Section 130.101  Character and Rate of Tax

 

a)         Character of Tax

The Retailers' Occupation Tax Act (the Act) [35 ILCS 120] imposes a tax upon persons engaged in this State in the business of selling tangible personal property to purchasers for use or consumption.  The tax is measured by the seller's gross receipts from such sales made in the course of such business.  (For further information concerning gross receipts, see Subpart D of this Part.)

 

1)         On and after January 1, 2021, a remote retailer that meets either of the tax remittance thresholds in 86 Ill. Adm. Code 131.115(a) is considered a retailer engaged in the occupation of selling at retail in Illinois and is liable for all applicable State and local retailers’ occupation taxes administered by the Illinois Department of Revenue.  (For further information on the application of the Act to remote retailers, see 86 Ill. Adm. Code 131.110, 131.115, 131.120, and 131.125).

 

2)         On and after January 1, 2021, a marketplace facilitator that meets either of the tax remittance thresholds in 86 Ill. Adm. Code 131.135(a) is considered a retailer engaged in the occupation of selling at retail in Illinois and is liable for all applicable State and local retailers' occupation taxes administered by the Illinois Department of Revenue on all sales to Illinois purchasers made over the marketplace, including its own sales and sales made over the marketplace on behalf of marketplace sellers.  (For further information on the application of the Act to marketplace facilitators, see 86 Ill. Adm. Code 131.130, 131.135, 131.140, and 131.145.)

 

3)         On and after January 1, 2001, prepaid telephone calling arrangements shall be considered tangible personal property subject to the tax imposed under the Act regardless of the form in which those arrangements may be embodied, transmitted, or fixed by any method now known or hereafter developed (Section 2 of the Act). 

 

For purposes of this subsection (a)(3), the following definitions apply:

 

"Prepaid telephone calling arrangements" means the right to exclusively purchase telephone or telecommunications services that must be paid for in advance and enable the origination of one or more intrastate, interstate, or international telephone calls or other telecommunications using an access number, an authorization code, or both, whether manually or electronically dialed, for which payment to a retailer must be made in advance, provided that, unless recharged, no further service is provided once that prepaid amount of service has been consumed.  Prepaid telephone calling arrangements include the recharge of a prepaid calling arrangement.  "Prepaid telephone calling arrangement" does not include an arrangement whereby the service provider reflects the amount of the purchase as a credit on an account for a customer under an existing subscription plan.

 

"Recharge" means the purchase of additional prepaid telephone or telecommunications services whether or not the purchaser acquires a different access number or authorization code. 

 

"Telecommunications" means that term as defined in Section 2 of the Telecommunications Excise Tax Act [35 ILCS 630].  (Section 2-27 of the Act).

 

b)         How to Determine Effective Rate

 

1)         For the purposes of the Retailers' Occupation Tax Act, any tax liability incurred in respect to a sale of tangible personal property made in the regular course of business shall be computed by applying, to the gross receipts from such sale, the tax rate in effect as of the date of delivery of such property, provided that if delivery occurs after the tax rate changes, in a transaction in which receipts were received before the date of the rate change and tax was paid on such receipts when received by the seller in accordance with Section 130.430 of this Part at the rate which was in effect when the seller received such receipts, no additional tax will be due or credit allowed because of the delivery of the property occurring after the rate changes.

 

2)         Furthermore, in the case of sales of building materials to real estate improvement construction contractors for use in performing construction contracts for third persons, if such property is delivered to the contractor after the effective date of a rate increase but will be used in performing a binding construction contract which was entered into before the effective date of the increase and under which the contractor is legally unable to shift the burden of the tax rate increase to the customer, the applicable tax rate will be the rate which was in effect before the effective date of the rate increase.  Before a supplier may deliver materials to a construction contractor after the effective date of a tax rate increase at the rate which was in effect prior thereto, the purchasing contractor must give such supplier a written, signed certification stating that specifically described materials are being purchased for use in performing a binding contract which was entered into before the effective date of the rate increase (specifying such date) and under which the contractor is legally unable to shift the burden of the tax rate increase to the customer, identifying the construction contract in question by its date and by naming the contractor's construction work involved, and by giving the location on the job site where the construction contract is being performed or is to be performed.

 

c)         Tax Rate in Effect

 

1)         The effective rate from January 1, 1985, through December 31, 1989, is 5%. On and after January 1, 1990, the effective rate is 6.25%.  Beginning on July 1, 2000 through December 31, 2000, with respect to motor fuel and gasohol, the tax is imposed at the rate of 1.25%. (Section 2-10 of the Act)

 

2)         Definitions

 

A)        "Diesel Fuel" is defined as any petroleum product intended for use or offered for sale as a fuel for engines in which the fuel is injected into the combustion chamber and ignited by pressure without electric spark.  [35 ILCS 505/2]

 

B)        "Gasohol" means motor fuel that is a blend of denatured ethanol and gasoline that contains no more than 1.25% water by weight.  The blend must contain 90% gasoline and 10% denatured ethanol.  A maximum of one percent error factor in the amount of denatured ethanol used in the blend is allowable to compensate for blending equipment variations. [35 ILCS 105/3-40]

 

C)        "Motor Fuel" means all volatile and inflammable liquids produced, blended or compounded for the purpose of, or which are suitable or practicable for, operating motor vehicles.  Among other things, "Motor Fuel" includes "Special Fuel". [35 ILCS 505/1.1]

 

i)         By way of illustration and not limitation, the following are considered motor fuel:

 

·                     Gasoline

 

·                     Diesel fuel

 

·                     Combustible gases (e.g., liquified petroleum gas and compressed natural gas) delivered directly into the fuel supply tanks of motor vehicles

 

·                    Gasohol.

 

ii)        By way of illustration and not limitation, the following are not considered motor fuel:

 

·                     Avgas

 

·                     Jet fuel

 

·                     1-K kerosene

 

·                     Combustible gases unless delivered directly into the fuel supply tanks of motor vehicles

 

·                     Heating oil (e.g., kerosene and fuel oil) unless delivered directly into the fuel supply tanks of motor vehicles, in which case it is considered diesel fuel.

 

D)        "Special Fuel" means all volatile and inflammable liquids capable of being used for the generation of power in an internal combustion engine except that it does not include gasoline as defined in Section 5, example (A) of the Motor Fuel Tax Law or combustible gases as defined in Section 5, example (B) of the Motor Fuel Tax Law.  "Special Fuel" includes diesel fuel. [35 ILCS 505/1.13]

 

d)         Effective Date of New Taxes

When something that has been exempted becomes taxable as to sales that are made on and after some particular date, the date of sale for this purpose shall be deemed to be the date of the delivery of the property.  This is true even if such delivery is made under a contract that was entered into before the effective date of the new tax.

 

e)         Relation of Retailers' Occupation Tax to Use Tax

The Retailers' Occupation Tax is an occupation tax whose legal incidence is on the seller, rather than on the purchaser.  However, with the enactment of the Use Tax Act in 1955 [35 ILCS 105], the retailer became a tax collector under that Act and is required to comply with the bracket systems or tax collection schedules prescribed in the Department's Use Tax Regulations for the collection of the Use Tax by retailers from users.

 

(Source:  Amended at 47 Ill. Reg. 2116, effective January 24, 2023)

 

Section 130.105  Responsibility of Trustees, Receivers, Executors or Administrators

 

Where trustees, receivers, executors or administrators (whether appointed by a Federal or a State court), by virtue of their appointment, continue to operate, manage or control the business and engage in the business of selling tangible personal property for use or consumption, they become liable for Retailers' Occupation Tax.  This principle applies notwithstanding the fact that such trustees, receivers, executors or administrators may be engaged in liquidating the assets of the business, provided that such liquidation takes place by means of sales, and provided that such sales are made for use or consumption and consist of tangible personal property customarily sold by such business.

 

(Source:  Amended at 5 Ill. Reg. 12788, effective November 2, 1981)

 

Section 130.110  Occasional Sales

 

a)         Since the Act does not impose a tax upon persons who are not engaged in the business of selling tangible personal property, persons who make isolated or occasional sales thereof do not incur tax liability.

 

b)         For example, if a retailer sells tangible personal property, such as machinery or other capital assets, which the retailer has used in its business and no longer needs, and which the retailer does not otherwise engage in selling, the retailer does not incur Retailers' Occupation Tax liability when selling such tangible personal property even if the sales are at retail and even if the retailer may be required to make a considerable number of such sales in order to dispose of such tangible personal property, because such sales are isolated or occasional and do not constitute a business of selling tangible personal property at retail.

 

c)         However, construction contractors and real estate developers are not considered to be isolated or occasional sellers of tangible personal property to the extent noted in Section 130.1940(c) and (d) of this Part.

 

d)         Where persons engage primarily in the business of selling tangible personal property other than for use or consumption (such as the business of selling tangible personal property primarily to purchasers for resale), the mere fact that their sales for use or consumption may comprise but a small fraction of their total sales does not make the retail sales isolated or occasional.  The vendor is liable for tax measured by the gross receipts from such retail sales.

 

e)         Regarding sale/leaseback situations, typically customer A purchases equipment from retailer B, and then sells it to lessor C who leases the equipment back to customer A.  Customer A has paid tax when purchasing the equipment in the first transaction under a taxable retail sale and the second transaction where customer A sells the equipment to lessor C is a nontaxable occasional sale so long as A is not otherwise in the business of selling like-kind property.

 

f)         When a person purchases an item of tangible personal property with the intent of reselling the item to a purchaser for use or consumption, that person engages in conduct equivalent to holding itself out as a retailer.  In such a situation, the initial purchase is a sale for resale and the subsequent sale is a taxable sale at retail subject to Retailers' Occupation Tax, not an occasional sale.  For example, if a hospital possessing an exemption identification number issued by the Department purchases a computer system with the intent of reselling the computer system to a group of doctors, the hospital may not resell the computer system to the group of doctors without incurring Retailers' Occupation Tax.  In this instance, the hospital is holding itself out as a retailer and its sale of the computer system to the group of doctors is taxable. The hospital should provide a Certificate of Resale to its supplier on the purchase of the computer system.  It is improper for the hospital to use its exemption identification number to purchase the computer system in these circumstances.

 

g)         No sales made on a marketplace are considered to be occasional sales. (86 Ill. Adm. Code 131.140(b)(3)). (For further information on the application of the Act to marketplace facilitators, see 86 Ill. Adm. Code 131.130, 131.135, 131.140, and 131.145.)

 

(Source:  Amended at 47 Ill. Reg. 2116, effective January 24, 2023)

 

Section 130.111  Sale of Used Motor Vehicles, Aircraft, or Watercraft by Leasing or Rental Business

 

a)         Any person engaged in the business of leasing or renting motor vehicles, aircraft or watercraft, to others and who, in connection therewith, sells any used motor vehicle, aircraft or watercraft, to a purchaser or lessor for use and not for resale is a retailer selling tangible personal property at retail to the extent of the value of the vehicle, aircraft, or watercraft sold.

 

b)         For purposes of this Section, "motor vehicle" has the meaning prescribed in Section 1-157 of the Illinois Vehicle Code [625 ILCS 5/1-157].  "Motor vehicle" means a motor vehicle of the First Division, including a multipurpose passenger vehicle that is designed for carrying not more than 10 persons.

 

c)         For purposes of this Section, "aircraft" means any device used or designed to carry humans in flight as specified by the Department of Transportation by rule.  (See 92 Ill. Adm. Code 14.105.)  All devices required to be licensed as "aircraft" by the Federal Aviation Administration (FAA) are "aircraft". [620 ILCS 5/3]

 

d)         For purposes of this Section, "watercraft" has the meaning prescribed in Section 15-5 of the Watercraft Use Tax Law [625 ILCS 158/15-5].  "Watercraft" means any watercraft 16 feet or greater in length, except kayaks and canoes.  "Watercraft" includes any "personal watercraft" as defined in Section 1-2 of the Illinois Boat Registration and Safety Act [625 ILCS 45/1-2].  An example of a "personal watercraft" is a jet ski, regardless of its size or length.

 

(Source:  Amended at 29 Ill. Reg. 7004, effective April 26, 2005)

 

Section 130.115  Habitual Sales

 

Any person who habitually engages in selling tangible personal property for use or consumption, or who, in any manner or at any time, advertises, solicits, offers for sale or holds himself out to the public to be a seller of tangible personal property for use or consumption other than in the course of engaging in a service occupation is engaged in the business that is taxed by the Act, provided that such person is engaged in such business in this State (see Subpart F of this Part).

 

(Source:  Amended at 5 Ill. Reg. 12788, effective November 2, 1981)

 

Section 130.120  Nontaxable Transactions

 

The tax does not apply to receipts from sales:

 

a)         of intangible personal property, such as shares of stocks, bonds, evidences of interest in property, corporate or other franchises and evidences of debt. These types of sales fall outside the scope of the Retailers' Occupation Tax Act;

 

b)         of real property, such as lands and buildings that are permanently attached to the land.  These types of sales fall outside the scope of the Retailers' Occupation Tax Act;

 

c)         of tangible personal property for purposes of resale in any form as tangible personal property, provided that the purchaser (except in the case of an out-of-State purchaser who will always resell and deliver the property to his customers outside Illinois) has an active registration number or active resale number from the Department and gives the number to the vendor in connection with certifying to the vendor that the sale to the purchaser is nontaxable on the ground of being a sale for resale (see Subparts B and N of this Part).  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

d)         of personal services, where rendered as such (see various rules relating to particular service occupations); however, for information concerning the tax on persons engaged in the business of making sales of service, see the Regulations pertaining to the Service Occupation Tax Act (86 Ill. Adm. Code 140).  These types of sales fall outside the scope of the Retailers' Occupation Tax Act;

 

e)         that are within the protection of the Commerce Clause of the Constitution of the United States (see Subpart F of this Part).  These types of sales fall outside the scope of the Retailers' Occupation Tax Act;

 

f)         that are isolated or occasional (see Section 130.110 of this Subpart).  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

g)         of newspapers and magazines (see Section 130.2105 of this Part).  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

h)         that are made to any corporation, society, association, foundation or institution organized and operated exclusively for charitable, religious or educational purposes, or any not-for-profit corporation, society, association, foundation, institution or organization that has no compensated officers or employees and that is organized and operated primarily for the recreation of persons 55 years of age or older.  A limited liability company may qualify for the exemption under this subsection only if the limited liability company is organized and operated exclusively for educational purposes (see Section 130.2005 of this Part).  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

i)          that are made to any governmental body (see Section 130.2080 of this Part).  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

j)          of low sulfur dioxide emission coal-fueled devices.  This exemption existed prior to the enactment of Section 2-70 and will not sunset [35 ILCS 120/1a-1] (see Section 130.355 of this Part);

 

k)         of fuel consumed or used in the operation of ships, barges or vessels that are used primarily in or for the transportation of property or the conveyance of persons for hire on rivers bordering on this State if the fuel is delivered by the seller to the purchaser's barge, ship or vessel while it is afloat upon that bordering river [35 ILCS 120/2-5(24)] (see Section 130.315 of this Part).  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

l)          of tangible personal property to interstate carriers for hire for use as rolling stock moving in interstate commerce (see Section 130.340 of this Part).  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

m)        except as otherwise provided in Section 130.605(b)(1)(C), of a motor vehicle in this State to a nonresident even though the motor vehicle is delivered to the nonresident in this State, if the motor vehicle is not to be titled in this State, and if a drive-away permit is issued to the motor vehicle as provided in Section 3-603 of the Illinois Vehicle Code [625 ILCS 5/3-603], or if the nonresident purchaser has vehicle registration plates to transfer to the motor vehicle upon returning to his home state (see Section 130.605).  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

n)         until December 31, 2001, of merchandise in bulk when sold from a vending machine for 1¢; on and after January 1, 2002, of merchandise in bulk when sold from a vending machine for 50¢ or less (see 35 ILCS 120/1 and Section 130.2135 of this Part).  These types of sales fall outside the scope of the Retailers' Occupation Tax Act;

 

o)         of food and beverages by a person who is the recipient of a grant or contract under Title VII of the Older Americans Act of 1965 (42 U.S.C. 3021) and serves meals to participants in the Federal Nutrition Program for the Elderly in return for contributions established in amount by the individual participant pursuant to a schedule of suggested fees as provided for in the Federal Act.  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

p)         of farm chemicals (see Section 130.1955 of this Part).  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

q)         of manufacturing machinery and equipment that qualifies for exemption under provisions of Section 130.330 of this Part.  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

r)          of services included in gross receipts for purposes of the retailers' occupation tax and that are designated mandatory service charges by vendors of meals to the extent that the proceeds of the service charge are in fact turned over to the employees who would normally have received tips had the service charge policy not been introduced.  Service charges that are used to fund or pay wages, labor costs, employee benefits or employer costs of doing business are taxable gross receipts.  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

s)         of tangible personal property sold to a purchaser if the purchaser is exempt from use tax by operation of federal law. This exemption is statutorily exempt from the sunset provisions of Section 2-70. [35 ILCS 120/2-5(16)]

 

1)         For example, federal law prohibits sellers from charging tax to Amtrak when it purchases tangible personal property.  However, federal law does not relieve the seller of retailers' occupation tax liability in these transactions.  For that reason, the exemption set out in this subsection is necessary to relieve the seller of retailers' occupation tax liability when making sales of tangible personal property to Amtrak.

 

2)         The nontaxable transaction set out above is also applicable to local retailers' occupation tax imposed by municipalities, counties, the Regional Transportation Authority and Metro East Mass Transit District;

 

t)          of farm machinery and equipment, both new and used including that manufactured on special order, certified by the purchaser to be used primarily for production agriculture, or state or federal agricultural programs, including individual replacement parts for the machinery and equipment and including machinery and equipment purchased for lease [35 ILCS 120/2-5(2)] (see Section 130.305).  This exemption is statutorily exempt from the sunset provisions of Section 2-70;

 

u)         through June 30, 2003, and beginning again on September 1, 2004 through August 30, 2014, of graphic arts machinery and equipment, including repair and replacement parts [35 ILCS 120/2-5(4)] (see Section 130.325);

 

v)         a motor vehicle that is used for automobile renting, as defined in the Automobile Renting Occupation and Use Tax Act.  This exemption is statutorily exempt from the sunset provisions of Section 2-70.  [35 ILCS 120/2-5(5)]  Motor vehicles that qualify for this exemption are those that meet the definition of "automobile" under the Automobile Renting Occupation and Use Tax Act, including:

 

1)         any motor vehicle of the first division; or

 

2)         a motor vehicle of the second division which:

 

A)        is a self-contained motor vehicle designed or permanently converted to provide living quarters for recreational, camping, or travel use, with direct walk through access to the living quarters from the driver's seat;

 

B)        is of the van configuration designed for the transportation of not less than 7 nor more than 16 passengers, as defined in Section 1-146 of the Illinois Vehicle Code; or

 

C)        has a Gross Vehicle Weight Rating, as defined in Section 1-124.5 of the Illinois Vehicle Code, of 8,000 pounds or less [35 ILCS 155/2];

 

w)        of personal property sold by a teacher-sponsored student organization affiliated with an elementary or secondary school located in Illinois [35 ILCS 120/2-5(6)] (see Section 130.2006).  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

x)         of personal property sold to an Illinois county fair association for use in conducting, operating or promoting the county fair [35 ILCS 120/2-5(8)].  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

y)         of personal property sold to any not-for-profit arts or cultural organization that establishes that it has received an exemption under Section 501(c)(3) of the Internal Revenue Code (26 USCA 501) and that is organized and operated for the presentation or support of arts or cultural programming, activities, or services.  On and after July 1, 2001, the qualifying organizations listed in this subsection (y) must also be organized and operated primarily for the presentation or support of arts or cultural programming, activities, or services.  These organizations include, but are not limited to, music and dramatic arts organizations such as symphony orchestras and theatrical groups, arts and cultural service organizations, local arts councils, visual arts organizations, and media arts organizations [35 ILCS 120/2-5(9)] (see Section 130.2004 of this Part).  This exemption existed prior to the enactment of Section 2-70 and will not sunset; 

 

z)         of personal property sold by a corporation, society, association, foundation, institution or organization that is organized and operated as a not-for-profit service enterprise for the benefit of persons 65 years of age or older if the personal property was not purchased by the enterprise for the purpose of resale by the enterprise [35 ILCS 120/2-5(10)] (see Section 130.2008).  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

aa)       of legal tender, currency, medallions, or gold or silver coinage issued by the State of Illinois, the government of the United States of America or the government of any foreign country and bullion [35 ILCS 120/2-5(18)], unless the items are transferred as jewelry and therefore subject to tax.  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

bb)       of photoprocessing machinery and equipment, including repair and replacement parts [35 ILCS 120/2-5(20)] (see Section 130.2000).  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

cc)       beginning July 1, 2003 and until July 1, 2028, of coal and aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation equipment, including replacement parts and equipment, and including equipment purchased for lease, but excluding motor vehicles required to be registered under the Illinois Motor Vehicle Code.  The Department, however, will not approve any claims or refunds on or after August 16, 2013, for taxes due or paid during the period beginning July 1, 2003 through August 16, 2013. [35 ILCS 120/2-5(21)]  This exemption was to terminate by operation of the sunset provisions of Section 2-70 of the Retailers' Occupation Tax Act on August 15, 2018.  Pursuant to P.A. 100-0594, effective June 29, 2018, the exemption provided in this subsection (cc) is extended until July 1, 2023. Pursuant to P.A. 102-0700, effective April 19, 2022, the exemption provided in this subsection (cc) is extended until July 1, 2028. [35 ILCS 120/2-5(21)] (see Sections 130.350 and 130.351);

 

dd)      of fuel and petroleum products sold to or used by an air common carrier, certified by the carrier to be used for consumption, shipment or storage in the conduct of its business as an air common carrier, for a flight destined for or returning from a location or locations outside the United States without regard to previous or subsequent domestic stopovers. Beginning July 1, 2013, the exemption applies to fuel and petroleum products sold to or used by an air carrier, certified by the carrier to be used for consumption, shipment, or storage in the conduct of its business as an air common carrier, for a flight that is engaged in foreign trade or is engaged in trade between the United States and any of its possessions and that transports at least one individual or package for hire from the city of origination to the city of final destination on the same aircraft, without regard to a change in the flight number of that aircraft.  This exemption existed prior to the enactment of Section 2-70 of the Retailers' Occupation Tax Act and will not sunset. [35 ILCS 120/2-5(22)] (See Section 130.321.);

 

ee)       of semen used for artificial insemination of livestock for direct agricultural production.  [35 ILCS 120/2-5(26)]  Exemption certifications must be executed by the purchaser.  The certificate must include the seller's name and address, the purchaser's name and address, the purchaser's registration number with the Department, the purchaser's signature and date of signing and a statement that the semen purchased will be used for artificial insemination of livestock for direct agricultural production.  The certificates shall be retained by the retailer and shall be made available to the Department for inspection or audit.  This exemption existed prior to the enactment of the sunset provisions of Section 2-70 and will not sunset;

 

ff)        of a transaction in which the purchase order is received by a florist who is located outside Illinois, but who has a florist located in Illinois deliver the property to the purchaser or the purchaser's donee in Illinois [35 ILCS 120/2-5(23)].  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

gg)       of horses, or interests in horses, registered with and meeting the requirements of any of the Arabian Horse Club Registry of America, Appaloosa Horse Club, American Quarter Horse Association, United States Trotting Association, or Jockey Club, as appropriate, used for purposes of breeding or racing for prizes.  This exemption applies for all periods beginning May 30, 1995, but no claim for credit or refund is allowed on or after January 1, 2008 for taxes paid during the period beginning May 30, 2000 and ending January 1, 2008 [35 ILCS 120/2-5(27)].  This exemption is statutorily exempt from the sunset provisions of Section 2-70;

 

hh)       effective January 1, 1996 through December 31, 2000, and on and after August 2, 2001, of computers and communications equipment utilized for any hospital purpose and equipment used in the diagnosis, analysis or treatment of hospital patients sold to a lessor who leases the equipment, under a lease of one year or longer executed or in effect at the time of the purchase, to a hospital that has been issued an active tax exemption identification number by the Department under Section 1g of the Retailers' Occupation Tax Act [35 ILCS 120/2-5(36)] (see Section 130.2011).  This exemption is statutorily exempt from the sunset provisions of Section 2-70;

 

ii)         effective January 1, 1996 through December 31, 2000, and on and after August 2, 2001, of personal property sold to a lessor who leases the property, under a lease of one year or longer executed or in effect at the time of the purchase, to a governmental body that has been issued an active tax exemption identification number by the Department under Section 1g of the Retailers' Occupation Tax Act [35 ILCS 120/2-5(37)] (see Section 130.2012).  This exemption is statutorily exempt from the sunset provisions of Section 2-70;

 

jj)         of tangible personal property sold to a common carrier by rail or motor that receives the physical possession of the property in Illinois and that transports the property, or shares with another common carrier in the transportation of the property, out of Illinois on a standard uniform bill of lading showing the seller of the property as the shipper or consignor of the property to a destination outside Illinois, for use outside Illinois [35 ILCS 120/2-5(17)].  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

kk)       Game Birds

 

1)         beginning July 1, 1999 through August 15, 2011, of game or game birds purchased at:

 

A)        a game breeding and hunting preserve area licensed by the Department of Natural Resources (see Section 3.27 of the Wildlife Code [520 ILCS 5/3.27]);

 

B)        an exotic game hunting area licensed by the Department of Natural Resources (see Section 3.34 of the Wildlife Code [520 ILCS 5/3.34]); or

 

C)        a hunting enclosure approved through rules adopted by the Department of Natural Resources;

 

2)         beginning August 16, 2011, of game or game birds sold at a "game breeding and hunting preserve area" as that term is used in the Wildlife Code.  This exemption is statutorily exempt from the sunset provisions of Section 2-70;

 

ll)         beginning January 1, 2000, of personal property, including food, purchased through fundraising events for the benefit of a public or private elementary or secondary school, a group of those schools, or one or more school districts if the events are sponsored by an entity recognized by the school district that consists primarily of volunteers and includes parents and teachers of the school children.  This subsection (ll) does not apply to fundraising events:

 

1)         for the benefit of private home instruction; or

 

2)         for which the fundraising entity purchases the personal property sold at the events from another individual or entity that sold the property for the purpose of resale by the fundraising entity and that profits from the sale to the fundraising entity [35 ILCS 120/2-5(34)].  This exemption is statutorily exempt from the sunset provisions of Section 2-70;

 

mm)     of machinery or equipment used in the operation of a high impact service facility located within an enterprise zone established pursuant to the Illinois Enterprise Zone Act.  "High impact service facility" means a facility used primarily for the sorting, handling and redistribution of mail, freight, cargo, or other parcels received from agents or employees of the handler or shipper for processing at a common location and redistribution to other employees or agents for delivery to an ultimate destination on an item-by-item basis, and which:

 

1)         will make an investment in a business enterprise project of $100,000,000 or more;

 

2)         will cause the creation of at least 750 to 1,000 jobs or more in an enterprise zone established pursuant to the Illinois Enterprise Zone Act; and

 

3)         is certified by the Department of Commerce and Economic Opportunity as contractually obligated to meet the requirements specified in subsection (mm)(1) and (2) within the time period as specified by the certification.  The certificate of eligibility for exemption shall be presented by the business enterprise to its supplier when making the initial purchase of machinery and equipment for which an exemption is granted by Section 1j of the Act, together with a certification by the business enterprise that such machinery and equipment is exempt from taxation under Section 1j of the Act and by indicating the exempt status of each subsequent purchase on the face of the purchase order [35 ILCS 120/1i].  This exemption existed prior to the enactment of Section 2-70 and will not sunset;

 

nn)       beginning August 23, 2001 and through June 30, 2016, of food for human consumption that is to be consumed off the premises where it is sold (other than alcoholic beverages, soft drinks, and food that has been prepared for immediate consumption) and prescription and nonprescription medicines, drugs, medical appliances, and insulin, urine testing materials, syringes, and needles used by diabetics, for human use, when purchased for use by a person receiving medical assistance under Article 5 of the Illinois Public Aid Code who resides in a licensed long-term care facility, as defined in the Nursing Home Care Act, or a licensed facility as defined in the ID/DD Community Care Act [210 ILCS 47], the MC/DD Act [210 ILCS 46], or the Specialized Mental Health Rehabilitation Act of 2013 [210 ILCS 49]. [35 ILCS 120/2-5(35-5)];

 

oo)       beginning July 1, 2007, of an aircraft, as that term is defined in Section 3 of the Illinois Aeronautics Act, if all of the following conditions are met:

 

1)         the aircraft leaves this State within 15 days after the later of either the final billing for the sale of the aircraft or the approval for return to service, completion of the maintenance record entry, and completion of the test flight and ground test for inspection, as required by 14 CFR 91.407;

 

2)         the aircraft is not based or registered in this State after the sale of the aircraft; and

 

3)         the seller retains documents as required by the Department.  [35 ILCS 120/2-5(25-7)] (See Section 130.605)  This exemption is statutorily exempt from the sunset provisions of Section 2-70;

 

pp)      effective October 11, 2007, of tangible personal property sold to a public-facilities corporation, as described in 65 ILCS 5/11-65-10, for purposes of constructing or furnishing a municipal convention hall.  If, before October 11, 2007, a municipality has incorporated a public-facilities corporation and the public-facilities corporation complies with the requirements set forth in Section 11-65-10, then this exemption applies to that public-facilities corporation. [65 ILCS 5/11-65-10, 15 and 25 and 35 ILCS 120/2-5(41)].  This exemption is statutorily exempt from the sunset provisions of Section 2-70;

 

qq)       beginning January 1, 2008, of tangible personal property used in the construction or maintenance of certain community water supplies [35 ILCS 120/2-5(39)].  This exemption is statutorily exempt from the sunset provisions of Section 2-70;

 

rr)        Aircraft Maintenance

beginning January 1, 2010 through December 31, 2029, materials, parts, equipment, components, and furnishings incorporated into or upon an aircraft as part of the modification, refurbishment, completion, replacement, repair, or maintenance of the aircraft. This exemption includes consumable supplies used in the modification, refurbishment, completion, replacement, repair, and maintenance of aircraft.  However, until January 1, 2024, this exemption excludes any materials, parts, equipment, components, and consumable supplies used in the modification, replacement, repair, and maintenance of aircraft engines or power plants, whether such engines or power plants are installed or uninstalled upon any such aircraft. "Consumable supplies" include, but are not limited to, adhesive, tape, sandpaper, general purpose lubricants, cleaning solution, latex gloves, and protective films.

 

1)         Beginning January 1, 2010 and continuing through December 31, 2023, this exemption applies only to the sale of qualifying tangible personal property to persons who modify, refurbish, complete, replace, or maintain an aircraft and who hold an Air Agency Certificate and are empowered to operate an approved repair station by the Federal Aviation Administration, have a Class IV Rating, and conduct operations in accordance with Part 145 of the Federal Aviation Regulations.  The exemption does not include aircraft operated by a commercial air carrier providing scheduled passenger air service pursuant to authority issued under Part 121 or Part 129 of the Federal Aviation Regulations.

 

2)         From January 1, 2024 through December 31, 2029, the exemption applies only to the use of qualifying tangible personal property by:

 

A)        persons who modify, refurbish, complete, repair, replace, or maintain aircraft and who:

 

i)          hold an Air Agency Certificate and are empowered to operate an approved repair station by the Federal Aviation Administration;

 

ii)         have a Class IV Rating; and

 

iii)        conduct operations in accordance with Part 145 of the Federal Aviation Regulations; and

 

B)        persons who engage in the modification, replacement, repair, and maintenance of aircraft engines or power plants without regard to whether or not those persons meet the qualifications of item (rr)(2)(A).

 

3)         It is the intent of the General Assembly that the exemption applies continuously from January 1, 2010 through December 31, 2024; however, no claim for credit or refund is allowed for taxes paid as a result of the disallowance of this exemption on or after January 1, 2015 and prior to February 5, 2020.  [35 ILCS 120/2-5(40)]

 

ss)        effective July 12, 2006, of building materials to be incorporated into real estate within a River Edge Redevelopment Zone in accordance with the River Edge Redevelopment Zone Act by remodeling, rehabilitating, or new construction may deduct receipts from those sales when calculating the tax imposed by the Act [35 ILCS 120/2-54] (see Section 130.1954).  This exemption is statutorily exempt from the sunset provisions of Section 2-70;

 

tt)        of electricity delivered to customers by wire; natural or artificial gas that is delivered to customers through pipes, pipelines, or mains; and water that is delivered to customers through pipes, pipelines, or mains.  These provisions are declaratory of existing law as to the meaning and scope of the Retailers' Occupation Tax Act [35 ILCS 120/2].  These types of sales fall outside the scope of the Retailers' Occupation Tax Act;

 

uu)       effective on January 1, 2002 through June 30, 2016, tangible personal property purchased from an Illinois retailer by a taxpayer engaged in centralized purchasing activities in Illinois who will, upon receipt of the property in Illinois, temporarily store the property in Illinois for the purpose of subsequently transporting it outside this State for use or consumption thereafter solely outside this State or for the purpose of being processed, fabricated, or manufactured into, attached to, or incorporated into other tangible personal property to be transported outside this State and thereafter used or consumed solely outside this State [35 ILCS 120/2-5(38)] (see 86 Ill. Adm. Code 150.310);

 

vv)       beginning January 1, 2017, through December 31, 2026, of menstrual pads, tampons, and menstrual cups [35 ILCS 120/2-5(42)]. 

 

ww)     Beginning July 1, 2022, breast pumps, breast pump collection and storage supplies, and breast pump kits.  This exemption is statutorily exempt from the sunset provisions of Section 2-70.  As used in this subsection (ww):

 

1)         "Breast pump" means an electrically controlled or manually controlled pump device designed or marketed to be used to express milk from a human breast during lactation, including the pump device and any battery, AC adapter, or other power supply unit that is used to power the pump device and is packaged and sold with the pump device at the time of sale.

 

2)         "Breast pump collection and storage supplies" means items of tangible personal property designed or marketed to be used in conjunction with a breast pump to collect milk expressed from a human breast and to store collected milk until it is ready for consumption.

 

3)         "Breast pump collection and storage supplies" includes, but is not limited to: breast shields and breast shield connectors; breast pump tubes and tubing adapters; breast pump valves and membranes; backflow protectors and backflow protector adaptors; bottles and bottle caps specific to the operation of the breast pump; and breast milk storage bags.

 

4)         "Breast pump collection and storage supplies" does not include: (1) bottles and bottle caps not specific to the operation of the breast pump; (2) breast pump travel bags and other similar carrying accessories, including ice packs, labels, and other similar products; (3) breast pump cleaning supplies; (4) nursing bras, bra pads, breast shells, and other similar products; and (5) creams, ointments, and other similar products that relieve breastfeeding-related symptoms or conditions of the breasts or nipples, unless sold as part of a breast pump kit that is pre-packaged by the breast pump manufacturer or distributor.

 

5)         "Breast pump kit" means a kit that: (1) contains no more than a breast pump, breast pump collection and storage supplies, a rechargeable battery for operating the breast pump, a breastmilk cooler, bottle stands, ice packs, and a breast pump carrying case; and (2) is pre-packaged as a breast pump kit by the breast pump manufacturer or distributor. 

[P.A. 102-700, Article 70, Section 70-20, effective April 19, 2022];

 

xx)       Tangible personal property sold by or on behalf of the State Treasurer pursuant to the Revised Uniform Unclaimed Property Act.  This exemption is statutorily exempt from the sunset provisions of Section 2-70.  [P.A. 102-1026, Section 20, effective May 27, 2022]

 

(Source:  Amended at 48 Ill. Reg. 14779, effective September 25, 2024)

SUBPART B: SALE AT RETAIL

 

Section 130.201  The Test of a Sale at Retail

 

a)         Sale at Retail

 

1)         "Sale at retail" means any transfer of the ownership of or title to tangible personal property to a purchaser, for the purpose of use or consumption, and not for the purpose of resale in any form as tangible personal property to the extent not first subject to a use for which it was purchased, for a valuable consideration, provided that the property purchased is deemed to be purchased for the purpose of resale, despite first being used, to the extent to which it is resold as an ingredient of an intentionally produced product or byproduct of manufacturing. Transactions whereby the possession of the property is transferred but the seller retains the title as security for payment of the selling price shall be deemed to be sales.

 

2)         "Sale at retail" includes any transfer (whether made for or without a valuable consideration) of the ownership of or title to tangible personal property to a purchaser for resale in any form as tangible personal property unless made in compliance with Section 2c of the Retailers' Occupation Tax Act and Section 130.1415 of this Part concerning the purchaser's possession and furnishing of a taxpayer registration number or resale number from the Department of Revenue to the seller (see Section 130.210 of this Subpart).

 

3)         Even if the sale is at retail, the Retailers' Occupation Tax does not apply to receipts received by the seller from a sale to any corporation, society, association, foundation or institution organized and operated exclusively for charitable, religious or educational purposes, to a limited liability company only if it is organized and operated exclusively for educational purposes, to a not-for-profit corporation, society, association, foundation, institution or organization that has no compensated officers or employees and that is organized and operated primarily for the recreation of persons 55 years of age or older, or from any sale that is made to a governmental body.

 

b)         Sales for Transfer as Gifts, etc.

            Sales at retail also include any sale of tangible personal property to a purchaser even though such property may be used or consumed by some other person to whom such purchaser transfers the tangible personal property without a valuable consideration, such as gifts, and advertising specialties distributed gratis apart from the sale of other tangible personal property or service (see Sections 130.2120 and 130.2160 of this Part).  For example, when a manufacturer orders, pays for and directly ships point-of-sale advertising items to retailers separately from the sale of other tangible personal property or service, the manufacturer is considered the user of the items and incurs Use Tax. For instance, when a beer manufacturer provides items, such as interior neon signs, clocks, and other devices intended to encourage a demand for the products that they manufacture, to retailers for display, the manufacturer is the user of the property and incurs Use Tax. (Miller Brewing Company v. Korshak (1966), 35 Ill.2d 86, 219 N.E.2d 494)  However, when the tangible personal property is transferred along with other goods for which a charge is made, that transfer is deemed a sale for resale.  When sewing needle display racks, for example, are transferred along with sewing needles for which a charge is made, the transfer is deemed a sale for resale. (Boye Needle Company v. Department of Revenue (1970), 45 Ill.2d 484, 259 N.E.2d 278)  Grocery store display racks provided free of charge to grocery stores by a manufacturer, in exchange for the right to exclusively display its product on the rack, are another example of this type of sale for resale.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.205  Sales for Transfer Incident to Service

 

a)         Sales of tangible personal property to a purchaser, who transfers the ownership of or title to the tangible personal property to others in connection with his sale of other tangible personal property or in connection with his furnishing of service for which he makes a charge, are sales of tangible personal property to such purchaser for resale.  This is the case unless the purchaser is a de minimis serviceman who has elected to handle his Service Occupation Tax liability in the manner provided at Section 2(g) of the Service Occupation Tax Act [35 ILCS 115/2(g)].  Sales of tangible personal property to such de minimis servicemen are generally subject to Retailers' Occupation Tax.

 

b)         For specific information concerning the tax on persons engaged in the business of making sales of service, see the regulations pertaining to the Service Occupation Tax Act (86 Ill. Adm. Code 140).

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.210  Sales of Tangible Personal Property to Purchasers for Resale

 

a)         The sale of tangible personal property to a purchaser for the purpose of resale in any form as tangible personal property, to the extent not first subjected to a use for which it was purchased, is not subject to the Retailers' Occupation Tax Act ("Act").

 

b)         Sales of tangible personal property, which property, to the extent not first subjected to a use for which it was purchased, as an ingredient or constituent, goes into and forms a part of tangible personal property subsequently the subject of a "sale at retail", are not sales at retail as defined in the Act, provided that the property purchased is deemed to be purchased for the purpose of resale, despite first being used, to the extent to which it is resold as an ingredient of an intentionally produced product or byproduct of manufacturing.  For this purpose, slag produced as an incident to manufacturing pig iron or steel and sold is considered to be an intentionally produced byproduct of manufacturing.

 

c)         However, such sales for resale cannot be made tax-free unless the purchaser (except in the case of an out-of-State purchaser who will always resell and deliver the property to its customers outside Illinois) has an active registration number or active resale number from the Department and gives such number to suppliers in connection with certifying to any supplier that any sale to such purchaser is nontaxable because of being a sale for resale.  Failure to present an active registration number or resale number and a certification to the seller that a sale is for resale creates a presumption that a sale is not for resale.  This presumption may be rebutted by other evidence that all of the seller's sales are sales for resale, or that a particular sale is a sale for resale.

 

d)         Divisible Type of Sale.  There can also be a divisible type of sale where the tangible personal property is bought partly for "use" and partly for "resale" in the first place.  For examples, see Sections 86 Ill. Adm. Code 130.215 and 130.330(h).

 

(Source:  Amended at 48 Ill. Reg. 10646, effective July 2, 2024)

 

Section 130.215  Illustrations of Sales for Use or Consumption Versus Sales for Resale

 

a)         A manufacturer of ice cream may require machinery, freezers, fuel, ammonia, and other equipment and supplies.  Sales of such items to the manufacturer are sales for use or consumption.  Such items do not physically enter into, nor, as ingredients or constituents, form a part of, the product sold by such ice cream manufacturer.  Such items are purchased for use or consumption and not for resale within the meaning of the Retailers' Occupation Tax Act.  Persons who engage in the business of making such sales incur retailers' occupation tax liability.  (However, for information regarding the Manufacturing Machinery and Equipment Exemption from sales tax, see 86 Ill. Adm. Code 130.330.)  Sales of milk, cream, sugar, extracts, and various other constituents are also made to, intended to, and do enter into and form a useful part of a commodity which thereafter becomes the subject of a sale for use or consumption.

 

b)         A fast-food seller purchases cooking oil to use in preparing foods such as fries and chicken.  5% of the oil is absorbed into the food and ends up as an integral part of the food when finished.  95% of the oil does not become part of the cooked food and is discarded by the fast-food seller after use.  This being the case, the 5% of the oil that is absorbed and becomes an integral part of the food product is exempt from tax as a purchase for resale.  The 95% of the oil that does not end up as an integral part of the finished product is taxable because it is used by the food seller.  In this case, the food seller should give a blanket percentage-use Certificate of Resale to the supplier that states that 5% of its purchases of oil are exempt from tax as purchases for resale and 95% are taxable as purchases for use.  The Certificate of Resale must meet all the requirements of 86 Ill. Adm. Code 130.1405 in addition to specifying the percentage of material that will be resold.  The seller should charge tax only on the 95% of the oil used by the purchaser.

 

(Source:  Amended at 48 Ill. Reg. 10646, effective July 2, 2024)

 

Section 130.220  Sales to Lessors of Tangible Personal Property

 

a)         Effective August 1, 1967, the sale of tangible personal property to a purchaser who will act as a lessor of such tangible personal property is a sale at retail and is subject to Retailers' Occupation Tax.  Also, effective August 1, 1967, the sale of tangible personal property that is used, employed or consumed by the purchaser in or upon other tangible personal property as to which such purchaser acts as a lessor is a sale at retail and so is subject to Retailers' Occupation Tax.  (See also Section 130.2010 of this Part.)

 

b)         However, an exception exists for the sale of an automobile to an automobile rentor for use as a rental automobile under lease terms of one year or less, provided the lessor gives proper certification to the seller.  The exception does not apply to a retail sale of repair or replacement parts for rental automobiles.

 

c)         All gross receipts received from the sale of tangible personal property at retail, whether or not encumbered by leases or other rights vested in third parties, are presumed to be subject to Retailers' Occupation Tax. No deduction will be permitted for any value attributable to intangible property or rights transferred in a sale of tangible personal property at retail if there is not clear evidence from the books and records of the retailer that the sale of such intangible property has been contracted for separately from the sale of the tangible personal property.  In no event will the combined sale of tangible and intangible property be permitted to reduce the tax base of the tangible personal property being sold below the fair market value of similar tangible personal property sold separately.

 

d)         Sales of tangible personal property to lessors are subject to Retailers' Occupation Tax liability as provided in this Section even if the tangible personal property is leased to an exempt entity that has been issued an exemption identification number under Section 130.2007 of this Part.  The only exemption from this provision is if the purchases of the tangible personal property qualify under Section 130.2011 (computers, communications equipment, and equipment used in diagnosis, analysis, or treatment that are leased to exempt hospitals) or 130.2012 (tangible personal property leased to a governmental body) of this Part.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.225  Drop Shipments

 

a)         A drop-shipment situation is one in which out-of-State purchasers (purchasers) that are not registered with the State of Illinois and that do not have sufficient nexus with Illinois to require them to collect Illinois Use Tax or remit Retailers' Occupation Tax make purchases for resale from companies (companies) that are registered with Illinois and have those companies drop-ship the property to purchasers' customers (customers) located in Illinois.  As sellers required to collect Illinois tax, companies must either charge tax or document exemptions when they make deliveries in Illinois.  In order to document the fact that their sales to purchasers are sales for resale, companies are obligated by Illinois to obtain valid Certificates of Resale from purchasers.  (See 86 Ill. Adm. Code 130.1405 for information on what is required for a Certificate of Resale to be valid.)

 

b)         If purchasers have no nexus with Illinois, it is unlikely that purchasers would be registered with Illinois.  If that is the case, and if purchasers have no contact with Illinois that would require them to be registered as remote retailers or out-of-State Use Tax collectors for Illinois, then purchasers could obtain resale numbers, which would provide them the wherewithal to supply required numbers to companies in conjunction with Certificates of Resale.  Resale numbers are issued to persons who make no taxable sales in Illinois but who need the wherewithal to provide suppliers with Certificates of Resale when purchasing items that will be resold. So long as purchasers (including remote retailers) do not act as Illinois retailers and, so long as they do not fall under the definition of a "retailer maintaining a place of business in this State", their sales to Illinois customers are not subject to Illinois Retailers' Occupation Tax liability and they cannot be required to act as Use Tax collectors.  So long as this is true, purchasers qualify for resale numbers that do not require the filing of tax returns with the Illinois Department of Revenue (the Department). (See 86 Ill. Adm. Code 130.1415 for information on resale numbers.)  To determine if a purchaser is a "retailer maintaining a place of business in this State" or a "remote retailer" required to register with the Department, see 86 Ill. Adm. Code 150.201 or 86 Ill. Adm. Code 131.115, respectively.

 

c)         The fact that purchasers may not be required to remit Retailers' Occupation Tax or act as Use Tax collectors for Illinois does not relieve their customers of Use Tax liability.  Therefore, if purchasers do not collect Illinois Use Tax from their customers, the customers would have to pay their tax liability directly to the Department.

