Illinois Sales Tax Exemption for Manufacturing Machinery and Equipment

There is a longstanding Illinois sales tax exemption for manufacturing machinery and equipment.  In order for machinery and equipment to qualify for the Illinois sales tax exemption for manufacturing, the machinery or equipment must be used primarily in the manufacturing of tangible personal property for retail sale or lease.  In Illinois, to be “used primarily” means that the machinery or equipment is used over 50% of the time in an activity or function qualifying as “manufacturing.”  Illinois defines the term “manufacturing” to include assembly, processing, fabricating or refining, provided that the process in question causes “substantial and significant” changes to the material being processed.

Production Machinery and Equipment Exemption

The Illinois sales tax exemption for manufacturing machinery and equipment, found in Illinois Administrative Code 130.330 , specifically excludes several industries often considered to be “manufacturing” in other U.S. states.  The agriculture and farming industry, the aggregate or mining industry, and the printing or graphic arts industry do not fall under the Illinois sales tax exemption for manufacturing machinery and equipment, however, each of those industries has a corresponding Illinois sales tax exemption for qualifying purchases of machinery and equipment.

The agriculture and farming industry’s exemption can be found at Illinois Administrative Code 130.305.  The exemption for agriculture and farming has many similarities to that of the Illinois sales tax exemption for manufacturing.  The aggregate and mining industry’s exemptions can be found at Illinois Administrative Code 130.345 (oil) , Illinois Administrative Code 130.350 (coal) , or Illinois Administrative Code 130.351 (all other aggregates) depending on the specific type of resource being produced.  These exemptions also have many similarities to that of the Illinois sales tax exemption for manufacturing.  While the oil industry’s exemption is still in place, the exemptions for the coal and all other aggregates sunset on August 16, 2018.  The printing or graphic arts industry’s exemption can be found at Illinois Administrative Code 130.325 and went into effect on July 1, 2017.  Prior to that date, purchases of machinery and equipment by the printing or graphic arts industry did not qualify for an Illinois sales tax exemption.

In Illinois, the restaurant or food service industry is also not considered manufacturing, however unlike those other aforementioned industries, there are no relevant Illinois sales tax exemptions for equipment used in the processing or production of food or beverages for retail sale.

For Illinois taxpayers in industries that do qualify as manufacturing in IAC 130.330, “machinery and equipment” includes major mechanical machines and components of such machines used in the manufacturing process.  It also includes machinery and equipment used in the maintenance or repair of exemption production machinery and equipment.  Devices or tools separate from machinery or equipment, but essential to an integrated manufacturing process, computers which control production machinery or equipment, and repair or replacement parts also qualify for the Illinois sales tax exemption for manufacturing.  Some chemicals, but only those that act as catalysts that effect a “direct and immediate” change to the product being manufactured, also qualify for this exemption.  Illinois sales tax exemption certificate ST-587 can be provided to vendors to have Illinois sales taxes removed from any qualifying purchases.

The Illinois exemption for manufacturing does not extend to hand tools, consumable supplies, safety apparel, or machinery and equipment used to generate electricity, or to treat or generate water or gas which is delivered through pipelines or mains.  Any components or parts used for facility lighting, ventilation, heating, cooling or climate control also do not qualify for the Illinois sales tax exemption for manufacturing.

With the sunset of the Illinois Manufacturer’s Purchase Credit (“MPC”) on August 30, 2014 many Illinois manufacturers believe erroneously that no Illinois sales tax exemption for manufacturing currently exists.  However, the Illinois manufacturing industry is still entitled to purchase many items exempt from Illinois sales and use tax.

In addition to the Illinois sales tax exemption for manufacturing discussed herein, there are also additional sales tax exemptions and other credits and incentives available to taxpayers.  Taxpayers located in Illinois Enterprise Zones or those qualifying for the High Impact Business (“HIB”) program are entitled to these additional exemptions including those for utilities or building materials used in real property projects.

As with all sales and use tax research, the specifics of each case need to be considered when determining taxability.  Additional advice from Agile Consulting Group’s sales tax consultants can be found on our page summarizing Illinois sales and use tax exemptions . If you have questions, comments, concerns or would like to discuss the specific circumstances you are encountering in regard to sales and use tax, please contact any of our sales tax consultants at (888) 350-4TAX (4829) or via email at info@salesandusetax.com .

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