Are the explosives, blasting agents, and detonator equipment a quarrying/mining company sells or uses exempt from Illinois sales and use tax as manufacturing machinery and equipment?

Plain-English summary

A company that sells explosives and provides licensed blasting services for mining and quarrying asked Illinois whether its products — blasting agents, high explosives, detonators, lead-in line, and blast management systems — qualify for the sales-and-use-tax exemption for manufacturing machinery and equipment ("MME"). The company described three ways it bills customers: (1) charging only for the blasting services with no separate line item for the explosive materials, (2) billing services and materials as separate line items, and (3) folding the cost of the materials into a single price for the "Products."

The company had asked for a binding Private Letter Ruling, but the Department declined because the answer was already settled by existing regulations and case law, and instead issued this non-binding General Information Letter (GIL).

The Department's answer: the regulations already say that blasting agents, high explosives, detonators, lead-in line, and blasting machines used in the extractive process of quarrying or mining are examples of exempt manufacturing equipment, citing 86 Ill. Adm. Code 130.330(b)(5) and the Nokomis Quarry case, which held that a calculated blasting method that changes rock into a materially different form can itself be "manufacturing." So the type of equipment described generally can qualify.

But the Department stopped short of blessing every transaction as automatically exempt. The exemption is "use-based" — it only applies if the items are used primarily (over 50%) to manufacture or assemble tangible personal property that will be sold or leased at wholesale or retail. Because the resulting aggregate could instead be used by the quarry itself (for example, to fulfill its own construction contracts), the Department said the exemption depends on how the product is actually used, citing Illinois Valley Paving, and can't be guaranteed across the board without documentation of actual use.

What this means for you

Quarry and mining operators

If you use blasting agents, explosives, detonators, or blast management equipment to break rock into pieces that you then sell or lease (rather than using the resulting aggregate yourself, say for your own construction jobs), those items can qualify for the manufacturing machinery and equipment exemption from both Retailers' Occupation Tax and Use Tax. Keep documentation showing that the blasted-out product is destined for wholesale or retail sale, since the exemption turns on actual use, not just the nature of the equipment.

Explosives and blasting-service contractors

How you invoice matters less than how the customer's material is actually used. Whether you bill blasting services and explosive materials as one line item, as separate line items, or bundle the cost of materials into the price of your "Products," the Department's answer was the same across all three billing structures described in this letter: the materials can be treated as exempt manufacturing equipment because they are used to convert rock masses into smaller, different-form materials. Note the separate rule that construction contractors who incorporate taxable items into real estate are treated as the end user and owe Use Tax on those items (86 Ill. Adm. Code 130.1940(c)) — that's a different fact pattern than blasting materials consumed to produce sellable aggregate.

Accountants and tax professionals

This GIL walks through the interplay of the Retailers' Occupation Tax Act (35 ILCS 120/2-5(14)), the identical Use Tax Act exemption (35 ILCS 105/3-5(18)), and the Service Occupation Tax Act treatment of materials transferred incident to a service (86 Ill. Adm. Code 140.125(o)), confirming the same MME analysis applies regardless of which of those regimes technically governs the transaction. It's also a useful example of the Department declining to issue a binding PLR under 2 Ill. Adm. Code 1200.110(a)(3)(D) because existing regulations and case law (Nokomis Quarry, Illinois Valley Paving) were already dispositive, falling back to a non-binding GIL instead.

Common questions

Q: Do blasting agents and explosives used in quarrying qualify for Illinois' manufacturing machinery and equipment exemption?
A: Generally, yes. The Department's own regulation, 86 Ill. Adm. Code 130.330(b)(5), specifically lists blasting agents, high explosives, detonators, lead-in line, and blasting machines used in the extractive process of quarrying or mining as examples of exempt manufacturing equipment.

Q: Does it matter how the seller invoices the customer — services only, services and materials as separate line items, or one bundled price?
A: Not for this analysis. The Department reached the same conclusion (that the Products used are exempt manufacturing equipment) for all three billing structures the company described, because the tax treatment turns on how the materials are used, not how they're billed.