 

d)         While active registration or resale numbers on Certificates of Resale are still preferred, the Illinois Retailers' Occupation Tax Act provides that failure to present an active registration number or resale number and a certification to the seller that a sale is for resale creates a presumption that a sale is not for resale. This presumption may be rebutted by other evidence that all of the seller's sales are sales for resale or that a particular sale is a sale for resale  [35 ILCS 120/2c].  In light of this statutory language, certifications from purchasers on Certificates of Resale in lieu of resale numbers that described the drop-shipment situation and the fact that purchasers have no contact with Illinois that would require them to be registered and that they choose not to obtain Illinois resale numbers would constitute evidence that this particular sale is a sale for resale despite the fact that no registration number or resale number is provided. The risk run by companies in accepting such a certification and the risk run by purchasers in providing such a certification is that an Illinois auditor is much more likely to go behind a Certificate of Resale that does not contain a valid resale number and require that more information be provided by companies as evidence that the particular sale was, in fact, a sale for resale.

 

(Source:  Amended at 47 Ill. Reg. 2116, effective January 24, 2023)

SUBPART C: CERTAIN STATUTORY EXEMPTIONS

 

Section 130.305  Farm Machinery and Equipment

 

a)         Notwithstanding the fact that the sales may be at retail, the Retailers' Occupation Tax Act ("Act") does not apply to sales of machinery and equipment, both new and used, and including machinery and equipment manufactured on special order, used, or leased for use primarily in production agriculture or for use in State or federal agricultural programs, including any individual replacement part for such machinery and equipment.  A purchaser must certify to the use of the equipment to obtain the exemption.  For purposes of this Section, "primary use" or "primarily" means more than 50% of the time.

 

b)         Production agriculture.  "Production agriculture" means the raising of or the 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, viticulture, and apiculture.  [35 ILCS 120/2-35]

 

1)         Animal husbandry means the raising and propagation of livestock to produce offspring, meat, fiber, milk, eggs, or other products.

 

2)         Floriculture means the business of producing flowers, Christmas trees or other decorative trees, plants, shrubs, or sod, including the operation of greenhouses.

 

3)         Aquaculture or aqua farming means the controlled breeding, hatching, propagation or raising of aquatic life, such as fish, mollusks, crustaceans, algae, and other aquatic plants and invertebrates.  See 17 Ill. Adm. Code 870.5.

 

4)         Horticulture means the business of producing vegetables, vegetable plants, or nursery stock, including the operation of nurseries and orchards.

 

5)         Viticulture means the business of growing grapes or operating vineyards.

 

6)         Apiculture means the business of maintaining bees and hives for the production of beeswax, honey, or other edible bee products, crop pollination services, and the sale of bees to other beekeepers.

 

7)         Production agriculture, with respect to crops, is limited to activities necessary in tilling the soil, planting, irrigating, cultivating, applying herbicide, insecticide, or fertilizer, and harvesting or drying of crops.  Specialized food production operations that produce plants under controlled environments in growing media other than soil, also qualify as production agriculture.  

 

8)         Production agriculture, with respect to animals, is limited to the raising of or the propagation of livestock and husbandry of animals.  To qualify as the propagation of livestock and husbandry of animals, the animals must be raised for resale or retail sale.  

 

9)         Production agriculture does not include the following:

 

A)        Activities such as the clearing of land, mowing of fence rows or ditches, and creating ponds or drainage facilities.

 

B)        Operations involved in the storing of crops and produce or in the transporting of crops and produce to storage or to sale.

 

C)        The processing of crops into food or other products.  However, see Section 130.330(b), Manufacturing Machinery and Equipment regarding any processing exemption. 

 

D)        The raising of wild animals, game birds, and house pets.

 

AGENCY NOTE:  The purchase of game birds may qualify for an exemption under the Retailers' Occupation Tax Act [35 ILCS 120/2-5(32)].

 

E)        The transport, slaughter, and processing of animals or animal food products.  However, see Section 130.330, Manufacturing Machinery and Equipment regarding any slaughtering or processing exemption.

 

c)         Farm machinery and equipment.  The exemption applies only to items of farm machinery and equipment, both new and used, certified by the purchaser to be used primarily for production agriculture or State or federal agricultural programs, including individual replacement parts for the machinery and equipment, including machinery and equipment purchased for lease, and including implements of husbandry defined in Section 1-130 of the Illinois Vehicle Code [625 ILCS 5], farm machinery and agricultural chemical and fertilizer spreaders, and nurse wagons required to be registered under Section 3-809 of the Illinois Vehicle Code, but excluding other motor vehicles required to be registered under the Illinois Vehicle Code.  [35 ILCS 120/2-5(2)]

 

1)         Registered vehicles other than motor vehicles and unmanned aerial vehicles, commonly referred to as "drones" or "UAVs", may qualify for the exemption if they are used primarily in production agriculture rather than in transportation or other nonexempt activities. 

 

A)        Examples include:  implements of husbandry used primarily to supply and apply farm chemicals; nurse tanks and their trailers used primarily to supply spreaders in the fields; aircraft used primarily to apply farm chemicals; drones or UAVs; and combine header carts/trailers used to transport combine grain-heads. 

 

B)        The above registered vehicles in subsection (c)(1)(A) and all-terrain vehicles ("ATVs") that are not required to be registered under the Illinois Vehicle Code may qualify if they are used primarily in production agriculture activities. 

 

C)        The use of the registered vehicles described in subsection (c)(1)(A) above and ATVs that are not required to be registered under the Illinois Vehicle Code for farm transportation or recreation purposes does not constitute production agriculture. 

 

D)        When the registered vehicles described in subsection (c)(1)(A) above and ATVs that are not required to be registered under the Illinois Vehicle Code are used in both production agriculture and non-qualifying activities, the primary use of each vehicle will determine if it qualifies for exemption.

 

2)         Qualifying uses include, but are not limited to:

 

A)        collecting and mapping soil samples;

 

B)        mapping fields;

 

C)        pulling sprayers while they apply farm chemicals to fields;

 

D)        applying farm chemicals to a targeted area;

 

E)        transporting seeds to fields;

 

F)         cleaning livestock waste;

 

G)        hauling and properly disposing of dead livestock, including any digging and burying; and

 

H)        hauling injured or ill livestock or livestock necessities, such as medication, feed, and water.

 

3)         Non-qualifying uses include, but are not limited to:

 

A)        mowing;

 

B)        scouting crops;

 

C)        checking fences;

 

D)        mapping tile lines;

 

E)        herding livestock;

 

F)         checking livestock;

 

G)        hauling debris;

 

H)        traveling to inaccessible areas;

 

I)         transporting items such as seed, feed, chemicals, or straw to be stored prior to its use in production agriculture; and

 

J)         transporting tools, persons, or equipment to repair fences or to mow fence rows or ditches.

 

4)         Beginning January 1, 2024, farm machinery and equipment also includes electrical power generation equipment used primarily for production agriculture.  [35 ILCS 120/2-5(2)] 

 

A)        Electrical power generation equipment used to generate electricity for specialty heating or lighting equipment specifically required by the production process (e.g., ultra-violet lights or special heaters for incubation) qualifies for the exemption. 

 

B)        Electrical power generation equipment used to generate electricity for general heating, lighting, or ventilation equipment does not qualify for the exemption. 

 

5)         The law exempts only the purchase and use of farm machinery and equipment used in production agriculture or State or federal agricultural programs. No other type or kind of tangible personal property will qualify for the exemption.

 

6)         Machinery means major mechanical machines or major components thereof contributing to the production agriculture process or used primarily in State or federal agricultural programs.

 

A)        Farm machinery would include tractors, combines, balers, irrigation equipment, and cattle and poultry feeders, but not improvements to real estate such as fences, barns, roads, grain bins, silos, and confinement buildings.

 

B)        A rotary mower that would not qualify for exemption if used to mow ditches or fence rows, would qualify for exemption if primarily used to mow crops or ground cover grown on acreage in State or federal agricultural programs.

 

C)        Certain machines qualify for the exemption if purchased by farmers directly from retailers, even though they are installed as realty improvements.  Such machines include, but are not limited to, augers, grain dryers (e.g., heaters and fans), automated livestock feeder bunks but not ordinary building materials, automatic stock waterers powered by electricity or water pressure and built into a permanent plumbing system, water pumps serving production areas, and specialty heating or lighting equipment specifically required by the production process, (i.e., ultraviolet lights and special heaters for incubation). 

 

D)        General heating, lighting, and ventilation equipment does not qualify as farm machinery or equipment.

 

E)        A person, such as a plumbing contractor, who contracts to provide and install an exempt machine or equipment permanently into real estate must obtain an exemption certificate from the person purchasing the machine.  The contractor must furnish certification to the seller, attaching the certificate of the purchaser in order to claim the exemption.

 

F)         A tractor or other machinery that qualifies for the exemption may include options or accessories that are not farm equipment.  Except for precision farming equipment, these items must be installed and sold both as an integral part of the qualifying machine and in a single transaction.  Agricultural chemical tender tanks and dry boxes shall include units sold separately from a motor vehicle required to be licensed and units sold mounted on a motor vehicle required to be licensed, if the selling price of the tender is separately stated.  [35 ILCS 120/2-5(2)]

 

7)         Equipment means any independent device or apparatus separate from any machinery, but essential to production agriculture. 

 

A)        Equipment does not include ordinary building materials to be permanently affixed to real estate.  However, certain items of equipment can qualify for the exemption even though they are installed as realty improvements.  Such items of equipment include, but are not limited to, farrowing crates, gestation stalls, poultry cages, portable panels for confinement facilities, and flooring used in conjunction with waste disposal machinery.  Horticulture polyhouses or hoop houses used for propagating, growing, or overwintering plants shall be considered farm machinery and equipment.  [35 ILCS 120/2-5(2)]

 

B)        Wheeled, wire-mesh tables and wheeled, non-motorized, multiple-tray carts used primarily in floricultural or horticultural growing operations, such as those described in Mid-American Growers v. Department of Revenue, 143 Ill.App.3d 600 (3d Dist. 1986), are considered farm machinery and equipment. 

 

C)        Farm machinery and equipment shall include precision farming equipment that is installed or purchased to be installed on farm machinery and equipment including, but not limited to, tractors, harvesters, sprayers, planters, seeders, or spreaders.  [35 ILCS 120/2-5(2)]

 

i)          Precision farming equipment includes, but is not limited to, soil testing sensors, computers, monitors, software, global positioning and mapping systems ("GPS"), and other such equipment.  [35 ILCS 120/2-5(2)]  It shall also include necessary mounting hardware, wiring, and antennas. 

 

ii)         Farm machinery and equipment also includes computers, sensors, software, and related equipment used primarily in the computer-assisted operation of production agriculture facilities, equipment, and activities such as, but not limited to, the collection, monitoring, and correlation of animal and crop data for the purpose of formulating animal diets and agricultural chemicals.  [35 ILCS 120/2-5(2)]

 

iii)        The use of computers to record and process land information about soil types and slope as well as pesticide, herbicide, and fertilizer application also constitutes precision farming.  

 

iv)        When a computer is used for both precision farming and nonqualifying purposes, the primary use of the computer will determine if it qualifies for the exemption. 

 

EXAMPLE 1:  Precision farming and computer assisted operation of production agriculture facilities includes the collection of crop and soil data, the processing of that data, and the use of that data or its products in production agriculture.  Thus, machinery and equipment such as soil sensors, moisture sensors, and yield monitors would collect data on a particular field. This information would be precisely correlated to a specific location by use of satellite GPS linked to a computer.  These devices would typically be mounted on a tractor or combine. These devices could also be hand-held or mounted on drones or UAVs, or other types of vehicles even though those vehicles, such as pick-up trucks, do not qualify for the exemption.  The data collected from the farm field would then be transferred to a base station computer electronically.  The data would be processed by the base station computer and integrated into or overlayed on digital maps of the farm field.  The farmer could use the information to make decisions about what types of crops to plant and the type, formula, and application rate of fertilizer, pesticide, or other agricultural chemical to apply to the field.  The processed and integrated data would then be available for use by the farmer in planting or could be transferred to a fertilizer dealer who applies farm chemicals.  The fertilizer dealer would use the information about the farmer's field and the digital map to determine the type and formula of chemical to be applied to the farmer's field and the rate of application.  That information would be transferred to the computer in the fertilizer spreader.  With the aid of GPS linked to the computer in the fertilizer spreader, the fertilizer dealer would be able to precisely apply the necessary chemicals and vary the application rate to meet crop needs across the field.  All of the sensors, computers, software, and accessories described above would qualify for the exemption.

 

EXAMPLE 2:  A livestock farmer using microchips and sensors to identify specific animals and determine individual growth information for animals qualify as precision farming.  This information would be used by computers to determine the optimum feed or diet for the animal and could then be used to dispense the proper type and amount of feed to the animal. 

 

EXAMPLE 3:  In confinement buildings, precision farming would include temperature and moisture sensors linked through computers to control heating, ventilation, and lighting for livestock as well as regulating the automatic stock feeders and waterers. 

 

EXAMPLE 4:  Precision farming equipment would include the microchips, sensors, computers, and computer-controlled feeding equipment and environmental controls.  The use of computers to record and process crop and livestock management information gathered through the use of these types of sensors or monitors constitutes precision farming. However, the use of computers to record and process other farm related information such as accounts payable, correspondence, or marketing does not constitute precision farming.

 

D)        The exemption includes hand-operated equipment such as wheelbarrows, hoes, rakes, pitchforks, and shovels so long as they are used in production agriculture as that term is defined in subsection (b) of this Section.  

 

E)        In general, equipment and supplies that have a useful life of less than one year do not qualify for the exemption. 

 

F)         Items that do not qualify as equipment, include, but are not limited to, the following:

 

i)          Equipment used in farm management such as radios and office equipment, in repair and servicing of equipment, in security and fire protection, farm maintenance, administration, selling, marketing, or the exhibition of products. 

 

ii)         Hand tools used in maintenance activities, such as wrenches, pliers, wire stretchers, grease guns, hammers, and screwdrivers.

 

iii)        Supplies, such as baling wire, baling twine, work gloves, boots, overshoes, and chemicals for effluent systems.

 

G)        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.

 

8)         When an item of farm machinery and equipment is used both in a qualifying and nonqualifying manner, the burden of demonstrating primary use is on the taxpayer claiming the exemption.  One method to demonstrate primary use is for the taxpayer to provide a log, documenting machine hours by qualifying and nonqualifying uses.  See also 86 Ill. Adm. Code 130.810.

 

d)         New or used repair or replacement parts, necessary for the operation of the machine used in production agriculture or in State or federal agricultural programs, qualify for the exemption. With the exception of precision farming items, accessories or replacements not essential to the operation of the machinery itself, except when sold as an integral part of a qualified machine at the time of purchase, such as radios, and tool or utility boxes, do not qualify for the exemption.  Repair or replacement parts include, but are not limited to, batteries, tires, fan belts, mufflers, spark plugs, plow points, standard type motors, and cutting parts.  Consumable supplies such as fuel, grease, oil, and anti-freeze are not repair or replacement parts.

 

e)         Exemption certifications must be executed by the purchaser.  The certificate must include the seller's name and address, the purchaser's name and address, and a statement that the property purchased will be used primarily in production agriculture or in State or federal agricultural programs, including the name of the specific agricultural program.  Retailers may accept blanket certificates but have the responsibility to obtain and must maintain the certificates as a part of their books and records.  Retailers are required to exercise good faith in accepting exemption certificates.  If, however, a retailer reasonably believes that the purchaser will use farm machinery or equipment in production agriculture or in State or federal agricultural programs and accepts the certificate in good faith and the purchaser does not, in fact, use the machinery or equipment in production agriculture or in State or federal agricultural programs, the purchaser will be liable to the Department for the tax, not the retailer.  

 

f)         An item of farm machinery and equipment that is initially used primarily in production agriculture and having been so used for less than one-half of its useful life, is converted to primarily nonexempt uses, will become subject to tax at the time of the conversion.  Such tax will be collected on the portion of the price of the machinery and equipment that was excluded from tax at the time the sale or purchase was made.

 

g)         Leasing.  Farm machinery and equipment purchased for lease to be used by the lessee primarily in production agriculture or in State or federal agricultural programs qualifies for the exemption.  The lessor purchasing such equipment must certify that the equipment will be so used.  Should a purchaser-lessor subsequently lease the machinery or equipment primarily to lessees who do not use it in a manner that would qualify for the exemption, the purchaser-lessor will become liable for the tax from which the purchaser-lessor was previously exempted.

 

h)         Custom farmers or special service operators, who provide a service-for-hire, such as crop dusting, pollinating, fertilizer spraying, combining, or corn shelling, that is an integral part of production agriculture on farms other than their own may also claim the exemption if the equipment is used primarily in production agriculture.

 

i)          State and federal agricultural programs.  The State or federal agricultural programs can include agricultural programs administered by the United States Department of Agriculture or state agriculture agencies (e.g., Illinois Department of Agriculture) under which government cost-share funds are provided to agricultural producers for expenditure for land treatment structures or devices such as terraces or grass waterways.  This exemption can be claimed by any person, including subcontractors, who will use machinery or equipment primarily in State or federal agricultural programs. 

 

j)          No item qualifies for the exemption in and of itself, and no transaction is exempt unless the seller obtains a certification that contains the information required by subsection (e).  Machinery and equipment that is used both in qualifying and non-qualifying activities must be used primarily in a qualifying activity for the exemption to apply.

 

(Source:  Amended at 49 Ill. Reg. 2107, effective February 5, 2025)

 

Section 130.310  Food, Soft Drinks and Candy

 

a)         Food.  Until July 1, 2022 and beginning again on July 1, 2023, with respect to food for human consumption that is to be consumed off the premises where it is sold (other than alcoholic beverages, food consisting of or infused with adult use cannabis, soft drinks, candy and food that has been prepared for immediate consumption), the tax is imposed at the rate of 1%. Beginning on July 1, 2022 and until July 1, 2023, with respect to food for human consumption that is to be consumed off the premises where it is sold (other than alcoholic beverages, food consisting of or infused with adult use cannabis, soft drinks, candy, and food that has been prepared for immediate consumption), the tax is imposed at the rate of 0%.  [35 ILCS 120/2-10]  Prescription and nonprescription medicines and drugs, however, shall continue to be taxed at the rate of 1% during the period beginning on July 1, 2022 and until July 1, 2023.  "Food for human consumption that is to be consumed off the premises where it is sold" includes all food sold through a vending machine, except soft drinks, candy, and food products that are dispensed hot from a vending machine, regardless of the location of the vending machine.  Beginning September 1, 2009, "food for human consumption that is to be consumed off the premises where it is sold" does not include candy.  [35 ILCS 120/2-10]  For further information on the definition and taxation of soft drinks, see subsection (d)(6).  For further information regarding the definition and taxation of candy, see subsection (d)(7).

 

b)         The manner in which food is taxed depends upon 2 distinct factors that must both be considered in determining if food is taxed at the high rate as "food prepared for immediate consumption" or the low rate as "food prepared for consumption off the premises where sold".

 

1)         The first factor is whether the retailer selling the food provides premises for consumption of food.  If so, a rebuttable presumption is created that all sales of food by that retailer are considered to be prepared for immediate consumption and subject to tax at the high rate.  As a result of this presumption, even bulk food could potentially be taxable at the high rate.  However, this presumption is rebutted if a retailer demonstrates that:

 

A)        the area for on-premises consumption is physically separated or otherwise distinguishable from the area where food not for immediate consumption is sold; and

 

B)        the retailer has a separate means of recording and accounting for collection of receipts from sales of both high and low rate foods.  For purposes of this subsection (b)(1)(B), the phrase "separate means of recording and accounting for collection of receipts" includes cash registers that separately identify high rate and low rate sales, separate cash registers, and any other methods by which the tax on high and low rate sales are recorded at the time of collection.

 

2)         The second factor is the nature of the food item being sold.  As provided in subsection (c), some foods, such as hot foods, are always considered to be "food prepared for immediate consumption", and thus subject to the high rate of tax. 

 

3)         Numerous examples applying these factors to different types of food and food retailers are provided in subsection (d)(4)(A) through (I). 

 

c)         Definitions

 

1)         "Food". Food is any solid, liquid, powder or item intended by the seller primarily for human internal consumption, whether simple, compound or mixed, including foods such as condiments, spices, seasonings, vitamins, bottled water and ice.

 

2)         "Food Prepared for Immediate Consumption".  Food prepared for immediate consumption means food that is prepared or made ready by a retailer to be eaten without substantial delay after the final stage of preparation by the retailer.

 

A)        Food prepared for immediate consumption includes, but is not limited to, the following:

 

i)          all hot foods, whether sold in a restaurant, delicatessen, grocery store, discount store, concession stand, bowling alley, vending machine or any other location.  At a grocery store, hot foods subject to the high rate of tax include, but are not limited to, pizza, soup, rotisserie or fried chicken and coffee; other examples of food prepared for immediate consumption include popcorn or nachos sold at a movie concession stand; hot dogs sold by a street vendor; and hot precooked meals sold to customers, such as a Thanksgiving dinner.  For purposes of this Section, "hot" means any temperature that is greater than room temperature;

 

ii)         sandwiches, either hot or cold, prepared by a retailer to the individual order of a customer;

 

iii)        salad, olive or sushi bars offered by a retailer at which individuals prepare their own salads (hot or cold);

 

iv)        all coffee, tea, cappuccino and other drinks prepared by a retailer for individual consumption, whether hot or cold, are subject to the high rate of tax;

 

v)         all food sold for consumption on the premises where sold.

 

B)        "Food prepared for immediate consumption" does not include:

 

i)          doughnuts, cookies, bagels or other bakery items prepared by a retailer and sold either individually or in another quantity selected by the customer, provided they are for consumption off the premises where sold;

 

ii)         whole breads, pies and cakes prepared by a retailer, even when prepared to the individual order of a customer;

 

iii)        sandwiches that are prepared by a retailer and placed in a deli case or other storage unit;

 

iv)        cold salads, jellos, stuffed vegetables or fruits sold by weight or by quart, pint or other quantity by a retailer;

 

v)         cheese, fruit, vegetable or meat trays prepared by a retailer, either to the individual order of a customer or premade and set out for sale;

 

vi)        food items sold by a retailer that are not prepared or otherwise manufactured by that retailer, such as pre-packaged snacks or chips, unless these items will be consumed on the premises where sold (e.g., in a sandwich shop).  For grocers, such items include, but are not limited to, fruits, vegetables, meats, milk, canned goods and yogurt.  In addition, effective September 1, 2009, all sales of "candy", as defined in subsection (d)(7), are subject to the high rate of tax.

 

C)        The provisions of subsection (c)(2)(B) are subject to the rebuttable presumption described in subsection (d).  That is, the items listed in subsection (c)(2)(B) are taxable at the low rate only if the retailer had a separate means of recording and accounting for high and low rate sales, and the retailer provides no on-premises facilities for consumption of the food or, if the retailer does provide such facilities, they are physically separated or otherwise distinguishable from the area where food not for immediate consumption is sold.

 

3)         "Premises".  Premises is that area over which the retailer exercises control, whether by lease, contract, license or otherwise, and, in addition, the area in which facilities for eating are provided, including areas designated for, or devoted to, use in conjunction with the business engaged in by the vendor.  Vendor premises include eating areas provided by employers for employees and common or shared eating areas in shopping centers or public buildings if customers of food vendors adjacent to those areas are permitted to use them for consumption of food products. 

 

4)         "Adult use cannabis".  "Adult use cannabis" means cannabis subject to tax under the Cannabis Cultivation Privilege Tax Law and the Cannabis Purchaser Excise Tax Law and does not include cannabis subject to tax under the Compassionate Use of Medical Cannabis Program Act [410 ILCS 130].

 

d)         Test to Determine Applicable Rate.  The rate at which food is taxable is determined as follows:

 

1)         If retailers provide seating or facilities for on-premises consumption of food, all food sales are presumed to be taxable at the high rate as "food prepared for immediate consumption".  However, this presumption can be rebutted by evidence that:

 

A)        the area for on-premises consumption is physically separated or otherwise distinguishable from the area where food not for immediate consumption is sold; and

 

B)        the retailer utilizes a means of recording and accounting for collection of receipts from the sales of food prepared for immediate consumption (high rate) and the sales of food that are not prepared for immediate consumption (low rate). 

 

2)         If a retailer does not provide seating or facilities for on-premises consumption of food, then the low rate of tax will be applied to all food items except for "food prepared for immediate consumption by the retailer" as provided in subsection (b) and soft drinks, candy and alcoholic beverages.  However, in order for the low rate of tax to apply, retailers that sell both food prepared for immediate consumption and food for consumption off the premises where sold must utilize means of recording and accounting for collection of receipts from the sales of food prepared for immediate consumption (high rate) and the sales of food that are not prepared for immediate consumption (low rate).  If these receipts are not maintained, all sales will be presumed to be at the high rate of tax. 

 

3)         Illustration C is a decision tree to assist in making high rate/low rate determinations.

 

4)         EXAMPLES:

 

A)        Grocery Store – On-premises Facilities for Consumption of Food.  Provided that the requirements of subsection (d)(1) are met, examples of high rate items include, but are not limited to, hot foods (soup, pizza, rotisserie or fried chicken, stuffed potatoes, hot dogs); all sandwiches, either hot or cold, that are prepared to the individual order of a customer; salads prepared by customers at a salad/olive/sushi bar; and all food sold for consumption on the premises.  Also included are hot precooked meals sold to customers, such as a Thanksgiving dinner; however, if precooked meals are sold in an unheated state of preparation, they are considered to be low rate.  Meal packages sold by a grocer (e.g., 2 or more pieces of fried chicken with choice of two sides and dinner rolls sold at one price) that include at least 1 hot food item are taxable at the high rate, even if some foods in the package, sold alone, would be taxable at the low rate.  Low rate items would include, but are not limited to, doughnuts (regardless of quantity), bagels, rolls and whole breads or bakery items prepared by the retailer; sandwiches that are premade by the retailer and set out for sale to customers; cold pizzas prepared by the retailer and set out for sale to customers; stuffed olives or peppers prepared by the retailer and set out for sale in individual sized containers; and deli items sold by the retailer to customers by size or weight (prepared salads, e.g., potato, pasta, bean or fruit salads; jello; pudding; stuffed olives). 

 

B)        Grocery Store – No On-premises Facilities for Consumption of Food.  Provided that the requirements of subsection (d)(2) are met, examples of high rate items would include, but are not limited to, hot foods (soup, pizza, rotisserie or fried chicken, hot dogs); all sandwiches, either hot or cold, that are prepared to the individual order of a customer; and salads that are made by customers at a salad/olive/sushi bar.  In addition, effective September 1, 2009, all sales of "candy", as defined in subsection (d)(7), are subject to the high rate of tax.  Also included are hot precooked meals sold to customers, such as a Thanksgiving dinner.  If precooked meals are sold in an unheated state of preparation, however, they are considered to be low rate.  Low rate items would include, but are not limited to, doughnuts (regardless of quantity), bagels, rolls and whole breads or bakery items prepared by the retailer; sandwiches that are premade by the retailer and set out for sale to customers; cold pizzas prepared by the retailer and set out for sale to customers; stuffed olives or peppers prepared by the retailer and set out for sale in individual sized containers; and deli items sold by the retailer to customers by size or weight. 

 

C)        Restaurants and Cafeterias.  All foods sold by a restaurant or a cafeteria are considered food prepared for immediate consumption.  Such food can either be prepared to the individual order of a customer or premade and set out for selection by the customer. However, if a restaurant or cafeteria also sells whole pies, cakes or individual pastries for sale, these items are taxable at the low rate, as long as the requirements of subsection (d)(1) are met.   

 

D)        Bakery.  Provided that the requirements of either subsection (d)(1) or (d)(2) are met, the following items are taxable at the low rate:  doughnuts, cookies or individual pastries, regardless of quantity, sold for consumption off the premises where sold, and whole cakes or pies, such as wedding or special occasion cakes.  Food sold for consumption on the premises, such as doughnuts and coffee, are subject to the high rate of tax.

 

E)        Delicatessen.  Provided that the requirements of either subsection (d)(1) or (d)(2) are met, meat, cheese and prepared salads sold by weight or volume are taxable at the low rate.  Individual sandwiches prepared to the individual order of a customer are high rate, as well as other food sold for consumption on the premises.  

 

F)         Ice Cream Store.  Ice cream items in individual sizes, either prepared to the individual order of a customer or premade and offered for sale by a retailer, constitute "food prepared for immediate consumption" and are subject to the high rate of tax.  These items include ice cream cones, cups of ice cream, sundaes, shakes and premade ice cream sandwiches, bars or cookies.  However, provided that the requirements of either subsection (d)(1) or (d)(2) are met, ice cream cakes or rolls or ice cream packaged in premeasured containers, such as a pint, quart or gallon, are subject to tax at the low rate. 

 

G)        Food Sold at Food Courts.  All hot food and food prepared to the individual order of a customer by a retailer at a food court is subject to the high rate of tax.  In addition, all other food sold for consumption on the premises of a food court is subject to the high rate of tax.  

 

H)        Convenience Stores.  Provided that the requirements of either subsection (d)(1) or (d)(2) are met, prepackaged food items not prepared by a convenience store retailer are subject to the low rate of tax.  These items include, but are not limited to, chips, snacks, bread products and cookies.  The sale of hot food items, such as hot dogs, nachos or pretzels, are subject to the high rate of tax, as well as other food sold for consumption on the premises.  In addition, effective September 1, 2009, all sales of "candy", as defined in subsection (d)(7), are subject to the high rate of tax.

 

I)         Coffee Shops.  Provided that the requirements of either subsection (d)(1) or (d)(2) are met, coffee, latte, cappuccino and tea (prepared either hot or cold) and food sold for consumption on the premises (e.g., pastries, cookies, snacks) are subject to the high rate of tax.  Bulk coffees (beans or grounds, for instance) and teas, or pastries that are not consumed on the premises, are subject to the low rate of tax.

 

5)         Alcoholic Beverages.  The reduced rate does not extend to alcoholic beverages.  An alcoholic beverage is any beverage subject to the tax imposed under Article VIII of the Liquor Control Act of 1934 [235 ILCS 5/Art. VIII].

 

6)         Soft Drinks.  The reduced rate does not extend to soft drinks.  Soft drinks are taxed at the State sales tax rate of 6.25%.  Soft drinks are taxable at the high rate regardless of the type of establishment where they are sold, e.g., a grocery store, restaurant or vending machine.

 

A)        Until September 1, 2009, the term "soft drinks" means any complete, finished, ready-to-use, non-alcoholic drink, whether carbonated or not, including but not limited to soda water, cola, fruit juice, vegetable juice, carbonated water, and all other preparations commonly known as soft drinks of whatever kind or description that are contained in any closed or sealed bottle, can, carton, or container regardless of size.  "Soft drinks" does not include coffee, tea, non-carbonated water, infant formula, milk or milk products as defined in Section 3(a)(2) and (4) of the Grade A Pasteurized Milk and Milk Products Act [410 ILCS 635], or drinks containing 50% or more natural fruit or vegetable juice. (Section 2-10 of the Act)  Frozen concentrated fruit juice, dry powdered drink mixes and fruit juices that are reconstituted to natural strength are not soft drinks.

 

B)        On and after September 1, 2009, the term "soft drinks" means non-alcoholic beverages that contain natural or artificial sweeteners.  "Soft drinks" do not include beverages that contain milk or milk products, soy, rice or similar milk substitutes, or greater than 50% of vegetable or fruit juice by volume. (Section 2-10 of the Act)

 

C)        Natural and artificial sweeteners include, but are not limited to, corn syrup, high fructose corn syrup, invert sugar, dextrose, sucrose, fructose, lactose, saccharose, fruit juice concentrates, molasses, evaporated cane juice, rice syrup, barley malt, honey, Rebaudioside A (Reb A), erythritol, xylitol, aspartame, saccharin, acesulfame K, sucralose and sorbitol.  Beverages that list in the ingredient list natural and/or artificial sweeteners including, but not limited to, those listed in this subsection (d)(6)(C), meet the definition of "soft drinks".  (Note, for purposes of this Section, natural and artificial sweeteners do not include natural or artificial flavors.)

 

D)        Examples of soft drinks include, but are not limited to:

 

i)          soda pop;

 

ii)         carbonated and noncarbonated water that contains natural or artificial sweeteners;

 

iii)        root beer;

 

iv)        sport or energy drinks;

 

v)         sweetened tea or coffee (without milk or milk products; see subsection (d)(6)(E));

 

vi)        non-alcoholic beer;

 

vii)       fruit drinks containing 50% or less fruit juice; and

 

viii)      "ready-to-use" non-alcoholic beverage mixers containing 50% or less vegetable or fruit juice by volume, e.g., ready-to-use margarita mixes.

 

E)        Examples of products that are not considered soft drinks include, but are not limited to:

 

i)          beverage powders or dry mixes;

 

ii)         concentrates, e.g., frozen concentrate lemonade;

 

iii)        ground or whole bean coffee and loose leaf tea or tea bags;

 

iv)        carbonated and noncarbonated water that does not contain natural or artificial sweeteners;

 

v)         carbonated and noncarbonated water that does not contain natural or artificial sweeteners but does contain natural or artificial flavor;

 

vi)        vegetable or fruit juices containing greater than 50% vegetable or fruit juice, even if these beverages contain natural or artificial sweeteners;

 

vii)       any drinks that contain milk or milk products, soy, rice or similar milk substitutes; and

 

viii)      brewed unsweetened black coffee or tea. (Note, even though brewed unsweetened black coffee and tea are not considered soft drinks, hot coffee or hot tea,         regardless of whether they contain natural or artificial sweeteners or milk or milk products, are subject to tax at the 6.25% rate because they are considered to be "food prepared for immediate consumption".  (See subsection (c)(2)(A)(iv).))

 

7)         Candy.  On and after September 1, 2009, the reduced rate does not extend to "candy".  Candy is taxed at the State sales tax rate of 6.25%. 

 

A)        "Candy" means a preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts or other ingredients or flavorings in the form of bars, drops, or pieces.  "Candy" does not include any preparation that contains flour or requires refrigeration. (Section 2-10 of the Act)  To meet the definition of candy, the item must be analyzed by using  four factors, as explained in subsections (d)(7)(B) through (E).

 

B)        Flour:  Products whose ingredient list contain the word "flour", regardless of the type of flour (e.g., wheat, rice) are not candy.  A product does not contain flour unless the product label specifically lists flour as an ingredient. Ingredients such as soy or whey that may be used in place of, or as a substitute for, flour are not considered to be flour for purposes of determining if the item qualifies as candy unless they are specifically labeled as flour in the ingredient list.

 

i)          Items that are not considered candy because they list flour as one of the ingredients on the label include, but are not limited to, certain licorice, certain candy bars, cookies and chocolate covered pretzels.

 

ii)         Snack mixes that contain both candy and non-candy items, such as trail mix that contains products with flour or bags of individually wrapped candy bars in which some candy bars contain flour and others do not, are not candy if the ingredient list on the bag lists flour as an ingredient of any of the items.

 

C)        Refrigeration:  Items that require refrigeration are not considered to be candy.  For example, popsicles and ice cream bars are not candy.  Items that otherwise qualify as candy and do not require refrigeration are candy even if they are sold refrigerated or frozen, e.g., a candy bar that has been frozen.  Merely suggesting that the product be refrigerated (e.g., to ensure product quality, please keep this package stored in a cool place, at or below 65°F) is insufficient to meet the refrigeration requirement.

 

D)        Sweeteners:  Candy is limited to products that contain sugar, honey or other natural or artificial sweeteners.  Examples of natural or artificial sweeteners include, but are not limited to, corn syrup, high fructose corn syrup, invert sugar, dextrose, sucrose, fructose, lactose, saccharose, fruit juice concentrates, molasses, evaporated cane juice, rice syrup, barley malt, honey, Rebaudioside A (Reb A), erythritol, xylitol, aspartame, saccharin, acesulfame K, sucralose, sorbitol. 

 

E)        Bars, drops or pieces:  Items must be in the form of bars, drops or pieces to be considered candy.

 

i)          Examples of items that are not in the form of bars, drops or pieces and are not candy include, but are not limited to, jars of honey, syrups, peanut butter, preserves or jams, cans of fruit in syrup, cans or tubes of cake frosting and cereals.

 

ii)         Examples of items that are in the form of bars, drops or pieces and are candy include, but are not limited to, sweetened cooking or baking bars or chips, sweetened coconut flakes, honey glazed peanuts, baking sprinkles, caramel-coated popcorn (does not include un-popped popcorn), artificially flavored candy mints, caramel or candied apples and almond bark.

 

F)         Examples of items that are considered candy (provided that they meet all the requirements of subsections (d)(7)(B) through (D)) include, but are not limited to:

 

i)          chocolate bars, including sweet or semi-sweet bars or bits;

 

ii)         chocolate molded items (e.g., bunny, snowman);

 

iii)        chocolate covered or dipped strawberries, chocolate or carob covered raisins or nuts;

 

iv)        chocolate covered potato chips;

 

v)         chocolate covered bacon;

 

vi)        caramel-coated popcorn (does not include un-popped popcorn), caramel apples, caramel corn or rice cakes;

 

vii)       almond bark, peanut brittle;

 

viii)      marshmallows;

 

ix)        breath mints;

 

x)         chewing gum;

 

xi)        fruit roll-ups;

 

xii)       glazed dried apricots;

 

xiii)      trail mixes that contain candy ingredients, e.g., sweetened nuts;

 

xiv)      granola bars;

 

xv)       any type of nut that is sweetened with any natural or artificial sweetener, e.g., if the ingredient list contains any natural or artificial sweetener.

 

G)        Examples of items that are not considered candy because they do not meet the requirements of subsections (d)(7)(B) through (D) include, but are not limited to (note, if some of the items listed below, such as popcorn, are covered or dipped in chocolate, caramel or other candy coating, they may be considered candy):

 

i)          cakes, pies, cookies, pastry;

 

ii)         ice cream, ice cream bars, frozen yogurt, popsicles, hot fudge ice cream topping;

 

iii)        pretzels;

 

iv)        corn chips, potato chips, popcorn and beef jerky;

 

v)         chocolate milk, strawberry milk, fruit juice, soft drinks;

 

vi)        powdered hot chocolate cocoa mix and other drink mixes;

 

vii)       food coloring;

 

viii)      unsweetened chocolate;

 

ix)        cereals; and

 

x)         licorice and candy bars that contain flour as an ingredient.

 

8)         Adult Use Cannabis.  The reduced rate does not extend to adult use cannabis.  All adult use cannabis (e.g., cannabis flower, concentrate, cannabis-infused products) is taxed at the State rate of 6.25%.

 

e)         Reporting

 

1)         The retailer must keep an actual record of all sales and must report tax at the applicable rates, based on sales as reflected in the retailer's records.  Books and records must be maintained in sufficient detail so that all receipts reported with respect to food can be supported.  

 

2)         A retailer who finds it difficult to maintain detailed records of receipts from sales of food at the reduced rate, as well as detailed records of receipts from all other sales of tangible personal property at the full rate, may request the use of a formula.  The request must be made to the Department in writing, must state the reasons that a formula method is necessary, and must outline the proposed formula in detail.  Included in the request must be a description of how the method can be audited by the Department.  Upon a finding that the formula can be audited and will produce results that will reasonably approximate the actual taxable receipts in each category, the Department may issue its approval for use of the formula.  If approval is granted, the Department reserves the right to withdraw approval or require a change in procedure at any time.

 

(Source:  Amended at 47 Ill. Reg. 6068, effective April 12, 2023)

 

Section 130.311  Drugs, Medicines, Medical Appliances, and Grooming and Hygiene Products

 

a)         General.  With respect to prescription and nonprescription medicines, drugs, medical appliances, products classified as Class III medical devices by the United States Food and Drug Administration that are used for cancer treatment pursuant to a prescription, as well as any accessories and components related to those devices, modifications to a motor vehicle for the purpose of rendering it usable by a person with a disability, and insulin, blood sugar testing materials, syringes, and needles used by human diabetics, the tax is imposed at the rate of 1%. Beginning January 1, 2014, "prescription and nonprescription medicines and drugs" includes medical cannabis and medical cannabis infused products purchased from a registered dispensing organization under the Compassionate Use of Medical Cannabis Program Act [410 ILCS 130].  [35 ILCS 120/2-10]  Medical cannabis, including medical cannabis infused products, sold by registered dispensing organization under the Compassionate Use of Medical Cannabis Program Act, is subject to Retailers' Occupation Tax at the 1% rate, plus applicable local taxes. Cannabis paraphernalia is subject to Retailers' Occupation Tax at the general merchandise rate of 6.25%.  Grooming and hygiene products do not qualify for the 1% rate, regardless of whether the products make medicinal claims.  Grooming and hygiene products are taxed at the general merchandise rate of 6.25%.  [See 35 ILCS 120/2-10]

AGENCY NOTE:  Medical cannabis is subject to tax under both the Metro East Mass Transit District Retailers' Occupation Tax (as provided in 70 ILCS 3610/5.01) and the Regional Transportation Authority Retailers' Occupation Tax (taxed at the rate established for prescription and nonprescription medicines in Cook County and at the rate established for general merchandise in all other areas of the metropolitan region that are subject to the tax, as provided in 70 ILCS 3615/4.03).

 

b)         Beginning January 1, 2017 and through December 31, 2026, menstrual pads, tampons, and menstrual cups are exempt from the Retailers' Occupation Tax.  [35 ILCS 120/2-5(42)]  Menstrual pads (including pantiliners) are exempt even when the label indicates that those products are to be used as both menstrual products and incontinence products.  However, incontinence products that do not indicate on the label that they can also be used as menstrual products are not exempt. 

 

c)         Medicines and Drugs.  Except for grooming and hygiene products described in subsection (d), a medicine or drug is any pill, powder, potion, salve, or other preparation for human use that purports on the label to have medicinal qualities. Medicines prescribed by veterinarians for animals are subject to the high rate of tax.  A written claim on the label that a product is intended to cure or treat disease, illness, injury, or pain or to mitigate the symptoms of such disease, illness, injury, or pain constitutes a medicinal claim.

 

1)         Examples of medicinal claims that will qualify the product for the low rate of tax include, but are not limited to:

 

A)        "medicated";

 

B)        "heals (a medical condition)";

 

C)        "cures (a medical condition)";

 

D)        "for relief (of a medical condition)";

 

E)        "fights infection";

 

F)         "stops pain";

 

G)        "relief from poison ivy or poison oak";

 

H)        "relieves itching, cracking, burning";

 

I)         "a soaking aid for sprains and bruises";

 

J)         "relieves muscular aches and pains";

 

K)        "cures athlete's foot";

 

L)        "relieves skin irritation, chafing, heat rash, and diaper rash";

 

M)       "relief from the pain of sunburn"; and

 

N)        "soothes pain".

 

2)         The use of the terms "antiseptic", "antibacterial", or "kills germs" may or may not constitute a medicinal claim. 

 

A)        The use of these terms in conjunction with a claim that the product kills germs in general does not constitute a medicinal claim.

 

B)        However, a claim that a product is for use as an antiseptic to kill germs to prevent infection in cuts, scrapes, abrasions, and burns does constitute a medicinal claim. 

 

3)         Examples of claims that do not constitute medicinal claims include, but are not limited to:

 

A)        "cools";

 

B)        "absorbs wetness that can breed fungus";

 

C)        "deodorant" or "destroys odors";

 

D)        "moisturizes";

 

E)        "freshens breath";

 

F)         "antiperspirant";

 

G)        "sunscreen";

 

H)        "prevents"; and

 

I)         "protects".

 

d)         Grooming and Hygiene Products.  Beginning September 1, 2009, "nonprescription medicines and drugs" does not include grooming and hygiene products.  "Grooming and hygiene products" includes, but is not limited to, soaps and cleaning solutions, shampoo, toothpaste, mouthwash, antiperspirants, and sun tan lotions and sun screens, unless those products are available by prescription only, regardless of whether the products meet the definition of "over-the-counter drugs".  "Over-the-counter drug" means a drug for human use that contains a label that identifies the product as a drug as required by 21 CFR 201.66.  The "over-the-counter drug" label includes a "Drug Facts" panel or a statement of the "active ingredient(s)" with a list of those ingredients contained in the compound, substance or preparation.  [35 ILCS 120/2-10]

 

1)         As a result, on or after September 1, 2009:

 

A)        nonprescription medicines and drugs that are grooming and hygiene products do not qualify for the 1% rate of tax for medicines and drugs under subsection (c).  Grooming and hygiene products do not qualify for the 1% rate, regardless of whether the products make medicinal claims or meet the definition of over-the-counter drugs.  Grooming and hygiene products are taxed at the general merchandise rate of 6.25%.

 

B)        products available only with a prescription are not "grooming and hygiene products".

 

2)         Examples of products that are grooming and hygiene products include, but are not limited to:

 

A)        all shampoos, hair conditioners, and hair care products;

 

B)        shaving creams or lotions;

 

C)        deodorants;

 

D)        moisturizers;

 

E)        breath spray;

 

F)         all condoms, with and without spermicide;

 

G)        baby diapers and adult diapers;

 

H)        baby powder;

 

I)         contact lens solutions;

 

J)         hand sanitizers;

 

K)        acne products;

 

L)        skin creams, lotions, ointments, and conditioners;

 

M)       foot powders;

 

N)        foot wear insoles that are intended to eliminate odor;

 

O)        feminine hygiene products such as feminine wipes, washes, powders and douches, but, beginning January 1, 2017 through December 31, 2026, the following feminine hygiene products are exempt from tax: tampons, menstrual pads, and menstrual cups (see Section 130.120(vv)); and

 

P)         lip balms.

 

3)         The following products are not grooming and hygiene products and may qualify for the 1% rate if they meet the requirements of subsection (c):

 

A)        hydrocortisone creams or ointments;

 

B)        anti-itch creams or ointments;

 

C)        vaginal creams or ointments;

 

D)        nasal sprays;

 

E)        eye drops;

 

F)         topical pain relievers;

 

G)        ice/heat creams;

 

H)        rubbing alcohol;

 

I)         denture creams or adhesives; and

 

J)         styptic pencils.

 

4)         Nonprescription medicines and drugs and products that are not grooming and hygiene products do not qualify for the 1% rate of tax unless they meet the requirements of subsection (c).

 

5)         Products that are taken orally and ingested, such as vitamins, supplements and weight gain or weight loss products, are not grooming and hygiene products.

 

e)         Medical Appliances:  A medical appliance is an item that is used to directly substitute for a malfunctioning part of the human body. 

