Does a permanently anchored racking system installed in a building qualify for Illinois's Enterprise Zone building materials sales tax exemption?

Plain-English summary

A business asked the Illinois Department of Revenue whether a heavy-duty racking system it sold and installed in a building constructed in an enterprise zone could qualify for the Enterprise Zone building materials exemption from Retailers' Occupation (sales) Tax. The racking was built specifically to fit around the building's posts and support beams, was permanently anchored to the floor, and would be sold along with the building if it were ever sold — the taxpayer said removing it would damage the floor.

The Department did not give a flat yes-or-no answer. Because this is a General Information Letter rather than a Private Letter Ruling, the Department explained the applicable law rather than applying it to the taxpayer's specific facts. It laid out the framework: under 35 ILCS 120/5k(a) and 86 Ill. Adm. Code 130.1951, a deduction from Retailers' Occupation Tax liability is available for "qualified sales" of building materials that are incorporated into real estate as part of a building project and for which the Department has issued an Enterprise Zone Building Materials Exemption Certificate to the purchaser. Without an active Exemption Certificate at the time of purchase, no tax-free purchase can be made.

The harder question is whether the racking counts as a "building material" incorporated into real estate at all, as opposed to remaining tangible personal property. The Department applies a fact-specific "intention test" that looks at (1) whether the property has been affixed to the realty, (2) whether it is applied to the use or purpose of the realty, and (3) the intent of the person affixing it. The Department pointed to an earlier ruling, PLR ST 13-0002 (July 31, 2013), involving a similar racking system bolted to the floor via a threaded anchor shaft, where the Department found the seller/installer acted as a construction contractor. The letter suggests that permanently anchored racking of the kind described could potentially qualify, but leaves the final determination to be made against these facts.

What this means for you

Businesses that sell or install racking, shelving, or similar fixtures

Whether your product is treated as taxable tangible personal property or as an exempt "building material" incorporated into real estate depends heavily on how permanently it's attached and why. Racking bolted to a threaded floor anchor, built around structural posts and beams, and intended to stay with the building if sold, leans toward being part of the realty — but you still need the purchaser to hold an active Enterprise Zone Building Materials Exemption Certificate before you can sell tax-free. Selling without one, or before the certificate is issued, is not covered.

Construction contractors working in enterprise zones

Illinois treats construction contractors as the end users of tangible personal property they incorporate into real estate, meaning they generally owe Use Tax (and pass through Retailers' Occupation Tax reimbursement) on materials purchased from Illinois suppliers, and must self-assess Use Tax if a supplier didn't collect it. The Enterprise Zone building materials exemption is a specific carve-out from that general rule, available only for qualified sales into a building project inside an Illinois enterprise zone with a valid Exemption Certificate on file.

Accountants and tax professionals

If a client's facts closely track a prior published ruling, that ruling is useful persuasive authority even though a GIL itself isn't binding. Here the Department flagged PLR ST 13-0002 (July 31, 2013) as directly on point for bolted-down racking systems. Because this letter is a GIL, it does not resolve the taxpayer's specific situation — a taxpayer wanting a binding determination on their own facts would need to request a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Common questions

Q: Did the Department decide whether this particular racking system qualifies for the exemption?
A: Not definitively. As a GIL, this letter directs the taxpayer to the relevant law and a comparable prior ruling rather than making a binding determination on these specific facts. A binding answer would require a Private Letter Ruling request.

Q: What has to be true for building materials to qualify for the Enterprise Zone exemption?
A: Under 35 ILCS 120/5k(a) and 86 Ill. Adm. Code 130.1951(c)(1), the sale must be a "qualified sale" of building materials incorporated into real estate in an Illinois enterprise zone, as part of a building project, for which the Department has issued an Enterprise Zone Building Materials Exemption Certificate.

Q: How does the Department decide if racking or similar equipment is a "building material" versus regular taxable property?
A: It applies a fact-specific "intention test" looking at whether the property is affixed to the realty, whether it serves the purpose of the realty, and the installer's intent in affixing it — citing PLR ST 17-0009 (September 14, 2017) for that test.

Q: Does a seller need anything from the buyer before making a tax-free sale under this exemption?
A: Yes. Under 86 Ill. Adm. Code 130.1951(d)(1), the purchaser must have an active Enterprise Zone Building Materials Exemption Certificate issued by the Department at the time of purchase; a seller cannot make tax-free sales without it.