Q: Is the exemption automatic for every transaction?
A: No. The exemption is use-based: the equipment must be used primarily (over 50%) to manufacture or assemble tangible personal property that will be sold or leased at wholesale or retail. Because the quarried aggregate could instead be used by the quarry for its own purposes (like fulfilling its own construction contracts), the Department said it could not confirm the exemption applies in every instance — that depends on the actual use of the equipment and proper documentation.

Q: Why did the Department issue a GIL instead of the Private Letter Ruling the company requested?
A: The company asked for a binding PLR, but the Department's regulations let it decline to issue one when existing case law or regulations are already dispositive of the subject (2 Ill. Adm. Code 1200.110(a)(3)(D)/86 Ill. Adm. Code 1200.110(a)(3)(D)). Here, the Department found its prior 2009 GIL (ST 09-0149-GIL) and the Nokomis Quarry decision already answered the question, so it issued this non-binding GIL instead.

Q: Does this letter bind the Department for other quarrying or explosives companies?
A: No. A GIL is not a statement of Department policy and is not binding on the Department for anyone, including the requester. It only directs the taxpayer to the relevant regulations and case law.

Citations and references

Statutes and regulations:

• 35 ILCS 120/2-5(14) (ROT Act manufacturing machinery & equipment exemption)
• 35 ILCS 105/3-5(18) (identical Use Tax Act exemption)
• 35 ILCS 120/2-45 (definitions of "machinery" and "equipment")
• 86 Ill. Adm. Code 130.330, including (b)(1) (definition of manufacturing), (b)(4)–(5) (extractive/quarrying example), and (a)(3) (use-based nature of the exemption)
• 86 Ill. Adm. Code 130.1940(c) (construction contractors as end users)
• 86 Ill. Adm. Code 140.101, 140.125(o) (Service Occupation Tax Act treatment)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure); 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Case law:

• Nokomis Quarry Co. v. Department of Revenue, 295 Ill. App. 3d 264 (5th Dist. 1998)
• Illinois Valley Paving, Inc. v. Department of Revenue, 294 Ill. App. 3d 1123 (1998)

Prior Department guidance:

• ST 09-0149-GIL (11/09/2009)

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/st21-0020-gil.pdf

Original ruling text

ST 21-0020 05/25/2021 MANUFACTURING MACHINERY & EQUIPMENT
Under the Retailers’ Occupation Tax Act, the manufacturing machinery and
equipment exemption is available for blasting agents, high explosives,
detonators, lead-in line and blasting machines used in the extractive process of
quarrying if they are used primarily to manufacture or assemble tangible personal
property for wholesale or retail sale or lease. See 86 Ill. Adm. Code 130.330.
(This is a GIL.)

May 25, 2021
Dear NAME:
This letter is in response to your letter dated December 1, 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 Department’s regulation “Public Information, Rulemaking and Organization”
provides that “[w]hether to issue a private letter ruling in response to a letter ruling
request is within the discretion of the Department. The Department will respond to all
requests for private letter rulings either by issuance of a ruling or by a letter explaining
that the request for ruling will not be honored.” 2 Ill. Adm. Code 1200.110(a)(4). Further,
the Department’s regulations regarding Private Letter Rulings provide that “[i]f there is
case law or there are regulations dispositive of the subject of the request, the
Department will decline to issue a letter ruling on the subject." 86 Ill. Adm. Code
1200.110(a)(3)(D). The Department recently met and determined that it would decline to
issue a Private Letter Ruling in response to your request. We hope, however, the
following General Information Letter will be helpful in addressing your questions. In your
letter you have stated and made inquiry as follows:
As counsel for, and on behalf of COMPANY2., doing business as
COMPANY1, (“COMPANY1”), we, pursuant to 2 Ill. Admin. Code
§1200.110, hereby formally request a Private Letting Ruling (“PLR”)
regarding how COMPANY1 should collect Use Tax (“UT”) from its
customers and remit Retailer’s Occupation Tax (“ROT”) (collectively,
“sales taxes”). COMPANY1 is not currently under audit by the Illinois
Department of Revenue (“Department”) regarding this issue. In addition,