 

1)         For purposes of this Section, an item that becomes part of the human body by substituting for any part of the body that is lost or diminished because of congenital defects, trauma, infection, tumors, or disease is considered a medical appliance.  Examples of medical appliances that will qualify the product for the low rate of tax include, but are not limited to:

 

A)        breast implants that restore breasts after removal due to cancer or for preventative, medical reasons;

 

B)        heart pacemakers;

 

C)        artificial limbs;

 

D)        dental prosthetics;

 

E)        crutches and orthopedic braces;

 

F)         dialysis machines (including the dialyzer);

 

G)        wheelchairs;

 

H)        mastectomy forms and bras;

 

I)         mobility scooters; and

 

J)         sleep apnea devices.

 

2)         Corrective medical appliances such as hearing aids, eyeglasses, contact lenses, and orthodontic braces qualify as medical appliances subject to the low rate of tax.

 

3)         Sterile band-aids, dressings, bandages, and gauze qualify for the low rate because they serve as a substitute for skin.

 

4)         Items transferred incident to cosmetic procedures are not considered medical appliances.  For purposes of this Section, a cosmetic procedure means any procedure performed on an individual that is directed at improving the individual's appearance and that does not prevent or treat illness or disease, promote the proper function of the body or substitute for any part of the body that is lost or diminished because of congenital defects, trauma, infection, tumors, or disease.  Cosmetic procedures include, but are not limited to, elective breast, pectoral, or buttock augmentation. 

 

5)         Diagnostic equipment shall not be deemed to be a medical appliance, except as provided in Section 130.311(g).  Other medical tools, devices, and equipment such as x-ray machines, laboratory equipment, and surgical instruments that may be used in the treatment of patients but that do not directly substitute for a malfunctioning part of the human body do not qualify as medical appliances.  Sometimes a kit of items is sold where the purchaser will use the kit items to perform self-treatment.  The kit will contain paraphernalia and sometimes medicines.  An example is a kit sold for the removal of ear wax.  Because the paraphernalia hardware is for treatment, it generally does not qualify as a medical appliance.  However, the Department will consider the selling price of the entire kit to be taxable at the reduced rate when the value of the medicines in the kit is more than half of the total selling price of the kit.

 

6)         Supplies, such as cotton swabs, disposable diapers, toilet paper, tissues and towelettes and cosmetics, such as lipsticks, perfume, and hair tonics, do not qualify for the reduced rate.

 

7)         Medical appliances may be prescribed by licensed health care professionals for use by a patient, purchased by health care professionals for the use of patients or purchased directly by individuals.  Purchases of medical appliances by lessors that will be leased to others for human use also qualify for the reduced rate of tax.

 

f)         Certain Medical Devices.  Effective August 19, 2016, products classified as Class III medical devices by the United States Food and Drug Administration that are used for cancer treatment pursuant to a prescription, as well as any accessories and components related to those devices, qualify for the 1% rate of tax.  [35 ILCS 120/2-10]

 

g)         Insulin, blood sugar testing materials, syringes, and needles used by human diabetics, the tax is imposed at the rate of 1%. [35 ILCS 120/2-10] 

 

h)         Modifications Made to a Motor Vehicle for the Purpose of Rendering It Usable by a Person with a Disability

 

1)         Effective August 17, 1995, modifications made to a motor vehicle, as defined in Section 1-146 of the Illinois Vehicle Code [625 ILCS 5/1-146], for the purpose of rendering it usable by a person with a disability, qualify for the reduced rate of tax.  [35 ILCS 120/2-10]  The low rate applies to modifications that enable a person with a disability to drive a vehicle or that assist in the transportation of persons with disabilities.  Examples of such modifications include, but are not limited to, special steering, braking, shifting or acceleration equipment, or equipment that modifies the vehicle for accessibility, such as a chair lift. 

 

2)         For purposes of this subsection (h), the term "person with disabilities" has the meaning set forth in Section 1-159.1 of the Illinois Vehicle Code [625 ILCS 5/1-159.1].

 

i)          Reporting

 

1)         The retailer must keep an actual record of all sales and must report tax at the applicable rates, based on sales as reflected in the retailer's records.  Books and records must be maintained in sufficient detail so that all receipts reported with respect to drugs, medicines, and medical appliances can be supported.

 

2)         Suppliers that sell items to health professionals must collect tax based on the actual use of the items.  Health professionals that purchase items that may or may not qualify for the low rate, depending upon the ultimate use of the items by the health professionals, may provide their suppliers with certificates that identify the percentage of items being purchased that qualify for the low rate, i.e., that are purchased to be used to replace a malfunctioning part of the body.  (For example, cosmetic versus reconstructive procedures.)

 

A)        The certificate should contain the following information:

 

i)          the seller's name and address;

 

ii)         the purchaser's name and address;

 

iii)        a description of the medical appliances being purchased;

 

iv)        the percentage of the medical appliances being purchased that qualify for the low rate;

 

v)         the purchaser's signature or the signature of an authorized employee or agent of the purchaser and date of signing; and

 

vi)        if the purchaser is registered with the Department, the purchaser's Registration Number or Resale Number.

 

B)        A supplier that obtains a certificate from a health professional that complies with subsection (i)(2)(A) will not be liable for additional retailers' occupation tax in the event the actual percentage of items purchased by the health professional that qualify for the low rate is less than the percentage claimed in the certificate if it remitted retailers' occupation tax to the Department based on the information contained in the certificate received from the health professional.

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.315  Fuel Sold for Use in Vessels on Rivers Bordering Illinois

 

a)         Effective July 26, 1967, notwithstanding the fact that such sales are at retail, the Retailers' Occupation Tax does not apply to sales of fuel consumed or used in the operation of ships, barges or vessels which are used primarily in or for  the transportation of property or the conveyance of persons for hire on rivers bordering on this State if such fuel is delivered by the seller to the purchaser's barge, ship or vessel while it is afloat upon such bordering river.

 

b)         The phrase "rivers bordering on this State"  includes the Mississippi River, the Ohio River, and the Wabash River.  The phrase "rivers bordering on this State" does not include rivers that do not border Illinois, such as the Illinois River and the Calumet River.  The phrase "rivers bordering on this State" also does not include any portion of Lake Michigan.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.320  Gasohol, Majority Blended Ethanol, Biodiesel Blends, and 100% Biodiesel

 

a)         Effective January 1, 1990 and prior to July 1, 2003, sales of gasohol, as defined in Section 3-40 of the Use Tax Act, are subject to tax, based upon 70% of the proceeds of sales.  On and after July 1, 2003 and on or before July 1, 2017, tax shall be based upon 80% of the proceeds from sales of gasohol.  On and after July 1, 2017, and prior to January 1, 2024, tax shall be based upon 100% of the proceeds of sales of gasohol.  On and after January 1, 2024, and prior to January 1, 2029, tax shall be based upon 90% of the proceeds of sales of gasohol.  On and after January 1, 2029, tax shall be based upon 100% of the proceeds of sales of gasohol.  Effective July 1, 2003, if at any time, the tax under the Retailers' Occupation Tax Act (ROTA) on sales of gasohol is imposed at the rate of 1.25%, then the tax imposed by the Act applies to 100% of the proceeds of sales of gasohol made during that time. [35 ILCS 120/2-10]

 

b)         With respect to majority blended ethanol fuel, as defined in Section 3-44 of the Use Tax Act, the tax imposed by the ROTA does not apply to the proceeds of sales made on or after July 1, 2003 and on or before December 31, 2028, but applies to 100% of the proceeds of sales made thereafter.  [35 ILCS 120/2-10]

 

c)         With respect to biodiesel blends, as defined in Section 3-42 of the Use Tax Act, with no less than 1% and no more than 10% biodiesel, the tax imposed by the ROTA applies to 80% of the proceeds of sales made on or after July 1, 2003 and on or before December 31, 2018 and 100% of the proceeds of sales made after December 31, 2018 and before January 1, 2024. On and after January 1, 2024 and on or before December 31, 2030, the taxation of biodiesel, renewable diesel, and biodiesel blends shall be as provided in Section 3-5.1 of the Use Tax Act which is reflected in subsection (e) of this Section.  If at any time, however, the tax under the ROTA on sales of biodiesel blends, as defined in the Use Tax Act, with no less than 1% and no more than 10% biodiesel is imposed at the rate of 1.25%, then the tax imposed by the ROTA applies to 100% of the proceeds of sales of biodiesel blends with no less than 1% and no more than 10% biodiesel made during that time. [35 ILCS 120/2-10]

 

d)         With respect to biodiesel, as defined in Section 3-41 of the Use Tax Act, and biodiesel blends, as defined in Section 3-42 of the Use Tax Act, with more than 10% but no more than 99% biodiesel, the tax imposed by the ROTA does not apply to the proceeds of sales made on or after July 1, 2003 and on or before December 31, 2023. On and after January 1, 2024 and on or before December 31, 2030, the taxation of biodiesel, renewable diesel, and biodiesel blends shall be as provided in Section 3-5.1 of the Use Tax Act which is reflected in subsection (e) below. [35 ILCS 120/2-10]

 

e)         Tax rate on biodiesel, renewable diesel, and biodiesel blends, on January 1, 2024 through December 31, 2030.

 

1)         On and after January 1, 2024 and on or before December 31, 2030, the taxes imposed by the Use Tax Act, the Service Use Tax Act, the Service Occupation Tax Act, or the Retailers' Occupation Tax Act apply to 100% of the proceeds of sales of (i) biodiesel blends with no less than 1% and no more than 10% of biodiesel and (ii) any diesel fuel containing no less than 1% and no more than 10% of renewable diesel.  [35 ILCS 105/3-5.1(a)]

 

2)         From January 1, 2024 through March 31, 2024, the taxes imposed by the Use Tax Act, the Service Use Tax Act, the Service Occupation Tax Act, or the Retailers' Occupation Tax Act do not apply to the proceeds of sales of any diesel fuel containing more than 10% biodiesel or renewable diesel.  [35 ILCS 105/3-5.1(b)]

 

3)         From April 1, 2024 through November 30, 2024, the taxes imposed by the Use Tax Act, the Service Use Tax Act, the Service Occupation Tax Act, or the Retailers' Occupation Tax Act do not apply to the proceeds of sales of any diesel fuel containing more than 13% biodiesel or renewable diesel.  [35 ILCS 105/3-5.1(c)]

 

4)         From December 1, 2024 through March 31, 2025, the taxes imposed by the Use Tax Act, the Service Use Tax Act, the Service Occupation Tax Act, or the Retailers' Occupation Tax Act do not apply to the proceeds of sales of any diesel fuel containing more than 10% biodiesel or renewable diesel.  [35 ILCS 105/3-5.1(d)]

 

5)         From April 1, 2025 through November 30, 2025, the taxes imposed by the Use Tax Act, the Service Use Tax Act, the Service Occupation Tax Act, or the Retailers' Occupation Tax Act do not apply to the proceeds of sales of any diesel fuel containing more than 16% biodiesel or renewable diesel.  [35 ILCS 105/3-5.1(e)]

 

6)         From December 1, 2025 through March 31, 2026, the taxes imposed by the Use Tax Act, the Service Use Tax Act, the Service Occupation Tax Act, or the Retailers' Occupation Tax Act do not apply to the proceeds of sales of any diesel fuel containing more than 10% biodiesel or renewable diesel. [35 ILCS 105/3-5.1(f)]

 

7)         On and after April 1, 2026 and on or before November 30, 2030, the taxes imposed by the Use Tax Act, the Service Use Tax Act, the Service Occupation Tax Act, or the Retailers' Occupation Tax Act do not apply to the proceeds of sales of any diesel fuel containing more than 19% biodiesel or renewable diesel; except that, from December 1 of calendar years 2026, 2027, 2028, and 2029 through March 31 of the following calendar year, and from December 1, 2030 through December 31, 2030, the taxes imposed by the Use Tax Act, the Service Use Tax Act, the Service Occupation Tax Act, or the Retailers' Occupation Tax Act do not apply to the proceeds of sales of any diesel fuel containing more than 10% biodiesel or renewable diesel.  [35 ILCS 105/3-5.1(g)]

 

f)         With respect to mid-range ethanol blends, as defined in Section 3-44.3 of the Use Tax Act, the tax imposed by the ROTA applies to 80% of the proceeds of sales made on or after January 1, 2024 and on or before December 31, 2028 and 100% of the proceeds of sales made after December 31, 2028.  If, at any time, however, the tax under the ROTA on sales of mid-range ethanol blends is imposed at the rate of 1.25%, then the tax imposed by the ROTA applies to 100% of the proceeds of sales of mid-range ethanol blends made during that time.  [35 ILCS 120/2-10]

 

(Source:  Amended at 48 Ill. Reg. 14779, effective September 25, 2024)

 

Section 130.321  Fuel Used by Air Common Carriers in Flights Engaged in Foreign Trade or Engaged in Trade Between the United States and any of its Possessions

 

a)         Until June 30, 2013, notwithstanding the fact that sales may be at retail, fuel and petroleum products sold to or used by an air common carrier, certified by the carrier to be used for consumption, shipment or storage in the conduct of its business as an air common carrier, for a flight destined for or returning from a location or locations outside the United States without regard to previous or subsequent domestic stopovers is exempt from tax. (Section 2-5 of the Act).

 

b)      Exemptions Beginning July 1, 2013

 

1)            Beginning July 1, 2013, notwithstanding the fact that sales may be at retail, tax does not apply to fuel and petroleum products sold to or used by an air carrier, certified by the carrier to be used for consumption, shipment, or storage in the conduct of its business as an air common carrier, for a flight that:

 

A)        is engaged in foreign trade or is engaged in trade between the United States and any of its possessions; and

 

B)        transports at least one individual or package for hire from the city of origination to the city of final destination on the same aircraft, without regard to a change in the flight number of that aircraft [35 ILCS 120/2-5]. 

 

2)         This exemption existed prior to the enactment of Section 2-70 of the Retailers' Occupation Tax Act and will not sunset.

 

c)         Until July 1, 2013, flights destined for a destination outside the United States include flights which originate in Illinois or have a stopover in Illinois and which may have intermediate stops at other locations in the United States prior to arriving at the destination outside the United States.  Beginning July 1, 2013, subject to the provisions in subsection (b), all fuel loaded for such flights shall be considered to be exempt, notwithstanding the fact that a portion of the fuel will be consumed within the United States or any of its possessions. If a flight is loaded with exempt fuel for a flight engaged in foreign trade or trade between the United States and any of its possessions, but for some reason does not meet the provisions of subsection (b), the fuel will be taxable.

 

d)         In general, exempt international fuel shall be treated in the same manner as bonded fuel with respect to the sale, accountability and eligibility of tax exemption.

 

e)         Aviation fuel used as provided in this Section may be commingled with other jet fuel within the hydrant systems at qualifying airports.  However, accurate records must be maintained with respect to the purchaser, gallonage of fuel loaded, flight number, aircraft tail number, ultimate foreign destination and intermediate stops. Beginning July 1, 2013, records must also contain information that indicates that the flight was engaged in foreign trade or trade between the United States or any of its possessions and transported at least one individual or package for hire from the city of origination  to the city of final destination on the same aircraft, without regard to a change in flight number of that aircraft.

 

f)         EXAMPLES:

Aircraft A, Aircraft B, and Aircraft C are operated by an air common carrier.

 

1)         Situation 1.  A flight originates in the United States and its final destination is outside the United States.  Aircraft A fuels up in Chicago, Illinois for a flight bound for Vancouver, Canada.  En route to Vancouver, Aircraft A stops in Seattle, Washington. The flight from Chicago to Seattle is designated Flight No. 111 and the flight from Seattle to Vancouver is designated Flight No. 333.  Although the flight numbers change, the aircraft does not change. Aircraft A transports at least one person or package for hire from Chicago to Vancouver.

 

Determination 1.  Aircraft A is engaged in foreign trade within the meaning of Section 2-5 of the Act.  Aircraft A's flight originates within the United States (Chicago) bound for a destination outside the United States (Vancouver), and Aircraft A transports for hire at least one person or package from Chicago to Vancouver. The intermediate stop in Seattle, en route to Vancouver, does not negate the exemption. Thus, the fuel loaded into the aircraft in Chicago is exempt from tax.  The change in the flight number does not affect the determination of whether the aircraft is engaged in foreign trade as long as the aircraft remains the same and at least one person or package was transported for hire from Chicago to Vancouver.

 

2)         Situation 2.  A flight originates outside the United States and its final destination is inside the United States.  Aircraft B flies from Cancun, Mexico to New York City, New York. En route to New York City, Aircraft B stops in Chicago, Illinois to refuel.  The flight from Cancun to Chicago is designated Flight No. 555 and the flight from Chicago to New York City is designated Flight No. 777.  Although the flight numbers change, the aircraft does not change. Aircraft B transports at least one person or package for hire from Cancun to New York City.

 

Determination 2.  Aircraft B is engaged in foreign trade within the meaning of Section 2-5 of the Act. Aircraft B's flight originates outside of the United States (Cancun) bound for a destination within the United States (New York City), and Aircraft B transports for hire at least one person or package from Cancun to New York City.  The stop in Chicago is an intermediate stop in the United States, en route to New York City.  Thus, the fuel loaded into the aircraft in Chicago is exempt from tax.  The change in the flight numbers does not affect the determination of whether the aircraft is engaged in foreign trade as long as the aircraft remains the same and at least one person or package is transported for hire from Cancun to New York City.

 

3)         Situation 3.  A flight originates within the United States and its final destination is within the United States.  Aircraft C fuels up in Chicago, Illinois for a flight destined for Dallas, Texas.  Aircraft C transports persons for hire from Chicago to Dallas, some of whom will transfer to Aircraft A for a flight from Dallas to Acapulco, Mexico.

 

Determination 3.  Aircraft C is not engaged in foreign trade or in trade between the United States and any of its possessions within the meaning of Section 2-5 of the Act.  Aircraft C did not transport at least one person or package for hire from a city of origination within the United States bound for a city of final destination outside the United States or any of its possessions, even though some of the passengers' final destinations were outside the United States.  Aircraft C's flight is only between two cities within the United States (Chicago to Dallas).  Thus, the fuel loaded into the aircraft in Chicago is not exempt from tax. 

 

4)         Situation 4.  A flight originates in the United States and its destination is a city in a possession of the United States.  Aircraft B fuels up in Chicago, Illinois for a flight to San Juan, Puerto Rico.  En route to San Juan, Aircraft B makes a stop in Savannah, Georgia.  The flight from Chicago to Savannah is designated Flight No. 1122 and the flight from Savannah to San Juan is designated Flight No. 708.  Although the flight number changes, the aircraft does not.  Aircraft B transports two persons from Chicago to San Juan on the same plane.

 

Determination 4.  Aircraft B is engaged in foreign trade between the United States and one of its possessions within the meaning of Section 2-5 of the Act.  Aircraft B's flight originates in Chicago bound for San Juan, and Aircraft B transports for hire at least one person or package from Chicago to San Juan.  The stop in Savannah is an intermediate stop within the United States during a flight to San Juan.  The change in the flight number does not affect the determination of whether the flight is engaged in foreign trade as long as the aircraft remains the same.  Thus, the fuel loaded into the aircraft in Chicago is exempt from tax.

 

(Source:  Amended at 43 Ill. Reg. 4201, effective March 20, 2019)

 

Section 130.325  Graphic Arts Machinery and Equipment Exemption

 

Through June 30, 2003, and beginning again on September 1, 2004 through August 30, 2014, notwithstanding the fact that sales may be at retail, the Retailers' Occupation Tax does not apply to the sale of machinery and equipment, including repair and replacement parts, both new and used and including that manufactured on special order to be used primarily in graphic arts production.  The exemption extends to purchases by lessors who will lease the property for use primarily in graphic arts production.  Taxpayers must certify the use of the equipment they are purchasing to their suppliers.  By statute, this exemption was repealed June 30, 2003 (Public Act 93-24; effective June 20, 2003).  Pursuant to Public Act 93-840, effective July 30, 2004, this exemption was reenacted without any specific sunset date.  Subsequently, Public Act 96-116 added a sunset date for this exemption of August 30, 2014.  Beginning July 1, 2017, the manufacturing machinery and equipment exemption includes machinery and equipment used primarily in graphic arts production.  See Section 130.330(g).

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.330  Manufacturing Machinery and Equipment

 

a)         General Provisions Applicable to All Types of Machinery and Equipment Under This Section

Notwithstanding the fact that the sales may be at retail, the Retailers' Occupation Tax Act does not apply to the 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, whether the materials used in the process are owned by the manufacturer or some other person, or whether the sale or lease is made apart from or as an incident to the seller's engaging in the service occupation of producing machines, tools, dies, jigs, patterns, gauges, or other similar items of no commercial value on special order for a particular purchaser.  [35 ILCS 120/2-5(14)]  The manufacturing and assembly machinery and equipment exemption includes machinery and equipment that replaces machinery and equipment in an existing manufacturing facility as well as machinery and equipment that are for use in an expanded or new manufacturing facility.  [35 ILCS 120/2-45] In certain cases, purchases of machinery and equipment by a lessor will be exempt even though that lessor does not itself employ the machinery and equipment in an exempt manner.  Initially, the exemption was for purchases of conventional machinery and equipment used or consumed primarily in the process of manufacturing or assembling tangible personal property for wholesale or retail sale or lease.  The exemption has expanded over time to include not only conventional machinery and equipment used or consumed in a manufacturing or assembling process in a manufacturing facility (see subsection (c)) but also chemicals (see subsection (d)), computer software (see subsection (e)), machinery and equipment used primarily in graphic arts production (see subsection (g)), and production related tangible personal property (see subsection (h)).  For purposes of this Section, unless otherwise provided, all the types of tangible personal property that qualify for the exemption under this Section will be referred to as "machinery and equipment". The following provisions apply to all items under this Section:

 

1)         There may be instances in which items of tangible personal property do not meet the definition of conventional "machinery and equipment" under subsection (c), but do meet the definition of "graphic arts production" in subsection (g) or "production related tangible personal property" in subsection (h) and so would qualify for the exemption.

 

2)         The manufacturing and assembling machinery and equipment exemption is exempt from the provisions of Section 2-70 of the Retailers' Occupation Tax Act.  [35 ILCS 120/2-45]

 

3)         All items considered machinery and equipment under this Section must be used primarily (over 50%) in manufacturing or assembling. Therefore, machinery that is used primarily in an exempt process and partially in a nonexempt manner would qualify for the exemption.  However, the purchaser must be able to establish through adequate records that the machinery and equipment is used over 50% of the time in an exempt manner in order to claim the exemption.

 

4)         An item of machinery and equipment that initially is used primarily in manufacturing or assembling and, having been so used for less than one-half of its useful life, is converted to primarily nonexempt uses will become subject to tax at the time of the conversion, allowing for reasonable depreciation on the machinery and equipment.

 

5)         The fact that particular machinery and equipment may be considered essential to the conduct of the business of manufacturing or assembling because its use is required by law or practical necessity does not, of itself, mean that machinery and equipment is used primarily in manufacturing or assembling.

 

6)         Machinery and equipment used in the performance of a service, such as dry cleaning, is not used in the production of tangible personal property for wholesale or retail sale or lease and is thus taxable.  However, a manufacturer or assembler who uses machinery and equipment to produce goods for wholesale or retail sale or lease by itself or another, or to perform assembly or fabricating work for a customer who retains the manufacturer or assembler only for its services, will not be liable for tax on the machinery and equipment it uses as long as the goods produced either for itself or another are destined for wholesale or retail sale or lease, rather than for use and consumption.

 

7)         The 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.  Accordingly, a manufacturer or assembler who uses any significant portion of the output of its machinery and equipment, either for internal consumption or any other nonexempt use, or a lessor who leases otherwise exempt machinery and equipment to such a manufacturer or assembler, will not be eligible to claim the exemption on that machinery and equipment.  No apportionment of production capacity between output for sale or lease and output for self-use will be permitted and no partial exemption for any item of machinery and equipment will be allowed.  For example, the purchase of hot-mix asphalt machinery would be taxable if the majority of the asphalt produced (over 50%) was used to fulfill the purchaser's own construction contracts and not sold at wholesale or retail.

 

8)         Machinery and equipment does not include foundations for, or special purpose buildings to house or support, machinery and equipment.

 

b)         Manufacturing and Assembling Processes Described

 

1)         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.

 

2)         The assembling process is the production of an 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 the combination of existing materials in a manner commonly regarded as assembling that results in an article or material of a different form, use, or name.

 

3)         The process or activity 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.

 

4)         The use of machinery and equipment in any industrial, commercial, or business activity that may be distinguished from manufacturing or assembling will not be an exempt use and the machinery and equipment will be subject to tax.

 

5)         Manufacturing generally does not include extractive industrial activities. Logging and drilling for oil, gas, and water neither produce articles of tangible personal property nor effect any significant or substantial change in the form, use, or name of the materials or resources upon which they operate. However, the extractive processes of mining or quarrying may constitute manufacturing. (See Nokomis Quarry Co. v. Department of Revenue, 295 Ill. App. 3d 264, 692 N.E.2d 855, 860 (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 examples of exempt tangible personal property that is often used in the extractive process of quarrying.  Equipment used primarily to drill and load holes to place blasting material that fractures aggregate qualifies as manufacturing machinery and equipment. Dredges that are used primarily in a sand and gravel mining operation to pick up and sort materials from a riverbed also qualify for the exemption. Equipment, such as crawler dozers, used primarily to move shot rock after blasting, and wheel loaders, used primarily to load the mined product into off-highway, haulage trucks for transport to the crusher-sorter machine, will qualify for the exemption. In addition, wheel loaders used to transport the mined product to the crusher-sorter machine or onto a conveyor system will qualify for the exemption.  Machinery and equipment used primarily in activities such as crushing, washing, sizing, and blending will qualify for the exemption if the process results in the assembling of an article of tangible personal property with a different form than the material extracted, which possesses new qualities or combinations. Other types of mining and quarrying equipment may be exempt under this subsection (b)(5) if used in qualifying activities.

 

6)         Until July 1, 2017, the printing process was not commonly regarded as manufacturing. Therefore, machinery and equipment used in any printing application will not qualify for the exemption. This includes graphic arts, newspapers, or books, as well as other industrial or commercial applications. Beginning July 1, 2017, the exemption includes machinery and equipment used in graphic arts production.  (See subsection (g)).

 

7)         Agricultural, horticultural, and related, similar, or comparable activities, including commercial fishing, beekeeping, production of seedlings or seed corn, and development of hybrid seeds, plants, or shoots, are not manufacturing or assembling and, accordingly, machinery and equipment used in those activities is subject to tax under this Section. (However, see Section 130.305 for the Farm Machinery and Equipment Exemption.)

 

8)         The preparation of food and beverages by restaurants, food service establishments, and other retailers that prepare food for immediate consumption is not manufacturing.

 

9)         Effective September 1, 1988, manufacturing includes photoprocessing if the products of photoprocessing are sold. Machinery and equipment that would qualify for exemption includes, but is not limited to, developers, dryers, enlargers, mounting machines, roll film splicers, film developing image makers, disc film opening and spindling devices, film indexers, photographic paper exposure equipment, photographic paper developing machines, densitometers, print inspection devices, photo print/negative cut assembly stations, film sleeve insertion machines, negative image producers, film coating equipment, photo transparency mounters, processor rack sanitizers, photo print embossers, photo print mounting presses, graphic slide generators, chemical mixing equipment, and paper exposure positioning and holding devices. Cameras and equipment used to take pictures or expose film are not eligible, as the photoprocessing begins after the film is exposed. Retail/net price calculation equipment and chemical reclamation equipment are not considered to be manufacturing machinery and equipment.

 

c)         Machinery and Equipment.  This subsection (c) describes "conventional" machinery and equipment that qualify for the exemption as it was originally enacted.  Qualifying items that fall outside this definition of conventional machinery and equipment are described more fully in other subsections.

 

1)         The exemption under this subsection (c) applies to 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.  The manufacturing and assembly machinery and equipment exemption also includes machinery and equipment that replaces machinery and equipment in an existing manufacturing facility as well as machinery and equipment that are for use in an expanded or new manufacturing facility.  The machinery and equipment exemption also includes machinery and equipment used in the general maintenance or repair of exempt machinery and equipment or for in-house manufacture of exempt machinery and equipment.

 

2)         Equipment includes an independent device or tool separate from any machinery but essential to an integrated manufacturing or assembly process, including computers used primarily in a manufacturer's computer assisted design, computer assisted manufacturing (CAD/CAM) system; 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.  [35 ILCS 120/2-45]

 

3)         By way of illustration and not limitation, machinery and equipment used primarily in the following activities will generally be considered exempt:

 

A)        The use of machinery and equipment to effect a direct and immediate physical change upon the tangible personal property to be sold;

 

B)        The use of machinery and equipment to guide or measure a direct and immediate physical change upon the tangible personal property to be sold, provided this function is an integral and essential part of tuning, verifying or aligning the component parts of that property;

 

C)        The use of machinery and equipment to inspect, test, or measure the tangible personal property to be sold, when the function is an integral part of the production flow;

 

D)        The use of machinery and equipment to convey, handle, or transport the tangible personal property to be sold within production stations on the production line or directly between the production stations or buildings within the same plant;

 

E)        The use of machinery and equipment to place the tangible personal property to be sold into the container, package, or wrapping in which this property is normally sold, when the machinery and equipment is used as a part of an integrated manufacturing process;

 

F)         The production or processing of food, including the use of baking equipment such as ovens to bake bread or other bakery items, whether that baking is performed by a central bakery or a retail grocery store as long as the equipment is used primarily in the production or processing of food that is not for immediate consumption; and

 

G)        The use of machinery and equipment such as buffers, builders, or vulcanizing equipment to retread tires, whether or not the tire casing is provided by the purchaser.

 

4)         By way of illustration and not limitation, the machinery and equipment used primarily in the following activities will generally not be considered to be exempt:

 

A)        The use of machinery and equipment to transport work in process, or semifinished goods, between plants;

 

B)        The use of machinery or equipment in managerial, sales, or other nonproduction, nonoperational activities, including disposal of waste, scrap or residue, production scheduling, work routing, purchasing, receiving, accounting, fiscal management, general communications, plant security, sales, marketing, product exhibition and promotion, or personnel recruitment, selection, or training;

 

C)        The use of machinery and equipment pursuant to a retail sale to combine ingredients in the preparation of food and beverages or to dispense food and beverages by restaurants, vending machines, convenience stores, and other food service establishments, such as fountain drink machines, coffee machines, soft serve ice cream machines, and frozen beverage machines;

 

D)        The use of machinery and equipment used in the last step of the retail sale. Examples are embroidery or monogramming machines used by tee-shirt retailers or sewing machines used to hem garments sold by a clothing store; and

 

E)        The use of machinery and equipment for general ventilation, heating, cooling, climate control, or general illumination.

 

d)         The exemption for equipment 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 wholesale or retail sale or lease.  [35 ILCS 120/2-45]  Effective July 1, 2019, chemicals that do not make a direct and immediate change or act as a catalyst may qualify if they are production related.  See subsection (h)(2)(B).  The following examples are illustrative:

 

EXAMPLE 1: A chemical acid is used to etch copper off the surface of a printed circuit board during the manufacturing process.  The acid causes a direct and immediate change upon the product.  The acid qualifies for the exemption.

 

EXAMPLE 2: An aluminum oxide catalyst is used in a catalytic cracking process to refine heavy gas oil into gasoline.  In this process, large molecules of gas oil or feed are broken up into smaller molecules. After the catalyst is injected into the feed and used in the cracking process, it is drawn off and reused in subsequent manufacturing processes.  The catalyst qualifies for the exemption.

 

e)         The exemption includes computer software used to operate exempt machinery and equipment used in the process of manufacturing or assembling tangible personal property for wholesale or retail sale or lease.  [35 ILCS 120/2-25]

 

f)         The exemption includes the sale of materials to a purchaser who manufactures the materials into an exempted type of machinery and equipment or tools that the purchaser uses in the manufacturing of tangible personal property or leases to a manufacturer of tangible personal property. However, the purchaser must maintain adequate records clearly demonstrating the incorporation of these materials into exempt machinery and equipment.

 

g)         Beginning July 1, 2017, the manufacturing machinery and equipment exemption includes machinery and equipment used primarily in graphic arts production.  "Graphic arts production" means the production of tangible personal property for wholesale or retail sale or lease by means of printing, including ink jet printing, by one or more of the processes described in Groups 323110 through 323122 of Subsector 323, Groups 511110 through 511199 of Subsector 511, and Group 512230 of Subsector 512 of the North American Industry Classification System (NAICS) published by the U.S. Office of Management and Budget, 1997 edition. Graphic arts production does not include the transfer of images onto paper or other tangible personal property by means of photocopying or final printed products in electronic or audio form, including the production of software or audio-books. Persons engaged primarily in the business of printing or publishing newspapers or magazines that qualify as newsprint and ink, by one or more of the processes described in Groups 511110 through 511199 of Subsector 511 of the NAICS published by the U.S. Office of Management and Budget, 1997 edition, are deemed to be engaged in graphic arts production.  [35 ILCS 120/2-30]

 

1)         The manufacturing machinery and equipment exemption applies to qualifying machinery and equipment used in graphic arts production processes, as those processes are described in the NAICS and includes repair and replacement parts, both new and used, and including equipment that is manufactured on special order to be used primarily in graphic arts production.

 

2)         Manufacturing includes printing by methods of engraving, letterpress, lithography, gravure, flexography, and screen, quick, and digital printing.  It also includes the printing of manifold business forms, blankbooks, looseleaf binders, books, periodicals, and newspapers.  Included in graphic arts production are prepress services described in Subsector 323122 of the NAICS (e.g., the creation and preparation of negative or positive film from which plates are produced, plate production, cylinder engraving, typesetting, and imagesetting).  Also included are trade binding and related printing support activities set forth in Subsector 323121 of the NAICS (e.g., tradebinding, sample mounting, and postpress services, such as book or paper bronzing, edging, embossing, folding, gilding, gluing, die cutting, finishing, tabbing, and indexing).

 

3)         By way of illustration and not limitation, the following activities will generally be considered graphic arts production:

 

A)        Digital Printing and Quick Printing.  This means the printing of graphical text or images by a process utilizing digital technology. It also includes the printing of what is commonly known as "digital photography" (e.g., use of a qualifying integrated computer and printer system to print a digital image). The exemption extends only to machinery and equipment, including repair and replacement parts, used in the act of production. Accordingly, no other type or kind of tangible personal property will qualify for the exemption, even though it may be used primarily in the graphic arts business.

 

B)        Prepress or Preliminary Processes. Prepress or preliminary processes include the steps required to transform an original into a state that is ready for reproduction by printing. Prepress or preliminary processes include typesetting, film production, color separation, final photocomposition (e.g., image assembly and imposition (stripping)), and platemaking. Prepress or preliminary processes include the manipulation of images or text in preparation for printing for the purpose of conforming those images to the specific requirements of the printing process being utilized. For example, the images must be conformed for a specific signature layout and formatted to a specific paper size. In addition, colors must be calibrated to the specific type of paper or printing process utilized, so that they conform to customer specifications. Prepress or preliminary processes do not, however, include the creation or artistic enhancement of images that will later be reproduced in printed form by a graphic arts process. For example, the creation of an advertisement pursuant to customer direction, or enhancement of a photograph received from a customer by adding a border or text or rearranging the placement of images in the photograph, is not the performance of a qualifying prepress or preliminary process. Prepress or preliminary processes can be performed at the printing facility, a separate prepress or preliminary facility, the customer's location, or other location. The following are examples of equipment used in qualifying prepress or preliminary activities:

 

i)          Large scale, fixed-position cameras used to photograph two-dimensional copy to produce negatives or positives used in the production of plates; film processors; scanners; imposetters; RIP (raster image processor) equipment; proofing equipment; imagesetters; plate processors; helioklischographs; and computer-to-plate and computer-to-press equipment.

 

ii)         Computers that qualify include computers used primarily to receive, store, and manipulate images to conform them to the requirements of a specific printing process that will later be performed. Computers used in connection with what is commonly referred to as "digital photography" will qualify if used primarily to format the graphic image that will be printed (e.g., used to format the size and layout of images to be printed). If the computers are primarily used, however, to apply background colors, borders, or other artistic enhancements, or to view and select particular digital images to be printed, they will not qualify for the exemption.

 

iii)        Digital cameras do not qualify if they are used primarily to create an original image that will later be reproduced by a graphic arts process.

 

iv)        Servers used primarily to transfer images and text to qualifying equipment qualify, but do not qualify if used primarily in a nonexempt activity (for example, servers used to maintain an in-house email system).

 

v)         Scanners used primarily to input previously created images or text that will be reproduced by a graphic arts process qualify for the exemption.

 

C)        Transfer of Images or Text from Computers, Plates, Cylinders, or Blankets to Paper or Other Stock to be Printed.  This process begins when paper is introduced on the press.  Examples of qualifying equipment used in this activity include printing plates, printing presses, blankets and rollers, automatic blanket washers, scorers and dies, folders, punchers, stackers, strappers used in the pressroom for signatures, dryers, chillers, and cooling towers. Laser or ink jet printers used to print on paper or other stock are also included in this exemption.

 

i)          Equipment used primarily to handle or convey printed materials between production stations in an integrated on-line graphic arts process is included in the exemption (e.g., a forklift or bindery cart will qualify for the exemption if it is primarily used to convey book covers that have been printed and cut to binding and finishing equipment).

 

ii)         Computer equipment used primarily to operate exempt graphic arts equipment also qualifies for the exemption.

 

iii)        Equipment, such as transformers, used primarily to provide power to qualifying printing presses or bindery lines qualifies for the exemption. Similarly, heating and cooling machinery and equipment used to produce an environment necessary for the production of printed material qualifies for the exemption. For example, humidity-control equipment used to reduce static during the printing process qualifies for the exemption.

 

D)        Activities Involving the Binding, Collating, or Finishing of the Graphic Arts Product. Equipment used in these activities includes, for instance, binders, packers, gatherers, joggers, trimmers, selectronic equipment, blow-in card feeders, inserters, stitchers, gluers, spiral binders, addressing machines, labelers, and ink-jet printers.

 

i)          Machinery and equipment used to convey materials to packaging areas after the graphic arts product has been printed, bound, and finished qualifies for the exemption. That equipment includes, for instance, conveyor systems, hoists, or other conveyance mechanisms used to direct the final printed product into packaging areas.

 

ii)         Machinery and equipment used to package materials after the graphic arts product has been printed, bound, and finished qualifies for the exemption. Packaging equipment includes, for instance, cartoning systems, palletizers, stretch wrappers, strappers, shrink tunnels, and similar equipment.

 

4)         By way of illustration and not limitation, machinery and equipment used primarily in the following activities will generally not be considered exempt:

 

A)        The use of machinery and equipment primarily to produce graphic arts items not for wholesale or retail sale or lease (e.g., items produced for internal consumption or items produced and distributed without charge).

 

B)        The use of machinery and equipment (e.g., forklifts, roll clamps, and roll grabbers) to convey raw materials to the press.

 

C)        The use of machinery and equipment to convey materials to final storage or shipping areas. That equipment includes, for instance, forklifts used primarily to place the packaged printed product into final storage or shipping areas.

 

D)        The use of machinery and equipment to gather information, track jobs, or perform data-related functions prior to a qualifying prepress activity (e.g., computers used primarily to edit or create text, data, or other copy). That equipment includes items such as inventory tracking devices and bar-code readers.

 

E)        The use of machinery and equipment used primarily to photocopy printed matter. A copier that is capable of printing images or text transmitted to it in digital form may qualify if used primarily in that manner. However, a copier that produces photocopies by means of xerographic technology is subject to tax.

 

F)         The use of machinery and equipment in managerial, sales, or other nonproduction, nonoperational activities, including production scheduling, purchasing, receiving, accounting, physical management, general communications, plant security, marketing, or personnel recruitment, selection, or training. Waste disposal equipment (e.g., equipment used to contain and recapture paper dust) does not qualify for the exemption.

 

G)        The use of machinery and equipment for general ventilation, heating, cooling, climate control, or general illumination, except when the machinery and equipment is used to produce an environment necessary for the production of printed material.

 

5)         An item of machinery or equipment that initially is used primarily in graphic arts production and, having been so used for less than one-half of its useful life, is converted to primarily nonexempt uses will become subject to the tax at the time of the conversion, allowing for reasonable depreciation on the item of machinery or equipment.

 

h)         Beginning on July 1, 2019, the manufacturing and assembling machinery and equipment exemption includes production related tangible personal property.  [35 ILCS 120/2-45]

 

1)         Production related tangible personal property means all tangible personal property used or consumed in a production related process by a manufacturer in a manufacturing facility in which a manufacturing process takes place or by a graphic arts producer in graphic arts production.  Production related tangible personal property also means all tangible personal property that is used or consumed in research and development regardless of use within or without a manufacturing or graphic arts production facility.

 

2)         By way of illustration and not limitation, the following uses of tangible personal property by manufacturers, including graphic arts producers, will be considered production related:

 

A)        Tangible personal property purchased by a manufacturer for incorporation into real estate within a manufacturing facility for use in a production related process, or tangible personal property purchased by a construction contractor for incorporation into real estate within a manufacturing facility for use in a production related process.

 

B)        Supplies and consumables used in a manufacturing process in a manufacturing facility, including fuels, coolants, solvents, oils, lubricants, and adhesives.

 

C)        Hand tools, protective apparel, and fire and safety equipment used or consumed within a manufacturing facility.

 

D)        Tangible personal property used or consumed in a manufacturing facility for purposes of pre-production and post-production material handling, receiving, quality control, inventory control, storage, staging, and packing for shipping or transportation.

 

E)        Fuel used in a ready-mix cement truck to rotate the mixing drum in order to manufacture concrete or cement. However, only the amount of fuel used to rotate the drum will qualify. The amount of fuel used or consumed in transportation of the truck will not qualify as production related tangible personal property. The amount of fuel used in a qualifying manner to rotate the drum may be stated as a percentage of the entire amount of fuel used or consumed by the ready-mix truck.

 

3)         By way of illustration and not limitation, the following uses of tangible personal property by manufacturers, including graphic arts producers, will not be considered production related:

 

A)        The use of trucks, trailers, and motor vehicles that are required to be titled or registered pursuant to the Illinois Motor Vehicle Code [625 ILCS 5], and aircraft or watercraft required to be registered with an agency of State or federal government.

 

B)        The use of office supplies, computers, desks, copiers, and equipment for sales, purchasing, accounting, fiscal management, marketing, and personnel recruitment or selection activities, even if the use takes place within a manufacturing or graphic arts production facility.

 

C)        The use or consumption of tangible personal property for aesthetic or decorative purposes, including landscaping and artwork.

 

i)          Sales to Lessors

 

1)         For the exemption to apply, the purchaser need not itself employ the exempt machinery and equipment in manufacturing. If the purchaser leases that machinery and equipment to a lessee-manufacturer who uses it in an exempt manner, the sale to the purchaser-lessor will be exempt from tax. A vendor may exclude these sales from its taxable gross receipts provided the purchaser-lessor provides the vendor with a properly completed exemption certificate and this Section would support an exemption if the sale were made directly to the lessee-manufacturer.

 

2)         If a purchaser-lessor subsequently leases the machinery and equipment to a lessee who does not use it in a manner that would qualify directly for the exemption, the purchaser-lessor will become liable for the tax, allowing for reasonable depreciation on the machinery and equipment.

 

j)          Exemption Certificates

 

1)         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 this subsection (j).  The use of blanket certificates of exemption will be permitted.

 

2)         The purchaser of the machinery and equipment who has an active resale registration number shall furnish that number to the seller at the time of purchase.  A purchaser of the machinery, equipment, and tools without an active resale registration number shall furnish to the seller a certificate of exemption stating facts establishing the exemption, and that certificate shall be available to the Department for inspection or audit.  [35 ILCS 120/2-45]  Certificates shall be retained by the vendor and shall be made available to the Department for inspection or audit.  The Department shall prescribe the form of the certificate.

 

3)         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.

 

4)         In the case of a vendor who makes sales of qualifying machinery and equipment to a contractor who will incorporate it into real estate so that the contractor, itself, would be the taxable user (see Sections 130.1940 and 130.2075), the purchasing contractor should provide the vendor with a certification that the machinery and equipment will be transferred to a manufacturer as manufacturing machinery and equipment in the performance of a construction contract for the manufacturer.  The purchasing contractor should include the manufacturer's name and registration number on the certification when claiming the exemption.

 

k)         The exemption does not include machinery and equipment used in the generation of electricity for wholesale or retail sale; the generation or treatment of natural or artificial gas for wholesale or retail sale that is delivered to customers through pipes, pipelines, or mains; or the treatment of water for wholesale or retail sale that is delivered to customers through pipes, pipelines, or mains.  [35 ILCS 120/2-45] (The provisions of this subsection (k) were established by P.A. 98-583, which states that the provisions are declaratory of existing law as to the meaning and scope of this exemption.)

 

l)          Opinions and Rulings

Informal ruling and opinion letters issued by the Department regarding the coverage and applicability of this exemption to specific devices will be maintained by the Department in Springfield. They are available for public inspection on the Department's website, https://tax.illinois.gov/, and may be copied or reproduced at taxpayer's expense. Trade secrets or other confidential information in these letters will be deleted prior to release to public access files.

 

(Source:  Amended at 48 Ill. Reg. 10646, effective July 2, 2024)

 

Section 130.331  Manufacturer's Purchase Credit

 

a)         Earning Manufacturer's Purchase Credit

 

1)         Effective January 1, 1995 through June 30, 2003, and beginning again on September 1, 2004 through August 30, 2014, a manufacturer may earn a credit when purchasing exempt manufacturing machinery and equipment.  Effective July 1, 1996 through June 30, 2003, and beginning again on September 1, 2004 through August 30, 2014, a graphic arts producer may earn a credit when purchasing exempt graphic arts machinery and equipment.  The credit is known as the Manufacturer's Purchase Credit or MPC.  The amount of credit is limited to a percentage of the 6.25% State rate of tax that would have been incurred on the purchase of exempt manufacturing machinery and equipment.  (See Section 130.325 and Section 130.330 of this Part.) By statute, MPC was repealed June 30, 2003 (Public Act 93-0024; effective June 20, 2003). Pursuant to Public Act 93-0840, effective July 30, 2004, MPC was reenacted without any specific sunset date.  Subsequently, Public Act 96-116 was enacted to add a sunset date for MPC of August 30, 2014.

 

2)         The percentage of credit earned based upon exempt purchases increases over time as follows:

 

A)        15% for purchases made on or before June 30, 1995.

