used in
   production agriculture activities as defined above. More
   importantly, these products, in many cases, make
   production agriculture activities possible by creating better
   conditions for these activities. On some properties,
   production agriculture simply isn't possible without the
   implementation of such apparatus into operations.
3. Section 130.305h: "The exemption applies only to items of farm
   machinery and equipment, either new or used, certified by the
   purchaser to be used primarily for production agriculture or
   State or Federal agricultural programs, and including machinery
   and equipment purchased for lease."

COMPANY/NAME
March 11, 2021

a. The water management products purchased from
COMPANY1, assuming they are certified by the
purchaser to be used primarily for production agriculture
or State or Federal agricultural programs (which most of
COMPANY1's customers are able to do), would be
considered items of farm equipment, or apparatus, used
as items essential to production agriculture as defined in
the Section.

4. Section 130.305h: "[...] the primary use will determine if they
   qualify for the exemption."
   a. In the case of customers using COMPANY1 water
   management products in production agriculture as defined in
   the Section, the primary, if not the only use for these
   products is in production agriculture. COMPANY1 and its
   Agriculture market customers use these products for virtually
   no other purpose.
5. Section 130.305k: "Equipment means any independent
   device or apparatus separate from any machinery, but
   essential to production agriculture."
   a. COMPANY1 believes that its products are essential to
   production agriculture. On some farms, its products are
   physically essential (i.e. production agriculture simply is not
   possible without proper water management). On many other
   farms, production agriculture is granted a competitive
   advantage through the use of water management products
   like corrugated plastic pipe, in the same way that production
   agriculture is given a competitive advantage through the
   application and management of herbicide, insecticide or
   fertilizer.
   6.

STATEMENT OF AUTHORITIES CONTRARY TO THE TAXPAYER'S VIEWS
The primary authority contrary to inclusion of corrugated plastic pipe and
other water management products used primarily in production agriculture
as exempt farm machinery and equipment is a collection of General
Information Letters obtained by the taxpayer through research on this
issue. These General Information Letters, attached to this request as
Appendix A, each refer to Section 130.305f in concluding for their
respective requesters that water management products are not to be
qualified as farm equipment exempt from the Retailers' Occupation Tax.

COMPANY/NAME
March 11, 2021
Specifically, these letters refer to the following language as
justification for that position:
Section 130.305f: "Activities such as the clearing of land,
mowing of fence rows, creation of ponds or drainage facilities
are not included."
The taxpayer agrees that activities such as the clearing of land or the
creation of ponds or drainage facilities are not included in the
Section's definition of production agriculture. As such, the taxpayer
believes that the Retailers' Occupation Tax, in the context of this
Code Section, would be appropriately assessed on machinery or
equipment that is not primarily used in production agriculture (tile
plows, excavators, and other equipment and machinery used for
installation of water management systems for both production
agriculture and/or residential and commercial environments).
However, the taxpayer does not agree that the language in Section
130.305f disallows exemption for water management products, as they
are:
1.

Equipment, or apparatus, used exclusively in production
agriculture as defined in the Section, and

2.

Essential to production agriculture

As a comparison, the taxpayer acknowledges that any machinery
or equipment used by a contractor or farmer to install farrowing
crates, gestation stalls, poultry cages, portable panels for
confinement facilities or flooring used in conjunction with waste
disposal machinery would not be exempt from the Retailers'
Occupation Tax pursuant to Section 130.305. The installation
activities themselves do not constitute production agriculture. The
items installed, however, would be exempt according to the
Section.
To that effect, the taxpayer respectfully requests a ruling that would
allow COMPANY1 to place on file exemption claims filed via ST-587
by its customers upon purchase of water management products
certified for their essential and primary use in production agriculture.
7.

IDENTIFICATION OF ANY SPECIFIC TRADE SECRET INFORMATION
TAXPAYER REQUESTS BE DELETED FROM THE PUBLICLY
DISSEMINATED VERSION OF THE PRIVATE LETTER RULING

COMPANY/NAME
March 11, 2021
The taxpayer identifies no specific trade secret information be
deleted from the publicly disseminated version of the private letter
ruling.
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
law.
In certain cases, the sale of tangible personal property used in production
agriculture is not subject to Illinois Retailers’ Occupation Tax and Use Tax. Illinois sales
tax does not apply to the sale of machinery and equipment, both new and used and
including that manufactured on special order, used or leased for use primarily in
production agriculture or for use in State or Federal agricultural programs. See 86 Ill.
Adm. Code 130.305. The sale of individual replacement parts for such machinery and
equipment is also exempt. To obtain the exemption, the purchaser must certify that the
equipment or machinery is used primarily in production agriculture. See Section
130.305(a).
Machinery means major mechanical machines or machine components thereof
contributing to the production agriculture process or used primarily in State or Federal
agricultural programs. Machinery would include such things as tractors, combines,
balers, irrigation equipment and cattle and poultry feeders. Improvements to real estate
such as fences, barns, roads, grain bins, silos and confinement buildings are not
considered exempt farm machinery. See Section 130.305(i).
“Production agriculture” is defined under the Retailers’ Occupation Tax Act as
“the raising of or propagation of livestock; crops for sale for human consumption; crops
for livestock consumption; and production seed stock grown for the propagation of feed
grains and the husbandry of animals or for the purpose of providing a food product,
including the husbandry of blood stock as a main source of providing a food product.
“Production agriculture” also means animal husbandry, floriculture, aquaculture,
horticulture, and viticulture.” See 35 ILCS 120/2-35. Further, production agriculture,
with respect to crops, includes mapping fields, applying farm chemicals, as well as
activities necessary in tilling the soil, planning, irrigating, cultivating, applying herbicide,
insecticide, or fertilizer, as well as harvesting or drying of crops. Activities such as the
clearing of land, mowing of fence rows or ditches, creation of ponds or drainage
facilities, scouting crops and tile mapping are not included, nor are the operations

COMPANY/NAME
March 11, 2021
involved in the storing or transporting of crops and produce. See 86 Ill. Adm. Code
130.305(f); see also ST 16-0060-GIL.
Although the corrugated plastic pipe and related items described in your letter
may be commonly used for agriculture purposes, “drainage facilities” are specifically not
included in the exemption. One common meaning of “facility” is “something that is built,
installed, or established to serve a particular purpose.” See “facility,” MerriamWebster.com (14 January 2021), available at https://www.merriam-webster.com. The
equipment you describe in your letter serve the particular purpose of drainage.
Drainage facilities are not exempt under Section 130.305.
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

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