COMPANY1
PAGE 2
May 25, 2021
COMPANY1 is not aware of any authority contrary to its views expressed
in this request. Furthermore, we ask that our client’s name, address, and
any contracts or exhibits attached be kept confidential and deleted from
the publicly disseminated version of the PLR.
FACTS
COMPANY1 sells explosives and provides licensed explosives services to
customers that need to break rock masses for excavation for mining and
quarrying purposes. Illinois and other states tightly regulate the use of
high explosives, so COMPANY1 provides various services in addition to
the explosive materials that it sells. Each of these are discussed in turn
below:
a. COMPANY’S Services
Safely breaking a large rock mass into smaller pieces requires diligent
preparation and expert skill. To this end, COMPANY1’S explosives
workers evaluate each rock mass and determine the combination of
explosive materials best suited to the task. This combination depends on
environment [sic] factors such as the type, density, moisture levels,
bedding, and size of the rock masses that will be broken up. Explosives
workers also consider the area surrounding the detonation site and
weather conditions. Once the workers determine the correct combination
of materials, they prepare the rock face by drilling “boreholes” into the rock
surface at appropriate depths and intervals. The workers then place the
explosive materials into the boreholes, set up the blast management
system, and safely break up the rock face by detonating the explosives.
In some instances, COMPANY1 may pump explosive materials into
boreholes, combine these materials with additional chemicals to form an
explosive, and then detonate using a blast management system. For
purposes of this Request, we refer to these services collectively as the
“Services”.
b. COMPANY1’S Products
The exact combination of explosive materials used varies from job to job,
but always includes some combination of blasting agents, high explosives,
boosters and a blast management system to provide the Services (the
“Products”). Each of these items plays a complementary role in breaking
up rock masses.
Chemical blasting agents are used with explosive compositions to
enhance reactivity at detonation. For example, ANFO, a common blasting

COMPANY1
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May 25, 2021
agent, is produced by mixing ammonium nitrate and fuel oil to create an
explosive. The ammonium nitrate “oxidizes” the composition, helping to
absorb the fuel oil uniformly and enhance the detonation. Chemical
blasting agents detonate and create a blast but are not classified as an
“explosive” under Illinois law.
COMPANY1’S explosives are modern, refined versions of the [sic] what
we commonly think of as “dynamite”. These explosives include Titan®
and Blastex® products which produce a powerful detonation reaction
when triggered by a blast management system. COMPANY1 also uses
certain “gassed” emulsions, which are pumped into a borehole and mixed
with additional chemicals to form an explosive. The explosive(s) used
depends on the conditions at the detonation site. Some explosives, such
as Titan are ideal for wet conditions, while others, such as DYNOMIX™,
are best suited for dryer conditions and soft to medium rock types.
Explosives workers may also use a chemical booster to detonate the
explosives.
Importantly, these Products are stable and will not detonate without an
external initiation signal from a blast management system. COMPANY1’S
explosives workers set up these systems by connecting the placed
explosive materials to a detonator device. This can be done using wires
that will conduct an electric signal or a “lead line” that will conduct a
nonelectric signal. Once everything is safely in place, the explosives
worker triggers the detonator device and initiates the detonation reaction.
COMPANY1’S blasting agents, high explosives, and boosters are all
single-use, while some components of the detonator delivery systems can
be used repeatedly.
c.

Transactions at Issue

The explosive workers that provide these Services operate from “blast
sites” where explosive materials and blasting equipment are safely stored.
COMPANY1 has historically not had any locations in Illinois, but recently
acquired an Illinois blast site. COMPANY1 has identified three different
ways in which it may transact with Illinois customers and would like to
verify the correct sales tax treatment of each transaction for purposes of
go-forward compliance.