 

B)        25% for purchases made after June 30, 1995, and on or before June 30, 1996.

 

C)        40% for purchases made after June 30, 1996, and on or before June 30, 1997.

 

D)        50% for purchases made on or after July 1, 1997.  (Section 3-85 of the Use Tax Act)

 

3)         The credit is earned at the time qualifying manufacturing machinery and equipment or qualifying graphic arts machinery and equipment is purchased.  A qualifying purchase is considered to take place as of the date of invoice of that qualifying manufacturing machinery and equipment.  The credit is considered to be earned on qualifying manufacturing machinery and equipment or qualifying graphic arts machinery and equipment that is purchased under an installment contract or progress payment contract at the time that each installment or progress payment is invoiced.  The amount of credit that is earned is based on the amount of tax that would have been due on that portion of the purchase price that is invoiced.

 

4)         No credit is earned for exempt purchases under the expanded Enterprise Zone exemption, as described in Section 130.1951(b) of this Part, unless that purchase would also qualify as exempt under the Manufacturing Machinery and Equipment Exemption described in Section 130.330 of this Part or under the Graphic Arts Machinery and Equipment Exemption described in Section 130.325 of this Part.

 

5)         No credit is earned for a purchase of tangible personal property that qualifies as an occasional sale, as described in Section 130.110 (a) of this Part.

 

6)         No credit is earned for a purchase of tangible personal property that is purchased for resale.  (See Section 130.210 (a) of this Part.)

 

b)         Using Manufacturer's Purchase Credit

 

1)         The credit may be used to satisfy Use Tax or Service Use Tax liability incurred on the purchase of qualifying production related tangible personal property. (See Section 3-85 of the Use Tax Act [35 ILCS 105/3-85] and Section 3-70 of the Service Use Tax Act [35 ILCS 110/3-70].)  Credit earned prior to July 1, 2003 cannot be used after September 30, 2003.  Credit earned on and after September 1, 2004 may only be used to satisfy tax liabilities for purchases of production related tangible personal property made on and after September 1, 2004 through August 30, 2014.  (Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act)  The credit may be applied only to the 6.25% State rate of tax incurred.  Prior to the credit being earned, credit may not be used on a qualifying purchase, except as provided in subsection (e)(7)(B).  However, the credit may be used the same day that it is earned, but must be followed by proper reporting of the credit as set out in subsections (c), (d) and (e).  For purposes of when to use accumulated Manufacturer's Purchase Credit, a manufacturer or graphic arts producer is always safe to use the credit in a month after the month in which the credit was earned.

 

2)         The credit is non-transferable and may not be used to satisfy the tax liability of any taxpayer other than the manufacturer or graphic arts producer that earned the credit.  Notwithstanding any other provision of this Section, the credit earned prior to July 1, 2003 cannot be used after September 30, 2003. (Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act) Credit earned on and after September 1, 2004 may only be used to satisfy tax liabilities for purchases of production related tangible personal property made on and after September 1, 2004 through August 30, 2014.

 

A)        A manufacturer or graphic arts producer may enter into a written contract with a construction contractor to authorize that construction contractor to utilize Manufacturer's Purchase Credit accumulated by the manufacturer or graphic arts producer for the purchase of tangible personal property to be installed into real estate within a manufacturing or graphic arts production facility for use in a production related process.  The written contract must specify the specific dollar amount of Manufacturer's Purchase Credit that the construction contractor is authorized to utilize on behalf of the manufacturer or graphic arts producer.

 

B)        To properly utilize the Manufacturer's Purchase Credit on behalf of the manufacturer or graphic arts producer when purchasing tangible personal property for installation into real estate within a manufacturing or graphic arts production facility for use in a production related process, the contractor must furnish the supplier with information stating:

 

i)          The manufacturer's or graphic arts producer's name and address;

 

ii)         The manufacturer's or graphic arts producer's registration or resale number; and

 

iii)        A statement that a specific amount of Use Tax or Service Use Tax liability, not to exceed 6.25% of the selling price, is being satisfied with the Manufacturer's Purchase Credit.

 

C)        To properly utilize the Manufacturer's Purchase Credit on behalf of the manufacturer or graphic arts producer when purchasing tangible personal property for installation into real estate within a manufacturing facility, the contractor must furnish the manufacturer or graphic arts producer with information stating:

 

i)          Each vendor's or supplier's name and address (including, if applicable, either the vendor's or supplier's registration number or Federal Employer Identification Number);

 

ii)         The date of purchase, purchase price and description of the tangible personal property purchased; and

 

iii)        The amount of the Use Tax or Service Use Tax liability, not to exceed 6.25% of the selling price, that was satisfied by the Manufacturer's Purchase Credit utilized for each purchase.

 

D)        A credit reported under a particular Illinois Business Tax number may not be transferred to a related but separately registered division or company.

 

3)         Production related tangible personal property means:

 

A)        All tangible personal property used or consumed in a production related process by a manufacturer in a manufacturing facility in which a manufacturing process described in Section 2-45 of the Retailers' Occupation Tax Act takes place.

 

B)        All tangible personal property used or consumed in a production related process by a graphic arts producer in a graphic arts production facility in which a graphic arts production process described in Section 2-30 of the Retailers' Occupation Tax Act takes place.

 

C)        All tangible personal property used or consumed by a manufacturer or graphic arts producer in research and development regardless of use within or without a manufacturing or graphic arts production facility.  (See Section 3-85 of the Use Tax Act.)

 

4)         By way of illustration and not limitation, the following uses of tangible personal property will be considered production related:

 

A)        Tangible personal property purchased by a manufacturer for incorporation into real estate within a manufacturing facility for use in a production related process; or tangible personal property purchased by a construction contractor for incorporation into real estate within a manufacturing facility for use in a production related process pursuant to a written contract described in subsection (b)(2)(A) of this Section.

 

B)        Supplies and consumables used in a manufacturing facility, including fuels, coolants, solvents, oils, lubricants, cleaners and adhesives.

 

C)        Hand tools, protective apparel and fire and safety equipment used or consumed in a manufacturing facility.

 

D)        Tangible personal property used or consumed in a manufacturing facility for purposes of pre-production and post-production material handling, receiving, quality control, inventory control, storage, staging and packing for shipping or transportation.

 

E)        Fuel used in a ready-mix cement truck to rotate the mixing drum in order to manufacture concrete or cement.  However, only the amount of fuel used to rotate the drum will qualify.  The amount of fuel used or consumed in transportation of the truck will not qualify as production related tangible personal property.  The amount of fuel used in a qualifying manner to rotate the drum may be stated as a percentage of the entire amount of fuel used or consumed by the ready-mix truck.

 

F)         Tangible personal property purchased by a graphic arts producer for incorporation into real estate within a graphic arts production facility for use in a production related process; or tangible personal property purchased by a construction contractor for incorporation into real estate within a graphic arts production facility for use in a production related process pursuant to a written contract described in subsection (b)(2)(A) of this Section.

 

G)        Supplies and consumables used in a graphic arts production facility, including solvents, oils, lubricants, cleaners and adhesives.  Paper and ink that is transferred to a customer does not qualify as production related tangible personal property.

 

H)        Hand tools, protective apparel and fire and safety equipment used or consumed in a graphic arts production facility.

 

I)         Tangible personal property used or consumed inside a graphic arts facility for purposes of preliminary or pre-press production, pre-production material handling, receiving, quality control, inventory control, storage, staging, sorting, labeling, mailing, tying, wrapping and packaging.

 

5)         By way of illustration and not limitation, the following uses of property will not be considered production related:

 

A)        The use of trucks, trailers and motor vehicles that are required to be titled or registered pursuant to the Illinois Motor Vehicle Code [625 ILCS 5], and aircraft or watercraft required to be registered with an agency of State or federal government.

 

B)        Office supplies, computers, desks, copiers and equipment that are used for sales, purchasing, accounting, fiscal management, marketing and personnel recruitment or selection activities, even if the use takes place within a manufacturing or graphic arts production facility.

 

C)        Tangible personal property used or consumed for aesthetic or decorative purposes, including landscaping and artwork.

 

D)        Tangible personal property used or consumed outside the manufacturing or graphic arts production facility, including tangible personal property listed in subsections (b)(4)(D) and (b)(4)(I) with the exception of tangible personal property used or consumed for research and development purposes.

 

E)        Tangible personal property purchased by a construction contractor for incorporation into a manufacturing or graphic arts production facility, unless the purchase by the construction contractor was made on behalf of a manufacturer or graphic arts producer pursuant to a written contract described in subsection (b)(2)(A) of this Section.

 

F)         Except as otherwise provided in subsection (b)(2) of this Section, tangible personal property transferred to a manufacturer's customer or the customer of a person that is engaged in graphic arts production.  For example, paper and ink transferred to a customer by a de minimis serviceman as described in 86 Ill. Adm. Code 140.108 that is engaged in graphic arts production is not considered production related.

 

6)         The credit may be used to satisfy the State portion (6.25%) of a Use Tax or Service Use Tax liability arising under audit where the liability established is the result of:

 

A)        an erroneous claim of the Manufacturing Machinery and Equipment Exemption provided in Section 2-45 of the Retailers' Occupation Tax Act,

 

B)        an erroneous claim of the Graphic Arts Machinery and Equipment Exemption provided in Section 2-5(4) of the Retailers' Occupation Tax Act, or

 

C)        the manufacturer or graphic arts producer failing to self-assess and remit Use Tax or Service Use Tax on the purchase of production related tangible personal property.

 

(See Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act.)  The credit may only be used to satisfy the State portion (6.25%) of a Use Tax or Service Use Tax liability incurred on the purchase of qualifying production related tangible personal property.  Under no circumstances may the credit be used to satisfy penalty and interest or other tax liability incurred by the manufacturer or graphic arts producer.

 

7)         Credit may be used to satisfy the State portion (6.25%) of a qualifying Use Tax or Service Use Tax liability incurred by a manufacturer or graphic arts producer on a purchase of production related tangible personal property when payment of tax must be made directly to the Department.

 

8)         The credit expires December 31st of the second calendar year following the calendar year in which the credit was earned. (See Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act.)  However, for credit earned on or after June 30, 1995, the life of unreported credit may be extended during the period of an agreed extension of the statute of limitations as provided in subsection (e)(7).

 

9)         A manufacturer or graphic arts producer may use credit to satisfy Service Use Tax liability only when purchasing production related tangible personal property transferred incident to a sale of service.

 

10)         Notwithstanding any other provision of this Section, the credit earned prior to July 1, 2003 cannot be used after September 30, 2003, including to satisfy an audit liability.  (Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act) Notwithstanding any other provision of this Section, the credit earned on or after September 1, 2004 cannot be used on a purchase of production related tangible personal property made after August 30, 2014. 

 

c)         Reporting Manufacturer's Purchase Credit Earned or Used for Periods from January 1, 1995 through June 29, 1995

 

1)         In order to validate credit earned as the result of a qualifying purchase of exempt manufacturing machinery and equipment or credit used on a qualifying purchase, the manufacturer must report credit earned to the Department in a timely manner.  Failure to report credit earned will result in expiration of the credit as of the date earned.

 

2)         On forms prescribed or approved by the Department, a manufacturer must report credit earned or used by the last day of the second month following the month of creation or use of the credit.  No credit report is required for any month in which a manufacturer neither earned nor used credit.  Original invoices or copies of original invoices are not to be filed with the Department.

 

3)         Credit Use or Misuse Causing Expiration of Credit.  Credit used, whether properly or improperly, expires upon use and cannot be recreated once used.  The manufacturer may be liable for tax, penalty and interest on the purchase of production related tangible personal property where expired credit was used, in accordance with provisions of the Uniform Penalty and Interest Act [35 ILCS 735].  The following represent examples of uses of credit that will result in expiration of the credit:

 

A)        Failure to report credit or use of credit.

 

B)        Failure to timely report credit or use of credit.

 

C)        Use of credit prior to actually earning credit as described in subsection (a)(3).

 

D)        Return of goods to supplier for full refund including tax where credit was tendered in payment of tax.  Credit expires once used and cannot be recreated once used regardless of reason for return.

 

4)         A purchaser earning Manufacturer's Purchase Credit must maintain records, as to each purchase of manufacturing machinery and equipment on which the purchaser earned Manufacturer's Purchase Credit, that identify the following:

 

A)        The vendor or supplier (including, if applicable, either the vendor's or supplier's Illinois registration number or Federal Employer Identification Number);

 

B)        The date of purchase, purchase price and description of the exempt manufacturing machinery and equipment; and

 

C)        The amount of Manufacturer's Purchase Credit earned on that purchase.

 

5)         A purchaser using Manufacturer's Purchase Credit must maintain records, as to each purchase of production related tangible personal property on which the purchaser used Manufacturer's Purchase Credit to satisfy the purchaser's Use Tax or Service Use Tax liability, that identify the following:

 

A)        The vendor or supplier (including, if applicable, either the vendor's or supplier's Illinois registration number or Federal Employer Identification Number);

 

B)        The date of purchase, purchase price and description of the production related tangible personal property; and

 

C)        The amount of Manufacturer's Purchase Credit used to satisfy the purchaser's Use Tax or Service Use Tax liability on that purchase.

 

6)         As determined pursuant to audit by the Department, credit earned by purchase of exempt machinery and equipment that has not been timely and properly reported will result in expiration of the credit.  Use of expired credit in this situation may result in an assessment for tax, penalty and interest on the subsequent purchase of production related tangible personal property.  Credit that was properly reported when earned but was not timely and properly reported to the Department when used will likewise expire resulting in an assessment for tax, penalty and interest on the purchase of production related tangible personal property for which it was offered in payment of Use Tax or Service Use Tax liability.

 

d)         Reporting Manufacturer's Purchase Credit Earned or Used on June 30, 1995

 

1)         The reporting requirements for Manufacturer's Purchase Credit were changed by Public Act 89-89, effective June 30, 1995.  In order to provide consistent and easier reporting requirements for manufacturers utilizing Manufacturer's Purchase Credit and the Department's Administration of the Manufacturer's Purchase Credit program, manufacturers are required to report Manufacturer's Purchase Credit earned or used on June 30, 1995, under the methods described in subsection (c) of this Section.  However, the Manufacturer's Purchase Credit earned or used on that date will be subject to the provisions described in subsection (e) of this Section without the necessity of including those Manufacturer's Purchase Credits in an Annual Report of Manufacturer's Purchase Credit Earned or an Annual Report of Manufacturer's Purchase Credit Used.

 

2)         A manufacturer filing an amended Annual Manufacturer's Purchase Credit Report under subsection (e)(7) of this Section that includes Manufacturer's Purchase Credit earned or used on June 30, 1995 must disclose that the report includes Manufacturer's Purchase Credit earned or used on June 30, 1995.

 

e)         Reporting Manufacturer's Purchase Credit Earned or Used for Periods on or after July 1, 1995

 

1)         In order to validate credit earned as the result of a qualifying purchase of exempt manufacturing machinery and equipment or exempt graphic arts machinery and equipment, the manufacturer or graphic arts producer must report credit earned to the Department by signing and filing an Annual Report of Manufacturer's Purchase Credit Earned for each calendar year no later than the last day of the sixth month following the calendar year in which the Manufacturer's Purchase Credit is earned.  The Annual Report of Manufacturer's Purchase Credit Earned shall be filed on forms prescribed or approved by the Department and shall state, for each month of the calendar year:

 

A)        The total purchase price of all purchases of exempt manufacturing machinery and equipment or graphic arts machinery and equipment on which the credit was earned;

 

B)        The total State Use Tax or Service Use Tax that would have been due on those items;

 

C)        The percentage used to calculate the amount of credit earned;

 

D)        The amount of credit earned; and

 

E)        Such other information as the Department may reasonably require.  (See Section 3-85 of the Use Tax Act.)

 

2)         A purchaser earning Manufacturer's Purchase Credit must maintain records, as to each purchase of manufacturing machinery and equipment and graphic arts machinery and equipment on which the purchaser earned Manufacturer's Purchase Credit, that identify the following:

 

A)        The vendor or supplier (including, if applicable, either the vendor's or supplier's Illinois registration number or Federal Employer Identification Number);

 

B)        The date of purchase, purchase price and description of the exempt manufacturing machinery and equipment and graphic arts machinery and equipment; and

 

C)        The amount of Manufacturer's Purchase Credit earned on that purchase.

 

3)         In order to validate credit used to satisfy the tax liability on purchases of production related tangible personal property, the manufacturer or graphic arts producer must report credit used to the Department by signing and filing an Annual Report of Manufacturer's Purchase Credit Used for each calendar year no later than the last day of the sixth month following the calendar year in which the Manufacturer's Purchase Credit is used.  The Annual Report of Manufacturer's Purchase Credit Used shall be filed on forms prescribed or approved by the Department and shall state, for each month of the calendar year:

 

A)        The total purchase price of all production related tangible personal property purchased from Illinois vendors or suppliers;

 

B)        The total purchase price of all production related tangible personal property purchased from out-of-State vendors or suppliers;

 

C)        The total amount of Manufacturer's Purchase Credit used during each month; and

 

D)        Such other information as the Department may reasonably require.  (See Section 3-85 of the Use Tax Act.)

 

4)         A purchaser using Manufacturer's Purchase Credit must maintain records, as to each purchase of production related tangible personal property on which the purchaser used Manufacturer's Purchase Credit to satisfy the purchaser's Use Tax or Service Use Tax liability, that identify the following:

 

A)        The vendor or supplier (including, if applicable, either the vendor's or supplier's Illinois registration number or Federal Employer Identification Number);

 

B)        The date of purchase, purchase price and description of the production related tangible personal property; and

 

C)        The amount of Manufacturer's Purchase Credit used to satisfy the purchaser's Use Tax or Service Use Tax liability on that purchase.

 

5)         No Annual Report of Manufacturer's Purchase Credit Earned or Annual Report of Manufacturer's Purchase Credit Used may be filed with the Department before May 1, 1996. (Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act)

 

6)         A purchaser that fails to properly file an Annual Report of Manufacturer's Purchase Credit Earned or an Annual Report of Manufacturer's Purchase Credit Used with the Department by the last day of the sixth month following the end of the calendar year forfeits all Manufacturer's Purchase Credit earned or used for that calendar year, unless the purchaser establishes that the purchaser's failure to file was due to reasonable cause.  The reasonable cause provisions of this subsection (e)(6) do not apply after June 30, 2004 for any annual report that is required to be filed on or before June 30, 2004.

 

7)         Annual Manufacturer's Purchase Credit reports may be amended to report and claim credit on qualifying purchases of manufacturing machinery and equipment and graphic arts machinery and equipment not previously reported at any time before the credit would have expired, unless both the Department and the purchaser have agreed to an extension of the statute of limitations for the issuance of a Notice of Tax Liability as provided in Section 4 of the Retailers' Occupation Tax Act.  However, such an agreed extension will not restore a credit that has previously been reported and has expired prior to the agreed extension.  Manufacturer's Purchase Credit that had not been previously reported and is included in an amended Annual Report submitted as a result of such an agreed extension will expire as provided in subsection (b)(8) of this Section or at the end of the agreed extension period, whichever is longer.  If the time for assessment or refund has been extended by agreement, amended reports for a calendar year may be filed at any time prior to the date to which the statute of limitations for the calendar year or portion thereof has been extended.  Notwithstanding any other provision of this Section, the credit earned prior to July 1, 2003 cannot be used after September 30, 2003, and no Annual Report of Manufacturer's Purchase Credit Earned or Annual Report of Manufacturer's Purchase Credit Used that is required to be filed on or before June 30, 2004 may be filed with the Department after June 30, 2004 even if the time for assessment or refund has been extended by agreement.  (Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act) Notwithstanding any other provision of this Section, the credit earned on or after September 1, 2004 cannot be used on a purchase of production related tangible personal property made after August 30, 2014, and no original Annual Report of Manufacturer's Purchase Credit Earned or original Annual Report of Manufacturer's Purchase Credit Used may be filed with the Department after June 30, 2015.  Manufacturer's Purchase Credit claimed on an amended report may be used to satisfy tax liability under the Use Tax Act or the Service Use Tax Act on:

 

A)        Qualifying purchases of production related tangible personal property made after the date the amended report is filed;

 

B)        Amounts assessed by the Department on purchases made on or after January 1, 1995 of machinery and equipment that did not qualify for the exemption described in Section 130.330 of this Part, but would have qualified as production related tangible personal property.  The credit will be applied to the tax portion of the assessment liability as of the date that the Department receives a written request by the purchaser directing the Department to apply the credit to the assessment liability; or

 

C)        Amounts assessed by the Department on purchases made on or after July 1, 1996 of machinery and equipment that did not qualify for the exemption described in Section 130.325 of this Part, but would have qualified as production related tangible personal property.  The credit will be applied to the tax portion of the assessment liability as of the date that the Department receives a written request by the purchaser directing the Department to apply the credit to the assessment liability.

 

8)         A purchaser who used Manufacturer's Purchase Credit to satisfy the purchaser's Use Tax or Service Use Tax liability incurred on the purchase of property that is later determined not to qualify as production related tangible personal property may be liable for tax, penalty and interest on the purchase of that property as of the date of the purchase.  However, the purchaser is entitled to use the disallowed Manufacturer's Purchase Credit, so long as it has not expired, on qualifying purchases of production related tangible personal property not previously subject to credit usage.

 

9)         Notwithstanding any other provision of this Section, the credit earned prior to July 1, 2003 cannot be used after September 30, 2003, including to satisfy an audit liability. (Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act)  Notwithstanding any other provision of this Section, the credit earned on or after September 1, 2004 cannot be used on a purchase of production related tangible personal property made after August 30, 2014, and no original Annual Report of Manufacturer's Purchase Credit Earned or original Annual Report of Manufacturer's Purchase Credit Used may be filed with the Department after June 30, 2015. 

 

f)         Retailers or Servicemen Accepting Manufacturer's Purchase Credit

 

1)         In order to accept Manufacturer's Purchase Credit from a manufacturer or graphic arts producer, the supplier or serviceman must obtain a Manufacturer's Purchase Credit certificate from the manufacturer or graphic arts producer unless the manufacturer or graphic arts producer has incorporated its certification into the manufacturer's or graphic arts producer's  purchase order as described in this Section.  The manufacturer or graphic arts producer may provide the certification on a form provided by the Department or on the manufacturer's or graphic arts producer's own form containing the appropriate information.  The certificate must be kept in the supplier's or serviceman's books and records, but need not be submitted to the Department with the supplier's or serviceman's return.  A Manufacturer's Purchase Credit certificate must contain the following information:

 

A)        A signed statement that the manufacturer or graphic arts producer is using available accumulated Manufacturer's Purchase Credit to satisfy all or part of the 6.25% portion of Use Tax or Service Use Tax liability incurred on a qualifying purchase of production related tangible personal property;

 

B)        The manufacturer's or graphic arts producer's name and address;

 

C)        The manufacturer's or graphic arts producer's registration number, if registered;

 

D)        The date of purchase of the production related tangible personal property; and

 

E)        The credit being used.  (See Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act.)

 

2)         A manufacturer or graphic arts producer may incorporate the Manufacturer's Purchase Credit certification into the manufacturer's or graphic arts producer's purchase order if all of the required information is contained within that purchase order.

 

3)         Manufacturer's Purchase Credit accepted by the supplier or serviceman may be used by the supplier or serviceman to pay its liability incurred under the Retailers' Occupation Tax Act or Service Occupation Tax Act, so long as the supplier or serviceman complies with the following:

 

A)        The supplier or serviceman may not accept credit in excess of 6.25% of the purchase price of qualifying production related tangible personal property. (See Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act.)

 

B)        The supplier or serviceman must properly report the credit to the Department in order to use the credit to pay Retailers' Occupation Tax or Service Occupation Tax liability.  The Manufacturer's Purchase Credit (MPC) does not create an exemption or an authorized deduction.  The MPC is a means for the supplier or serviceman to pay Retailers' Occupation Tax or Service Occupation Tax, as the case may be.  Therefore, the receipts from transactions in which customers have provided MPC cannot be deducted from the gross receipts reported on the Sales and Use Tax Return (Form ST-1).  Receipts from transactions in which customers have provided MPC must be included in gross receipts subject to tax reported on line 1 and line 3 of the return.  The resulting tax on those gross receipts can then be paid by using the credit on line 16a of the return.

 

4)         Notwithstanding any other provision of this Section, the credit earned prior to July 1, 2003 cannot be used after September 30, 2003.   Manufacturer's Purchase Credit reported on any original or amended return filed after October 20, 2003 and before October 1, 2004 will be disallowed.  Beginning on September 1, 2004, retailers and servicemen may accept MPC certifications for qualifying purchases made on and after September 1, 2004 through August 30, 2014. (Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act)

 

g)         Lessors Earning and Using Manufacturer's Purchase Credit

 

1)         A lessor leasing exempt manufacturing machinery and equipment to a manufacturer or graphic arts machinery and equipment to a graphic arts producer may earn Manufacturer's Purchase Credit when purchasing the machinery and equipment, in the same manner as a manufacturer or graphic arts producer.

 

2)         A lessor leasing qualifying production related tangible personal property to a manufacturer or graphic arts producer may use Manufacturer's Purchase Credit when purchasing the qualifying property in the same manner as a manufacturer or graphic arts producer.  (See Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act.)

 

3)         A lessor of exempt machinery and equipment and qualifying production related tangible personal property must report the accumulation and use of credit in the same manner as required for manufacturers or graphic arts producers.

 

4)         Since the Manufacturer's Purchase Credit is a non-transferable credit, a lessor may not use credit earned by a lessee, nor may a lessor transfer credit it has earned to a lessee.

 

5)         Notwithstanding any other provision of this Section, the credit earned prior to July 1, 2003 cannot be used after September 30, 2003.  (Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act)  Notwithstanding any other provisions of this Section, the credit earned on or after September 1, 2004 cannot be used on a purchase of production related tangible personal property made after August 30, 2014.

 

h)         Retailers or Servicemen Accepting Manufacturer's Purchase Credit After Qualifying Purchases

 

1)         A manufacturer or graphic arts producer that does not provide the certification or purchase order as provided in subsection (f) of this Section to a retailer or serviceman at the time of purchase of production related tangible personal property must pay the appropriate amount of Use Tax or Service Use Tax at that time to the retailer or serviceman.  However, retailers and servicemen are not prohibited from accepting Manufacturer's Purchase Credit (MPC) certifications after qualifying sales of production related tangible personal property have taken place.  Retailers and servicemen are not required to accept the certifications and are not required to refund the amount of Use Tax or Service Use Tax that was properly paid by the manufacturers or graphic arts producers in exchange for the certificates after the sales have taken place.  Notwithstanding any other provision of this Section, the credit earned prior to July 1, 2003 cannot be used after September 30, 2003.  Notwithstanding any other provision of this Section, the credit earned on or after September 1, 2004 cannot be used on a purchase of production related tangible personal property made after August 30, 2014.  Retailers and servicemen cannot accept MPC certifications for any purchase, including certifications for prior qualifying sales, after September 30, 2003 through August 31, 2004.  Beginning on September 1, 2004, retailers and servicemen may accept MPC certifications for qualifying purchases made on and after September 1, 2004 through August 30, 2014. (Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act)

 

2)         Retailers and servicemen that choose to accept MPC certifications from manufacturers and graphic arts producers after qualifying sales of production related tangible personal property have taken place and refund the amount of Use Tax or Service Use Tax that was properly paid by those manufacturers or graphic arts producers must file amended returns or claims for credit or refund as provided in Section 130.1501 of this Part.  However, to avoid the potential of retailers and servicemen filing multiple amended returns and claims for credit or refund, retailers and servicemen may elect to report the acceptance of that MPC on line 16a of the retailers' and servicemen's sales and use tax returns for the period in which those refunds occurred.  The retailer's or serviceman's election to report the acceptance of the credit on their current return, in lieu of filing an amended return and claim for credit or refund, does not supersede the applicability of the statute of limitations described in Section 130.1501(a)(4) of this Part to the claiming of that credit by the retailer or serviceman.  Retailers and servicemen may only refund the 6.25% of State Use Tax or Service Use Tax paid by the manufacturers and graphic arts producers.  (See subsection (b) of this Section.)  Manufacturer's Purchase Credit reported on any original or amended return filed after October 20, 2003 through August 31, 2004 will be disallowed.  Beginning on September 1, 2004, retailers and servicemen may accept MPC certifications for qualifying purchases made on and after September 1, 2004 through August 30, 2014. (Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act)

 

3)         Manufacturers and graphic arts producers who provide MPC certifications to retailers or servicemen after qualifying sales of production related tangible personal property have taken place as provided in this subsection (h) must report the use of the credit on an Annual Report of Manufacturer's Purchase Credit Used for the calendar year in which the certification was provided listing the use of the credit in the month in which the certification is provided.  No Annual Report of Manufacturer's Purchase Credit Used may be filed with the Department after June 30, 2004 through December 31, 2004.  (Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act)  No original Annual Report of Manufacturer's Purchase Credit Used may be filed with the Department after June 30, 2015. 

 

4)         Example:  A manufacturer purchased production related tangible personal property from a retailer in June 1999.  The manufacturer paid Use Tax to the retailer at the time of purchase.  In January 2001, the manufacturer asks the retailer to accept an MPC certification for the June 1999 purchase and refund the Use Tax (6.25%) paid previously by the manufacturer.  The retailer chooses to accept the certification and refunds the amount of the Use Tax (6.25%) to the manufacturer.  The retailer makes the election to report the acceptance of the credit on line 16a of the retailer's January 2001 sales and use tax return (rather than filing an amended return or claim for credit or refund).  The manufacturer must report the use of the credit in the month of January on an Annual Report of Manufacturer's Purchase Credit Used for the year 2001.

 

i)          Manufacturers or Graphic Arts Producers Reporting Use of Manufacturer's Purchase Credit After Qualifying Purchases When Use Tax or Service Use Tax Was Already Paid Directly to the Department

 

1)         Manufacturers and graphic arts producers who self-assess Use Tax or Service Use Tax directly to the Department are not prohibited from reporting the use of Manufacturer's Purchase Credit (MPC) after the qualifying purchase of production related tangible personal property when those manufacturers or graphic arts producers have already paid the appropriate amount of Use Tax or Service Use Tax directly to the Department.  Notwithstanding any other provision of this Section, the credit earned prior to July 1, 2003 cannot be used after September 30, 2003.  (Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act)  Notwithstanding any other provision of this Section, the credit earned on or after September 1, 2004 cannot be used on a purchase of production related tangible personal property made after August 30, 2014. 

 

2)         Manufacturers and graphic arts producers who choose to use MPC as provided in this subsection (i) must file an amended return or claim for credit or refund with the Department as provided in Section 130.1501 of this Part.  However, to avoid the potential of manufacturers and graphic arts producers filing multiple amended returns and claims for credit or refund, manufacturers and graphic arts producers may elect to report the use of that credit on line 16a of their current sales and use tax returns.  The manufacturer's or graphic arts producer's election to report the acceptance of the credit on the current return, in lieu of filing an amended return and claim for credit or refund, does not supersede the applicability of the statute of limitations described in Section 130.1501(a)(4) of this Part to the claiming of that credit by the manufacturer or graphic arts producer. Manufacturer's Purchase Credit reported on any original or amended return filed after October 20, 2003 through August 31, 2004 will be disallowed. (Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act)

 

3)         Manufacturers and graphic arts producers who report the use of MPC on their current sales and use tax return as provided in this subsection (i) must also report the use of the credit on an Annual Report of Manufacturer's Purchase Credit Used for the calendar year in which the manufacturer's or graphic arts producer's current sales and use tax return falls.  No Annual Report of Manufacturer's Purchase Credit Used may be filed with the Department after June 30, 2004 through December 31, 2004.  (Section 3-85 of the Use Tax Act and Section 3-70 of the Service Use Tax Act)  No original Annual Report of Manufacturer's Purchase Credit Used may be filed with the Department after June 30, 2015. 

 

4)         Example:  A manufacturer, that self assesses Use Tax and Service Use Tax directly to the Department, made a qualifying purchase of production related tangible personal property in August 1999 and paid the Use Tax on that purchase to the Department with the manufacturer's August 1999 return.  In January 2001, the manufacturer chose to use currently available MPC to satisfy the Use Tax liability that was incurred on that qualifying purchase back in August 1999.  The manufacturer elected to report the use of the MPC on line 16a of the manufacturer's sales and use tax return for the month of January 2001 (rather than filing an amended return or claim for credit or refund).  The manufacturer must also report the use of that credit in the month of January on an Annual Report of Manufacturer's Purchase Credit Used for the year 2001.

 

(Source:  Amended at 34 Ill. Reg. 9405, effective June 23, 2010)

 

Section 130.332  Automatic Vending Machines

 

a)         General.  Notwithstanding the fact that the sales may be at retail, effective January 1, 2000 and through December 31, 2001, the Retailers' Occupation Tax does not apply to sales of new or used automatic vending machines that prepare and serve hot food and beverages.  The exemption also applies to individual replacement parts for these machines.  Beginning January 1, 2002 and through June 30, 2003, the Retailers' Occupation Tax does not apply to sales of machines and parts for machines used in commercial, coin-operated amusement and vending business if a use or occupation tax is paid on the gross receipts derived from the use of the commercial, coin-operated amusement and vending machines. [35 ILCS 120/2-5(35)]

 

b)         Exempt Usage of Vending Machines – January 1, 2000 through December 31, 2001. Between January 1, 2000 and December 31, 2001, this exemption exempts from tax only automatic vending machines used in the preparation and serving of hot food and beverages.  For purposes of this exemption, an automatic vending machine is an electrically operated machine into which customers insert U.S. legal tender coinage or paper money to cause a food or beverage item to be dispensed, the temperature of which is heated above the ambient temperature at the time it is removed by the customer.  The use of vending machines in any other activity will not qualify for this exemption.  The use of vending machines to dispense or serve unheated food or beverage products will not be an exempt use and those machines will be subject to tax.  The use of vending machines to sell or dispense any non-food items is not an exempt use and those machines will be subject to tax.

 

c)         Exempt Usage of Vending Machines − On and after January 1, 2002 and through June 30, 2003

 

1)         After December 31, 2001 and through June 30, 2003, the exemption applies to machines and parts for machines used in commercial, coin-operated amusement and vending businesses, so long as the owner, operator or user of the machine incurs a use or occupation tax liability.  The following are examples of situations in which the tax liability is incurred on machines:

 

A)        Retailers' Occupation Tax is incurred on the sale of tangible personal property through a vending machine.

 

B)        Use Tax liability is incurred on tangible personal property that is awarded as a "prize" resulting from the operation of an amusement machine.

 

2)         For those machines or parts where a use or occupation tax is not incurred, the exemption does not apply to sales of those machines or parts for those machines.  For example, a seller does not incur Retailers' Occupation Tax on gross receipts derived from sales of items through bulk vending machines.  As a result, sales of bulk vending machines and parts for those machines are subject to tax.  (See Section 1 of the Act.)

 

3)         For purposes of this exemption, "parts for machines" includes replacement parts.

 

d)         Restrictions Applicable to All Periods

 

1)         The use of microwave ovens or other devices as units separate and apart from vending machines to heat food or beverages sold by vending machines is not an exempt use and the microwave ovens or other devices will be subject to tax.

 

2)         Constructed foundations or other buildings or structures that support or house vending machines do not qualify for this exemption.

 

e)         Purchaser Certification

 

1)         The purchaser of machines or parts affected by this Section shall prepare a certificate of exemption for each transaction stating facts establishing the exemption for that transaction and submit the certificate to the retailer.  Between January 1, 2000 and December 31, 2001, the certificate must include the seller's name and address, the purchaser's name and address and a statement that the property purchased will be a vending machine or replacement part used for the preparation and serving of hot food or beverages. After December 31, 2001, the certificate must include the seller's name and address, the purchaser's name and address and a statement that the property purchased will be a machine or part used in a commercial, coin-operated amusement or vending business where the owner, operator or user of the machine will incur a use or occupation tax liability. The certificates shall be retained by the retailer and shall be made available to the Department for inspection or audit.

 

2)         If all purchases are for qualifying machines or parts as described in this Section, a purchaser may provide a blanket exemption certificate that specifies that all purchases are exempt.

 

(Source:  Amended at 28 Ill. Reg. 11268, effective July 21, 2004)

 

Section 130.333  Sustainable Aviation Fuel Purchase Credit

 

a)         Earning Sustainable Aviation Fuel Purchase Credit

 

1)         From July 1, 2023 through December 31, 2032, sustainable aviation fuel ("SAF") sold to or used by an air common carrier, certified by the carrier to be used in Illinois, earns a credit in the amount of $1.50 per gallon of SAF purchased. The credit earned shall be referred to as the Sustainable Aviation Fuel Purchase Credit or SAFPC.  Only that portion of each gallon of aviation fuel that consists of SAF, as defined in this Section, is eligible to earn the credit.

 

2)         The credit is earned at the time SAF is purchased for use in Illinois.  The amount of credit that is earned is based on the number of whole gallons of SAF purchased for use in Illinois. Partial gallons will not earn a credit.  Credits may be used at the same time as they are earned.  [35 ILCS 105/3-87; 35 ILCS 110/3-72] A qualifying purchase is considered to take place as of the date of invoice of the SAF.  The credit is considered to be earned on SAF that is purchased under an installment contract or progress payment contract at the time that each installment or progress payment is invoiced and based on the number of whole gallons purchased by the installment or progress payment.

 

3)         For a sale or use of aviation fuel to qualify to earn SAFPC, taxpayers must retain in their books and records a certification from the producer of the aviation fuel that the aviation fuel sold or used and for which SAFPC was earned meets the definition of SAF under this Section. The documentation must include detail sufficient for the Department to determine the number of gallons of SAF sold or used.  [35 ILCS 105/3-87; 35 ILCS 110/3-72; 35 ILCS 115/9; 35 ILCS 120/3]

 

4)         SAFPC earned by an air common carrier expires on December 31, 2032. SAFPC is non-transferable and non-refundable. Taxpayers shall account for the earning and usage of SAFPC on each monthly return filed with the Department, as deemed necessary by the Department. In addition, to monitor the number of gallons of soybean oil feedstock included in the SAF purchased and to monitor the earning and usage of SAFPC, air common carriers must periodically report this information in the form and manner required by the Department.

 

5)         Until January 1, 2033, on an annual basis, running from January through December each year, no credit may be earned by an air common carrier for soybean oil-derived SAF once air common carriers in this State have collectively purchased SAF containing 10,000,000 gallons of soybean oil feedstock.  [35 ILCS 105/3-87; 35 ILCS 110/3-72]  If the amount of credit earned during any calendar year reported to the Department by air common carriers includes credit earned on soybean oil-derived SAF that exceeds 10,000,000 gallons of soybean oil feedstock, then the credit earned on soybean oil-derived SAF shall be reduced proportionately to meet this cap.

 

6)         SAF is "used in Illinois" and therefore eligible to earn the credit if it is subject to tax under the Use Tax Act or the Service Use Tax Act, including uses subject to Use Tax or Service Use Tax but for which an exemption is allowed under the Act.  SAF that is not subject to Use Tax or Service Use Tax in Illinois is not "used in Illinois" for purposes of the credit.  No credit is earned for a purchase of SAF that is purchased for resale.  See Section 130.210(a) and 86 Ill. Adm. Code 150.301.

 

EXAMPLE: Purchase 1: air common carrier purchases 10,000 gallons of aviation fuel it certifies is for use in Illinois.  Producer provides purchaser-air common carrier with a certification that 5,000 gallons of the fuel is SAF.  Purchaser-air common carrier earns $7,500 in SAFPC (5,000 * $1.50 = $7,500) on the purchase. The fuel will be loaded into the fuel supply tanks of aircraft at O'Hare Airport, and is therefore subject to Illinois Use Tax.  All of the fuel, however, will be used in flights that are engaged in foreign trade and eligible for the exemption under Section 3-5(12) of the Use Tax Act [35 ILCS 105/3-5(12)] and Section 2-5(22) of the Retailers' Occupation Tax Act [35 ILCS 120/2-5(22)].  Therefore, the transaction is exempt from retailers' occupation and use tax.

Purchase 2: air common carrier purchases 20,000 gallons of non-SAF aviation fuel for use in Illinois at a price of $4 per gallon.  No exemption applies to the purchase.  The tax rate is 8.5%.  The taxable selling price is $80,000.  Total tax owed is $6,800 ($80,000 * 8.5% = $6,800).  Purchaser-air common carrier may use $5,000 ($80,000 * 6.25% = $5,000) of SAFPC earned in Purchase 1 to satisfy the 6.25% portion of the tax.  Purchaser-air common carrier must pay supplier the remaining $1,800 in tax (local portion), for which SAFPC may not be used.  Purchaser-air common carrier will have $2,500 SAFPC remaining for use in future purchases.

 

b)         "Sustainable aviation fuel" means liquid fuel, the portion of which is not kerosene, which either:

 

1)         meets the criteria set forth in subsections (d) and (e) of Section 40B of the federal Internal Revenue Code of 1986, including the following:

 

A)        meets the requirements of:

 

i)          American Society for Testing and Materials International Standard D7566, or

 

ii)         the Fischer-Tropsch provisions of American Society for Testing and Materials International Standard D1655, Annex A1;

 

B)        is not derived from coprocessing an applicable material (or materials derived from an applicable material) with a feedstock which is not biomass;

 

C)        is not derived from palm fatty acid distillates or petroleum; and

 

D)        has been certified in accordance with subsection (e) of Section 40B of the federal Internal Revenue Code of 1986 as having a lifecycle greenhouse gas emissions reduction percentage of at least 50%; or

 

2)         meets the following criteria:

 

A)        consists of synthesized hydrocarbons and meets the requirements of:

 

i)          the American Society for Testing and Materials International Standard D7566; or

 

ii)         the Fischer-Tropsch provisions of American Society for Testing and Materials International Standard D1655, Annex A1;

 

B)        prior to June 1, 2028, is derived from biomass resources, waste streams, renewable energy sources, or gaseous carbon oxides, and beginning on June 1, 2028, is derived from domestic biomass resources;

 

C)        is not derived from any palm derivatives; and

 

D)        the fuel production pathway for the SAF achieves at least a 50% lifecycle greenhouse gas emissions reduction in comparison with petroleum-based jet fuel, as determined by a test that shows:

 

i)          that the fuel production pathway achieves at least a 50% reduction of the aggregate attributional core lifecycle emissions and the positive induced land use change values under the lifecycle methodology for SAFs adopted by the International Civil Aviation Organization with the agreement of the United States; or

 

ii)         that the fuel production pathway achieves at least a 50% reduction of the aggregate attributional core lifecycle greenhouse gas emissions values utilizing the most recent version of Argonne National Laboratory's GREET model, inclusive of agricultural practices and carbon capture and sequestration.

 

c)         Using Sustainable Aviation Fuel Purchase Credit

 

1)         The purchaser of SAF shall certify to the seller of the aviation fuel that the purchaser is satisfying all or part of its liability for the 6.25% tax under the Use Tax Act or the Service Use Tax Act that is due on the purchase of aviation fuel by use of SAFPC.  The credit may be applied only to the 6.25% State rate of tax incurred on aviation fuel.  The credit may be accumulated or may be used the same day that it is earned, but must be followed by proper documentation and reporting of the credit as set out in this Section.

 

2)         The SAFPC certification must be dated and shall include the name and address of the purchaser, the purchaser's Account ID, if registered, the credit being applied, and a statement that the State Use Tax or Service Use Tax liability is being satisfied with the air common carrier's SAFPC.

 

3)         The credit is non-transferable and may not be used to satisfy the tax liability of any taxpayer other than the air common carrier that earned the credit.  A credit reported under a particular Account ID may not be transferred to a related but separately registered division or company.

 

4)         An air common carrier-purchaser of aviation fuel may utilize SAFPC in satisfaction of the 6.25% tax arising from the purchase of aviation fuel, but not in satisfaction of penalty or interest.  [35 ILCS 105/3-87; 35 ILCS 110/3-72] Accumulated credit may be used to satisfy the State portion (6.25%) of a Use Tax or Service Use Tax liability arising under audit where the liability established is the result of the air common carrier failing to self-assess and remit Use Tax or Service Use Tax on the purchase of aviation fuel.  The credit may only be used to satisfy the State portion (6.25%) of a Use Tax or Service Use Tax liability incurred on the purchase of aviation fuel.  Under no circumstances may the credit be used to satisfy penalty and interest, or other tax liability incurred by the air common carrier.

 

5)         Credit may be used to satisfy the State portion (6.25%) of a qualifying Use Tax or Service Use Tax liability incurred by an air common carrier on a purchase of aviation fuel when payment of tax must be made directly to the Department.

 

6)         The credit expires on December 31, 2032. See Section 3-87 of the Use Tax Act and Section 3-72 of the Service Use Tax Act.

 

7)         An air common carrier may use credit to satisfy Service Use Tax liability only when purchasing aviation fuel transferred incident to a sale of service.

 

d)         Documentation of Sustainable Aviation Fuel Purchase Credit Earned and Used

 

1)         Earning SAFPC.  An air common carrier earning SAFPC must retain in its books and records, produce upon request of the Department, submit periodically as required by the Department, and produce upon audit by the Department, as to each purchase of SAF on which the air common carrier earned SAFPC, the following documentation:

 

A)        the vendor or supplier (including, if applicable, either the vendor's or supplier's Illinois Account ID or Federal Employer Identification Number);

 

B)        a copy of the certification from the producer of the aviation fuel that the aviation fuel meets the definition of SAF under this Section;

 

C)        the date of purchase and number of whole gallons of SAF purchased;

 

D)        the number of whole gallons of soybean oil feedstock, if any, included in the gallons listed in subsection (d)(1)(C); and

 

E)        any other information required by the Department to track the earning of SAFPC.

 

2)         Using SAFPC.  An air common carrier using SAFPC must retain in its books and records, produce upon request of the Department, submit periodically as required by the Department, and produce upon audit by the Department, as to each purchase of aviation fuel on which the air common carrier used SAFPC to satisfy the purchaser's Use Tax or Service Use Tax liability, the following documentation:

 

A)        the vendor or supplier (including, if applicable, either the vendor's or supplier's Illinois Account ID or Federal Employer Identification Number);

 

B)        the date of purchase and purchase price of the aviation fuel;

 

C)        the amount of SAFPC used to satisfy the purchaser's 6.25% Use Tax or Service Use Tax liability on that purchase;

 

D)        the amount of SAFPC, if any, included in the amount listed in subsection (d)(2)(C) that was derived from soybean oil feedstock; and

 

E)        any other information required by the Department to track the usage of SAFPC.