Citations and references

Statutes and rules:

• 35 ILCS 120/5k(a) (Enterprise Zone building materials exemption)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax)
• 86 Ill. Adm. Code 150.101 (Use Tax)
• 86 Ill. Adm. Code 130.1940, 130.2075 (construction contractors as end users)
• 86 Ill. Adm. Code 130.1951(c)(1), (d)(1), (e) (qualified sales, Exemption Certificate, examples)
• 2 Ill. Adm. Code 1200.120 (General Information Letters non-binding); 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)

Prior rulings cited:

• PLR ST 17-0009 (September 14, 2017) (intention test for realty vs. tangible personal property)
• PLR ST 13-0002 (July 31, 2013) (bolted-down racking system found part of realty)

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/st21-0043-gil.pdf

Original ruling text

ST-21-0043 10/21/2021 ENTERPRISE ZONE
Under the Enterprise Zone building materials exemption, a deduction from Illinois
Retailers’ Occupation Tax liability exists for gross receipts from retail sales 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 (Exemption Certificate) has been issued to the purchaser by the
Department. 35 ILCS 120/5k(a) (This is a GIL)

Dear NAME:

October 21, 2021

This letter is in response to your letter dated June 5, 2021, 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:
To Whom It May Concern,
We are requesting a letter ruling on the following:
RE: To see if racking qualifies for a sales tax exemption as a
permanently fixed building material on a project that was built in an
Enterprise Zone
BUSINESS1 built the COMPANY, and we had to provide the racking
as part of the building. The 50' tall building was designed around the
permanent racking. This racking was made specifically to go around
posts, support beams, etc. and is permanently anchored to the
floor. We would have a damaged floor if the stud anchors were
taken out. If this building would be sold, we would sell the racking
with the building.

BUSINESS1
Page 2
October 21, 2021
The racking was purchased from CORPORATION and was installed
by BUSINESS2
Here is BUSINESS1 address:
ADDRESS1
Here is the address of the COMPANY where the racking was installed:
ADDRESS2
My contact information is below. Please let me know if you have any
questions on t his or if you need any additional information.
Thank you! We look forward to your reply.
DEPARTMENT’S RESPONSE:
Your question concerns whether the racking system described in your letter
would qualify for the Enterprise Zone building materials exemption.
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged
in this State in the business of selling tangible personal property 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.
In Illinois, construction contractors are deemed end users of tangible personal
property purchased for incorporation into real property. The construction contractor, as
the end user, incurs Illinois Use Tax and local Retailers’ Occupation Tax reimbursement
liabilities when the tangible personal property that will be converted into real estate is
purchased from registered Illinois suppliers. If such items were purchased from
suppliers that did not collect the tax, the person who converts the tangible personal
property into real estate is required to self-assess and remit the Use Tax to the
Department based upon the cost price of the property. For information on construction
contractors, see 86 Ill. Adm. Code 130.1940 and 130.2075.
Under the Enterprise Zone building materials exemption, a deduction from Illinois
Retailers’ Occupation Tax liability exists for gross receipts from retail sales 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 (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 Exemption Certificate
issued by the Department at the time of

BUSINESS1
Page 3
October 21, 2021
the purchase. 35 ILCS 120/5k(a). All “qualified sales” of building materials sold for
incorporation into any Illinois enterprise zone are eligible for the deduction. 86 Ill. Adm.
Code 130.1951(d)(1). A “qualified sale” means a sale of building materials: a) for
incorporation into real estate in an Illinois enterprise zone, b) as part of a building
project, c) for which a Enterprise Zone Building Materials Exemption Certificate for sales
tax exemption has been issued by the Department. 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.
For purposes of the Illinois sales tax laws, the Department uses a fact specific
intention test to determine whether items remain tangible personal property after
installation or become part of realty. Pursuant to this test the Department will consider
whether the tangible personal property: 1) has been affixed to the realty, 2) is applied to
the use or purpose to which the realty is put, and 3) the intent of the person affixing the
tangible personal property to the realty. See Department PLR ST 17-0009 (September
14, 2017).
In your letter you state that the racking is permanently anchored to the floor and
the floor would be damaged if the stud anchors were taken out. I have included a PLR
which may be helpful to you in determining whether the racking in your case would
qualify as building material incorporated into real estate. PLR ST 13-0002 (July 31,
2013).
The facts in PLR 13-0002 involved a racking system that was bolted to the floor
via an anchor installed in the floor that had a threaded shaft emerging from the floor.
The racking system was placed on top of the threaded shaft and had a bolt securing it
to the building floor. The Department found that the taxpayer acted as a construction
contractor when it sold and installed the racking system.
Finally, it is important to note that to qualify for the Enterprise Zone building
materials exemption the purchaser must possess an active Exemption Certificate issued
by the Department at the time of purchase. 86 Ill. Adm. Code 130.1951(d)(1). 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,
Tom Grudichak
Associate Counsel