COMPANY1
PAGE 4
May 25, 2021
In Transaction 1, the COMPANY1 invoices its customers for Services only
and does not list the Products as a separate line item. 1 COMPANY1
believes that any Products used in this situation are exempt manufacturing
equipment.
In Transaction 2, COMPANY1 invoices the Services and Products as
separate line items on the same invoice. COMPANY1 believes that any
Products used in this situation are exempt manufacturing equipment,
regardless of whether or not the customer presents an exemption
certificate.
In Transaction 3, COMPANY1 includes the cost of blasting services into
the cost of Products sold. COMPANY1 believes that any Products used in
this situation are exempt manufacturing equipment; that the services are
also not taxable and that no exemption certificate from the customer is
needed.
ILLINOIS LAW & ANALYSIS
Illinois generally imposes ROT on all retail sales of tangible personal
property, but exempts machinery and equipment used primarily to
manufacture tangible personal property. 35 ILCS 120/2-5(14) and 86 Ill.
Admin Code 130.330. Illinois also provides an identical exemption from
UT. 35 ILCS 105/3-5(18).
“Manufacturing”, as defined in the regulation, is the production of any
article of tangible personal property, whether it be a finished product or an
article for use in manufacture of a different article of tangible personal
property. 86 Ill. Admin Code 130.330(b)(1). The production process must
occur by procedures commonly regarded as manufacturing, processing,
fabricating, or refining that changes some existing materials into a material
with a different form, use, or name. Id. This change must be substantial
and significant. Id.
“Machinery” is defined as a major mechanical machine or major
components of a machine contributing to a manufacturing or assembling
process and “equipment” is defined as an independent device or tool
separate from machinery, but essential to an integrated manufacturing
process. 35 ILCS 120/2-45. Exempt equipment includes chemicals and
chemicals acting as catalysts if they effect a direct and immediate change
upon a product being manufactured. Id. Manufacturing machinery and
Illinois requires construction contractors to remit UT on any taxable items incorporated into real estate under a
construction contract because the contractor is considered the end user of the tangible personal property. 86 Ill.
Admin. Code 130.1940(c).

1

COMPANY1
PAGE 5
May 25, 2021
equipment is exempt “whether the materials used in the process are
owned by the manufacturer or some other person”. 35 ILCS 120/2-5(14);
35 ILCS 105/3-5(18).
Although extractive industrial activities are not generally considered to be
“manufacturing”, the regulation specifically states that blasting agents,
high explosives, detonators, lead-in line, and blasting machines used the
[sic] extractive processes of mining or quarrying constitute exempt
manufacturing equipment. 86 Ill. Admin. Code 130.330(b)(4). [sic]
The Department directly addressed a nearly-identical set of facts in a 2009
GIL, concluding that explosives and blasting equipment used in quarries
for the purpose of fragmenting rock masses into a manageable size
qualified as exempt manufacturing machinery and equipment (“MME”).
ST 09-0149-GIL (11/09/2009). Although this GIL is obsolete due to age,
the Department’s conclusion relies on the same sections of the Retailers’
Occupation Tax Act and regulation cited above, the relevant language of
which has not been amended since the Department issued the GIL.
LEGAL ANALYSIS
For Transaction 1, the Department should rule that COMPANY1 is not
required to remit ROT or UT. COMPANY1 will use, [sic] Products to
convert masses of rock into small pieces of rock for mining and quarrying
purposes. The blasting agents, high explosives, and boosters which
create the detonation reaction are all chemicals specifically designated by
the Department as exempt manufacturing equipment in certain
circumstances. Here, the chemicals affect a direct and immediate change
on rock masses through the detonation reaction, beginning the process of
turning large, unusable rock into manageable pieces which may be further
processed for a variety of other construction and landscaping uses.
COMPANY1 is therefore engaged in manufacturing and these chemicals
are exempt from sales and use taxes because they are used solely to
affect this process. The detonator delivery systems COMPANY1 uses
have also been defined as exempt manufacturing equipment in the
regulation. This equipment is essential to the manufacturing process
because it provides the external stimulus necessary to trigger a detonation
reaction. Accordingly, COMPANY1 is engaged in a manufacturing
process and the Products used are exempt from sales taxes.
For Transactions 2 and 3, the Department should rule that COMPANY1 is
not required to remit ROT. For the reasons explained above, COMPANY1
is engaged in manufacturing in both instances and the Products used are
therefore exempt.

COMPANY1
PAGE 6
May 25, 2021

REQUEST FOR RULING
Pursuant to 2 Ill. Admin. Code Section 1200.110, Taxpayer respectfully
requests that the Department issue a private letter ruling declaring that:
(i)

In the facts outlined in this Request, COMPANY1’S Products
are used in a manufacturing process and are exempt from
ROT and UT.