 

3)         Reporting.  Air common carriers are required to complete and retain in their books and records a form provided by the Department to record the information required in subsections (d)(1) and (d)(2) for each purchase of aviation fuel on which they earn or use SAFPC. Air common carriers shall submit copies of the completed form to the Department periodically as required by the Department so that the Department can meet the statutory requirement to track the number of gallons of soybean oil feedstock included in purchases of SAF to be used in Illinois and track the earning and usage of SAFPC.

 

4)         Disallowed and unused SAFPC.  An air common carrier who used SAFPC to satisfy the air common carrier's Use Tax or Service Use Tax liability incurred on a purchase that is later determined not to qualify for usage of the credit may be liable for tax, penalty, and interest on that purchase as of the date of the purchase.  However, the air common carrier is entitled to use the disallowed SAFPC, so long as it has not expired, on qualifying purchases of aviation fuel for which credit was not previously used.  Similarly, an air common carrier who used SAFPC to satisfy the air common carrier's Use Tax or Service Use Tax liability incurred on a purchase that is later determined not to be subject to tax (e.g., exempt sale) is entitled to use the resulting unused SAFPC, so long as it has not expired, on qualifying purchases of aviation fuel for which credit was not previously used.

 

e)         Retailers or Servicemen Accepting Sustainable Aviation Fuel Purchase Credit

 

1)         Beginning on July 1, 2023 and through December 31, 2032, a retailer may accept an SAFPC certification from an air common carrier-purchaser in satisfaction of Use Tax on aviation fuel as provided in Section 3-87 of the Use Tax Act if the purchaser provides the appropriate documentation as required by Section 3-87 of the Use Tax Act.  An SAFPC certification accepted by a retailer in accordance with this paragraph may be used by that retailer to satisfy Retailers' Occupation Tax liability (but not in satisfaction of penalty or interest) in the amount claimed in the certification, not to exceed 6.25% of the receipts subject to tax from a sale of aviation fuel.  [35 ILCS 120/3]  For a transfer of aviation fuel incident to a sale of service, see corresponding language at 35 ILCS 110/3-72 and 35 ILCS 115/9.  In order to accept SAFPC from an air common carrier, the retailer or serviceman must obtain an SAFPC certificate from the air common carrier.  The air common carrier must provide the certification on a form provided by the Department.  The certificate must be kept in the retailer's or serviceman's books and records, but need not be submitted to the Department with the retailer's or serviceman's return.  An SAFPC certificate must contain the following information:

 

A)        a signed statement that the air common carrier is using SAFPC to satisfy all or part of the 6.25% portion of Use Tax or Service Use Tax liability incurred on the purchase of aviation fuel;

 

B)        the air common carrier's name and address;

 

C)        the air common carrier's Illinois Account ID, if registered;

 

D)        the date of purchase and total selling price of the aviation fuel;

 

E)        the amount of credit being used (see Section 3-87 of the Use Tax Act and Section 3-72 of the Service Use Tax Act); and

 

F)         the amount of credit, if any, included in the amount listed in subsection (e)(1)(E) that was derived from soybean oil feedstock.

 

2)         SAFPC accepted by the retailer or serviceman may be used by the retailer or serviceman to pay its liability incurred under the Retailers' Occupation Tax Act or Service Occupation Tax Act, so long as the retailer or serviceman complies with the following:

 

A)        The retailer or serviceman may not accept credit in excess of 6.25% of the purchase price of the aviation fuel.

 

B)        The retailer or serviceman must properly report the credit on the return to the Department in order to use the credit to pay Retailers' Occupation Tax or Service Occupation Tax liability.  The SAFPC does not create an exemption or an authorized deduction.  The SAFPC is a means for the retailer or serviceman to pay Retailers' Occupation Tax or Service Occupation Tax, as the case may be.  Therefore, the receipts from transactions in which customers have provided SAFPC cannot be deducted from the gross receipts reported on the Aviation Fuel Sales and Use Tax Return (Form ST-70).  Receipts from transactions in which customers have provided SAFPC must be included in gross receipts subject to tax reported on line 1 and line 3 of the return.  The resulting tax on those gross receipts can then be paid by using the credit on line 17 of the return.

 

f)         Retailers or Servicemen Accepting Sustainable Aviation Fuel Purchase Credit After Qualifying Purchases

 

1)         An air common carrier that does not provide the certification as provided in subsection (e) to a retailer or serviceman at the time of purchase of aviation fuel must pay the appropriate amount of Use Tax or Service Use Tax at that time to the retailer or serviceman.  However, retailers and servicemen are not prohibited from accepting SAFPC certifications after sales of aviation fuel have taken place.  Retailers and servicemen are not required to accept the certifications and are not required to refund the amount of Use Tax or Service Use Tax that was properly paid by the air common carriers in exchange for the certificates after the sales have taken place.

 

2)         Retailers and servicemen that choose to accept SAFPC certifications from air common carriers after sales of aviation fuel have taken place and refund the amount of Use Tax or Service Use Tax that was properly paid by those air common carriers must file amended returns or claims for credit or refund as provided in Section 130.1501.  However, to avoid the potential of retailers and servicemen filing multiple amended returns and claims for credit or refund, retailers and servicemen may elect to report the acceptance of that SAFPC on line 17 of the retailers' and servicemen's Aviation Fuel Sales and Use Tax Returns (Form ST-70) for the period in which those refunds occurred.  The retailer's or serviceman's election to report the acceptance of the credit on their current return, in lieu of filing an amended return and claim for credit or refund, does not supersede the applicability of the statute of limitations described in Section 130.1501(a)(4) to the claiming of that credit by the retailer or serviceman.  Retailers and servicemen may only refund the 6.25% of State Use Tax or Service Use Tax paid by the air common carriers.  See subsection (c).

 

3)         Air common carriers who provide SAFPC certifications to retailers or servicemen after sales of aviation fuel have taken place as provided in this subsection (f) must maintain records documenting both the original purchase of the aviation fuel and documenting the use of the credit in the month in which the certification was provided to the retailer or serviceman.

 

4)         Example: An air common carrier purchased aviation fuel from a retailer in June 2024.  The air common carrier paid Use Tax to the retailer at the time of purchase.  In January 2025, the air common carrier asks the retailer to accept an SAFPC certification for the June 2024 purchase and refund the Use Tax (6.25%) paid previously by the air common carrier.  The retailer chooses to accept the certification and refunds the amount of the Use Tax (6.25%) to the air common carrier.  The retailer makes the election to report the acceptance of the credit on line 17 of the retailer's January 2025 Aviation Fuel Sales and Use Tax Return (rather than filing an amended return or claim for credit or refund).  The air common carrier must retain records documenting the purchase of the aviation fuel in June 2024 and the use of the credit in the month of January 2025.

 

(Source:  Added at 47 Ill. Reg. 19135, effective December 6, 2023)

 

Section 130.335  Pollution Control Facilities and Low Sulfur Dioxide Emission Coal-Fueled Devices

 

a)         Through June 30, 2003, notwithstanding the fact that the sales may be at retail, sales of pollution control facilities are exempt from the Retailers' Occupation Tax.  This exemption extends to and includes the purchase of pollution control facilities by a contractor who retransfers the facilities to his customer in fulfillment of a contract to furnish such pollution control facilities to, and to install them for, his customer.  The phrase "pollution control facilities" means any system, method, construction, device or appliance appurtenant thereto sold or used or intended for the primary purpose of eliminating, preventing, or reducing air and water pollution as the term "pollution" is defined in the Environmental Protection Act [415 ILCS 5], or for the primary purpose of treating, pretreating, modifying or disposing of any potential solid, liquid or gaseous pollutant which if released without such treatment, pretreatment, modification or disposal might be harmful, detrimental or offensive to human, plant or animal life, or to property.  This exemption includes not only the pollution control equipment itself, but also replacement parts therefor, but does not extend to fuel used in operating any such equipment nor to any other tangible personal property which may be used in some way in connection with such equipment, but which is not an integral part of the equipment itself.  If the purchaser or his contractor-installer buys an item that could reasonably qualify for exemption as a pollution control facility for use as a pollution control facility, the purchaser or his contractor-installer should certify this intended use of the item to the seller in order to relieve the seller of the duty of collecting and remitting the tax on the sale, but the purchaser who is buying the item in question allegedly for his use as a pollution control facility will be held liable for the tax by the Department if it is found that such purchaser does not use the item as a pollution control facility.

 

1)         Asbestos removal systems.  This exemption includes devices, materials, and equipment that are integral component parts of an asbestos removal system if the primary purpose of those items is to eliminate, reduce, or prevent pollution.  These items may include, but are not limited to:

 

A)        protective suits or clothing;

 

B)        respirators;

 

C)        gloves and glove bags;

 

D)        filters and vacuum filtration equipment;

 

E)        encapsulate materials;

 

F)         materials, such as plastic sheeting, lumber, and adhesive tape, that are used to construct containment areas or air locks;

 

G)        portable shower units, including water traps and filters, used to decontaminate equipment and personnel;

 

H)        plastic bags used for disposal of asbestos; and

 

I)         wetting agents used to remove asbestos dust from the air.

 

2)         Chemicals used for filtration.  This exemption includes any chemical that is primarily utilized for filtration purposes as an integral component of a system for eliminating, reducing, or preventing pollution.  Examples of the use of such chemicals include the use of sodium hypochlorite, sodium hydroxide, hydrochloric acid, and nitric acid to filter pollutants in holding tanks and ground limestone mixed with water to remove sulfur dioxide from flue gases.

 

3)         Equipment and materials used at landfills.  This exemption includes devices, materials, and equipment that are integral component parts of a landfill operation if the primary purpose of those items is to eliminate, reduce, or prevent pollution. These items may include, but are not limited to:

 

A)        membranes and liners;

 

B)        filters;

 

C)        materials used in constructing leachate collection systems;

 

D)        materials used in constructing landfill gas flare and blower systems to combust and treat landfill gases;

 

E)        litter control fences;

 

F)         erosion control materials used to prevent water from entering the landfill site and creating water pollution;

 

G)        sweepers used to remove debris from landfill sites; and

 

H)        bulldozers and excavators that are used to cover waste materials.

 

4)         Pollution control monitoring devices.  Pollution control monitoring devices that do not prevent, reduce, or eliminate pollution or treat, pretreat, modify, or dispose of any pollutants do not qualify for the pollution control facilities exemption.  However, if the pollution control monitoring devices directly adjust other devices that actually reduce or prevent pollution, the pollution control monitoring devices will qualify for the pollution control facilities exemption.

 

b)         Low Sulfur Dioxide Emission Coal-Fueled Devices

 

1)         Notwithstanding the fact that the sales may be at retail, sales of low sulfur dioxide emission coal-fueled devices are exempt from the Retailers' Occupation Tax.  This exemption extends to and includes the purchase of such a device, or materials to construct such a device which are physically incorporated into the device, by a contractor who retransfers the device to his customer in fulfillment of a contract to furnish such a device to, and install it for, his customer.

 

2)         Low sulfur dioxide emission coal-fueled devices means any device sold or used or intended for the purpose of burning, combusting or converting locally available coal in a manner which eliminates or significantly reduces the need for additional sulfur dioxide abatement that would otherwise be required under State or Federal air emission standards which will be determined by evaluating the output of sulfur dioxide from the device and consultation with the Pollution Control Board to determine if the device meets their standards and could be certified as a low sulfur dioxide emission device. With respect to coal gasification facilities, such devices include all machinery, equipment, structures and related apparatus including coal-feeding equipment designed to convert locally available coal into a low sulfur gaseous fuel and to manage all waste and by-product streams. (Section 1a-1 of the Act)

 

3)         The exemption includes only the device and replacement parts.  It does not extend to chemicals, catalysts, additives or fuels used in the combustion or conversion process.  For devices which are not a part of a coal gasification facility, the exemption will not apply to buildings in which the device may be located, nor to machinery and equipment which may receive, store or process coal prior to its burning, combustion or conversion, nor to machinery and equipment used to distribute coal products, steam or energy from the process or remove waste products resulting from the process. For devices which are a part of a coal gasification facility, the exemption will include all machinery, equipment, structures and related apparatus including coal-feeding equipment and equipment to manage waste and by-product streams.  A device will qualify for the exemption even if it serves an industrial, manufacturing or other purpose which confers an economic benefit on the purchaser or is used for other purposes in addition to the burning, combusting or converting coal.

 

4)         The device must use or be intended to use locally available coal, i.e., coal mined in Illinois.

 

5)         Coal conversion includes a variety of processes which produce coal gas, liquid fuel or solid fuels.  It does not encompass coal production or preparation techniques such as washing, crushing or pelletization of coal.

 

6)         The device or the operation in which it is used must be subject to State or Federal emission control standards and must, in its operation, eliminate or significantly reduce the need for supplementary sulfur dioxide abatement that would otherwise be required.

 

c)         Generally, vehicles, such as garbage trucks and refuse hauling trucks, whose primary purpose is to haul garbage from one point to another do not qualify for the pollution control facilities exemption.  (See XL Disposal Corporation, Inc. v. Kenneth Zehnder (304 Ill.App.3d 202, 709 N.E.2d 293 (4th Dist. 1999)).)  However, escort trucks that are used primarily as part of a system of preventing or reducing potential pollution in the case of a spill by a vehicle transporting pollutants may qualify for the pollution control facilities exemption.  (See Beelman Truck Company v. Cosentino (253 Ill.App.3d 420, 624 N.E.2d 454 (5th Dist. 1993)).)

 

(Source:  Amended at 28 Ill. Reg. 11268, effective July 21, 2004)

 

Section 130.340  Rolling Stock

 

a)         Notwithstanding the fact that the sale is at retail, the Retailers' Occupation Tax does not apply to sales of tangible personal property to owners, lessors, or shippers of tangible personal property that is utilized by interstate carriers for hire for use as rolling stock moving in interstate commerce as long as so used by the interstate carriers for hire. [35 ILCS 120/2-5(13)]  This exemption is not only available to purchasers who are interstate carriers for hire and who otherwise meet the requirements of the exemption, but also to lessors who lease to interstate carriers who use the property as rolling stock moving in interstate commerce and to shippers, including manufacturers, who provide tangible personal property (such as shipping containers) to interstate carriers for hire when those interstate carriers use that property as rolling stock moving in interstate commerce.

 

1)         In making an initial determination of eligibility, two conditions that an item must meet in each instance are:

 

A)        it must transport persons or property for hire; and

 

B)        it must transport persons or property in interstate commerce.

 

2)         The purchase of an item that does not meet both criteria in subsection (a)(1) is not eligible for the rolling stock exemption under any circumstances.

 

b)         Definitions.  As used in this Section:

 

"Aircraft" has the meaning prescribed in Section 3 of the Illinois Aeronautics Act. [620 ILCS 5/1]

 

"Commercial service or cargo service airport" means land, improvements to land, equipment, and appliances necessary for the receipt and transfer of persons and property onto or off of aircraft primarily for interstate or international transport.

 

"Gross vehicle weight rating" or "GVWR" means the value specified by the manufacturer as the loaded weight of a single vehicle. [625 ILCS 5/1-124.5]

 

"Limousine" means any privately owned first division vehicle intended to be used for the transportation of persons for-hire when the payment is not based on a meter charge, but is prearranged for a designated destination. [625 ILCS 5/1-139.1]

 

"Motor vehicle" means, except as otherwise provided in this Section, a motor vehicle as defined in Section 1-146 of the Illinois Vehicle Code [625 ILCS 5/1-146]. The term "motor vehicle" does not include aircraft or watercraft.

 

The term "Rolling Stock" includes transportation vehicles of any kind used by an interstate transportation company for hire (e.g., railroad, bus line, airline, trucking company, barge company, and limousine company), but not vehicles that are being used by a person to transport its officers, employees, customers or others not for hire (even if they cross State lines) or to transport property that the person owns or is selling and delivering to customers (even if the transportation crosses State lines).  Railroad "rolling stock" includes all railroad cars, passenger and freight, and locomotives (including switching locomotives) or mobile power units of every nature for moving the cars, operating on railroad tracks, and includes all property purchased for the purpose of being attached to the cars or locomotives as a part of the cars or locomotives.  The exemption includes some equipment (such as shipping containers called trailers and shipping containers transferred at intermodal terminal facilities or commercial service or cargo service airports) that is used by interstate carriers for hire, loaded on railroad cars or aircraft, to transport property, but that does not operate under its own power and is not actually attached to the railroad cars or aircraft.  The exemption does not apply to fuel nor to jacks or flares or other items that are used by interstate carriers for hire in servicing the transportation vehicles, but that do not become a part of the vehicles, and that do not participate directly in some way in the transportation process.  The exemption does not include property of an interstate carrier for hire used in the company's office, such as furniture, computers, office supplies and the like.

 

"Trailer" means a trailer as defined in Section 1-209 of the Illinois Vehicle Code; a semitrailer as defined in Section 1-187 of the Illinois Vehicle Code; and a pole trailer as defined in Section 1-209 of the Illinois Vehicle Code.

 

"Watercraft" means:

 

Class 2, Class 3, and Class 4 watercraft, as defined in Section 3-2 of the Boat Registration and Safety Act; [625 ILCS 45/3-2]; or

 

personal watercraft, as defined in Section 1-2 of the Boat Registration and Safety Act. [625 ILCS 45/1-2]

 

c)         Generally, the rolling stock exemption cannot be claimed by a purely intrastate carrier for hire as to any tangible personal property that it purchases because it does not meet the statutory tests of being an interstate carrier for hire.  However, the rolling stock exemption applies to rolling stock used by an interstate carrier for hire, even just between points in Illinois, if the rolling stock transports, for hire, persons whose journeys or property whose shipments originate or terminate outside Illinois. [35 ILCS 120/2-50].

 

d)         Motor vehicles (other than limousines) and trailers. This subsection (d) sets forth the specific requirements to qualify for the rolling stock exemption for motor vehicles and trailers.  This subsection (d) does not apply to limousines.  For discussion of the application of the rolling stock exemption to limousines, see subsection (e).

 

1)         Rolling stock test for purchases on or after August 24, 2017. This subsection (d)(1) applies to motor vehicles and trailers (and repair and replacement parts) purchased on or after August 24, 2017 (the effective date of Public Act 100-321).

 

A)        Application of the rolling stock test. For motor vehicles and trailers purchased on or after August 24, 2017, "use as rolling stock moving in interstate commerce" means that:

 

i)          the motor vehicle or trailer is used to transport persons or property for hire;

 

ii)         the purchaser who is an owner, lessor, or shipper claiming the exemption certifies that the motor vehicle or trailer will be utilized, from the time of purchase and continuing through the statute of limitations for issuing a Notice of Tax Liability under the Retailers' Occupation Tax Act, by an interstate carrier or carriers for hire who hold, and are required by Federal Motor Carrier Safety Administration (FMCSA) regulations to hold, an active USDOT (United States Department of Transportation) Number with the Carrier Operation listed as "Interstate" and the Operation Classification listed as "authorized for hire", "exempt for hire", or both "authorized for hire" and "exempt for hire"; except that this subsection (d)(1)(A)(ii) does not apply to a motor vehicle or trailer used at an airport to support the operation of an aircraft moving in interstate commerce, as long as (i) in the case of a motor vehicle, the motor vehicle meets the requirements of subsections (d)(1)(A)(i) and (d)(1)(A)(iii) or (ii) in the case of a trailer, the trailer meets the requirements of subsection (d)(1)(A)(i); and

 

iii)        for motor vehicles, the motor vehicle's gross vehicle weight rating exceeds 16,000 pounds. [35 ILCS 120/2-51(d-5)]

 

B)        Repair and replacement parts purchased on or after August 24, 2017 for motor vehicles and trailers.  "Use as rolling stock moving in interstate commerce" in this subsection (d)(1) applies to all property purchased on or after August 24, 2017 for the purpose of being attached to a motor vehicle or trailer as a part thereof, regardless of whether the motor vehicle or trailer was purchased before, on, or after August 24, 2017 [35 ILCS 120/2-51(d-5)]. This means that repair and replacement parts purchased on or after August 24, 2017 for the purpose of being attached to a motor vehicle or trailer as a part thereof qualify for the rolling stock exemption if, at the time of purchase of the repair or replacement parts, the motor vehicle or trailer to which the parts will be attached and the purchaser of the repair or replacement parts (or the carrier if the purchaser is not the carrier) meet the requirements of subsection (d)(1)(A), and the purchaser provides a certification to that effect as required in subsection (d)(1)(E), regardless of when the motor vehicle or trailer itself was purchased.  For repair and replacement parts for limousines, see subsection (e)(2).

 

C)        If a motor vehicle or trailer (or a repair or replacement part) ceases to meet the requirements under subsection (d)(1)(A), then the tax is imposed on the selling price, allowing for a reasonable depreciation for the period during which the motor vehicle or trailer qualified for the exemption. [35 ILCS 120/2-51(d-5)] Reasonable depreciation shall be determined in accordance with 86 Ill. Adm. Code 150.110.

 

D)        For purposes of this subsection (d)(1), "motor vehicle" excludes limousines, but otherwise means that term as defined in Section 1-146 of the Illinois Vehicle Code.

 

E)        Certification of exemption for motor vehicles and trailers purchased on or after August 24, 2017. To properly claim the rolling stock exemption, the purchaser must give the seller a certification that the purchaser is purchasing the property for use as rolling stock moving in interstate commerce.

 

i)          If the purchaser is an interstate carrier for hire, the purchaser must include in the certification its active USDOT Number issued by the FMCSA.  In addition, the purchaser must certify that its FMCSA Company Operation type is listed as "Interstate".  Finally, the purchaser must certify that its FMCSA Operation Classification is listed as "Authorized For-Hire", "Exempt For-Hire", or both "Authorized For-Hire" and "Exempt For-Hire".

 

ii)         The USDOT Number, FMCSA Company Operation type, and FMCSA Operation Classification requirement does not apply to a motor vehicle or trailer used at an airport to support the operation of an aircraft moving in interstate commerce, as long as it otherwise meets the other requirements of the exemption in subsection (d)(1)(A).

 

iii)        If the purchaser is a lessor, the purchaser must give the seller of the property a certification to that effect, similarly certifying the lessee's interstate carrier for hire status (i.e., USDOT Number, FMCSA Company Operation type, and FMCSA Operation Classification).

 

iv)        If the purchaser is an owner or shipper of tangible personal property that will be utilized by interstate carriers for hire for use as rolling stock moving in interstate commerce, the purchaser must give the seller of the property a certification to that effect, similarly certifying the interstate carrier for hire status (i.e., USDOT Number, FMCSA Company Operation type, and FMCSA Operation Classification) of the interstate carrier for hire that will utilize the property.

 

F)         If a retailer accepts a certification under subsection (d)(1)(E), this does not preclude the Department from disregarding it and assessing Retailers' Occupation Tax against the retailer if the Department determines that, at the time the retailer accepted the certification, the purchaser, or the carrier identified by the purchaser in cases where the purchaser is not the carrier, did not meet the active USDOT Number, FMCSA Company Operation type, and FMCSA Operation Classification requirements.

 

G)        The giving of a certification under subsection (d)(1)(E) by a purchaser does not preclude the Department from disregarding it and assessing Use Tax against the purchaser if, in examining the purchaser's records (or, in cases where the purchaser is not the carrier, the carrier's records), the Department finds that the certification was not true as to some fact that shows the purchase was taxable and should not have been certified as being tax exempt. The Department reserves the right to require the purchaser to provide a copy of the purchaser's (or carrier's, in cases where the purchaser is not the carrier) FMCSA documentation whenever the Department deems it necessary.

 

H)        For sales where an active USDOT Number is required, a retailer can confirm whether the carrier meets the Company Operation type and Operation Classification by searching the Federal Motor Carrier Safety Administration's Safety and Fitness Electronic Records (SAFER) System using the carrier's USDOT Number.  The information displayed will state whether the carrier's FMCSA Company Operation type is "Interstate" and whether the carrier's FMCSA Operation Classification is "Authorized For-Hire" or "Exempt For-Hire".  If the USDOT Number is not active or if one or both of the requirements for FMCSA Company Operation type or FMCSA Operation Classification is not met, the sale does not qualify for the rolling stock exemption.

 

I)         The following examples apply the rolling stock test for purchases of motor vehicles on or after August 24, 2017.

 

EXAMPLE 1 – Exempt:  An interstate trucking company decides to purchase a new truck with a gross vehicle weight rating exceeding 16,000 pounds for its business.  The company has been issued a USDOT Number by the FMCSA within the United States Department of Transportation.  The company's FMCSA Company Operation type is listed in the SAFER System as "Interstate" and its FMCSA Operation Classification is listed as "Authorized For-Hire".  The company completes a RUT-7 Certification Form certifying that it meets the requirements for the exemption and the retailer uses the SAFER System to confirm the certification.  The sale is exempt.

 

EXAMPLE 2 – Not Exempt:  A company decides to become an interstate trucking company and purchases a new truck with a gross vehicle weight rating exceeding 16,000 pounds for its business.  It has applied for but not yet received a USDOT Number.  The purchase of the truck cannot meet the statutory requirements for exemption because the company has not yet been issued a USDOT Number and, therefore, does not have an active USDOT Number at the time of purchase.

 

EXAMPLE 3 – Not Exempt:  A company decides to purchase a new truck with a gross vehicle weight rating exceeding 16,000 pounds for its business.  The company has been issued a USDOT Number by the FMCSA within the United States Department of Transportation.  The company's FMCSA Company Operation type is listed in the SAFER System as "Interstate".  Its FMCSA Operation Classification is listed as "Private Property" (which designates a company that transports only its own cargo).  The purchase of the truck cannot meet the statutory requirements for exemption because the company's FMCSA Operation Classification is neither "Authorized For-Hire" nor "Exempt For-Hire."

 

2)         Rolling stock test for purchases before August 24, 2017. This subsection (d)(2) applies to motor vehicles and trailers (and repair and replacement parts) purchased before August 24, 2017 (the effective date of Public Act 100-321).  For motor vehicles and trailers (and repair and replacement parts for these items) purchased on or after August 24, 2017, subsection (d)(1) applies.

 

A)        Application of the rolling stock test for motor vehicles purchased before August 24, 2017. A motor vehicle whose gross vehicle weight rating exceeds 16,000 pounds will qualify for the rolling stock exemption if, during a 12-month period, it carries persons or property for hire in interstate commerce for greater than 50% of its total trips for that period or for greater than 50% of its total miles for that period. The person claiming the rolling stock exemption for a motor vehicle must make an election at the time of purchase to use either the trips or mileage method to document that the motor vehicle will be used in a manner that qualifies for the exemption. [35 ILCS 120/2-51(c)]

 

i)          If the purchase is from an Illinois retailer, the election must be made on a certification described in subsection (d)(2)(F). If the purchase is from an out-of-state retailer or from a non-retailer, the election must be documented in the purchaser's books and records.

 

ii)         If no election is made as required under the provisions of subsection (d)(2)(A)(i), the person will be deemed to have chosen the mileage method. [35 ILCS 120/2-51(c)]

 

iii)        Once such an election for a motor vehicle has been made, or is deemed to have been made, the method used to document the qualification of that motor vehicle for the rolling stock exemption will remain in effect for the duration of the purchaser's ownership of that motor vehicle. [35 ILCS 120/2-51(f)]

 

B)        Application of the rolling stock test for trailers purchased before August 24, 2017. To qualify for the rolling stock exemption the trailer must, during a 12-month period, carry persons or property for hire in interstate commerce for greater than 50% of its total trips for that period or for greater than 50% of its total miles for that period. Except as provided in subsections (d)(2)(B)(i) through (iii), purchasers of trailers must make an election at the time of purchase to use either the trips or mileage method. [35 ILCS 120/2-51(d)]  If the purchase is from an Illinois retailer, the election must be made on a certification described in subsection (d)(2)(F). If the purchase is from an out-of-state retailer or from a non-retailer, the election must be documented in the purchaser's books and records. If no election is made as required under the provisions of this subsection (d)(2)(B), the person will be deemed to have chosen the mileage method.  [35 ILCS 120/2-51(d)]  The election to use either the trips or mileage method made as required under this subsection (d)(2)(B) will remain in effect for the duration of the purchaser's ownership of that trailer. [35 ILCS 120/2-51(f)]  The owner of trailers that are dedicated to a motor vehicle, or group of motor vehicles, may elect at the time of purchase to alternatively document the qualifying use of those trailers in the following manner:

 

i)          if a trailer is dedicated to a single motor vehicle that qualifies under subsection (d)(2)(A), then that trailer will also qualify for the exemption;

 

ii)         if a trailer is dedicated to a group of motor vehicles that all qualify under subsection (d)(2)(A), then that trailer will also qualify for the exemption; or

 

iii)        if one or more trailers are dedicated to a group of motor vehicles and not all of those motor vehicles in that group qualify as rolling stock moving in interstate commerce under subsection (d)(2)(A), then the percentage of those trailers that qualifies for the exemption is equal to the percentage of those motor vehicles in that group that qualify for the exemption. However, the mathematical application of the qualifying percentage to the group of trailers will not be applied to any fraction of a trailer. If the owner of the trailers chooses to use the method provided under this subsection (d)(2)(B)(iii), any trailer or group of trailers that is not considered to qualify for the exemption under the mathematical application of the qualifying percentage will not qualify for the exemption even if documentation for a specific trailer or trailers in that group is provided to show that such a trailer or trailers would have met the test in subsection (d)(2)(B)(i).

 

iv)        For purposes of this subsection (d)(2)(B), "dedicated" means that the trailer or trailers are used exclusively by a specific motor vehicle or specific group or fleet of motor vehicles.

 

C)        Repair and replacement parts for motor vehicles and trailers purchased before August 24, 2017.  The definition of "use as rolling stock moving in interstate commerce" required to meet the test for the rolling stock exemption as set forth in subsections (d)(2)(A) for motor vehicles and (d)(2)(B) for trailers applies to all property purchased before August 24, 2017 for the purpose of being attached to motor vehicles or trailers as a part thereof. [35 ILCS 120/2-51(c) and (d)]  Repair and replacement parts purchased before August 24, 2017 for the purpose of being attached to a motor vehicle or trailer as a part thereof qualify for the rolling stock exemption if, at the time of purchase of the repair or replacement parts and for each of the corresponding motor vehicle's or trailer's consecutive 12-month periods thereafter (i.e. the parts follow the 12-month periods for the rolling stock that they become a part of), the motor vehicle or trailer to which the parts were to be attached met the requirements of subsection (d)(2)(A) or (d)(2)(B), as appropriate, and the purchaser provided a certification to that effect as required in subsection (d)(2)(F), regardless of when the motor vehicle or trailer itself was purchased.  For more detail on the application of 12-month periods for repair and replacement parts, see subsection (d)(2)(E)(iii).

 

D)        Basic guidelines on the trips or miles that may and may not be used to claim the rolling stock exemption for motor vehicles and trailers purchased before August 24, 2017.

 

i)          For interstate trips or interstate miles to qualify, the interstate trips or miles must be for hire. However, the total amount of trips taken or miles traveled by rolling stock within any 12-month period includes trips or miles for hire and those not for hire. An example of a not for hire trip or not for hire mileage is when a business uses its truck to transport its own merchandise.

 

EXAMPLE − Non-Qualifying:  A farmer in Decatur, Illinois sells grain to an interstate carrier.  The carrier takes delivery of the grain in Decatur and hauls it to Oklahoma City, Oklahoma.  The shipment from Decatur, Illinois to Oklahoma City, Oklahoma is not included in the carrier's qualifying interstate trips or miles for hire because the shipment was not for hire.  The carrier owned the grain it was shipping interstate.  For an interstate trip to qualify, it must be for hire.

 

ii)         Any use of the rolling stock in a movement from one location to another, including but not limited to mileage incurred by rolling stock returning from a delivery without a load or passengers, shall be counted as a trip or mileage.

 

iii)        However, the movement of the rolling stock in relation to the maintenance or repair of that rolling stock shall not count as a trip or mileage.

 

iv)        Any mileage shown for rolling stock that is undocumented as a trip or trips shall be counted as part of the total trips or mileage taken by that rolling stock. If the trips method has been chosen for that rolling stock, the Department shall use its best judgment and information to determine the number of trips represented by such mileage.

 

v)         A movement whereby rolling stock is returning empty from a trip for hire shall be counted as a trip or mileage for hire. A movement whereby rolling stock is moving to a location where property or passengers are being loaded for a trip for hire shall be counted as a trip or mileage for hire.

 

E)        Twelve-month periods for motor vehicles and trailers (and repair and replacement parts) purchased before August 24, 2017.

 

i)          To be eligible for the rolling stock exemption, motor vehicles and trailers must carry persons or property for hire in interstate commerce for greater than 50% of their total trips or for greater than 50% of their total miles for each 12-month period subject to the limitations period for issuing a Notice of Tax Liability under the Retailers' Occupation Tax Act [35 ILCS 120/4 and 5] and under the following Acts through incorporation of Sections 4 and 5 of the Retailers' Occupation Tax Act: the Use Tax Act [35 ILCS 105/12]; the Service Occupation Tax Act [35 ILCS 115/12]; and the Service Use Tax Act [35 ILCS 110/12].  The first 12-month period for the use of a motor vehicle or trailer begins on the date of registration or titling with an agency of this State, whichever occurs later. If the motor vehicle or trailer is not required to be titled or registered with an agency of this State or the motor vehicle or trailer is not titled or registered with an agency of this State within the time required, the first 12-month period for use of that motor vehicle or trailer begins on its date of purchase or first use in Illinois, whichever is later.

 

ii)         If a motor vehicle or trailer carries persons or property for hire in interstate commerce in a manner that qualifies for the rolling stock exemption in the first 12-month period, but then does not carry persons or property for hire in interstate commerce in a manner that qualifies for the rolling stock exemption in a subsequent 12-month period, the motor vehicle or trailer and any property attached to that motor vehicle or trailer upon which the rolling stock exemption was claimed will be subject to tax on its original purchase price and tax is due by the last day of the month following the conclusion of the 12-month period in which the exemption conditions are no longer met.

 

EXAMPLE:  A motor vehicle is used in a qualifying manner for the first 12-month period but is not used in a qualifying manner for the second 12-month period. That motor vehicle will be subject to tax based upon its original purchase price, even if it is then used in a qualifying manner in the third 12-month period. As a result, by the last day of the month following the month in which the rolling stock ceases to qualify for the exemption (at the conclusion of the second 12-month period at which time the purchaser knows that the exemption conditions are no longer met), the purchaser must file a Use Tax return and pay the tax.

 

iii)        For repair and replacement parts to qualify for the rolling stock exemption, the motor vehicle or trailer upon which those parts are installed must be used in a qualifying manner for the motor vehicle's or trailer's 12-month period in which the purchase of the repair or replacement parts occurred and each consecutive 12-month period thereafter (i.e., the parts follow the 12-month periods for the rolling stock that they become a part of). For example, if repair parts were attached or incorporated into a qualifying motor vehicle that was titled and registered prior to the audit period (beyond the limitations period for issuing a Notice of Tax Liability for the vehicle), that motor vehicle must be used in a qualifying manner for the motor vehicle's 12-month period in which the purchase of the repair or replacement parts occurred and each consecutive 12-month period thereafter in order for the parts to qualify for the exemption. This applies regardless of whether the motor vehicle was originally used in a qualifying manner for the 12-month periods preceding the motor vehicle's 12-month period in which the purchase of the repair or replacement parts occurred.

 

F)         Certification of exemption for motor vehicles and trailers purchased before August 24, 2017. To properly claim the rolling stock exemption for motor vehicles and trailers purchased before August 24, 2017, the purchaser must give the seller a certification that the purchaser is an interstate carrier for hire, and that the purchaser is purchasing the property for use as rolling stock moving in interstate commerce.

 

i)          If the purchaser of a motor vehicle or trailer or repair or replacement parts for a motor vehicle or trailer is an interstate carrier for hire, the purchaser must include its USDOT Number and Interstate Operating Authority Number (MC Number) issued by the FMCSA or must certify that it is a type of interstate carrier for hire (such as an interstate carrier of agricultural commodities for hire) that is not required by law to have an MC Number. In the latter event, the carrier must include its USDOT Number.

 

ii)         If the carrier is a type that is subject to regulation by some Federal Government regulatory agency other than the FMCSA, the carrier must include its registration number from such other Federal Government regulatory agency in the certification claiming the benefit of the rolling stock exemption.

 

iii)        If the purchaser of a motor vehicle or trailer or repair or replacement parts for a motor vehicle or trailer is a long-term lessor (under a lease of one year or more in duration), the purchaser must give the seller of the property a certification to that effect, similarly identifying the lessee interstate carrier for hire as provided above (i.e., USDOT Number, MC Number, other number if appropriate).

 

iv)        If the purchaser is an owner, lessor, or shipper of tangible personal property that will be utilized by interstate carriers for hire for use as rolling stock moving in interstate commerce, the purchaser must give the seller of the property a certification to that effect, similarly identifying the lessee or other interstate carrier for hire that will utilize the property.

 

v)         The giving of a certification does not preclude the Department from disregarding it and assessing Use Tax against the purchaser if, in examining the purchaser's records or activities (or, in cases where the purchaser is not the carrier, the carrier's records or activities), the Department finds that the certification was not true as to some fact that shows that the purchase was taxable and should not have been certified as being tax exempt.

 

vi)        The Department reserves the right to require the purchaser to provide a copy of the purchaser's (or carrier's, in cases where the purchaser is not the carrier) FMCSA or other Federal Government regulatory agency Certificate of Operating Authority (or as much of the certificate as the Department deems adequate to verify the fact that the purchaser (or carrier, in cases where the purchaser is not the carrier) is an interstate carrier for hire) whenever the Department deems it necessary.  In cases where the interstate carrier for hire is not required by law to have a USDOT Number, MC Number, or other Federal Government regulatory agency number, the Department reserves the right to require the carrier (or purchaser, if the carrier is not the purchaser) to provide other evidence of eligibility for the exemption and to keep records documenting the rolling stock's eligibility for the exemption.

 

G)        Examples applying the limitations period for issuing a Notice of Tax Liability under the Retailers' Occupation Tax Act [35 ILCS 120/4 and 5] or the Use Tax Act [35 ILCS 105/12] incorporating Sections 4 and 5 of the Retailers' Occupation Tax Act for motor vehicles purchased before August 24, 2017. In general, except in the case of a fraudulent return, or in the case of an amended return (where a notice of tax liability may be issued on or after each January 1 and July 1 for an amended return filed not more than three years prior to such January 1 or July 1, respectively), no Notice of Tax Liability shall be issued on and after each January 1 and July 1 covering gross receipts received during any month or period of time more than three years prior to such January 1 and July 1, respectively.  For further discussion of the statute of limitations for issuing a Notice of Tax Liability, see Section 130.815.

 

EXAMPLE 1:  A qualifying vehicle was purchased on January 15, 2017 and titled and registered on that date and the appropriate return was timely filed claiming the rolling stock exemption.  The vehicle was used in a qualifying manner for the first 12-month period ending on January 15, 2018. However, the vehicle was not used in a qualifying manner at any time thereafter. The period in which the Department would be able to issue a Notice of Tax Liability for tax due regarding that vehicle would expire on June 30, 2020.  If the vehicle had been originally purchased and registered outside Illinois and later relocated and registered in Illinois, the first 12-month period would begin on the date of registration in Illinois.  For example, if the vehicle was purchased on January 15, 2017 and titled and registered on that date in Missouri, but later relocated to Illinois and registered in Illinois on July 20, 2017, then the period in which the Department would be able to issue a Notice of Tax Liability for Use Tax due regarding that vehicle would expire on December 31, 2020.

 

EXAMPLE 2:  A qualifying vehicle was purchased on July 10, 2015, and was titled and registered on that date.  On January 12, 2017, the owner purchased new tires for the vehicle and the vehicle was used in a qualifying manner for the vehicle's 12-month period ending on July 10, 2017, and the two subsequent 12-month periods ending on July 10, 2019.  However, the vehicle was not used in a qualifying manner at any time thereafter.  The period in which the Department would be able to issue a Notice of Tax Liability for tax due regarding the replacement parts (new tires) would expire on June 30, 2020.

 

H)        Examples applying the greater than 50% trips test for motor vehicles purchased before August 24, 2017:

 

EXAMPLE 1 − Qualifying:  An interstate carrier uses a truck whose gross vehicle weight rating exceeds 16,000 pounds to carry property for hire from Springfield, Illinois to Champaign, Illinois where part of the property is delivered. As documented on the bill of lading provided to the carrier, that property will be delivered, as part of the continuation of the shipment, by another carrier to a location outside of Illinois (qualifies as interstate trip because documentation of interstate shipment). The truck continues to Indianapolis, Indiana and delivers more of the property in that city (qualifies as interstate trip because transported out of state). The truck then continues to Gary, Indiana and delivers the remainder of the property in that city (qualifies as interstate trip because shipment originated in Illinois). The truck then returns empty to Springfield, Illinois from the delivery in Gary, Indiana (qualifies as interstate trip because returning from qualifying trip (see subsection (d)(2)(D)(v)). The truck is considered to have made a total of four trips (one trip to Champaign, Illinois, one trip to Indianapolis, Indiana, one trip to Gary, Indiana, and a return trip back to Springfield, Illinois). If these were all the trips that the truck made within the first 12-month period (or were all the trips that truck made in a subsequent 12-month period), it would qualify for the test set forth in subsection (d)(2)(A) for that 12-month period because it made 4 qualifying interstate trips for hire, thereby resulting in a percentage of 100% of its total trips during that 12-month period. Any repair and replacement parts purchased for the truck during the first 12-month period would also have qualified for the exemption.

 

EXAMPLE 2 − Non-Qualifying:  An interstate carrier uses a truck whose gross vehicle weight rating exceeds 16,000 pounds to carry property for hire from Chicago, Illinois to Joliet, Illinois where that property is delivered for use by the recipient (does not qualify as interstate trip because it is strictly intrastate transport). The truck then continues to Gary, Indiana and picks up property for use by that carrier's business (does not qualify because it is not for hire). The truck then returns to Chicago, Illinois (does not qualify because returning from a non-qualifying trip out of state). The truck is considered to have made a total of three trips (one to Joliet, Illinois, one to Gary, Indiana, and a return trip to Chicago, Illinois). If these were all the trips that the truck made within the first 12-month period (or were all the trips that truck made in a subsequent 12-month period), it would not qualify for the test set forth in subsection (d)(2)(A) for that 12-month period because these trips resulted in a 0 percentage of qualifying interstate trips for hire.

 

I)         Examples of application of the greater than 50% mileage test for motor vehicles purchased before August 24, 2017:

 

EXAMPLE 1 − Qualifying:  An interstate carrier uses a truck whose gross vehicle weight rating exceeds 16,000 pounds to carry property for hire from Springfield, Illinois to Champaign, Illinois (88 mile movement) where part of the property is delivered. As documented on the bill of lading provided to the carrier, that property will be delivered, as part of the continuation of the shipment, by another carrier to a location outside of Illinois (qualifies as interstate miles because documentation of interstate shipment). The truck continues to Indianapolis, Indiana (125 mile movement) and delivers more of the property in that city (qualifies as interstate trip because transported out of state). The truck then continues to Hammond, Indiana (151 mile movement) and delivers the remainder of the property in that city (qualifies as interstate trip because shipment originated in Illinois). The truck then returns empty to Springfield, Illinois (204 mile movement) from the delivery in Hammond, Indiana (qualifies as interstate trip because returning from qualifying trip (see subsection (d)(2)(D)(v)). The truck is considered to have driven a total of 568 qualifying miles. If these were all the miles that the truck was driven within the first 12-month period (or were all the miles that truck was driven in a subsequent 12-month period), it would qualify for the test set forth in subsection (d)(2)(A) for that 12-month period because 100% of its miles were for qualifying interstate movements for hire. Any repair or replacement parts purchased for the truck during the first 12-month period would also have qualified for the exemption.

 

EXAMPLE 2 − Non-Qualifying:  If the truck described above in Example 1 had instead traveled a total of 1,568 miles during that 12-month period with 1,000 of those miles not being documented as qualifying miles, the truck would not have qualified for the exemption because it only had 568 qualifying miles out of 1,568 miles for a 36.22% qualifying percentage. Any repair or replacement parts purchased for the truck would not have qualified for the exemption.

 

EXAMPLE 3 − Qualifying and Non-Qualifying:  A short-term truck leasing company (e.g., 3 months) leases trucks whose gross vehicle weight rating exceeds 16,000 pounds.  The trucks are typically leased to persons who transport property in interstate commerce.  The leasing company requires its customers to provide detailed records of the destination of each trip of a leased truck and whether the transport was for hire.  One of the leasing company's trucks travels 3,000 miles during its first 12-month period, 4,500 miles during its second 12-month period, and 2,800 miles during its third 12-month period.  The leasing company can show through the records it collects that, for each 12-month period, the truck carried property in interstate commerce for hire for greater than 50% of the miles traveled by the truck.  For another truck, however, the records show that, for the second 12-month period, the truck did not transport property in interstate commerce for hire.  This is because of the combination of (i) trips that were strictly in-state and for which the property did not originate or terminate out of state and (ii) trips that were not for hire, but rather were trips in which the customer hauled its own property. A third truck did not qualify for the exemption because the leasing company could not provide the documentation to support its claim that the truck was used in each of the 12-month periods to carry persons or property for hire in interstate commerce for greater than 50% of its total trips or total miles for that period.

 

J)         Examples where trailers are dedicated to a motor vehicle or motor vehicles.

 

EXAMPLE 1:  A trucking company owns 2 trailers that are dedicated to the company's 2 trucks and the owner elected at purchase to document the qualification of the trailers based on the qualification of the trucks to which they would be dedicated. Both of these trucks qualify for the exemption. Both the trailers will be considered to have met the requirements for the exemption during those periods.

 

EXAMPLE 2:  A trucking company owns 30 trailers. All of those trailers are dedicated to a subsidiary company's 20 truck fleet and the owner elected at purchase to document the qualification of the trailers based on the qualification of the trucks to which they would be dedicated. Only 19 of those 20 trucks qualify for the exemption for the appropriate 12-month periods. The qualifying percentage for the group of trucks for which all of the trailers are dedicated is 95%. The application of the 95% qualifying percentage to the 30 trailer group would represent 28.5 trailers. Because no fraction of a trailer may qualify under the mathematical application of the qualifying percentage, only 28 of the 30 trailers will be considered to have met the requirements for the exemption during those periods.

 

e)         Limousines. This subsection (e) sets forth the specific requirements to qualify for the rolling stock exemption for limousines.

 

1)         Application of the rolling stock test for limousines. A limousine, as defined in subsection (b), will qualify for the rolling stock exemption if, during a 12-month period, it carries persons or property for hire in interstate commerce for greater than 50% of its total trips for that period or for greater than 50% of its total miles for that period. Persons claiming the rolling stock exemption for a limousine must make an election at the time of purchase to use either the trips or mileage method to document that the limousine will be used in a manner that qualifies for the exemption. [35 ILCS 120/2-51(c)]

 

A)        If the purchase is from an Illinois retailer, the election must be made on a certification as provided in subsection (e)(5). If the purchase is from an out-of-state retailer or from a non-retailer, the election must be documented in the purchaser's books and records.

 

B)        If no election is made as required under subsection (e)(1)(A), the person will be deemed to have chosen the mileage method.

 

C)        Once such an election for a limousine has been made, or is deemed to have been made, the method used to document the qualification of that limousine for the rolling stock exemption will remain in effect for the duration of the purchaser's ownership of that limousine. [35 ILCS 120/2-51(f)]

 

2)         Repair and replacement parts for limousines.  The definition of "use as rolling stock moving in interstate commerce" required to meet the test for the rolling stock exemption as set forth in subsection (e)(1) applies to all property purchased for the purpose of being attached to the limousine as a part thereof. [35 ILCS 120/2-51(c)]  Repair and replacement parts purchased for the purpose of being attached to a limousine as a part thereof qualify for the rolling stock exemption if, at the time of purchase of the repair or replacement parts and for each of the corresponding limousine's consecutive 12-month periods thereafter (i.e., the parts follow the 12-month periods for the rolling stock that they become a part of), the limousine to which the parts will be attached meets the requirements of subsection (e)(1) and the purchaser provides a certification to that effect as required in subsection (e)(5), regardless of when the limousine itself was purchased.  For more detail on the application of 12-month periods for repair and replacement parts, see subsection (e)(4) incorporating the provision of subsection (d)(2)(E)(iii).

 

3)         Basic guidelines on the trips or miles that may and may not be used to claim the rolling stock exemption for limousines.

 

A)        For interstate trips or interstate miles to qualify, the interstate trips or miles must be for hire. However, the total amount of trips taken or miles traveled by a limousine in any 12-month period includes trips or miles for hire and those not for hire. An example of a not for hire trip or not for hire mileage is when a business uses its limousine to transport its own employees.

 

B)        Any use of the limousine in a movement from one location to another, including but not limited to mileage incurred by a limousine returning from a delivery without a passenger, shall be counted as a trip or mileage.

 

C)        However, the movement of the limousine in relation to the maintenance or repair of that limousine shall not count as a trip or mileage.

 

D)        Any mileage shown for a limousine that is undocumented as a trip or trips shall be counted as part of the total trips or mileage taken by that limousine. If the trips method has been chosen for that limousine, the Department shall use its best judgment and information to determine the number of trips represented by such mileage.

 

E)        A movement whereby a limousine is returning empty from a trip for hire shall be counted as a trip or mileage for hire. A movement whereby a limousine is moving to a location where passengers are being loaded for a trip for hire shall be counted as a trip or mileage for hire.

 

F)         A limousine that carries for hire a person to or from an airport is presumed, absent evidence to the contrary, to be carrying a person whose journey originates or terminates outside Illinois, even if the limousine travels just between points in Illinois.

 

EXAMPLE 1 – Qualifying:  A limousine picks up passengers at their residence in downtown Chicago and drives them to O'Hare International Airport.  This trip is presumed, absent evidence to the contrary, to be a qualifying trip or miles for purposes of the exemption.  In addition, the limousine picks up more passengers at O'Hare International Airport and drives them to a hotel in downtown Chicago.  This trip is also presumed, absent evidence to the contrary, to be a qualifying trip or miles for purposes of the exemption.

 

EXAMPLE 2 − Non-Qualifying:  A major corporation owns a limousine that it uses to transport employees to and from O'Hare International Airport for business travel.  These limousine trips are not qualifying trips or miles for purposes of the exemption because they are not for hire.

 

4)         Twelve-month periods for limousines (and repair and replacement parts for limousines). The guidelines provided in subsection (d)(2)(E) apply to limousines the same as if set forth here, except that the limitation in that subsection to purchases made before August 24, 2017, does not apply and references to motor vehicles and trailers mean limousines.

 

5)         Certification of exemption for limousines. To properly claim the rolling stock exemption, the purchaser must give the seller a certification the purchaser is an interstate carrier for hire, and the purchaser is purchasing the limousine, as defined in this Section, or repair or replacement parts for a limousine for use as rolling stock moving in interstate commerce.

 

A)        If the purchaser is an owner or lessor of a limousine that will be utilized by interstate carriers for hire for use as rolling stock moving in interstate commerce, the purchaser must give the seller of the property a certification to that effect, similarly identifying the lessee or other interstate carrier for hire that will utilize the property.

 

B)        The giving of a certification does not preclude the Department from disregarding it and assessing Use Tax against the purchaser if, in examining the purchaser's records or activities (or, in cases where the purchaser is not the carrier, the carrier's records or activities), the Department finds the certification was not true as to some fact that shows that the purchase was taxable and should not have been certified as being tax exempt.

 

C)        In cases where the interstate carrier for hire is not required by law to have a USDOT Number, MC Number, or other Federal Government regulatory agency number, the Department reserves the right to require the carrier (or purchaser, if the carrier is not the purchaser) to provide other evidence of eligibility for the exemption and to keep records documenting the rolling stock's eligibility for the exemption.

 

6)         Examples.  The Examples in subsections (d)(2)(G), (H), and (I) apply to limousines the same as if set forth here, except that references to motor vehicles mean limousines.

 

f)         Aircraft.

 

1)         Application of the rolling stock test for aircraft. For aircraft purchased on or after January 1, 2014, "use as rolling stock moving in interstate commerce" occurs when, during a 12-month period, the rolling stock has carried persons or property for hire in interstate commerce for greater than 50% of its total trips for that period or for greater than 50% of its total miles for that period. [35 ILCS 120/2-51(e)]  For aircraft purchased before January 1, 2014 to be eligible for the exemption, the taxpayer is required to show the aircraft transported persons or property for hire in interstate commerce on a "regular and frequent" basis.  See National School Bus Service, Inc. v. Department of Revenue, 302 Ill. App. 3d 820 (1^st Dist. 1998).  The person claiming the exemption shall make an election at the time of purchase to use either the trips or mileage method and document that election in their books and records. [35 ILCS 120/2-51(e)]

 

A)        If the purchase is from an Illinois retailer, the election must be made on a certification as provided in subsection (f)(6). If the purchase is from an out-of-state retailer or from a non-retailer, the election must be documented in the purchaser's books and records.

 

B)        If no election is made under subsection (f)(1)(A) to use the trips or mileage method, the person shall be deemed to have chosen the mileage method. [35 ILCS 120/2-51(e)] For aircraft, flight hours may be used in lieu of recording miles in determining whether the aircraft meets the mileage test in subsection (f)(1). [35 ILCS 120/2-51(f)]

 

C)        Once such an election for an aircraft has been made, or is deemed to have been made if no election is made, the method used to document the qualification of that aircraft for the rolling stock exemption will remain in effect for the duration of the purchaser's ownership of that aircraft. [35 ILCS 120/2-51(f)]

 

2)         Repair and replacement parts for aircraft.  Notwithstanding any other provision of law to the contrary, property purchased on or after January 1, 2014 for the purpose of being attached to aircraft as a part thereof qualifies as rolling stock moving in interstate commerce only if the aircraft to which it will be attached qualifies as rolling stock moving in interstate commerce under the test set forth in subsection (f)(1), regardless of when the aircraft was purchased.  Persons who purchased aircraft prior to January 1, 2014 shall make an election to use either the trips or mileage method and document that election in their books and records for the purpose of determining whether property purchased on or after January 1, 2014 for the purpose of being attached to aircraft as a part thereof qualifies as rolling stock moving in interstate commerce under subsection (f)(1). [35 ILCS 120/2-51(e)]  Repair and replacement parts purchased for the purpose of being attached to an aircraft as a part thereof qualify for the rolling stock exemption if, at the time of purchase of the repair or replacement parts and for each of the corresponding aircraft's consecutive 12-month periods thereafter (i.e., the parts follow the 12-month periods for the rolling stock that they become a part of), the aircraft to which the parts will be attached meets the requirements of subsection (f)(1) and the purchaser provides a certification to that effect as required in subsection (f)(6), regardless of when the aircraft itself was purchased.  For more detail on the application of 12-month periods for repair and replacement parts, see subsection (f)(4) incorporating the provision of subsection (d)(2)(E)(iii).

 

3)         Basic guidelines on the trips or miles that may and may not be used to claim the rolling stock exemption for aircraft.

 

A)        For interstate trips or interstate miles (or flight hours used in lieu of miles) to qualify, the interstate trips or miles (or flight hours used in lieu of miles) must be for hire. However, the total amount of trips taken or miles (or flight hours used in lieu of miles) traveled by an aircraft within any 12-month period includes trips or miles (or flight hours used in lieu of miles) for hire and those not for hire. An example of a not for hire trip or not for hire mileage (or flight hours used in lieu of mileage) is when a business uses its aircraft to transport its own employees or cargo.

 

B)        Any use of an aircraft in a movement from one location to another, including but not limited to mileage (or flight hours used in lieu of mileage) incurred by an aircraft returning from a delivery without a load or passengers, shall be counted as a trip or mileage (or flight hours used in lieu of mileage).

 

C)        However, the movement of an aircraft in relation to the maintenance or repair of that aircraft shall not count as a trip or mileage (or flight hours used in lieu of mileage).

 

D)        Any mileage (or flight hours used in lieu of mileage) shown for an aircraft that is undocumented as a trip or trips shall be counted as part of the total trips or mileage (or flight hours used in lieu of mileage) taken by that aircraft. If the trips method has been chosen for that aircraft, the Department shall use its best judgment and information to determine the number of trips represented by such mileage (or flight hours used in lieu of mileage).

 

E)        A movement whereby an aircraft is returning empty from a trip for hire shall be counted as a trip or mileage (or flight hours used in lieu of mileage) for hire. A movement whereby an aircraft is moving to a location where property or passengers are being loaded for a trip for hire shall be counted as a trip or mileage (or flight hours used in lieu of mileage) for hire.

 

F)         The movement of an aircraft during the first 6 months after purchase or during the first 100 flight hours after purchase, whichever comes first, in relation to inspection or in furtherance of aircraft certification under the Federal Aviation Regulations related to inspection or certification of aircraft for flights for hire does not count as a trip or mileage for purposes of determining whether the aircraft meets the trips or mileage (or flight hours used in lieu of mileage) test for the exemption. To qualify under this subsection (f)(3)(F), taxpayer must maintain records specifically documenting the nature of the inspection or certification.

 

EXAMPLE 1 − (Aircraft Inspection Flight):  To generate more charter business, an aircraft owner decides to provide inflight Wi-Fi to passengers.  Because the Wi-Fi equipment has the potential to create electromagnetic interference with an aircraft's instruments, the aircraft is required to conduct a test flight before returning to service.  See, e.g., Federal Aviation Administration ("FAA") Advisory Circular AC No. 25-7D (5/4/2018), § 32.1 et seq.  If the test flight occurs within the first 6 months after purchase or during the first 100 flight hours after purchase, whichever comes first, then the test flight will not be included in the rolling stock determination as a trip or miles (or flight hours used in lieu of miles).

 

EXAMPLE 2 − (Aircraft Certification Flight):  Pursuant to 14 C.F.R. 91 Appendix G, § 9, and FAA Advisory Circular AC No. 91-85B (1/29/2019), 4.3.5, the FAA has a recurrent height-monitoring program for all operators planning flights in Reduced Vertical Separation Minimum (RVSM) airspace.  In the United States, RVSM monitoring requirements can be met by flying over an FAA Aircraft Geometric Height Measurement Element Constellation site.  This RVSM monitory flight will not be included in the rolling stock determination as a trip or miles (or flight hours used in lieu of miles), if the flight is conducted within the first six months after purchase or during the first 100 flight hours after purchase, whichever comes first.

 

G)        The movement of an aircraft during the first six months after purchase or during the first 100 flight hours per pilot after purchase, whichever comes first, in relation to flight time required for pilot certification of eligibility for conducting for hire flights, or the meeting of FAA or other governmental requirements, rules, or standards to carry persons or property for hire without pilot operating limitations does not count as a trip or mileage (or flight hours used in lieu of mileage) for purposes of determining whether the aircraft meets the trips or mileage (or flight hours used in lieu of mileage) test for the exemption. To qualify under this subsection (f)(3)(G), taxpayer's records must specifically document that the movement was for pilot certification of eligibility for conducting for hire flights or to meet other requirements to carry persons or property for hire without pilot operating limitations.

 

EXAMPLE 1 − (Pilot Certification Flight):  Pursuant to 14 C.F.R. 135.299, no charter operator may use a pilot, nor may any person serve as a pilot in command of a flight, unless, since the beginning of the 12th calendar month before that service, that pilot has passed a flight check in one of the types of aircraft in which that pilot is to fly. The flight check shall (i) be given by an approved check pilot or by an FAA administrator; (ii) consist of at least one flight over one route segment; and (iii) include takeoffs and landings at one or more representative airports.  These pilot certification flights conducted pursuant to 14 C.F.R. 135.299 will not be included in the rolling stock determination as a trip or miles (or flight hours used in lieu of miles), if the flights are conducted within the first 6 months after purchase or during the first 100 flight hours per pilot after purchase, whichever comes first.

 

EXAMPLE 2 − (Pilot Certification Flight):  Pursuant to 14 C.F.R. 135.4, for a two-pilot crew to operate an aircraft without pilot operating limitations under 14 C.F.R. 135 (on-demand charter operations), the two pilots are each required to have 100 hours of flight time in the aircraft type.  Flights conducted in the aircraft type which count towards the pilots meeting their 100 hours of flight time under Part 135.4 will not be included in the rolling stock determination as a trip or miles (or flight hours used in lieu of miles), if the flights occur within the first 6 months after purchase or during the first 100 flight hours per pilot after purchase, whichever comes first.

 

4)         Twelve-month periods for aircraft (and repair and replacement parts for aircraft). The guidelines provided in subsection (d)(2)(E) apply to aircraft the same as if set forth here, except that the limitation in that subsection to purchases made before August 24, 2017, does not apply and references to motor vehicles and trailers mean aircraft.

 

5)         Purchases by lessors of aircraft under a lease for one year or longer. When an aircraft is purchased by a lessor, under a lease for one year or longer, executed or in effect at the time of purchase to an interstate carrier for hire, who did not pay the tax imposed by this Act to the retailer, such lessor (by the last day of the month following the calendar month in which such property reverts to the use of such lessor) shall file a return with the Department and pay the tax upon the fair market value of such property on the date of such reversion. However, in determining the fair market value at the time of reversion, the fair market value of such property shall not exceed the original purchase price of the property that was paid by the lessor at the time of purchase.  [35 ILCS 105/10]  When the aircraft is no longer used in a manner that qualifies for the rolling stock exemption as provided in this subsection (f)(5), the lessor shall file a return with the Department and pay the tax to the Department by the last day of the month following the calendar month in which the property is no longer subject to a qualifying lease.

 

EXAMPLE:  An aircraft was purchased for lease to an interstate carrier for hire on August 15, 2020 and was titled and registered on that date. The lease to the interstate carrier for hire was executed or in effect at the time of purchase. The appropriate return was timely filed claiming the rolling stock exemption. The qualifying lease ended on November 15, 2021, and the aircraft was no longer used in a qualifying manner. At the time the qualifying lease ends and the aircraft reverts to the lessor, the lessor owes Use Tax on the fair market value of the aircraft on the date it reverts to the lessor.  The return and the tax are due by the last day of the month following the month in which the aircraft reverts to the lessor.  The period in which the Department would be able to issue a Notice of Tax Liability for Use Tax due regarding that aircraft would expire on December 31, 2024.

 

6)         Certification of exemption for aircraft. To properly claim the rolling stock exemption, the purchaser must give the seller a certification that the purchaser is an interstate carrier for hire, and that the purchaser is purchasing the aircraft, or repair or replacement parts for an aircraft, for use as rolling stock moving in interstate commerce.

 

A)        If the purchaser is a lessor, the purchaser must give the seller of the property a certification to that effect, identifying the lessee that will utilize the property.

 

B)        If the purchaser of an aircraft or repair or replacement parts for an aircraft is an interstate carrier for hire, the purchaser must include its Air Carrier Certificate issued by the Federal Aviation Administration.

 

C)        If the purchaser of an aircraft or repair or replacement parts for an aircraft is a long-term lessor (under a lease of one year or more in duration), the purchaser must give the seller of the property a certification to that effect, similarly identifying the lessee interstate carrier for hire as provided above (i.e., Air Carrier Certificate issued by the Federal Aviation Administration).

 

D)        If the purchaser is an owner, lessor, or shipper of tangible personal property that will be utilized by interstate carriers for hire for use as rolling stock moving in interstate commerce, the purchaser must give the seller of the property a certification to that effect, similarly identifying the lessee or other interstate carrier for hire that will utilize the property.  For example, an Air Carrier Certificate issued by the Federal Aviation Administration to the purchaser (or the lessee of the purchaser if the lessee is the carrier) that authorizes the certificate holder to operate as an air carrier and conduct common carriage operations in accordance with Part 135 of the Federal Aviation Regulations (49 C.F.R. 135) would be evidence the carrier is an authorized interstate carrier for hire.

 

E)        The giving of a certification does not preclude the Department from disregarding it and assessing Use Tax against the purchaser if, in examining the purchaser's records or activities (or, in cases where the purchaser is not the carrier, the carrier's records or activities), the Department finds that the certification was not true as to some fact that shows the purchase was taxable and should not have been certified as being tax exempt.

 

F)         In cases where the interstate carrier for hire is not required by law to have a federal government regulatory agency authorizing it to conduct common carriage operations, the Department reserves the right to require the carrier (or purchaser, if the carrier is not the purchaser) to provide other evidence of eligibility for the exemption and to keep records documenting the rolling stock's eligibility for the exemption.

 

7)         Examples applying the limitations period for issuing a Notice of Tax Liability for aircraft.  The Examples in subsection (d)(2)(G) apply to aircraft the same as if set forth here, except that references to motor vehicles mean aircraft.

 

8)         Examples of application of the greater than 50% trips test for aircraft:

 

EXAMPLE 1 − (Aircraft − Qualifying):  The owner of an aircraft has been issued an Air Carrier Certificate by the Federal Aviation Administration which authorizes the certificate holder to operate as an air carrier and conduct common carriage operations in accordance with Part 135 of the Federal Aviation Regulations (49 C.F.R. 135).  The owner of the aircraft operates a charter air carrier company and uses the aircraft to carry passengers for hire from O'Hare Airport in Chicago, Illinois to MidAmerica St. Louis Airport in Mascoutah, Illinois where some of the passengers deplane. As documented on the itinerary provided to the carrier, those passengers will be flown, as part of the continuation of their journey, by another carrier to a location outside of Illinois (qualifies as interstate trip because documentation of interstate travel). The aircraft continues to Indianapolis, Indiana and more passengers deplane in Indianapolis (qualifies as interstate trip because transported out of state). The aircraft then continues to Philadelphia, Pennsylvania and the remainder of the passengers deplane in Philadelphia (qualifies as interstate trip because transported out of state). The aircraft then returns empty to O'Hare Airport from Philadelphia (qualifies as interstate trip because returning from qualifying trip (see subsection (d)(2)(D)(v))). The aircraft is considered to have made a total of four trips (one trip to Mascoutah, Illinois, one trip to Indianapolis, Indiana, one trip to Philadelphia, Pennsylvania, and a return trip back to Chicago, Illinois). If these were all the trips that the aircraft made within the first 12-month period (or were all the trips that aircraft made in a subsequent 12-month period), it would qualify for the test set forth in subsection (f)(1) for that 12-month period because it made 4 qualifying interstate trips for hire, thereby resulting in a percentage of 100% of its total trips during that first 12-month period. Any repair or replacement parts purchased for the aircraft during that first 12-month period would also have qualified for the exemption.

 

EXAMPLE 2 − (Aircraft – Non-Qualifying):  The owner of an aircraft has been issued an Air Carrier Certificate by the Federal Aviation Administration which authorizes the certificate holder to operate as an air carrier and conduct common carriage operations in accordance with Part 135 of the Federal Aviation Regulations (49 C.F.R. 135).  The owner of the aircraft operates a charter air carrier company and uses the aircraft to carry passengers for hire from O'Hare Airport in Chicago, Illinois to Abraham Lincoln Capitol Airport in Springfield, Illinois where the passengers deplane (does not qualify as interstate trip because it is strictly intrastate transport). The aircraft then continues to Indianapolis, Indiana and picks up employees of the charter aircraft company (does not qualify because it must be for hire). The aircraft then returns to Chicago, Illinois (does not qualify because returning from a non-qualifying trip out of state). The aircraft is considered to have made a total of three trips (one to Springfield, Illinois, one to Indianapolis, Indiana, and a return trip to Chicago, Illinois). If these were all the trips the aircraft made within the first 12-month period (or were all the trips that aircraft made in a subsequent 12-month period), it would not qualify for the test set forth in subsection (f)(1) for that 12-month period because 0% of these trips qualified as interstate trips for hire. Any repair or replacement parts purchased for the aircraft during that first 12-month period would also not have qualified for the exemption.

 

EXAMPLE 3 − (Aircraft – Non-Qualifying):  A corporation purchases a jet aircraft and leases it to a qualifying interstate air carrier for hire.  The lease was in effect at the time of purchase.  An election is made to use the trips test method on the Rolling Stock Certification form.  During the first 12-month period, the aircraft had 100 trips. Of that total, 50 trips were for the transportation of company employees.  Another 25 trips were for non-qualifying intrastate flights for hire. The remaining 25 trips were for qualifying interstate movements for hire.  The aircraft does not qualify for the rolling stock exemption as 75% of its trips (75/100) were for non-qualifying movements.

 

9)         Examples of application of the greater than 50% mileage (or flight hours used in lieu of mileage) test for aircraft:

 

EXAMPLE 1 − (Aircraft − Qualifying):  The owner of an aircraft has been issued an Air Carrier Certificate by the Federal Aviation Administration which authorizes the certificate holder to operate as an air carrier and conduct common carriage operations in accordance with Part 135 of the Federal Aviation Regulations (49 C.F.R. 135).  The owner of the aircraft operates a charter air carrier company and uses the aircraft to carry passengers for hire from MidAmerica St. Louis Airport in Mascoutah, Illinois to Chicago Midway International Airport in Chicago, Illinois (1 hour flight time) where some of the passengers deplane. As documented on the itinerary provided to the carrier, those passengers will be flown, as part of the continuation of their journey, by another carrier to a location outside of Illinois (qualifies as interstate miles because documentation of interstate travel). The aircraft continues to LaGuardia Airport, New York City, New York (2 hours flight time) and more passengers deplane at LaGuardia (qualifies as interstate trip because transported out of state). The aircraft then continues to Indianapolis International Airport, Indianapolis, Indiana (2 hours flight time) and the remainder of the passengers deplane in Indianapolis (qualifies as interstate trip because passengers originated in Illinois). The aircraft then returns empty to MidAmerica St. Louis Airport, Mascoutah, Illinois (30 minutes flight time) from the stop in Indianapolis, Indiana (qualifies as interstate trip because returning from qualifying trip (see subsection (d)(2)(D)(v))). The aircraft is considered to have flown a total of 5 hours and 30 minutes flight time. If these were all the flight hours that the aircraft flew within the first 12-month period (or were all the flight hours that the aircraft flew in a subsequent 12-month period), it would qualify for the test set forth in subsection (f)(1) for that 12-month period because 100% of its flight hours were for qualifying interstate movements for hire. Any repair or replacement parts purchased for the aircraft by the owner of the aircraft would also have qualified for the exemption.

 

EXAMPLE 2 − (Aircraft − Non-Qualifying):  If the aircraft described above in Example 1 had traveled instead a total of 24 hours and 45 minutes during that 12-month period with 16 hours and 30 minutes of those flight hours not being documented as qualifying flight hours, the aircraft would not have qualified for the exemption because only 8 hours and 15 minutes of its flight hours qualified out of 24 hours and 45 minutes total flight hours for a 33.33% qualifying percentage. Any repair or replacement parts purchased by the owner for the aircraft would not have qualified for the exemption.

 

EXAMPLE 3 − (Aircraft − Non-Qualifying):  A corporation purchases a jet aircraft and leases it to a qualifying interstate air carrier for hire.  The lease was in effect at the time of purchase.  An election is made to use the mileage test method on the Rolling Stock Certification form and use flight hours instead of mileage.  During the first 12-month period, the aircraft had 400 hours of flight time.  Of that total, 250 hours were for the transportation of company employees.  Another 50 hours were for non-qualifying intrastate flights for hire. The remaining 100 hours of flight time were for qualifying interstate movements for hire.  The aircraft does not qualify for the rolling stock exemption as 75% of its flight hours (300/400) were for non-qualifying movements.

 

g)         Watercraft.

 

1)         Application of the rolling stock test for watercraft. For watercraft purchased on or after January 1, 2014, "use as rolling stock moving in interstate commerce" occurs when, during a 12-month period, the rolling stock has carried persons or property for hire in interstate commerce for greater than 50% of its total trips for that period or for greater than 50% of its total miles for that period. [35 ILCS 120/2-51(e)]  Persons claiming the exemption shall make an election at the time of purchase to use either the trips or mileage method and document that election in their books and records.

 

A)        If the purchase is from an Illinois retailer, the election must be made on a certification as provided in subsection (g)(6). If the purchase is from an out-of-state retailer or from a non-retailer, the election must be documented in the purchaser's books and records.

 

B)        If no election is made under subsection (g)(1)(A) to use the trips or mileage method, the person shall be deemed to have chosen the mileage method. For watercraft, nautical miles or trip hours may be used in lieu of recording miles in determining whether the watercraft meets the mileage test in subsection (g)(1).

 

C)        Once such an election for a watercraft has been made, or is deemed to have been made if no election is made, the method used to document the qualification of that watercraft for the rolling stock exemption will remain in effect for the duration of the purchaser's ownership of that watercraft. [35 ILCS 120/2-51(f)]

 

2)         Repair and replacement parts for watercraft.  Notwithstanding any other provision of law to the contrary, property purchased on or after January 1, 2014 for the purpose of being attached to watercraft as a part thereof qualifies as rolling stock moving in interstate commerce only if the watercraft to which it will be attached qualifies as rolling stock moving in interstate commerce under the test set forth in subsection (g)(1), regardless of when the watercraft was purchased.  Persons who purchased watercraft prior to January 1, 2014 shall make an election to use either the trips or mileage method and document that election in their books and records for the purpose of determining whether property purchased on or after January 1, 2014 for the purpose of being attached to watercraft as a part thereof qualifies as rolling stock moving in interstate commerce under subsection (g)(1). [35 ILCS 120/2-51(e)]  Repair and replacement parts purchased for the purpose of being attached to a watercraft as a part thereof qualify for the rolling stock exemption if, at the time of purchase of the repair or replacement parts and for each of the corresponding watercraft's consecutive 12-month periods thereafter (i.e., the parts follow the 12-month periods for the rolling stock that they become a part of), the watercraft to which the parts will be attached meets the requirements of subsection (g)(1) and the purchaser provides a certification to that effect as required in subsection (g)(6), regardless of when the watercraft itself was purchased.  For more detail on the application of 12-month periods for repair and replacement parts, see subsection (g)(4) incorporating the provision of subsection (d)(2)(E)(iii).

 

3)         Basic guidelines on the trips or miles (or nautical miles or trip hours) that may and may not be used to claim the rolling stock exemption for watercraft.

 

A)        For interstate trips or interstate miles (or nautical miles or trip hours) to qualify, the interstate trips or miles (or nautical miles or trip hours) must be for hire. However, the total amount of trips taken or miles (or nautical miles or trip hours) traveled by watercraft within any 12-month period includes trips or miles (or nautical miles or trip hours) for hire and those not for hire. An example of a not for hire trip or not for hire mileage (or nautical miles or trip hours) is when a business uses its watercraft to transport its own merchandise.

 

B)        Any use of watercraft in a movement from one location to another, including but not limited to mileage (or nautical miles or trip hours) incurred by watercraft returning from a delivery without a load or passengers, shall be counted as a trip or mileage (or nautical miles or trip hours).

 

C)        However, the movement of watercraft in relation to the maintenance or repair of that watercraft shall not count as a trip or mileage (or nautical miles or trip hours).

 

D)        Any mileage (or nautical miles or trip hours) shown for watercraft that is undocumented as a trip or trips shall be counted as part of the total trips or mileage (or nautical miles or trip hours) taken by that watercraft. If the trips method has been chosen for that watercraft, the Department shall use its best judgment and information to determine the number of trips represented by such mileage (or nautical miles or trip hours).

 

E)        A movement whereby watercraft is returning empty from a trip for hire shall be counted as a trip or mileage (or nautical miles or trip hours) for hire. A movement whereby watercraft is moving to a location where property or passengers are being loaded for a trip for hire shall be counted as a trip or mileage (or nautical miles or trip hours) for hire.

 

4)         Twelve-month periods for watercraft (and repair and replacement parts for watercraft). The guidelines provided in subsection (d)(2)(E) apply to watercraft the same as if set forth here, except that the limitation in that subsection to purchases made before August 24, 2017, does not apply and references to motor vehicles and trailers mean watercraft.

 

5)         Purchases by lessors of watercraft under a lease for one year or longer. When a watercraft is purchased by a lessor, under a lease for one year or longer, executed or in effect at the time of purchase to an interstate carrier for hire, who did not pay the tax imposed by this Act to the retailer, such lessor (by the last day of the month following the calendar month in which such property reverts to the use of such lessor) shall file a return with the Department and pay the tax upon the fair market value of such property on the date of such reversion. However, in determining the fair market value at the time of reversion, the fair market value of such property shall not exceed the original purchase price of the property that was paid by the lessor at the time of purchase.  [35 ILCS 105/10]  When the watercraft is no longer used in a manner that qualifies for the rolling stock exemption as provided in this subsection (g)(5), the lessor shall file a return with the Department and pay the tax to the Department by the last day of the month following the calendar month in which the property is no longer subject to a qualifying lease.

 

EXAMPLE:  A watercraft was purchased for lease to an interstate carrier for hire on August 15, 2020 and was titled and registered on that date. The lease to the interstate carrier for hire was executed or in effect at the time of purchase. The appropriate return was timely filed claiming the rolling stock exemption. The qualifying lease ended on November 15, 2021, and the watercraft was no longer used in a qualifying manner. At the time the qualifying lease ends and the watercraft reverts to the lessor, the lessor owes Use Tax on the fair market value of the watercraft on the date it reverts to the lessor.  The return and the tax are due by the last day of the month following the month in which the watercraft reverts to the lessor.  The period in which the Department would be able to issue a Notice of Tax Liability for Use Tax due regarding that watercraft would expire on December 31, 2024.

 

6)         Certification of exemption for watercraft. To properly claim the rolling stock exemption, the purchaser must give the seller a certification that the purchaser is an interstate carrier for hire, and that the purchaser is purchasing the watercraft, or repair or replacement parts for a watercraft, for use as rolling stock moving in interstate commerce.

 

A)        If the purchaser is a lessor, the purchaser must give the seller of the property a certification to that effect, identifying the lessee that will utilize the property.

 

B)        If the purchaser of a watercraft or repair or replacement parts for a watercraft is an interstate carrier for hire, the purchaser must include documentation that shows that that the purchaser is authorized by an agency of the federal government to carry persons or property for hire in interstate commerce.

 

C)        If the purchaser is an owner, lessor, or shipper of tangible personal property that will be utilized by interstate carriers for hire for use as rolling stock moving in interstate commerce, the purchaser must give the seller of the property a certification to that effect, similarly identifying the lessee or other interstate carrier for hire that will utilize the property.  For example, the purchaser may have documentation from the United States Coast Guard's National Vessel Documentation Center that authorizes the certificate holder to carry persons or property interstate for hire as evidence the carrier is an authorized carrier for hire in interstate commerce.

 

D)        The giving of a certification does not preclude the Department from disregarding it and assessing Use Tax against the purchaser if, in examining the purchaser's records or activities (or, in cases where the purchaser is not the carrier, the carrier's records or activities), the Department finds that the certification was not true as to some fact that shows the purchase was taxable and should not have been certified as being tax exempt.

 

E)        In cases where the interstate carrier for hire is not required by law to have a federal government regulatory agency authorizing it to carry persons or property for hire in interstate commerce, the Department reserves the right to require the carrier (or purchaser, if the carrier is not the purchaser) to provide other evidence of eligibility for the exemption and to keep records documenting the rolling stock's eligibility for the exemption.

 

7)         Examples applying the limitations period for issuing a Notice of Tax Liability for watercraft.  The Examples in subsection (d)(2)(G) apply to watercraft the same as if set forth here, except that references to motor vehicles mean watercraft.

 

8)         Examples of application of the greater than 50% trips test for watercraft:

 

EXAMPLE 1 − (Watercraft − Qualifying):  An interstate carrier uses a watercraft to carry property for hire from Moline, Illinois to Quincy, Illinois where part of the property is delivered. As documented on the bill of lading provided to the carrier, that property will be delivered, as part of the continuation of the shipment, by another carrier to a location outside of Illinois (qualifies as interstate trip because documentation of interstate shipment). The watercraft continues to St. Louis, Missouri and delivers more of the property in that city (qualifies as interstate trip because transported out of state). The watercraft then continues to Memphis, Tennessee and delivers the remainder of the property in that city (qualifies as interstate trip because shipment originated in Illinois). The watercraft then returns empty to Moline, Illinois from the delivery in Memphis, Tennessee (qualifies as interstate trip because returning from qualifying trip (see subsection (d)(2)(D)(v))). The watercraft is considered to have made a total of four trips (one trip to Quincy, Illinois, one trip to St. Louis, Missouri, one trip to Memphis, Tennessee, and a return trip to Moline, Illinois). If these were all the trips the watercraft made within the first 12-month period (or were all the trips that watercraft made in a subsequent 12-month period), it would qualify for the test set forth in subsection (g)(1) for that 12-month period because it made four qualifying interstate trips for hire, thereby resulting in a percentage of 100% of its total trips during that first 12-month period. Any repair or replacement parts purchased for the watercraft during that first 12-month period would also have qualified for the exemption.

 

EXAMPLE 2 − (Watercraft – Non-Qualifying):  An interstate carrier uses a watercraft to carry property for hire from Chicago, Illinois to Peoria, Illinois where that property is delivered for use by the recipient (does not qualify as interstate trip because it is strictly intrastate transport). The watercraft then continues to St. Louis, Missouri and picks up property for use by that carrier's business (does not qualify because it must be for hire). The watercraft then returns to Chicago, Illinois (does not qualify because returning from a non-qualifying trip out of state). The watercraft is considered to have made a total of three trips (one to Peoria, Illinois, one to St. Louis, Missouri, and a return trip to Chicago, Illinois). If these were all the trips that the watercraft made within the first 12-month period (or were all the trips that watercraft made in a subsequent 12-month period), it would not qualify for the test set forth in subsection (g)(1) for that 12-month period because 0% of these trips qualified as interstate trips for hire.

 

9)         Examples of application of the greater than 50% mileage (or nautical miles or trip hours) test for watercraft:

 

EXAMPLE 1 − (Watercraft − Qualifying):  An interstate carrier uses a watercraft to carry property for hire from Chicago, Illinois to Peoria, Illinois (144 nautical mile movement) where part of the property is delivered. As documented on the bill of lading provided to the carrier, that property will be delivered, as part of the continuation of the shipment, by another carrier to a location outside of Illinois (qualifies as interstate miles because documentation of interstate shipment). The watercraft continues to St. Louis, Missouri (148 nautical mile movement) and delivers more of the property in that city (qualifies as interstate trip because transported out of state). The watercraft then continues to Cape Girardeau, Missouri (102 nautical mile movement) and delivers the remainder of the property in that city (qualifies as interstate trip because shipment originated in Illinois). The watercraft then returns empty to Chicago, Illinois (394 nautical mile movement) from the delivery in Cape Girardeau, Missouri (qualifies as interstate trip because returning from qualifying trip (see subsection (d)(2)(D)(v))). The watercraft is considered to have traveled a total of 788 qualifying nautical miles. If these were all the miles that the watercraft traveled within the first 12-month period (or were all the miles that watercraft traveled in a subsequent 12-month period), it would qualify for the test set forth in subsection (g)(1) for that 12-month period because 100% of its miles were for qualifying interstate movements for hire. Any repair or replacement parts purchased for the watercraft would also have qualified for the exemption.

 

EXAMPLE 2 − (Watercraft – Non-Qualifying):  If the watercraft described above in Example 4 had traveled instead a total of 2,788 nautical miles during that 12-month period with 2,000 of those nautical miles not being documented as qualifying nautical miles, the watercraft would not have qualified for the exemption because it only had 788 qualifying nautical miles out of 2,788 nautical miles for a 28.26% qualifying percentage. Any repair or replacement parts purchased for the watercraft would not have qualified for the exemption.

 

(Source:  Amended at 48 Ill. Reg. 1870, effective January 18, 2024)

 

Section 130.341  Commercial Distribution Fee Sales Tax Exemption

 

a)         Qualifications for exemption through June 30, 2004.  Beginning on July 1, 2003 through June 30, 2004, sales of certain motor vehicles are not subject to the tax imposed under this Part if they meet all of the following tests:

 

1)         The motor vehicle qualifies as a second division motor vehicle under Section 1-146 of the Illinois Vehicle Code.  First division motor vehicles, such as those motor vehicles that are designed for the carrying of not more than 10 persons, do not qualify for the exemption (See 625 ILCS 5/1-146.);

 

2)         The motor vehicle has a gross vehicle weight in excess of 8,000 pounds; and

 

3)         The motor vehicle is subject to the Commercial Distribution Fee imposed under Section 3-815.1 of the Illinois Vehicle Code. [35 ILCS 120/2-5]  The motor vehicle must be registered and remain registered in such a manner whereby it is subject to payment of the Commercial Distribution Fee imposed under Section 3-815.1 of the Illinois Vehicle Code [625 ILCS 5/3-815.1] and such fee is actually paid for any period in which the fee is in effect.

 

b)         Qualifications for exemption beginning July 1, 2004.  Beginning on July 1, 2004 through June 30, 2005, sales of certain motor vehicles are not subject to the tax imposed under this Part if they meet all of the following tests:

 

1)         The motor vehicle is a second division motor vehicle.  First division motor vehicles, such as those motor vehicles that are designed for the carrying of not more than 10 persons, do not qualify for the exemption (See 625 ILCS 5/1-146.);

 

2)         The motor vehicle must have a gross vehicle weight rating in excess of 8,000 pounds.  For purposes of this Section, Gross Vehicle Weight Rating means the value specified by the manufacturer or manufacturers as the maximum loaded weight of a single vehicle  (See 625 ILCS 5/1-124.5.);

 

3)         The motor vehicle is subject to the Commercial Distribution Fee imposed under Section 3-815.1 of the Illinois Vehicle Code.  The motor vehicle must be registered and remain registered in such a manner whereby it is subject to payment of the Commercial Distribution Fee imposed under Section 3-815.1 of the Illinois Vehicle Code [625 ILCS 5/3-815.1] and such fee is actually paid for any period in which the fee is in effect; and

 

4)         The motor vehicle is used primarily for commercial purposes. [35 ILCS 120/2-5]  For purposes of this Section, a motor vehicle used for commercial purposes means any motor vehicle used to transport persons or property in the furtherance of any commercial or industrial enterprise, whether for-hire or not-for-hire. 

 

COMMERCIAL PURPOSE EXAMPLE:  A motor vehicle that is used for transportation to work, school, or recreational activities would not be used for commercial purposes.

 

c)         Documentation of exemption.  To properly document the exemption, the seller must obtain a written certificate from the purchaser stating the following:

 

1)         the name, address, and telephone number of purchaser;

 

2)         the description and Vehicle Identification Number of the motor vehicle or motor vehicles being purchased;

 

3)         the name and address of seller;

 

4)         the date of purchase;

 

5)         a statement that the motor vehicle will be used primarily for commercial purposes and will be registered under Section 3-815(a) or 3-818(a) of the Illinois Vehicle Code or in such other manner whereby the registration of that motor vehicle will require the payment of the Commercial Distribution Fee imposed under Section 3-815.1 of the Illinois Vehicle Code and that such vehicle will remain validly registered in such a manner for subsequent registration years;

 

6)         the commercial purpose for which the vehicle will be used along with the purchaser's Illinois Business Tax (IBT) number or other business registration number; and

 

7)         the signature of purchaser.

 

d)         Liability for tax.  If a purchaser claims the exemption provided in this Section and the vehicle is not considered subject to the Commercial Distribution Fee as described in subsection (a)(3) or (b)(3) of this Section or otherwise does not qualify for this exemption, the purchaser will be liable for the tax based upon the purchase price of that vehicle and any applicable penalties and interest from the date of purchase.

 

e)         Repair and replacement parts.  The exemption provided in this Section may not be claimed for any repair part, replacement part, or other item attached or incorporated into the motor vehicle after the purchase of the motor vehicle.  Such items may qualify for exemption from sales tax if the motor vehicle or trailer is used in a manner that qualifies for the rolling stock exemption.  See Section 130.340 of this Part.

 

f)         Trailers.  For purposes of this Section, a trailer that is subject to the Commercial Distribution Fee imposed under Section 3-815.1 of the Illinois Vehicle Code will qualify as a second division motor vehicle under subsection (a)(1) or (b)(1) of this Section.  The term "trailer" includes a trailer as defined in Section 1-209 of the Illinois Vehicle Code, a semitrailer as defined in Section 1-187 of the Illinois Vehicle Code, and a pole trailer as defined in Section 1-161 of the Illinois Vehicle Code.

 

(Source:  Added at 29 Ill. Reg. 7004, effective April 26, 2005)

 

Section 130.345  Oil Field Exploration, Drilling and Production Equipment

 

a)         General

 

1)         Notwithstanding any other provision of this Section, the exemption provided in this Section is effective through June 30, 2003.  On and after July 1, 2003, the tax applies to sales of new or used oil field exploration, drilling, and production equipment.  Prior to June 25, 1996, notwithstanding the fact that the sales may be at retail, the Retailers' Occupation Tax Act does not apply to sales of new or used oil field exploration, drilling, and production equipment costing $250 or more, including rigs and parts of rigs; rotary rigs; cable tool rigs; workover rigs; pipe and tubular goods, including casing and drill strings; pumps and pump-jack units; storage tanks and flow lines; any individual replacement part for oil field exploration, drilling, and production equipment, if the replacement part costs in excess of $250; and machinery and equipment purchased for lease; but excluding motor vehicles required to be registered pursuant to the Illinois Vehicle Code. On and after June 25, 1996, the exemption is not conditioned upon the $250 purchase threshold requirement.

 

2)         Oil field exploration, drilling and production

 

A)        This exemption applies only to equipment used primarily in oil field exploration, drilling and production.  Use of the equipment in any other type of exploration, drilling or mineral production will not be a qualified use and such equipment will be subject to tax.  The equipment used in drilling, production or exploration of minerals, coal or water is not a qualified use of such equipment and will be subject to the full rate of tax.  Excluded from this exemption are motor vehicles required to be registered pursuant to the Illinois Motor Vehicle Code [625 ILCS 5].  Special mobile equipment other than motor vehicles may qualify for the exemption if they are used primarily in oil field exploration, drilling or production.  The exemption does not include supplies (such as drilling mud, well cement, acid, chemicals or explosives), coolants, lubricants, adhesives, solvents, items of personal apparel (such as gloves, shoes, glasses, goggles, coveralls, aprons, masks, mask air filters, belts, harnesses or holsters), coal, fuel oil, electricity, natural gas, artificial gas, steam, gasoline, diesel fuel, refrigerants, water or chemical additives to crude oil.

 

B)        "Oil field exploration" means the search for oil or natural gas. Exploration includes:  Seismic studies, core testing and the drilling of test wells (wildcat wells).

 

C)        "Drilling" means the act of boring a hole through which oil or gas may be produced if encountered in commercial quantities.

 

D)        "Production" means the act or process of producing oil or gas.

 

E)        "Drilling rigs" include rotary, cable tool and workover rigs and parts thereof.

 

F)         "Production lease" means the land described in a lease instrument on which drilling for the production of oil or gas occurs.

 

G)        "Pipe and tubular goods" include casing, drill strings, rods and wire rope.  Prior to June 25, 1996, "pipe and tubular goods" sold by the linear foot qualify for the reduction if the cost of the total length sold in an individual transaction or sale exceeds $250.  On and after June 25, 1996, there is no such limitation.

 

H)        "Production equipment" includes gasoline, diesel and electric engines used as a power source, pumps and pump-jack units and parts thereof, storage tanks, flow lines and parts thereof located on the producing lease.

 

I)         "Kits" means kits comprised of several parts which are ordered from a manufacturer, inventoried and sold by a retailer as a single item, and items, such as a pump, which are assembled by the retailer at the time of sale from components selected by the purchaser and which are sold as a unit. Prior to June 25, 1996, kits will be treated as a single item for the purposes of the $250 per individual item limitation.  On and after June 25, 1996, there is no such limitation.

 

b)         Nonexempt Illustrations

            By way of illustration and not limitation, the following activities will not be considered oil field exploration, drilling, or use of production equipment:

 

1)         The use of equipment in the construction, reconstruction, alteration, remodeling, servicing, repairing, maintenance or improvement of real estate.  Material, such as steel, concrete, rock and other building material, will not qualify for the exemption;

 

2)         the use of equipment in general maintenance or repair work on exploration, drilling or production equipment;

 

3)         the use of equipment in research and development for drilling or oil field production or exploration;

 

4)         the use of equipment off the production lease to store, convey, handle or transport oil;

 

5)         the use of equipment, trailers or structures in management, sales or other nonproduction, nonoperational activities including inventory control, production or drilling scheduling, purchasing, receiving, accounting, fiscal management, communications, security, marketing, product exhibition and promotion, personnel recruitment, selection or training;

 

6)         the use of equipment to prevent or fight fires, protective equipment such as face masks, helmets, gloves, coveralls, goggles, gas masks or for safety or accident protection or first-aid, even though such equipment may be required by law;

 

7)         the use of equipment for ventilation, heating or illumination not required by the exploration, drilling or production process.