If you concur, please issue your favorable ruling to the undersigned. If
you do not concur, please advise so that we may discuss your reasoning
before an adverse ruling is issued. A Power of Attorney authorizing our
representation of COMPANY1 is enclosed.
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 a purchase qualifies for an exemption under Illinois
law.
Retailers' Occupation Tax and Use Tax do not apply to sales of service. Under
the Service Occupation Tax Act, businesses providing services (i.e., servicemen) are
taxed on tangible personal property transferred as an incident to sales of service. See
86 Ill. Adm. Code 140.101. The purchase of tangible personal property that is
transferred to the service customer may result in either Service Occupation Tax liability
or Use Tax liability for the servicemen depending upon his activities. The serviceman’s
liability may be calculated in one of four ways:
1) separately stated selling price of tangible personal property transferred
incident to service;
2) 50% of the serviceman's entire bill;
3) Service Occupation Tax on the serviceman's cost price if the serviceman is a
registered de minimis serviceman; or

COMPANY1
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May 25, 2021
4) Use Tax on the serviceman's cost price if the serviceman is de minimis and is
not otherwise required to be registered under Section 2a of the Retailers'
Occupation Tax Act.
The Retailers' Occupation Tax Act does not apply to sales of machinery and
equipment used primarily (over 50%) in the manufacturing or assembling of tangible
personal property for wholesale or retail sale or lease. See 86 Ill. Adm. Code 130.330.
Accordingly, the Service Occupation Tax Act also does not apply to these sales, and the
provisions of Section 130.330 are used to determine whether a piece of equipment,
transferred incident to a sale of service, qualifies for the manufacturing machinery and
equipment exemption. See 86 Ill. Adm. Code 140.125(o).
"Manufacturing", as defined in Section 130.330, is the production of articles of
tangible personal property, whether such articles are finished products or articles for
use in the process of manufacturing or assembling different articles of tangible personal
property, by procedures commonly regarded as manufacturing, processing, fabricating,
or refining which 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. See 86 Ill. Adm. Code 130.330(b)(1).
Manufacturing equipment, as noted in Section 2-45 of the Act and in Section
130.330 (c)(2), includes any independent device or tool separate from any machinery
but essential to an integrated manufacturing or assembling process, including any
subunit or assembly comprising a component of any machinery or auxiliary, adjunct, or
attachment parts of machinery, such as tools, dies, jigs, fixtures, patterns, and molds,
and any parts that require periodic replacement in the course of normal operation. As
Section 2-45 of the Act notes, the exemption also 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.
Generally, the types of equipment and material that you describe in your letter
may qualify for the manufacturing machinery and equipment exemption. As Section
130.330(b) of the Department’s regulations states, a manufacturing process occurs
when an existing material is changed into a material with a different form, use or name
by a process commonly regarded as manufacturing. The extractive processes of
mining or quarrying may constitute manufacturing. See Nokomis Quarry v. Department
of Revenue, 295 Ill. App. 3d 264 (5th Dist. 1998) (holding that a calculated blasting
method that is performed with specific desired results, which changes limestone
deposits into materials with a different form, possessing new qualities or combinations,
constitutes manufacturing). Blasting agents, high explosives, detonators, lead-in line
and blasting machines are all examples of tangible personal property that is often used
in the extractive process of quarrying and may qualify for the exemption. See 86 Ill.
Adm. Code 130.330(b)(5).

COMPANY1
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May 25, 2021

It is important to note that the manufacturing machinery and equipment
exemption is a use-based exemption. As a result, items do not qualify in and of
themselves, but only if they are used primarily (over 50%) in a qualifying manner. See
86 Ill. Adm. Code 130.330(a)(3). In this case, the items described above will qualify
only if used primarily to manufacture or assemble tangible personal property for
wholesale or retail sale or lease. Since the aggregate produced by the manufacturing
process could be used in a manner other than for wholesale or retail sale (for instance,
the quarry itself could use the aggregate to fulfill construction contracts with customers),
we cannot provide a determination that the exemption always applies to the items listed
above. See Illinois Valley Paving, Inc. v. Department of Revenue, 294 Ill. App. 3d 1123
(1998). This can only be determined based on an analysis of the actual use of the
equipment. However, given proper documentation regarding the equipment’s use, the
exemption could apply.
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