 

c)         Sales to Lessors of Oil Field Exploration, Drilling and Production Equipment

 

1)         For the exemption to apply, the purchaser need not, himself, employ the equipment in oil field exploration, drilling or production.  If the purchaser leases that equipment to a lessee-explorer, driller or producer who uses it in a qualified manner, the sale to the purchaser-lessor will be eligible for the reduced rate of tax.  A supplier may exclude such sales from his taxable gross receipts provided the purchaser-lessor provides to him a properly completed certificate and the information contained therein would support an exemption if the sale were made directly to the lessee-explorer or driller or producer.

 

2)         Should a purchaser-lessor subsequently lease the equipment to a lessee who does not use it in a manner that would qualify for the reduction, the purchaser-lessor will become liable for the tax which he previously did not pay.

 

d)         Certificates of Qualified Use

 

            Certificates must be executed by the purchaser at the time of purchase.  The certificate must include the seller's name and address, the purchaser's name and address and a statement that the property purchased will be used for oil field exploration or oil field drilling or as oil field production equipment.  Retailers may accept blanket certificates, but have the responsibility to obtain, and must maintain, all certificates as part of their books and records.  An item of oil field production, oil field drilling or oil field exploration equipment, which is initially used in oil field production, oil field drilling or oil field exploration and having been so used for less than one-half of its useful life, if converted to nonqualified uses, will become subject to tax at the time of conversion.

 

(Source:  Amended at 28 Ill. Reg. 11268, effective July 21, 2004)

 

Section 130.350  Coal Exploration, Mining, Off Highway Hauling, Processing, Maintenance and Reclamation Equipment

 

a)         General.  The exemption provided in this Section terminated on June 30, 2003, pursuant to P.A. 93-24.  P.A. 98-456, effective August 16, 2013, reinstated the coal exemption retroactive to July 1, 2003.  The Department, however, will not approve any claims or refunds on or after August 16, 2013, for taxes due or paid during the period beginning July 1, 2003 through August 16, 2013.  The exemption for coal exploration, mining, off highway hauling, processing, maintenance and reclamation equipment will terminate by operation of the sunset provisions of Section 2-70 of the Retailers' Occupation Tax Act on August 16, 2018.  Pursuant to P.A. 100-0594, effective June 29, 2018, the exemption provided in this Section is extended until July 1, 2023.  Pursuant to P.A. 102-0700, effective April 19, 2022, the exemption provided in this Section is extended until July 1, 2028.  The exemption does not apply to motor vehicles required to be registered pursuant to the Illinois Vehicle Code [625 ILCS 5]. This exemption applies only to equipment used primarily in coal exploration, mining, off highway hauling, processing, maintenance and reclamation.  Equipment used 50% or less in exploration, mining, off highway hauling, processing, maintenance and reclamation will not qualify for this exemption.  Excluded from this exemption are motor vehicles required to be registered pursuant to the Illinois Vehicle Code.  Special mobile equipment other than motor vehicles may qualify for the exemption if it is used primarily in coal exploration, mining, off highway hauling, processing, maintenance and reclamation.  This exemption does not include supplies (such as chemicals, rust inhibitors and adhesives), coolants, lubricants, inert limestone, magnetite and other materials added to the coal washing medium, reclamation materials (such as seed, plants and limestone), items of personal apparel (such as gloves, shoes, hats, helmets, coveralls, masks, mask air filters, belts, harnesses or holsters) or fuel of any type.

 

b)         Definitions

 

1)         "Coal" means a mineral deposit or finished product comprised of combustible, carbon based plant fossil matter used as fuel.

 

2)         "Coal Exploration" means the search for coal.  Exploration includes, but is not limited to, geophysical exploration, excavating and drilling to locate coal deposits.

 

3)         "Kits" means commercially-packaged sets of parts that are ordered from a manufacturer, inventoried and sold by a retailer as a single item. An example would be a "tire assembly" comprised of the rim, tire, foam filling and valve stem.

 

4)         "Maintenance" means keeping coal exploration, mining, off highway hauling, processing, maintenance and reclamation equipment in a state of repair and efficiency.

 

5)         "Mining" means the extraction of coal from the earth by underground and surface mining and includes the extraction of coal by the mine owner or operator.

 

6)         "Off Highway Hauling" means carrying or transporting and would include transport of overburden, waste material, including gob from the processing facility for disposal, and coal from the coal seam to the processing facility by conveyors or unlicensed vehicles, and conveying coal from the beginning of the processing cycle through the last stage of coal production, which ends at the time the coal is stored.

 

7)         "Processing" means preparation activities performed directly on the coal which are necessary for converting coal into a finished product so that it is ready for sale or the reprocessing of coal mine waste to extract and recycle coal from the waste by the mine owner, operator or a third party contractor or successor.  Processing includes, but is not limited to, sizing, crushing, drying and washing.

 

8)         "Reclamation" means conditioning areas affected by mining operations. Examples of reclamation activities include, but are not limited to, backfilling, grading, seeding and planting.

 

9)         "Replacement Parts" means parts that are used to replace parts of qualifying equipment and that require periodic replacement.  To be considered a replacement part, the part must be purchased for the purpose of being installed and must, in fact, become a physical component part of coal exploration, mining, off highway hauling, processing, maintenance or reclamation equipment.

 

10)         "Used primarily" means equipment that is used more than 50% of the time in coal exploration, mining, off highway hauling, processing, maintenance and reclamation.

 

c)         Exempt Activities

By way of illustration and not limitation, the following activities will be considered to constitute coal exploration, mining, off highway hauling, processing, maintenance and reclamation:

 

1)         Coal is produced in a surface mining operation that begins with locating the coal deposit to be mined, clearing of surface obstacles and overburden from the land above the coal deposit to be mined, continues with the removal of waste material and with the extraction of the coal, continues with the transportation from the coal seam to the processing facility, continues further with the refilling and grading of the mined area with overburden and waste material from a subsequently mined area, continues further with the processing of the coal, and ends with the stockpiling of the coal to allow moisture to drain and evaporate from the washed coal.  By way of illustration and not limitation, the following equipment is exempt:

 

A)        Geophysical surveying, excavating, dredging and drilling machinery and equipment used primarily to locate surface mine coal deposits (e.g., data logger transducer; photoionization detector; optical televiewer; acoustic televiewer; petrographic survey equipment; and inclinometer survey equipment).

 

B)        Equipment used primarily to drill and load holes for blasting material to dislodge the overburden, blasting agents (such as ammonium nitrate and fuel oil or ANFO); equipment used primarily to ignite blasting agents, including, but not limited to, high explosives, detonators, lead-in lines and blasting machines; and equipment used primarily to transport the blasting material.

 

C)        Equipment used primarily to remove overburden and other waste materials from the pit to be mined.

 

D)        Equipment used primarily to modify the energy purchased for the surface mining process if the equipment is used to modify the energy for use on exempt equipment (e.g., transformers, capacitors and other equipment used to reduce, increase, stabilize or otherwise control the amperage, voltage or frequency of the electric current and transmit the electrical current to coal mining and processing equipment).

 

E)        Pumps and hoses used primarily to remove water or to divert water from the active pit area.

 

F)         Equipment used primarily to load the overburden, waste material or coal to be transported to the processing facility into off highway haulage trucks or onto a conveyor system.

 

G)        Equipment used primarily to extract coal from the earth.

 

H)        Unlicensed off highway haulage trucks or a conveyor system to transport overburden, waste material or coal to the processing facility.

 

I)         Equipment used primarily to backfill, grade, seed, plant or otherwise reclaim previously mined land.

 

J)         Equipment used primarily in a coal wash plant to clean the coal prior to sale to customers.  Equipment used primarily in the cleaning, sizing or grading of coal in a coal preparation plant may qualify as manufacturing machinery and equipment (see Section 130.330).

 

K)        Equipment used primarily to blend different grades of coal together so that the final product meets customer specifications regarding quality and sulfur content.

 

L)        Electrical cable that is part of an electrical distribution system supplying electricity to exempt equipment in the field (e.g., draglines and shovels that move and load overburden and shovels that load coal in the pit).

 

M)       Computers and electrical control panels integral to and used primarily to operate exempt equipment used in coal exploration, mining, off highway hauling, processing, maintenance and reclamation.

 

N)        Remote audio visual equipment integral to and used primarily in connection with coal exploration, mining, off highway hauling, processing, maintenance and reclamation.

 

O)        Electric generators used primarily to power exempt coal exploration, mining, off highway hauling, processing, maintenance and reclamation equipment.

 

P)         Communication equipment integral to and used primarily in production and operation activities in connection with coal exploration, mining, off highway hauling, processing, maintenance and reclamation equipment.

 

2)         Coal is produced in an underground mining operation that begins with locating the coal deposit to be mined, continues with the boring of a shaft from the surface to the coal deposit to be mined, continues with the removal of waste material and the extraction of coal, continues further with the transportation from the coal seam to the processing facility, continues further with the installation of roof supports and the coating of walls with rock dust to prevent mine explosions and collapse, continues further with the processing of coal and disposal of waste material from the mine and processing facility, and ends with the stockpiling of coal to allow moisture to drain and evaporate from the washed coal.  By way of illustration and not limitation, the following equipment is exempt:

 

A)        Geophysical surveying, excavating and drilling machinery and equipment used primarily to locate underground mine coal deposits (e.g., data logger transducer; photoionization detector; optical televiewer; acoustic televiewer; petrographic survey equipment; and inclinometer survey equipment).

 

B)        Equipment used primarily to create access to the coal deposit (e.g., a rotary drill or a track drill), equipment used primarily to sever coal from the deposit (e.g., continuous miners and long wall mining equipment), and equipment used primarily to load coal onto conveyor belts, into trucks or other conveyances used to transport coal from the deposit to the processing operation (e.g., shuttle cars and battery powered haulers). 

 

C)        Shuttle cars used primarily to transport the coal from the point of severance to the feeder-breaker at the end of a conveyor belt or other transportation system.

 

D)        The feeder-breaker which breaks the large lumps of coal and feeds the coal onto the conveyor belt which carries the coal outside the mine where it is temporarily stockpiled or transported to the processing facility.

 

E)        Equipment used primarily to modify the energy purchased for the underground mining process if the equipment is used to modify the energy for use on exempt equipment, e.g., transformers, capacitors and other equipment used to reduce, increase, stabilize or otherwise control the amperage, voltage or frequency of the electrical current and transmit the electrical current to mining and processing equipment.

 

F)         Pumps and hoses, piping and discharge apparatus used primarily in the movement or removal of water or to divert water from the underground mine area.

 

G)        Equipment used primarily to install roof bolts, roof bolt supports and side rib bolt supports and in scaling (e.g., the removal of loose rock and slabs of rock) prior to roof bolting to prevent mine collapse.

 

H)        Roof bolts and plates, side rib bolts and plates, and epoxy resin cartridges used primarily to secure roof bolts and side rib bolts installed to prevent mine collapse.

 

I)         Equipment used primarily to coat mine walls with inert limestone as the coal is removed to prevent explosions caused by the escape of volatile materials.

 

J)         Equipment installed as improvements to real estate in underground mining such as elevators, rail, ventilating and illuminating systems, including the foundations for that equipment as long as those foundations are located within the underground mine.

 

K)        Equipment used primarily in the construction, reconstruction, alteration, remodeling, servicing, repairing, maintenance or improvement of underground mine structures.  Materials, such as lumber, steel, concrete, rock and other building materials, qualify for the exemption only when used in underground mine structures, including use as roof support to prevent mine collapse.

 

L)        Additions to exempt underground rail conveyors, ventilating and illumination systems due to the progression of mining.

 

M)       Longwall equipment consisting of shields, shearers, face conveyors and equipment used primarily for recovery, handling and transportation of longwall equipment.

 

N)        Machinery and equipment used primarily to transport coal to aboveground facilities.

 

O)        Machinery and equipment used primarily to convey coal from the beginning of the processing cycle through the last stage of coal production.

 

P)         Equipment used primarily in a coal wash plant to clean the coal prior to sale to customers.  Equipment used primarily in the cleaning, sizing, or grading of coal in a coal preparation plant may qualify as manufacturing machinery and equipment (see Section 130.330).

 

Q)        Equipment used primarily to blend different grades of coal together so that the final product meets customer specifications regarding quality and sulfur content.

 

R)        Equipment, other than motor vehicles required to be registered pursuant to the Illinois Vehicle Code, used primarily to transport miners into and out of an underground mine (e.g., mantrips, utility vehicles, mobile equipment and scoops).

 

S)         Electrical cable that is part of an electrical distribution system supplying electricity to exempt equipment at the mine site (e.g., draglines and shovels that move and load overburden and shovels that load coal in the pit).

 

T)         Computers and electrical control panels integral to and used primarily to operate exempt equipment used in coal exploration, mining, off highway hauling, processing, maintenance and reclamation.

 

U)        Remote audio visual equipment integral to and used primarily in connection with exempt coal exploration, mining, off highway hauling, processing, maintenance and reclamation equipment.

 

V)        Electrical generators used primarily to power exempt coal exploration, mining, off highway hauling, processing, maintenance and reclamation equipment.

 

W)       Communication equipment integral to and used primarily in production and operation activities in connection with exempt coal exploration, mining, off highway hauling, processing, maintenance and reclamation equipment.

 

3)         By way of illustration and not limitation, the following maintenance equipment is exempt:

 

A)        Unlicensed maintenance and welding trucks used primarily for field repair of exempt equipment.

 

B)        Lathes, drill presses, air compressors and welders used primarily to build, modify or rework exempt repair parts or equipment.

 

C)        Mobile and overhead cranes and manlifts used primarily in connection with exempt coal exploration, mining, off highway hauling, processing, maintenance and reclamation.

 

4)         By way of illustration and not limitation, the following coal exploration equipment is exempt unless registered pursuant to the Illinois Vehicle Code:

 

A)        Drill rigs used primarily to drill exploration core holes.

 

B)        Water trucks used primarily in the drilling process.

 

C)        Winch and casing trucks used primarily in the drilling process.

 

D)        Field maintenance trucks used primarily to make repairs on exempt field equipment.

 

E)        Air compressors used in connection with exempt coal exploration, mining, off highway hauling, processing, maintenance and reclamation.

 

d)         Nonexempt Activities

By way of illustration and not limitation, the following activities will not be considered to constitute coal exploration, mining, off highway hauling, processing, maintenance and reclamation:

 

1)         The use of equipment in the construction, reconstruction, alteration, remodeling, servicing, repairing, maintenance or improvement of real estate except for underground mine structures.  Material, such as lumber, steel, concrete, rock and other building materials, will not qualify for the exemption except when used in underground mine structures, such as roof support to prevent mine collapse;

 

2)         the use of equipment in research and development for new uses of coal;

 

3)         the use of equipment, trailers, sheds or structures in management, sales or other nonproduction, nonoperational activities including production or extraction scheduling, purchasing, receiving, accounting, fiscal management, communications equipment (e.g., radios and phones), security, marketing, product exhibition and promotion, personnel recruitment, selection or training;

 

4)         the use of equipment to prevent or fight fires or other mining hazards, protective supplies such as face masks, gas masks, helmets, gloves, coveralls, goggles, or first aid equipment and supplies, rescue chambers, self-rescuers, protective mine shelters or tracking devices (e.g., Global Positioning Systems or similar devices) even though such equipment and supplies may be required by law;

 

5)         the use of equipment for general ventilation, heating, cooling, climate control or general illumination not specifically required for the exploration, mining, off highway hauling, processing, maintenance and reclamation operation;

 

6)         the use of facilities for storing coal after extraction and processing;

 

7)         the use of front-end loaders, cranes, equipment used to load coal onto trucks, railcars or barges for delivery to customers;

 

8)         the use of concrete foundations and support structures for ventilation equipment used aboveground.

 

e)         Sales to Lessors of Coal Exploration, Mining, Off Highway Hauling, Processing, Maintenance and Reclamation Equipment

 

1)         For the exemption to apply, the purchaser need not, himself, employ the equipment in coal exploration, mining, off highway hauling, processing, maintenance and reclamation.  If the purchaser leases the equipment to a lessee who uses it primarily in a qualified manner, the sale to the purchaser-lessor will be eligible for the exemption. A supplier may exclude these sales from taxable gross receipts if the purchaser-lessor provides the supplier with a properly completed certificate and the information contained in the certificate would support an exemption if the sale were made directly to the lessee.

 

2)         Should a purchaser-lessor subsequently lease the equipment to a lessee who does not use it primarily in a way that would qualify for the exemption, the purchaser-lessor will become liable for the tax he or she previously did not pay.

 

f)         Purchaser Certification

Certificates must be executed by the purchaser.  The certificate must include the seller's name and address, the purchaser's name and address and a statement that the property purchased will be used primarily for coal exploration, mining, off highway hauling, processing, maintenance and reclamation.  If a purchaser can claim either the exemption under this Section or the Manufacturing Machinery and Equipment exemption, the purchaser must specify on the certificate which exemption the purchaser is claiming.  Sellers may accept blanket certificates, but have the responsibility to obtain and keep all certificates as part of their books and records.  If a retailer accepts the certificate and the purchaser does not, in fact, use the equipment in a qualifying manner, the purchaser will be liable to the Department for the tax.  Equipment that is initially used primarily in a qualifying manner and, having been so used for less than one-half of its useful life, is converted to nonqualified uses, will become subject to tax at the time of conversion.  Replacement parts purchased initially for use in a qualifying manner and used in a nonqualifying use will become subject to tax at the time of use.

 

(Source:  Amended at 47 Ill. Reg. 6068, effective April 12, 2023)

 

Section 130.351  Aggregate Exploration, Mining, Off Highway Hauling, Processing, Maintenance and Reclamation Equipment

 

a)         General.  The exemption provided in this Section terminated on June 30, 2003, pursuant to P.A. 93-24.  P.A. 98-456, effective August 16, 2013, reinstated the aggregate exemption retroactive to July 1, 2003.  The Department, however, will not approve any claims or refunds on or after August 16, 2013, for taxes due or paid during the period beginning July 1, 2003 through August 16, 2013. The exemption for aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation equipment will terminate by operation of the sunset provisions of Section 2-70 of the Retailers' Occupation Tax Act on August 16, 2018.  Pursuant to P.A. 100-0594, effective June 29, 2018, the exemption provided in this Section is extended until July 1, 2023.  Pursuant to P.A. 102-0700, effective April 19, 2022, the exemption provided in this Section is extended until July 1, 2028.  Notwithstanding the fact that the sales may be at retail, the Retailers' Occupation Tax Act does not apply to sales of aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation equipment used primarily for the exploration and mining of mineral deposits and for the manufacture of resultant aggregate products.  The exemption also applies to individual replacement parts for exempt aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation equipment.  The exemption also applies to equipment and replacement parts purchased for lease if those items are used primarily in the activities noted in this subsection. The exemption does not apply to motor vehicles required to be registered pursuant to the Illinois Vehicle Code [625 ILCS 5]. This exemption applies only to equipment used primarily in aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation.  Use of the equipment in any other exploration, mining, off highway hauling, processing, maintenance and reclamation will not qualify for this exemption.  Excluded from this exemption are motor vehicles required to be registered pursuant to the Illinois Vehicle Code.  Special mobile equipment other than motor vehicles may qualify for the exemption if it is used primarily in aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation.  This exemption does not include supplies (such as chemicals, rust inhibitors, and adhesives), coolants, lubricants, reclamation materials (such as seed, plants and limestone), items of personal apparel (such as gloves, shoes, hats, helmets, coveralls, masks, mask air filters, belts, harnesses or holsters) or fuel of any type.

 

b)         Definitions

 

1)         "Aggregate" means any mineral deposit or finished product, including but not limited to sand, gravel, stone, clay, industrial minerals, composites or other mineral solids, except coal.

 

2)         "Aggregate Exploration" means the search for aggregate. Exploration includes, but is not limited to, geophysical exploration, excavating, dredging, and drilling to locate aggregate deposits.

 

3)         "Kits" means commercially-packaged sets of parts that are ordered from a manufacturer, inventoried and sold by a retailer as a single item.  An example would be a "tire assembly" comprised of the rim, tire, foam filling and valve stem.

 

4)         "Maintenance" means keeping aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation equipment in a state of repair and efficiency.

 

5)         "Mining" means the extraction of aggregate from the earth by underground and surface mining and includes the extraction of aggregate by the mine owner or operator.

 

6)         "Off Highway Hauling" means carrying or transporting and would include transport of overburden or waste material, including byproduct materials from the processing facility for disposal, transporting aggregates from the aggregate deposit to the processing facility by conveyors or unlicensed vehicles, and conveying aggregates from the beginning of the processing cycle through the last stage of aggregate production, which ends at the time the aggregate is ready for sale.

 

7)         "Processing" means preparation activities performed directly on the aggregate that are necessary for converting aggregate into a finished product so that it is ready for sale or the reprocessing of aggregate fines to extract and recycle construction aggregates by the mine owner, operator, or third party contractor or successor.  Processing includes, but is not limited to, sizing, crushing, drying and washing.

 

8)         "Reclamation" means conditioning areas affected by mining operations.  Examples of reclamation activities include, but are not limited to, backfilling, grading, seeding and planting.

 

9)         "Replacement Parts" means parts that are used to replace parts of qualifying equipment that require periodic replacement.  To be considered a replacement part, the part must be purchased for the purpose of being installed and must, in fact, become a physical component part of aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation equipment.

 

10)        "Used primarily" means that the equipment and replacement parts must be used more than 50% of the time in aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation.

 

c)         Exempt Activities.  By way of illustration and not limitation, the following activities will be considered to constitute aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation:

 

1)         Aggregate is produced in a surface mining operation that begins with locating the aggregate deposit to be mined, clearing of surface obstacles and overburden from the land above the aggregate deposit to be mined, continues with the removal of waste material and with the extraction of the aggregate, continues with the transportation from the aggregate deposit to the processing facility, continues further with the refilling and grading of the mined area with overburden and waste material, continues further with the processing of the aggregate, and ends with the stockpiling of the aggregate.  By way of illustration and not limitation, the following equipment is exempt:

 

A)        Geophysical surveying, excavating, dredging and drilling machinery and equipment used primarily to locate surface mine aggregate deposits (e.g., data logger transducer; photoionization detector; optical televiewer; acoustic televiewer; petrographic survey equipment; and inclinometer survey equipment).

 

B)        Equipment used primarily to remove overburden and other waste materials from the deposit to be mined.

 

C)        Equipment used primarily to drill and load holes for blasting material used to fracture aggregate for extraction; blasting agents used primarily for surface aggregate mine blasting, including, but not limited to, ammonium nitrate and fuel oil or ANFO; equipment used primarily to ignite blasting agents, including, but not limited to, high explosives, detonators, lead-in lines and blasting machines; and equipment used primarily to transport the blasting material.

 

D)        Equipment used primarily to modify the energy purchased for the surface mining process if the equipment is used to modify the energy for use on exempt equipment (e.g., transformers, capacitors and other equipment used to reduce, increase, stabilize or otherwise control the amperage, voltage or frequency of the electric current and transmit the electrical current to aggregate surface mining and processing equipment).

 

E)        Pumps, hoses, piping and discharge apparatus, used primarily in the movement or removal of water or to divert water from the active mine area.

 

F)         Equipment used primarily to load the overburden, waste material or aggregate to be transported to the processing facility into off highway haulage trucks or onto a conveyor system.

 

G)        Equipment used primarily to extract aggregate from the earth.

 

H)        Unlicensed off highway haulage trucks or a conveyor system used primarily to transport overburden, waste material or aggregate to the processing facility.

 

I)         Equipment used primarily to backfill, grade, seed, plant or otherwise reclaim previously mined land.

 

J)         Crushing, screening and other equipment used primarily to beneficiate and size aggregate products.

 

K)        Equipment used primarily in an aggregate wash plant to clean the aggregate prior to sale to customers.

 

L)        Equipment used primarily to blend different grades of aggregate together so that the final product meets customer specifications.

 

M)       Electrical cable that is part of an electrical distribution system supplying electricity to exempt equipment in the field (e.g., draglines and shovels that move and load overburden and shovels that load aggregate in the pit).

 

N)        Computers and electrical control panels integral to and used primarily to operate exempt equipment used primarily in aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation.

 

O)        Remote audio visual equipment integral to and used primarily in connection with exempt aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation.

 

P)         Electrical generators used primarily to power exempt aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation equipment.

 

Q)        Communication equipment integral to and used primarily in production and operation activities in connection with exempt aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation equipment.

 

2)         Aggregate is produced in an underground mining operation that begins with locating the aggregate deposit to be mined, creating access from the surface to the aggregate deposit to be mined, continues further with the installation of roof supports, continues with the removal of waste material and the extraction of aggregate, continues further with the transportation from the aggregate deposit to the processing facility, continues further with the processing of aggregate and disposal of waste material from the mine and processing facility, and ends with the stockpiling of aggregate.  By way of illustration and not limitation, the following equipment is exempt:

 

A)        Geophysical surveying, excavating, and drilling machinery and equipment used primarily to locate underground mine aggregate deposits (e.g., data logger transducer; photoionization detector; optical televiewer; acoustic televiewer; petrographic survey equipment; and inclinometer survey equipment). 

 

B)        Equipment used primarily to create access to the aggregate deposit (e.g., drills, equipment to deliver blasting agents, excavators, loaders and tunnel boring equipment) and equipment used primarily to load aggregate on to conveyor belts, trucks or other conveyances used primarily to transport aggregate from the deposit to the processing operation (e.g., loaders).

 

C)        Equipment used primarily to drill and load holes for blasting material used to fracture aggregate for extraction; blasting agents (such as ammonium nitrate and fuel oil or ANFO) used for underground aggregate mine blasting; equipment used primarily to ignite blasting agents, including, but not limited to, high explosives, detonators, lead-in lines and blasting machines; and equipment used primarily to transport the blasting material.

 

D)        Equipment, other than motor vehicles required to be registered pursuant to the Illinois Vehicle Code, used primarily to transport miners into and out of an underground mine (e.g., mantrips, utility vehicles, mobile equipment and scoops).

 

E)        Conveyor belts, trucks or other conveyances primarily used to transport aggregate from the deposit to the processing operation.

 

F)         The feeder and crusher used primarily to break large pieces of aggregate.

 

G)        Equipment used primarily to modify the energy purchased for the underground mining process if the equipment is used to modify the energy for use on exempt equipment (e.g., transformers, capacitors and other equipment used to reduce, increase, stabilize or otherwise control the amperage, voltage or frequency of the electric current and transmit the electrical current to aggregate underground mining and processing equipment).

 

H)        Pumps, hoses, piping and discharge apparatus, used primarily in the movement or removal of water or to divert water from the underground mine area.

 

I)         Equipment used primarily to install roof bolts, roof bolt supports and side rib bolt supports, and scaling prior to roof bolting, to prevent mine collapse.

 

J)         Roof bolts and plates, side rib bolts and plates, and epoxy resin cartridges used primarily to secure roof bolts and side rib bolts installed to prevent mine collapse.

 

K)        Equipment used primarily to coat mine walls with inert material for loose rock safety.

 

L)        Equipment installed as improvements to real estate for mining, such as elevators and rail, ventilating and illuminating systems, including the foundations for that equipment as long as those foundations are located within the underground mine.

 

M)       Additions to exempt underground rail conveyors and ventilating and illumination systems due to the progression of mining.

 

N)        Crushing, screening and other equipment used primarily to beneficiate and size aggregate products.

 

O)        Machinery and equipment used primarily to convey aggregates from the beginning of the processing cycle through the last stage of aggregate production, which ends at the time the aggregate is ready for sale.

 

P)         Equipment used primarily in an aggregate wash plant to clean the aggregate prior to sale to customers.

 

Q)        Equipment used primarily to blend different grades of aggregate together so that the final product meets customer specifications.

 

R)        Electrical cable that is part of an electrical distribution system supplying electricity to exempt equipment in the field (e.g., draglines and shovels that move and load overburden and shovels that move and load aggregate in the pit).

 

S)         Computers and electrical control panels integral to and used primarily to operate exempt equipment used in aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation.

 

T)         Remote audiovisual equipment integral to and used primarily in connection with exempt aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation.

 

U)        Electrical generators used primarily to power exempt aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation equipment.

 

V)        Communication equipment integral to and used primarily in production and operation activities in connection with exempt aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation equipment.

 

3)         By way of illustration and not limitation, the following maintenance equipment is exempt:

 

A)        Unlicensed maintenance and welding trucks used primarily for field repair of exempt equipment.

 

B)        Lathes, drill presses, air compressors and welders used primarily to build, modify or rework exempt repair parts or equipment.

 

C)        Mobile and overhead cranes and manlifts used primarily in connection with exempt aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation.

 

D)        Equipment used primarily for dust suppression.

 

E)        Equipment and machinery used primarily to clean areas around off-highway conveying and processing machinery and equipment.

 

4)         By way of illustration and not limitation, the following aggregate exploration equipment is exempt unless registered pursuant to the Illinois Vehicle Code:

 

A)        Drill rigs used primarily to drill exploration core holes.

 

B)        Water trucks used primarily in the drilling process.

 

C)        Winch and casing trucks used primarily in the drilling process.

 

D)        Field maintenance trucks used primarily to make repairs on exempt field equipment.

 

E)        Air compressors used primarily in connection with exempt aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation.

 

d)         Nonexempt Activities

By way of illustration and not limitation, the following activities will not be considered to constitute aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation:

 

1)         The use of equipment in the construction, reconstruction, alteration, remodeling, servicing, repairing, maintenance or improvement of real estate except for underground mine structures.  Material, such as lumber, steel, concrete, rock and other building materials, will not qualify for the exemption except when used in underground mine structures, such as roof supports to prevent mine collapse;

 

2)         the use of equipment in research and development for new uses of aggregate;

 

3)         the use of equipment, trailers, sheds or structures in management, sales or other nonproduction, nonoperational activities including production of extraction scheduling, purchasing, receiving, accounting, fiscal management, communications equipment (e.g., radios and phones), security, marketing, product exhibition and promotion, and personnel recruitment, selection or training;

 

4)         the use of equipment to prevent or fight fires or other mining hazards and protective supplies such as face masks, gas masks, helmets, gloves, coveralls, goggles, or first aid equipment and supplies, rescue chambers, self-rescuers, protective mine shelters or tracking devices (e.g., Global Positioning Systems or similar devices) even though such equipment and supplies may be required by law;

 

5)         the use of equipment for general ventilation, heating, cooling, climate control or general illumination not specifically required for the exploration, mining, off highway hauling, processing, maintenance and reclamation operation;

 

6)         the use of facilities for storing aggregate after extraction and processing;

 

7)         the use of front-end loaders, cranes, conveyors and equipment used primarily to load aggregate onto trucks, railcars or barges for delivery to customers;

 

8)         the use of concrete foundations and support structures for ventilation equipment used aboveground.

 

e)         Sales to Lessors of Aggregate Exploration, Mining, Off Highway Hauling, Processing, Maintenance and Reclamation Equipment

 

1)         For the exemption to apply, the purchaser need not, himself or herself, employ the equipment in aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation.  If the purchaser leases the equipment to a lessee who uses it primarily in a qualified manner, the sale to the purchaser-lessor will be eligible for the exemption.  A supplier may exclude those sales from taxable gross receipts if the purchaser-lessor provides the supplier with a properly completed certificate and the information contained in the certificate would support an exemption if the sale were made directly to the lessee.

 

2)         Should a purchaser-lessor subsequently lease the equipment to a lessee who does not use it primarily in a way that would qualify for the exemption, the purchaser-lessor will become liable for the tax that he or she previously did not pay.  The tax will be assessed upon the fair market value of the equipment at the time of conversion.

 

f)         Purchaser Certification

Certificates must be executed by the purchaser.  The certificate must include the seller's name and address, the purchaser's name and address and a statement that the property purchased will be used primarily for aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation.  If a purchaser can claim either the exemption under this Section or the Manufacturing Machinery and Equipment exemption, the purchaser must specify on the certificate which exemption the purchaser is claiming.  Manufacturer's Purchase Credit can only be earned on purchases of qualifying Manufacturing Machinery and Equipment (see 86 Ill. Adm. Code 130.330 and 130.331).  Purchasers claiming the exemption under this Section cannot earn Manufacturer's Purchase Credit.  Sellers may accept blanket certificates, but have the responsibility to obtain and keep all certificates as part of their books and records.  If a retailer accepts the certificate and the purchaser does not, in fact, use the equipment in a qualifying manner, the purchaser will be liable to the Department for the tax.  Equipment that is initially used primarily in a qualifying manner and, having been so used for less than one-half of its useful life, is converted to nonqualified uses, will become subject to tax at the time of conversion.  Replacement parts purchased initially for use in a qualifying manner and used in a nonqualifying use will become subject to tax at the time of use.

 

(Source:  Amended at 47 Ill. Reg. 6068, effective April 12, 2023)

SUBPART D: GROSS RECEIPTS

 

Section 130.401  Meaning of Gross Receipts

 

"Gross receipts" means all the consideration actually received by the seller, except traded-in tangible personal property.

 

a)         Filing Returns on Gross Sales Basis

Deferred payments made by purchasers are not required to be included in gross receipts until actually received by the seller. The preferred method of reporting receipts from sales is to report them when payment is actually received (i.e., gross receipts basis).  However, if a seller keeps his books on a gross sales basis, rather than on a gross receipts basis, and desires to file returns on a gross sales basis, he shall notify the Department, in writing, of his intention to change reporting methods.  When a seller makes this change, it should use the "wash-out" procedure to reduce reporting problems when receipts on account are received in a month subsequent to the month of sale when a reporting change basis has been made.

 

EXAMPLE:  Assume a seller wishes to make a change effective with the reporting month of August 1990.  Under the "wash-out" procedure, it should calculate the unpaid taxable accounts receivable on its books as of the end of the last business day (July 31, 1990) prior to the first of the month (August 1, 1990) change-over from the accrual to the receipts basis.  The taxpayer should then consider all taxable receipts on account to be receipts on which the tax has already been paid (on a sales basis prior to the change-over) until such time as those receipts equal the total of the taxable accounts receivable that it had previously calculated on July 31, 1990 (the day prior to the change-over).  Once that point is reached, all subsequent receipts, even those from sales prior to the change-over, should be reported as taxable receipts.

 

b)         Returned Merchandise and Cancellations

Any seller may deduct from his gross receipts any refunds made by him during the preceding return period to purchasers, on account of tangible personal property returned to the seller, in case the seller had theretofore included the receipts from the sale of such tangible personal property in a return made by him, and had paid the tax imposed by the Retailers' Occupation Tax Act with respect to such receipts.  However, if the seller collected the Use Tax on such a sale, he should refund such tax to his customer to whom he makes a refund of the selling price.  When the seller makes a charge for restocking or reshelving returned merchandise, the receipts retained by the seller to cover the restocking or reshelving fee are not considered taxable gross receipts.  When customers return merchandise, sellers should refund all of the sales tax to the customer, even though they will not be refunding all of the purchase price because of the restocking or reshelving policy.  Cancellation fees should be handled in the same manner.

 

c)         Reward Credits

Reward credits, sometimes referred to as hostess dollars, awarded to a host or hostess for sponsoring a party for friends at which sellers may show and solicit orders for their merchandise, and which are awarded based upon the amount of sales generated at the party, are included in gross receipts subject to tax when applied toward purchases of the seller's merchandise.  The value of the reward credit equals the dollar amount credited when the reward credit is applied.

 

d)         Membership Fees

Membership fees are not gross receipts from the sale of tangible personal property.  Membership fees are gross receipts received in exchange for an intangible.  For example, when membership fees "buy" purchasers the right to purchase products at wholesale, but are not applied to the purchase price of tangible personal property, they are not subject to sales tax.  However, when membership fees represent the sale of tangible personal property, they are subject to tax.  For example, if a country club charges a member $100 each month as a "minimum charge"  for food services at the club, but the member only consumes $75 worth of food in a particular month, tax is due on $75.

 

e)         Accounts Receivable Assigned to a Wholly Owned Subsidiary

With regard to receipts or other consideration received by a seller from the sale, transfer or assignment of accounts receivable to a wholly owned subsidiary, such receipts are not considered to be gross receipts subject to tax until the purchaser makes payment on such accounts.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.405  How to Avoid Paying Tax on State or Local Tax Passed on to the Purchaser

 

a)         "Gross receipts", on the basis of which Retailers' Occupation Tax liability must be computed, do not include charges which are added to prices on account of the seller's Illinois Retailers' Occupation Tax liability, or on account of the seller's liability for local Retailers' Occupation Taxes administered by the Department, or on account of the seller's duty to collect the tax imposed by the Use Tax Act.

 

b)         If a retailer does not keep a detailed record for the return period of the Use Tax which he collects so as clearly to segregate this added charge from other receipts, it will at least be assumed that the Use Tax collected equals the Retailers' Occupation Tax payable on such transactions if the retailer collects the Use Tax in accordance with the bracket schedule prescribed by the Department in Subpart D of the Use Tax Regulations (86 Ill. Adm. Code 150).

 

c)         The retailer may eliminate the amount of Use Tax which he collects from the total receipts which he receives from taxable sales in arriving at his taxable receipts from such sales by subtracting the amount so collected from the purchaser as Use Tax, as shown by such retailer's books and records.  He may also accomplish this result by subtracting, from the total receipts which he receives from taxable sales, the figure obtained by dividing such receipts by 1.0625 and multiplying the result by .0625.

 

d)         To the extent to which such sales are also taxable for Home Rule Municipal Retailers' Occupation Tax purposes, Home Rule County Retailers' Occupation Tax purposes or any other locally-imposed Retailers' Occupation Tax at a ¼ of 1% rate (with an amount equivalent to the Municipal Retailers' Occupation Tax or County Retailers' Occupation Tax being passed on to purchasers by the seller as a separate item from the selling price) and the formula is used for determining how much may be subtracted from the total receipts which the seller receives from taxable sales in arriving at the taxable gross receipts from such sales, the amount to be subtracted on this account will be determined by dividing such total receipts by 1.065 and multiplying the result by .065 ( 6.25% for the Use Tax and ¼% for the local Retailers' Occupation Tax.)

 

e)         To the extent to which such sales are also taxable for Home Rule Municipal Retailers' Occupation Tax purposes, Non-Home Rule Municipal Retailers' Occupation Tax purposes, Home Rule County Retailers' Occupation Tax purposes or any other locally-imposed Retailers' Occupation Tax at a ³/₄ of 1% rate (with an amount equivalent to the Municipal Retailers' Occupation Tax or County Retailers' Occupation Tax being passed on to purchasers by the seller as a separate item from the selling price) and the formula is used for determining how much may be subtracted from the total receipts which the seller receives from taxable sales in arriving at the taxable gross receipts from such sales, the amount to be subtracted on this account will be determined by dividing such total receipts by 1.07 and multiplying the result by .07 ( 6.25% for the Use Tax and ³/₄ of 1% for the local Retailers' Occupation Tax).

 

f)         To the extent to which such sales are also taxable for Home Rule Municipal Retailers' Occupation Tax purposes, Non-Home Rule Municipal Retailers' Occupation Tax purposes or Home Rule County Retailers' Occupation Tax purposes or any other locally-imposed Retailers' Occupation Tax at a 1% rate (with an amount equivalent to the Municipal Retailers' Occupation Tax or County Retailers' Occupation Tax being passed on to purchasers by the seller as a separate item from the selling price) and the formula is used for determining how much may be subtracted from the total receipts which the seller receives from such sales, the amount to be subtracted on this account will be determined by dividing such total receipts by 1.0725 and multiplying the result by .725 (6.25% for the Use Tax and 1% for the local Retailers' Occupation Tax).

 

g)         If the seller, in collecting such tax or its equivalent, does not state it to the purchaser as a separate item from the selling price in accordance with procedures described in Section 150.1305 of the Use Tax Regulations (86 Ill. Adm. Code 150.1305), the failure to state the tax separately will create a rebuttable presumption that the tax was not collected.  The seller will not be entitled to any deduction from total receipts because of having collected tax or its equivalent from the purchaser unless the seller can produce documentary evidence which shows that the tax or its equivalent was in fact collected..

 

(Source:  Amended at 15 Ill. Reg. 6621, effective April 17, 1991)

 

Section 130.410  Cost of Doing Business Not Deductible

 

In computing Retailers' Occupation Tax liability, no deductions shall be made by a taxpayer from gross receipts or selling prices on account of the cost of property sold, the cost of materials used, labor or service costs, idle time charges, incoming freight or transportation costs, overhead costs, processing charges, clerk hire or salesmen's commissions, interest paid by the seller, or any other expenses whatsoever.  Costs of doing business are an element of the retailer's gross receipts subject to tax even if separately stated on the bill to the customer.

 

a)         For example, a retailer may choose to accept payment from a customer through the use of a credit or debit card, and the retailer may not receive the full amount of payment due to the service charges or fees charged by the credit or debit card company.  These charges or fees are part of the retailer's cost of doing business and are not deductible from the gross receipts subject to tax.

 

b)         To determine whether outgoing shipping and handling charges are deductible from gross receipts that are subject to tax, see Section 130.415.

 

c)         Handling charges represent a retailer's cost of doing business, and are not deductible from the gross charges subject to tax.  However, such charges are often stated in combination with shipping charges.  In this case, charges designated as "shipping and handling", as well as delivery or transportation charges, are subject to tax as provided in Section 130.415.

 

(Source:  Amended at 40 Ill. Reg. 6130, effective April 1, 2016)

 

Section 130.415  Transportation and Delivery Charges

 

a)         Until November 19, 2009:

 

1)         Transportation and delivery charges are considered to be freight, express, mail, truck or other carrier, conveyance or delivery expenses. These charges are also many times designated as shipping and handling charges.

 

2)         The answer to the question of whether a seller, in computing his or her Retailers' Occupation Tax liability, may deduct, from his or her gross receipts from sales of tangible personal property at retail, amounts charged to customers on account of the seller's payment of transportation or delivery charges in order to secure delivery of the property to customers, or on account of the seller's incurrence of expense in making the delivery himself or herself, depends not upon the separate billing of transportation or delivery charges or expense, but upon whether the transportation or delivery charges are included in the selling price of the property that is sold or whether the seller and the buyer contract separately for transportation or delivery charges by not including those charges in the selling price.  In addition, charges for transportation and delivery must not exceed the costs of transportation or delivery.  If those charges do exceed the cost of delivery or transportation, the excess amount is subject to tax.

 

3)         If transportation or delivery charges are included in the selling price of the tangible personal property that is sold, the transportation or delivery expense is an element of cost to the seller within the meaning of Section 1 of the Retailers' Occupation Tax Act, and may not be deducted by the seller in computing Retailers' Occupation Tax liability.

 

4)         If the seller and the buyer agree upon the transportation or delivery charges separately from the selling price of the tangible personal property that is sold, the cost of the transportation or delivery service is not a part of the "selling price" of the tangible personal property sold, but instead is a service charge, separately contracted for, and need not be included in the figure upon which the seller computes Retailers' Occupation Tax liability.  Delivery charges are deemed to be agreed upon separately from the selling price of the tangible personal property being sold so long as the seller requires a separate charge for delivery and so long as the charges designated as transportation or delivery or shipping and handling are actually reflective of the costs of the shipping, transportation or delivery.  To the extent that delivery charges exceed the costs of shipping, transportation or delivery, the charges are subject to tax.  The best evidence that transportation or delivery charges were agreed to separately and apart from the selling price is a separate and distinct contract for transportation or delivery.  However, documentation that demonstrates that the purchaser had the option of taking delivery of the property at the seller's location, for the agreed purchase price, or having delivery made by the seller for the agreed purchase price plus an ascertained or ascertainable delivery charge, will suffice.

 

5)         Incoming Transportation Costs

Transportation or delivery charges paid by a seller in acquiring property for sale are merely costs of doing business to the seller and may not be deducted by that seller in computing Retailers' Occupation Tax liability, even though the seller passes those costs on to customers by quoting and billing those costs separately from the selling price of the tangible personal property that he or she sells.  The same is true of transportation or delivery charges paid by the seller in moving property to some point from which the property (when subsequently sold) will be delivered or shipped to the purchaser.

 

b)         On and after November 19, 2009:

 

1)         Outgoing Transportation and Delivery Charges (e.g., Shipping and Handling) 

 

A)        Applicability

 

i)          Effective Date – Safe Harbor.  Persons who have computed their tax liability for transportation and delivery charges according to the provisions of either subsection (a) or subsection (b) for periods between November 19, 2009 and April 1, 2016 shall be considered to have properly collected and remitted tax on those charges.

 

ii)         This Section applies equally to retailers making sales subject to Retailers' Occupation Tax, retailers required to collect Use Tax on sales to Illinois residents as a result of being a "retailer maintaining a place of business in this State" pursuant to Section 2 of the Use Tax Act, and to persons self-assessing Use Tax under Sections 9 and 10 of the Use Tax Act on purchases for which no tax was collected by a retailer.  This Section also applies to persons that have been issued a winery shipper's license under Section 5-1(r) of the Liquor Control Act of 1934.

 

iii)        Outgoing transportation and delivery charges are charges for the final transport or delivery of tangible personal property from the possession and control of the seller to the possession and control of the purchaser. Outgoing transportation and delivery charges include, but are not limited to, charges for freight, express, mail, truck or other carrier, conveyance or delivery expenses, and shipping and handling.

 

iv)        Costs incurred by the retailer in moving property to some point from which the property will be delivered or shipped to the customer, or picked up by the customer, are not outgoing transportation and delivery charges; they are part of the retailer's costs of doing business. Any amounts the retailer charges a customer for moving the property cannot be deducted from gross receipts from that sale.

 

B)        Taxability of Outgoing Transportation and Delivery

 

i)          Outgoing transportation and delivery charges are part of the gross receipts subject to Retailers' Occupation Tax when there is an inseparable link between the sale of tangible personal property and the outgoing transportation and delivery of the property. (See Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351(2009).)

 

ii)         An inseparable link exists when the transportation and delivery charges are not separately identified to the purchaser on the contract or invoice or when the transportation and delivery charges are separately identified to the purchaser on the contract or invoice, but the seller does not offer the purchaser the option to receive the tangible personal property in any manner except by the payment of transportation and delivery charges added to the selling price of the item (e.g., the seller does not offer the purchaser the option to pick up the tangible personal property or the seller does not offer, or the purchaser does not qualify for, a free transportation and delivery option). (See Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 367 (2009) (Does the purchaser have the option to purchase the tangible personal property for the stated selling price, with no added transportation and delivery charge, or must transportation and delivery charges always be added to the selling price of the item in order to obtain the item?).)

 

iii)        Except for cases in which an inseparable link exists as provided in subsection (b)(1)(B)(ii), outgoing transportation and delivery is considered a service separate and distinct from the sale of tangible personal property that is being transported or delivered and is excluded from the gross receipts subject to the Retailers' Occupation Tax.

 

C)        Safe Harbor.  If a seller of tangible personal property offers the purchaser free transportation and delivery of the property, qualified transportation and delivery of the property for which the purchaser qualifies, or the option to pick up the property, any separately identified transportation and delivery charges chosen by the purchaser (e.g., amounts paid for expedited transportation and delivery) will be nontaxable, as long as the selling price of the tangible personal property neither increases nor decreases depending on the method chosen by the purchaser to obtain the merchandise.  When the selling price of the tangible personal property increases or decreases, the transportation and delivery charges will be subject to Retailers' Occupation Tax to the extent those charges exceed the actual cost of outgoing transportation and delivery as described in subsection (b)(1)(A)(iii).

 

D)        EXAMPLES: 

 

i)          Internet Purchase by an Illinois Customer from a Retailer Who Also Has Brick-and-mortar Stores. A customer selects property from a retailer's website on the Internet, clicks the "add to shopping cart" button and proceeds to "check out". The online retailer adds the price of the items in the shopping cart, for a total price of $200. The online retailer then prompts the customer to click on the box corresponding to the method by which the customer prefers to obtain the merchandise (e.g., USPS or other common ground carrier for $12.99, two-day delivery for $18.50, Next Day Air for $33.50, or the option to pick up the property at the retailer's store). The customer clicks on the ground carrier box for delivery to the purchaser's home. The retailer then calculates the total price of the order ($200 + $12.99 = $212.99).  The cost of the property and the cost of shipping are separately identified on the invoice when the property is delivered. Because the delivery charge is separately identified on the purchaser's invoice, and the purchaser had the option to pick up the property rather than having it shipped, there is no inseparable link between the purchase of the property and the outgoing transportation and delivery charges. Therefore, the delivery is a service separate and distinct from the sale of the items and is not part of the retailer's gross receipts subject to the Retailers' Occupation Tax.  The taxable amount is $200.

 

ii)         Internet Purchase from Retailer without a Brick-and-mortar Store. Assume the same facts as the example in subsection (b)(1)(D)(i), except, because the retailer has no brick-and-mortar store, the customer is not given the option of picking up the item.  Because the tangible personal property could not be sold to the customer without including delivery, there is an inseparable link between the purchase and the delivery, and the charges for delivery are included in taxable gross receipts.  The taxable amount is $212.99.

 

iii)        Internet Purchase from Retailer with Out-of-state Pick Up Option. Assume the same facts as the example in subsection (b)(1)(D)(i). However, the retailer's only pick up location is in San Diego, California. Because the retailer offers an option to pick up the property, there is no inseparable link between the sale of tangible personal property and the delivery of that property. The transportation and delivery charges are not taxable. The taxable amount is $200.

 

iv)        Internet Purchase from Retailer Offering Unqualified Free Delivery.  Assume the same facts as the example in subsection (b)(1)(D)(i), except that no pick up option is available but the retailer offers free shipping.  Assume also that the customer elects to pay for Next Day Air delivery for $33.50.  Because the customer had the choice of obtaining the items without paying a delivery charge to the retailer (the free delivery option), there is no inseparable link between the sale of the tangible personal property and the delivery of that property.  The transportation and delivery charges are not taxable.  The taxable amount is $200.

 

v)         Internet Purchase from Retailer Offering Qualified Free Delivery.  Assume the same facts as the example in subsection (b)(1)(D)(i), except that no pick up option is available but the retailer offers free shipping on orders above $250.  Assume also that the customer elects to pay for Next Day Air delivery for $33.50.  Because the amount of the order ($200) did not qualify for the free shipping option, the customer did not have the choice of obtaining the items without paying a delivery charge to the retailer.  As a result, there is an inseparable link between the sale of the tangible personal property and the delivery of that property.  The transportation and delivery charges are taxable.  The taxable amount is $233.50.

 

vi)        Delivery Charges Need Not Reflect Actual Costs. Assume the same facts as the example in subsection (b)(1)(D)(i). However, the actual cost to ship the goods to the customer by ground carrier is $11. The transportation charge exceeds the actual cost of shipping. However, because the customer has an option to pick up the property and avoid the transportation cost, and because the price of the property is the same regardless of whether the customer picks up the property or has it delivered, the charges identified as transportation and delivery are nontaxable.  Therefore, the taxable amount is $200. 

 

vii)       Price Includes Delivery. A customer telephones a retailer who sells propane.  The retailer offers to sell propane to the customer for $2/pound if the retailer delivers the propane or $1/pound if the customer picks up the propane or arranges for the delivery with a third party.  If a customer chooses to have the retailer deliver the propane for $2/pound, the gross receipts for the delivered propane are $2/pound, and the retailer may not make any deductions for transportation and delivery.  There is an inseparable link between the purchase of the propane and its delivery because the retailer charges a single indivisible price. The taxable amount is $2/pound.

 

viii)      A Transportation Company Offers to Purchase Material from a Quarry and Sell It to a Customer for $15/Metric Ton, Including Delivery. The purchaser accepts the offer and orders three metric tons of gravel. The transportation company purchases three metric tons of gravel from a quarry for $10/metric ton and delivers it to the customer. The transportation company is a retailer responsible for the Retailers' Occupation Tax on the material it sells. Because it offered to sell and deliver gravel for a single indivisible price, there is an inseparable link between the sale and delivery of the tangible personal property. The taxable amount is $15/metric ton.

 

ix)        Delivery by a Retailer's Affiliated Business. A customer purchases $1,500 worth of furniture from a local furniture retailer. The retailer has no trucks of its own to make any deliveries. There is a delivery company affiliated with the furniture retailer that frequently delivers furniture to customers who make purchases from the furniture retailer. The furniture retailer offers to arrange for the delivery of the furniture through its affiliated company for an additional cost of $100, which is identified separately as the delivery cost of the affiliated company. In the alternative, the customer may arrange to pick up the furniture or to have it delivered at his or her own cost. Because the customer can pick up the furniture or separately arrange for its delivery by a company of his or her choosing, the delivery of the furniture is a service separate and apart from the sale of tangible personal property. The $100 delivery fee is not part of gross receipts and is not taxable. The taxable amount is $1,500.

 

x)         Assume the same facts as in the example in subsection (b)(1)(D)(ix), except that the retailer does not permit customers to pick up their purchases and requires that its affiliated delivery company makes all deliveries. When a retailer requires the customer to contract for shipping with a specific delivery company (or to choose one company among several with whom to contract), the retailer is deemed to be the provider of the shipping service.  Because the tangible personal property could not be sold to the customer without including delivery, there is an inseparable link between the sale and delivery of the tangible personal property, and the delivery charge is taxable.  The taxable amount is $1,600. 

 

E)        Mixed Transaction – Calculation of Tax on Purchase Containing Both Taxable Delivery Charges and Nontaxable Delivery Charges

 

i)          Itemized Delivery Charge.  Tax on delivery charges may be calculated for each separately listed item on an invoice if the invoice itemizes the delivery charge for the items.

 

EXAMPLE:

 

A customer orders a rug for $250, candlesticks for $50 and a tablecloth for $25 from an internet retailer.  In order to obtain the rug, the customer must have delivery made by the retailer ($20 for standard delivery and $40 for expedited delivery).  The customer chooses the $20 standard delivery.  The retailer offers free pick up at its local store for the candlesticks and tablecloth.  The customer, however, chooses to have them delivered for a $10 delivery charge.  The invoice separately lists the $20 delivery charge for the rug and the $10 delivery charge for the candlesticks and tablecloth.  The $20 delivery charge for the rug is taxable because there is an inseparable link between the purchase of the rug and the $20 delivery charge (the purchase of the rug cannot occur without payment of the $20 delivery charge).  In contrast, the $10 delivery charge for the candlesticks and tablecloth is not taxable since no inseparable link exists between the sale of these items and the delivery charge (the customer had the choice of picking up these items).  The taxable amount is $345 (a selling price of $270 for the rug comprised of $250 for the rug plus a delivery charge of $20; and a selling price of $75 for the candlesticks and tablecloth).

 

ii)         Lump Sum Invoice.  When an invoice contains a lump sum delivery charge for separately listed items, the lump sum delivery charge will not be taxable if the selling price of the items for which delivery is nontaxable is greater than the selling price of the items for which delivery is taxable.

 

EXAMPLE:

 

Assume the same facts as in the example in subsection (b)(1)(E)(i), except that the invoice contains a lump sum delivery charge of $30.  Since the selling price of the items for which delivery is nontaxable ($75 for the candlesticks and tablecloth) is not greater than the selling price of the items for which delivery is taxable ($250 for the rug), the entire delivery charge is taxable.  The taxable amount is $355 ($250 for the rug, $75 for the candlesticks and tablecloth, and a $30 delivery charge).

 

F)         Taxable Shipping: Exemptions and Rates.  If a retailer has determined that the delivery charges are part of its gross receipts, then the retailer must determine if any exemptions apply and, if not, determine the appropriate tax rate for that transaction by utilizing either the method established in subsection (b)(1)(F)(i) or one of the applicable methods established in subsections (b)(1)(F)(ii) through (vi).

 

i)          The tax rate on delivery charges may be calculated for each separately listed item on an invoice if the invoice itemizes the delivery charge for each of the items.  Using this method, the tax rate for delivery charges could be separately calculated at the high rate on high rate items, the low rate on low rate items and as exempt on items that are tax exempt.  If this method is not chosen, one of the applicable methods outlined in subsections (b)(1)(F)(ii) through (vi) must be utilized.

 

EXAMPLE:

 

A customer orders insulin testing equipment for $25, artificial sweetener for $10, hand lotion for $15 and shampoo for $10 from an internet retailer.  The customer cannot purchase the items without choosing a delivery option by the retailer.  The invoice separately lists each item and an associated delivery charge of $2.  In this case, tax is applied at the low 1% rate to $39 ($25 for the insulin testing equipment plus a $2 delivery charge; $10 for the artifical sweetner plus a $2 delivery charge).  Tax is applied at the high rate to $29 ($15 for the hand lotion plus a $2 delivery charge; $10 for the shampoo plus a $2 delivery charge).

 

ii)         Exempt Tangible Personal Property. If the retailer determines that either the purchaser or all of the tangible personal property being sold is tax exempt, the entire gross receipts from the sale are not taxable, including the delivery charge.

 

EXAMPLE:

 

A church with an active exemption identification number purchases new choir robes for $600. The retailer charges the church $20 to deliver the robes. All amounts the retailer charges the church, including for delivery, are not taxable because the sale to the church was a tax-exempt sale.

 

iii)        Exempt Tangible Personal Property with Taxable Tangible Personal Property. If a retailer makes a sale of multiple items of tangible personal property, some of which are exempt and some of which are taxable, the outgoing transportation or delivery charges are exempt if the total selling price of the exempt tangible personal property is greater than the selling price of the taxable tangible personal property.

 

EXAMPLE:

 

A customer places an order for subscriptions to 3 magazines for a total of $36 and purchases 2 children's books for a total of $12 through an online retailer. The retailer charges $4 for shipping and handling. The magazines qualify for the newsprint and ink exemption, but the books do not. As a result, the selling price of the exempt tangible personal property ($36) is greater than the selling price of the taxable tangible personal property ($12). The shipping and handling charges ($4) are exempt.

 

iv)        Delivery of Tangible Personal Property Taxed Entirely at the Low Rate of Tax or Entirely at the High Rate of Tax. If a retailer makes a sale of multiple items of tangible personal property that are either all taxable at the high rate of tax or all taxable at the low rate of tax, it must apply that rate to all the gross receipts from the sale, including delivery charges.

 

EXAMPLE:

 

A customer purchases a wheelchair online for $500. The retailer charges $40 for delivery. The $40 delivery charge is taxed at the low rate of tax.

 

v)         Delivery of Multiple Items of Tangible Personal Property, Some of Which are Taxed at the High Rate and Some of Which are Taxed at the Low Rate. In order to qualify for the low rate, the selling price of the tangible personal property that is taxed at the low rate must be greater than the total selling price of the tangible personal property that is taxed at the high rate.

 

EXAMPLE:

 

A customer orders crackers, cheese and fruit for $200 and 6 bottles of wine at $75 per bottle ($450). The retailer charges the customer $20 for delivery. The retailer's outgoing transportation and delivery charges are part of the retailer's costs of doing business and may not be deducted from its gross receipts from that sale. The transportation and delivery charges are taxable at the high rate of tax because the total selling price for tangible personal property taxed at the high rate ($450) is greater than the total selling price for the tangible personal property taxed at the low rate ($200).

 

vi)        Delivery of Multiple Items of Tangible Personal Property, Some of Which are Taxed at the High Rate, Some of Which are Taxed at the Low Rate, and Some of Which are Exempt. The outgoing transportation or delivery charges are exempt if the total selling price of the exempt tangible personal property is greater than the selling price of the taxable tangible personal property. If the total selling price of the exempt tangible personal property is not greater than the selling price of the taxable tangible personal property, the transportation and delivery charges will qualify for the low rate if the total selling price of the tangible personal property that is taxed at the low rate is greater than the total selling price of the tangible personal property that is taxed at the high rate.

 

2)         Incoming Transportation and Delivery Costs 

 

A)        Applicability.  Incoming transportation and delivery costs are costs incurred by a retailer in acquiring tangible personal property for sale or moving tangible personal property from one location to another location, up to and including transportation to a point from which the property will be delivered or shipped to the customer, or picked up by the customer.

 

B)        General Rule.  Incoming transportation and delivery costs are a business expense to the retailer and may not be deducted from the gross receipts from sales of tangible personal property at retail, even though the retailer may pass those costs on to its customers by quoting and billing those costs separately from the price of the tangible personal property sold. 

 

C)        EXAMPLES:

 

i)          A customer purchases $25 worth of books on the internet. The retailer is advertising a $10 transportation and delivery charge special on orders over $20 or a $1 transportation and delivery charge special on orders shipped to its brick-and-mortar store for in-store pick up by the customer. The customer chooses the in-store pickup option. The incoming transportation and delivery costs incurred by the retailer for the customer's order shipped to its brick-and-mortar store for in-store pickup are part of the retailer's costs of doing business. Any amounts the retailer charges the customer for shipping the books to its brick-and-mortar store are part of the retailer's gross receipts from that sale and cannot be deducted. The taxable amount on the sale of the books to the customer is $26.  

 

ii)         A customer goes to an appliance store (Store A) to purchase an oven for $300.  The store only has the display model at that location, but there are several in stock at a second store at another store location (Store B).  The retailer offers to have Store B ship the oven to Store A for $25, and the customer accepts. Any transportation costs to move the merchandise from Store B to Store A are part of the retailer's costs of doing business, and any amounts the retailer charges the customer for moving that merchandise cannot be deducted from the retailer's gross receipts from that sale. The taxable amount on the sale of the appliance is $325.

 

(Source:  Amended at 40 Ill. Reg. 6130, effective April 1, 2016)

 

Section 130.420  Finance or Interest Charges – Penalties – Discounts

 

a)         Finance and Interest Charges

Where any tangible personal property is sold under installment contracts, the interest or finance charges on account of credit so extended are not considered to be a part of the "selling price" in computing Retailers' Occupation Tax liability.  The books and records of retailers must clearly reflect such finance or interest charges.  In the absence of adequate records showing what such charges actually are, the Department will presume that such charges are not in excess of like charges which are customarily made in the trade in connection with similar installment sales.

 

b)         Penalties

If a "penalty" is added to the base retail price in the event that the purchaser does not pay such price within a specified time and such penalty is paid to the seller, such "penalty" becomes a part of the taxable receipts from the sale.

 

c)         Discounts

If a discount is allowed for payment in cash within a stated time, any amounts realized by sellers through failure of purchasers to take advantage of such discounts will be considered to be a part of the taxable receipts from the sale.  Conversely, if the seller allows the purchaser a discount from the selling price (such as a discount for prompt payment) and the purchaser avails himself of the discount so that the seller does not receive any receipts from that source, the amount of such discount is not subject to tax.

 

(Source:  Amended at 5 Ill. Reg. 12794, effective November 2, 1981)

 

Section 130.425  Traded-In Property

 

a)         "Gross receipts" means the "selling price" or "amount of sale". "Selling price" or the "amount of sale" means the consideration for a sale valued in money, whether received in money or otherwise, including cash, credits, property other than as hereinafter provided, and services, but, prior to January 1, 2020 and beginning again on January 1, 2022, not including the value of or credit given for traded-in tangible personal property when the item that is traded-in is of like kind and character as that which is being sold; beginning January 1, 2020 and until January 1, 2022, "selling price" includes the portion of the value of, or credit given for, traded-in motor vehicles of the first division, as defined in Section 1-146 of the Illinois Vehicle Code, of like kind and character as that which is being sold that exceeds $10,000. "Selling price" shall be determined without any deduction on account of the cost of the property sold, the cost of materials used, labor or service cost or any other expense whatsoever.  "Selling price" does not include charges that are added to prices by sellers on account of the seller's tax liability under the Retailers' Occupation Tax Act, or on account of the seller's duty to collect, from the purchaser, the tax that is imposed by the Use Tax Act, or, except as otherwise provided with respect to any cigarette tax imposed by a home rule unit, on account of the seller's tax liability under any local occupation tax administered by the Department, or, except as otherwise provided with respect to any cigarette tax imposed by a home rule unit, on account of the seller's duty to collect, from the purchasers, the tax that is imposed under any local use tax administered by the Department.  [35 ILCS 120/1]  Local occupation and use taxes administered by the Department include, but are not limited to, the Home Rule Municipal Retailers' Occupation Tax Act [65 ILCS 5/8-11-1], the Non-Home Rule Municipal Retailers' Occupation Tax Act [65 ILCS 5/8-11-1.3], the Home Rule County Retailers' Occupation Tax Act [55 ILCS 5/5-1006], Section 4 of the Water Commission Act of 1985 [70 ILCS 3720/4], Section 5.01 of the Local Mass Transit District Act [70 ILCS 3610/5.01]. Section 4.03 of the Regional Transportation Authority Act [70 ILCS 3615/4.03], the Special County Retailers' Occupation Tax for Public Safety, Public Facilities, Mental Health, Substance Abuse, or Transportation Law [55 ILCS 5/5-1006.5(a)], the County School Facility and Resources Occupation Tax Law [55 ILCS 5/5-1006.7(a)], the County Cannabis Retailers' Occupation Tax Law [55 ILCS 5/5-1006.8], the Municipal Cannabis Retailers' Occupation Tax Law [65 ILCS 5/8-11-23], the County Motor Fuel Tax Law [55 ILCS 5/5-1035.1], and the Municipal Motor Fuel Tax Law [65 ILCS 5/8-11-2.3].

 

b)         The phrase "like kind and character" includes, but is not limited to, the trading of any kind of motor vehicle on the purchase of any kind of motor vehicle, or the trading of any kind of farm implement on the purchase of any kind of farm implement, while not including a kind of item which, if sold at retail by that retailer, would be exempt from Retailers' Occupation Tax and Use Tax as an isolated or occasional sale.

 

c)         A motor vehicle traded to a farm implement dealer for a farm implement would not qualify for the exemption unless such farm implement dealer is also a motor vehicle dealer because the farm implement dealer's sale of the motor vehicle would be exempt as an isolated or occasional sale.  A farm implement traded to a motor vehicle dealer for a motor vehicle would not qualify for the exemption unless such dealer is also a farm implement dealer because the motor vehicle dealer's sale of the farm implement would be an exempt isolated or occasional sale.  A farm implement traded for a motor vehicle, or a motor vehicle traded for a farm implement, would qualify for the exemption if the seller is engaged in business both as a motor vehicle dealer and a farm implement dealer.  Agricultural produce or animals traded for a motor vehicle or for a farm implement would not qualify for the exemption.

 

d)         The real test is whether the retail sale of the traded-in tangible personal property by the person who accepts it in trade would be subject to Retailers' Occupation Tax, or whether such sale would be exempt as an isolated or occasional sale (see Section 130.110).  In the former event, the tangible personal property qualifies for the trade-in exemption.  In the latter event, it does not.

 

e)         The value of tangible personal property taken by a seller in trade as all or a part of the consideration for a sale, where the item that is traded-in is of like kind and character as that which is being sold, shall not be considered to be "gross receipts" subject to the Retailers' Occupation Tax and need not be included in the seller's return, or may be deducted in the return from gross receipts if included in gross receipts as reported in the return.  The value of traded-in real estate or intangible personal property is not deductible from gross receipts in computing Retailers' Occupation Tax liability.

 

f)         The Retailers' Occupation Tax applies to the business of selling tangible personal property at retail in this State whether such property is new or used and regardless of how the seller may have acquired such property (i.e., by way of purchase, as a trade-in or in some other manner).

 

g)         No trade-in credit may be taken for amounts representing the proceeds due or paid under an insurance contract if title to missing, damaged or destroyed property is transferred to an insurer by operation of law or contract, i.e., the insurance claim value of property may not be used as a trade-in credit when an insured purchases tangible personal property to replace property which has been lost or destroyed.

 

h)         No trade-in credit may be taken for that portion of the purchase price of a new automobile representing a settlement which the purchaser has obtained from an automobile manufacturer pursuant to the New Vehicle Buyer Protection Act [815 ILCS 380].

 

i)          When tangible personal property is sold that is covered by a "core charge," the full retail selling price of such property, including the core charge, is subject to Retailers' Occupation Tax.  The fact that a component of the gross receipts from the sale of the tangible personal property is labeled a "core charge" does not change the taxable nature of the transaction.  A core charge is regarded as a predetermined trade-in value.  Tax should be charged on the core charge, but a deduction may be taken for the traded-in tangible personal property actually received after the date of sale if books and records clearly relate the trade-in to the sales transaction.  Such a situation would occur when the replacement property is purchased prior to the time the used property is returned.  If, on the other hand, the used property is traded in at the time of purchase, tax is due on the purchase price, less the allowance for the trade-in.

 

j)          Traded-in first division motor vehicles during the period beginning January 1, 2020 and until January 1, 2022.  Beginning January 1, 2020 and until January 1, 2022, the trade-in credit may not be taken for that portion of the value of, or credit given for, a traded-in motor vehicle of the first division, as defined in Section 1-146 of the Illinois Vehicle Code, of like kind and character as that which is being sold that exceeds $10,000. (Section 1 of the Act) This means that, during the period beginning January 1, 2020 and until January 1, 2022, $10,000 is the maximum credit a retailer may take on the return to reduce the taxable selling price of a motor vehicle when he or she accepts the trade-in of a first division motor vehicle in the transaction, regardless of the value of, or credit given for, the trade-in.  This does not prohibit the retailer from reducing the price of the vehicle being sold by the value of, or credit given for, the traded-in motor vehicle.  It only limits the credit the retailer may take on the return for that trade-in.

 

1)         Definitions.  For purposes of this subsection (j):

 

"Devices requiring a certificate of title under Section 3-101(d) of the Illinois Vehicle Code" means all-terrain vehicles and off-highway motorcycles purchased on or after January 1, 1998. [625 ILCS 5/3-101(d)]

 

"Motor vehicle" means every vehicle that is self-propelled and every vehicle that is propelled by electric power obtained from overhead trolley wires, but not operated upon rails, except for vehicles moved solely by human power, motorized wheelchairs, low-speed electric bicycles, and low-speed gas bicycles.  Motor vehicles are divided into two divisions:  first division and second division. [625 ILCS 5/1-146]

 

"First division motor vehicle" means a motor vehicle that is designed for the carrying of not more than 10 persons. [625 ILCS 5/1-146]

 

"Second division motor vehicle" means:

 

a motor vehicle designed for carrying more than 10 persons;

 

a motor vehicle designed or used for living quarters;

 

a motor vehicle designed for pulling or carrying freight, cargo, or implements of husbandry; and

 

a motor vehicle of the first division remodeled for use and used as a motor vehicle of the second division. [625 ILCS 5/1-146]

 

"Vehicle" means every device:

 

in, upon, or by which any person or property is or may be transported or drawn upon a highway; or

 

requiring a certificate of title under Section 3-101(d) of the Illinois Vehicle Code. 

 

However, "vehicle" does not include junk vehicles, devices otherwise prescribed in the Illinois Vehicle Code, devices moved by human power, devices used exclusively upon stationary rails or tracks, or snowmobiles as defined in the Snowmobile Registration and Safety Act [625 ILCS 40]. [625 ILCS 5/1-217]

 

2)         Items That Are First Division Motor Vehicles.  Beginning January 1, 2020 and until January 1, 2022, traded-in first division motor vehicles are subject to the $10,000 limit on the trade-in credit.  First division motor vehicles generally consist of most standard passenger cars.  This includes most sport utility vehicles (SUVs) that are enclosed and designed primarily for passengers, regardless of whether the SUV is registered as a passenger vehicle, registered as a Class B vehicle under Section 3-815 of the Illinois Vehicle Code, or registered in some other way.  In addition, devices requiring a certificate of title, such as all-terrain vehicles (ATVs) and off-highway motorcycles are first division motor vehicles.  To aid in the determination of whether a traded-in motor vehicle is a first division motor vehicle, the following is a non-exhaustive list of first division motor vehicles:

 

A)        Motor vehicles designed for carrying not more than 10 persons.  This category includes motor vehicles designed as passenger vehicles, but whose seats have been removed, such as a minivan with the seats removed.  This is in contrast to a motor vehicle that is designed for pulling or carrying property, freight, or cargo, such as a panel van, which is a second division motor vehicle.

 

B)        SUVs designed for carrying not more than 10 persons.

 

C)        Motorcycles, both on-road and off-road.

 

D)        ATVs.

 

3)         Items That Are Second Division Motor Vehicles.  Second division motor vehicles that are traded in are not subject to the $10,000 limit on the trade-in credit.  Second division motor vehicles generally include open-bed vehicles (such as pickup trucks) and enclosed vehicles designed to carry cargo (such as panel vans).  To aid in the determination of whether a traded-in motor vehicle is a second division motor vehicle, the following is a non-exhaustive list of second division motor vehicles:

 

A)        Motor vehicles designed for carrying more than 10 persons, including limousines, SUVs, transport vehicles, and any other passenger vehicle designed for carrying more than 10 passengers.

 

B)        Motor vehicles designed or used for living quarters, such as RVs (recreational vehicles).

 

C)        Motor vehicles designed for pulling or carrying property, freight, or cargo.  This category includes open-bed vehicles, including, but not limited to, pickup trucks (even if the bed has been covered by a top of any kind) and side by side vehicles, also known as UTVs (utility vehicles), ROVs (recreational off-highway vehicles), and MOHUVs (multi-purpose off-highway utility vehicles), if they have an open bed (even if the bed has been covered by a top of any kind) or are otherwise designed for carrying property, freight, or cargo. This category also includes enclosed vehicles typically used commercially, such as panel vans or cargo vans.

 

D)        School buses, including vehicles of the first division used and registered as school buses.

 

E)        Ambulances, medical carriers, and hearses.

 

4)         Beginning January 1, 2020 and until January 1, 2022, sales to purchasers from non-reciprocal states are subject to the $10,000 trade-in credit limit.  The $10,000 limit on the credit allowed for traded-in first division motor vehicles applies regardless of whether the purchaser is an Illinois resident, unless the purchaser can claim the non-resident purchaser exemption as a resident of a reciprocal state found under 35 ILCS 120/2-5(25).  Under 35 ILCS 120/2-5(25-5) residents of states other than Illinois may not claim the nonresident purchaser exemption on purchases of motor vehicles or trailers in Illinois that will be titled in a state that does not give Illinois residents a nonresident purchaser exemption on their purchases in that state of motor vehicles or trailers that will be titled in Illinois (i.e., the other state offers no reciprocal exemption to Illinois residents).  These states are referred to as non-reciprocal states.  The $10,000 trade-in credit limit applies in sales to nonresident purchasers from nonreciprocal states.  See ST-58, Reciprocal – Non-Reciprocal Vehicle Tax Rate Chart, to determine whether another state is non-reciprocal with Illinois.  Note, however, that motor vehicles leased to nonresidents using drive-away permits or transferring out-of-state vehicle registration plates will be exempt, regardless of the purchaser's state of residence.  Therefore, the trade-in credit limit does not impact these transactions.

 

5)         Examples.  The following examples illustrate the $10,000 limit on the trade-in credit allowed beginning January 1, 2020 and until January 1, 2022.

 

EXAMPLE 1

 

A motor vehicle retailer sells a new car for $40,000 and allows $30,000 for the trade-in of a sport utility vehicle that seats 8 passengers.  Since a sport utility vehicle that seats 8 passengers is a first division motor vehicle, the credit that the retailer may take on the return for the traded-in sport utility vehicle is $10,000.

 

EXAMPLE 2

 

A motor vehicle retailer sells a new car for $40,000 and allows $30,000 for the trade-in of a pickup truck.  Since a pickup truck is a second division motor vehicle, the credit that the retailer may take on the return for the traded-in pickup truck is $30,000.

 

EXAMPLE 3

 

A motor vehicle retailer sells a new motorcycle for $30,000 and allows $20,000 for the trade-in of a motorcycle.  Since a motorcycle is a first division motor vehicle, the credit that the retailer may take on the return for the traded-in motorcycle is $10,000.

 

EXAMPLE 4

 

A motor vehicle retailer sells a new limousine for $60,000 and allows $30,000 for the trade-in of a limousine that seats 10 passengers.  Since a limousine that seats 10 passengers or less is a first division motor vehicle, the credit that the retailer may take on the return for the traded-in limousine is $10,000.

 

EXAMPLE 5

 

A motor vehicle retailer sells a new limousine for $60,000 and allows $30,000 for the trade-in of a limousine that seats 11 passengers.  Since a limousine that seats 11 passengers or more is a second division motor vehicle, the credit that the retailer may take on the return for the traded-in limousine is $30,000.

 

(Source:  Amended at 46 Ill. Reg. 18120, effective October 25, 2022)

 

Section 130.430  Deposit or Prepayment on Purchase Price

 

a)         If a buyer in a sale at retail makes a binding commitment to purchase, and the tangible personal property which is the subject of the binding commitment has been identified to the contract, any payment on the purchase price must, at the time of such payment, be included in the measure of the seller's tax liability.  Tangible personal property is identified to a contract pursuant to the standards set forth in Section 2-501 of the Uniform Commercial Code Sales (Ill. Rev. Stat. 1989, ch. 26, par. 2-501).  The giving of the binding purchase order by the purchaser, identification of the tangible personal property and the making of a payment on the price are sufficient to establish that a sale is intended for the purpose of determining that the seller has received taxable "gross receipts".

 

b)         After the seller has paid Retailers' Occupation Tax on the amount of such payment on the price, if the transaction is rescinded and the seller refunds such payment to the purchaser, the seller is in the same position as when he makes a refund on account of the return of merchandise after having paid Retailers' Occupation Tax on the amount so refunded and so may take a deduction on his return for the return period in which such a refund is made.

 

(Source:  Amended at 15 Ill. Reg. 6621, effective April 17, 1991)

 

Section 130.435  State and Local Taxes Other Than Retailers' Occupation Tax

 

a)         Illinois Motor Fuel Tax and Cigarette Tax

 

1)         In calculating taxable receipts, sellers of motor fuel for use or consumption may deduct the Illinois Motor Fuel Tax collected by such sellers with respect to such sales, because the Illinois Motor Fuel Tax is on the consumer and is not considered to be a part of the "selling price" of the motor fuel.

 

2)         The amount of the retail selling price of cigarettes represented by the Cigarette Tax or Cigarette Use Tax may not be deducted from the seller's gross receipts from the sale in computing Retailers' Occupation Tax liability.

 

b)         Illinois and Cook County Liquor Gallonage Taxes

No amounts shall be deducted from gross receipts on account of the taxes imposed by The Liquor Control Act of 1934 in computing Retailers' Occupation Tax liability on retail sales of alcoholic beverages. That is true because the legal incidence of these taxes is on the manufacturer or importing distributor and not on the consumer.  The retailer does not act, in any legal sense, as a collector of these taxes even though he shifts the economic burden of them to the consumer.  Since the legal incidence of the Cook County Liquor Gallonage Tax is on the consumer, with the seller acting merely as a collector of the tax for the county, amounts collected because of the Cook County Liquor Tax are not considered to be a part of the liquor retailer's receipts that are subject to Retailers' Occupation Tax.

 

c)         Underground Storage Tank Tax, Environmental Impact Fee, and County Motor Fuel Taxes

The Underground Storage Tank Tax imposed under Section 2a of the Motor Fuel Tax Law and the Environmental Impact Fee imposed under the Environmental Impact Fee Law are includable in gross receipts subject to Retailers' Occupation Tax because such taxes are imposed upon receivers of fuel and not upon consumers.  In addition, County Motor Fuel Taxes imposed under the County Motor Fuel Tax Law are includable in gross receipts subject to Retailers' Occupation Tax because such taxes are imposed upon retailers of motor fuel and not upon consumers.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.440  Penalties

 

The retailer should not collect tax on amounts as to which he is acting merely as a tax collector, such as the Cook County Liquor Gallonage Tax, the Illinois Motor Fuel Tax Act (Ill. Rev. Stat. 1989, ch. 120, par. 417 et seq.) and 86 Ill. Adm. Code 500.  If the retailer does erroneously collect tax on any such amounts, he must refund the erroneously collected tax to the purchaser or else remit such erroneously collected tax to the Department.  He may not retain it.  Also, if the retailer knowingly collects tax from customers on receipts which are not subject to Retailers' Occupation Tax, he can be subjected to prosecution for a criminal violation.

 

(Source:  Amended at 15 Ill. Reg. 6621, effective April 17, 1991)

 

Section 130.445  Federal Taxes

 

a)         When Deductible

 

1)         In computing retailers' occupation tax liability, a person making such computation may deduct an amount equivalent to taxes which the person pays to the Federal Government if the person is required by the Federal law to collect such taxes from customers and to remit such taxes directly to the Federal Government.

 

2)         Also, in computing retailers' occupation tax liability, a person making such computation may deduct an amount equivalent to Federal excise tax which the person pays directly to the Federal Government if such Federal tax is an excise tax imposed upon tangible personal property when sold at retail as distinguished from tangible personal property sold by a wholesaler, an importer, a manufacturer or other producer.  Such taxes include the Federal taxes upon luxury passenger vehicles and special fuels.  These taxes also include the taxes imposed by Section 4051 of the Internal Revenue Code (26 U.S.C. 405) upon the first retail sale of automobile truck chassis and bodies for use with a vehicle that has a gross vehicle weight of more than 33,000 pounds; truck trailer and semitrailer chassis and bodies suitable for use on a trailer or semitrailer that has a gross vehicle weight of more than 26,000 pounds, and tractors regardless of weight of the kind chiefly used for highway transportation in combination with a trailer or semitrailer.

 

b)         When Not Deductible

 

1)         Federal excise taxes imposed upon the manufacture or production of tangible personal property, and Federal processing taxes, compensating taxes, importation taxes and taxes on floor stocks are not deductible, in computing retailers' occupation tax liability, from the gross receipts of persons who sell such tangible personal property at retail.  Such taxes include the Federal taxes upon manufacturers of tobacco products and alcoholic liquors.

 

2)         Also, Federal taxes which are imposed on tangible personal property when sold by a wholesaler, an importer, a manufacturer or other producer (such as the Federal taxes on gasoline, diesel, tires or other tangible personal property when sold by a wholesaler, an importer, a manufacturer or other producer), are not deductible from gross receipts by anyone in computing retailers' occupation tax liability.

 

3)         The taxes referred to under this subheading ("When Not Deductible") are merely costs of doing business to the person who pays such taxes or to persons to whom the economic burden of such taxes may be shifted by those who pay such taxes to the Federal Government.

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.450  Installation, Alteration and Special Service Charges

 

a)         When Taxable

Where the seller engages in the business of selling tangible personal property at retail, and such tangible personal property is installed or altered for the purchaser by the seller (or some other special service is performed for the purchaser by the seller with respect to such property), the gross receipts of the seller on account of his charges for such installation, alteration or other special service must be included in the receipts by which his Retailers' Occupation Tax liability is measured, if such installation, alteration or other special service charges are included in the selling price of the tangible personal property which is sold.  This is true whether the charge for the property which is sold and the charge for installation, alteration or other special services are billed by the seller to his customers as separate items (except when the purchaser signs an itemized invoice so as to make it a contract reflecting the intention of both the seller and the purchaser), or whether both items are included in a single billed price.

 

b)         When Not Taxable

On the other hand, where the seller and the buyer agree upon the installation, alteration or other special service charges separately from the selling price of the tangible personal property which is sold, then the receipts from the installation, alteration or other special service charge are not a part of the "selling price" of the tangible personal property which is sold, but instead such charge is a service charge, separately contracted for, and need not be included in the figure upon which the seller computes his Retailers' Occupation Tax liability.

 

c)         Cross Reference to Retailers' Occupation Tax Section 130.1940

For information concerning installations by real estate developers and construction contractors, see Section 130.1940 of this Part.

 

(Source:  Amended at 5 Ill. Reg. 12794, effective November 2, 1981)

 

Section 130.455  Motor Vehicle Leasing and Trade-In Allowances

 

a)         Definitions

 

"Advance Trade Credit" means a trade-in credit earned as the result of the trade-in of a vehicle on the future purchase of a vehicle where the purchaser is contractually obligated to make a purchase within 9 months after the advance trade.

 

"Dealer" means any person engaged in the business of selling vehicles at retail.

 

"Dealer Credit" means an advance trade credit maintained on the books of the dealer where the purchaser is contractually obligated to make a purchase within 9 months after the advance trade.

 

"Lease" means a true lease of a vehicle for a term of more than one year.

 

"Lessee" means any person that acquires possession of a vehicle pursuant to a lease.

 

"Lessor" means any person engaged in the business of leasing vehicles to other persons.

 

"Purchaser" means any person, whether an individual consumer or a lessor, that purchases a vehicle from a dealer.

 

b)         Valuation of Traded-in Vehicles

 

1)         The selling price of a vehicle does not include the value of or credit given for traded-in tangible personal property where the item that is traded-in is of like kind and character as that which is being sold.  The value of a traded-in vehicle is the amount of value assigned to the vehicle without regard for outstanding debt owed on the traded-in vehicle by any party. (Section 1 of the Act)

 

2)         The amount of credit given for a traded-in vehicle is the value assigned to the vehicle, reduced by any cash payments received by the purchaser or title holder of the traded-in vehicle.  The reduction of the value by offsetting cash payments results in the actual credit given for the traded-in vehicle.  Where cash payment is made to the purchaser or the title holder of the traded-in vehicle, the trade-in credit is equal to the actual credit given for the vehicle. (Section 1 of the Act)

 

Example:

 

	Value of Trade-In	Credit Given	Trade-In Credit
Trade-In Vehicle	$20,000		$20,000
With $3,000 Lien	$20,000		$20,000
With $2,000 Cash Back to Purchaser	$20,000	$18,000	$18,000

 

3)         Notwithstanding subsections (b)(1) and (b)(2), beginning January 1, 2020 and until January 1, 2022, "selling price" includes the portion of the value of, or credit given for, traded-in motor vehicles of the First Division as defined in Section 1-146 of the Illinois Vehicle Code of like kind and character as that which is being sold that exceeds $10,000. (Section 1 of the Act) The full value of any trade-in may still be used to reduce the price of an item purchased; however, beginning January 1, 2020 and until January 1, 2022, the trade-in credit taken on the return for the trade in of a first division motor vehicle is limited to $10,000.

 

EXAMPLE

 

	Value of Traded-In First Division Motor Vehicle	Credit Given	Trade-In Credit
Trade-In Vehicle	$20,000	$20,000	$10,000
With $3,000 Lien	$20,000	$20,000	$10,000
With $2,000 Cash Back to Purchaser	$20,000	$18,000	$10,000

 

c)         Use of Trade-in Credits

 

1)         A dealer may reduce its gross receipts by the value of or credit given for a traded-in motor vehicle when: (Section 1 of the Act)

 

EXAMPLE 1

 

An individual trades a motor vehicle he owns on the purchase of a new or used motor vehicle;

 

EXAMPLE 2

 

A lessor trades a motor vehicle he owns on the purchase of a new or used motor vehicle for subsequent lease;

 

EXAMPLE 3

 

A lessor or other purchaser trades a motor vehicle owned by a prospective lessee or a third party when the prospective lessee or third party assigns the vehicle to the dealer and provides written authorization for the trade to the dealer, for the benefit of the lessor or other purchaser.  The written authorization provided by the prospective lessee or third party should be specific to the immediate transaction, identifying the vehicle to be purchased by the lessor or other purchaser.  A prospective lessee or third party trade-in authorization may not be used in conjunction with an advance trade transaction; or

 

EXAMPLE 4

 

A motor vehicle is traded-in as described in EXAMPLE 2 or EXAMPLE 3, and the dealer executes the lease but assigns the lease to a purchasing lessor, if the following requirements are part of the transaction:

 

the lease agreement states that the lease and vehicle will be assigned to the lessor making the trade of the motor vehicle; and

 

title is issued directly to the lessor making the trade of the motor vehicle and not to the dealer so that the dealer remains outside the chain of title.

 

2)         A dealer may not reduce its gross receipts by the value of or credit given for a traded-in motor vehicle where: (Section 1 of the Act)

 

A)        The dealer is the owner (meaning the dealer holds either title or certificate of origin) of the traded-in motor vehicle;

 

B)        The trade-in vehicle was disposed of in a sales transaction predating the trade but was not identified by contract or written agreement as an advance trade-in vehicle as required in subsection (d); or

 

C)        The party holding title and offering the vehicle or vehicles for trade on behalf of another purchaser or lessor, as described in EXAMPLE 3 of subsection (c)(1), would not be entitled to the isolated or occasional sale exemption if the vehicle or vehicles were sold by that party, rather than traded.

 

d)         Advance Trade-Ins

A transaction may constitute an advance trade-in if, at the time the vehicle is traded to the dealer, the purchaser becomes contractually obligated to purchase one or more vehicles from the dealer within 9 months after the date of the advance trade-in transaction.  Advance trade credits not used within the time specified expire and may not be used subsequent to the 9 month credit period.  Advance trade credits are non-transferable.

 

1)         In order to apply the trade-in credit to reduce the taxable selling price of a vehicle, the documents recording the purchaser's contractual obligation to purchase need not specify the make, model or purchase price of a vehicle to be purchased, only that the purchaser is under an obligation to purchase within the specified amount of time.

 

2)         Advance trade-in credit given by the dealer to the purchaser in the amount of the value of or credit given (Section 1 of the Act) for a traded-in vehicle at the time of the advance trade-in may be in the form of dealer credit or cash, and will not affect the purchaser's ability to apply the advance trade credit to reduce the taxable selling price of one or more vehicles, so long as the purchaser is contractually obligated to purchase a vehicle from the dealer within the time specified.  In completing the transaction, the purchaser may pay the dealer cash or other consideration for the purchase price of a vehicle or vehicles purchased.

 

3)         Documentation evidencing an advance trade-in transaction must include the following:  the contract establishing the value of or credit given (Section 1 of the Act) for a traded-in vehicle, the obligation to purchase a vehicle, and the date of expiration of the advance trade-in credit; the bill of sale for the traded-in vehicle; and the appropriate sales or use tax return evidencing the purchase of the new or used vehicle and recording the application of the advance trade-in credit.  Advance trade-in transactions may not be structured so that the purchaser is not the owner of the automobile offered for trade.

 

e)         Deferred Trade-Ins

No trade-in credit may be used in a transaction where the sales or use tax return does not reflect that a trade was offered at the time of the sales transaction.  The appropriate sales or use tax return cannot be amended to reflect the value of or credit given (Section 1 of the Act) for a vehicle offered for trade subsequent to the completion of the sales transaction.

 

f)         Multiple and Split Trade-in Transactions

 

1)         Multiple Trade-In Transactions

A purchaser may utilize a trade-in credit when trading in more than one vehicle to a dealer on the purchase of a single new or used vehicle.  The dealer may use the cumulative trade-in credits from the traded-in vehicles to reduce gross receipts from the sale of the newly purchased vehicle so long as the trade-ins and sale are recorded as a single transaction.

 

EXAMPLE (trade-in of multiple first division motor vehicles on or after January 1, 2020 and until January 1, 2022)

 

A motor vehicle retailer sells a new car for $60,000 on July 1, 2021 and allows $50,000 for the trade-in of 2 vehicles on the transaction: $30,000 for the trade-in of one first division motor vehicle and $20,000 for the trade-in of another first division motor vehicle.  The credit that the retailer may take on the return for the traded-in first division motor vehicles is $20,000 ($10,000 for each vehicle).

 

EXAMPLE (trade-in of multiple first division motor vehicles on or after January 1, 2022)

 

A motor vehicle retailer sells a new car for $60,000 on July 1, 2022 and allows $50,000 for the trade-in of 2 vehicles on the transaction: $30,000 for the trade-in of one first division motor vehicle and $20,000 for the trade-in of another first division motor vehicle.  The credit that the retailer may take on the return for the traded-in first division motor vehicles is $50,000.

 

2)         Split Trade-In Transactions

A purchaser may utilize a trade-in credit when trading in a single vehicle to a dealer on the purchase of more than one new vehicle.  The dealer may split the amount of the trade-in credit from the traded-in vehicle, and apply it toward the purchase price of one or more new vehicles so long as the trade-in and purchases are recorded as a single transaction. The amount of trade-in credit to be applied to each new vehicle will be determined by the dealer and purchaser.

 

EXAMPLE (split trade-in of first division motor vehicle on or after January 1, 2020 and until January 1, 2022)

 

A motor vehicle retailer sells 2 new cars to the same purchaser on December 31, 2021, each for $7,000, and allows $12,000 for the trade-in of one first division motor vehicle.  The aggregate credit that the retailer may take on both returns for the traded-in first division motor vehicle is $10,000.  The retailer may split the credit and apply it to each return (e.g., $5,000 to each return or $7,000 to one return and $3,000 to the other), but the credit may not exceed $10,000 in the aggregate for both returns.

 

3)         Combined Transactions

A multiple trade-in transaction or split trade-in transaction may only be used in conjunction with an advance trade-in transaction if the transfer of all vehicles involved in the trade are recorded as a single transaction and the purchaser is contractually obligated to purchase a vehicle from the dealer within the specified period of time.

 

g)         Documentation of Trade-in Credits

Documentation and records evidencing a trade-in credit utilized for a particular transaction must be retained by the dealer and the purchaser and shall be made available to the Department for inspection or audit.  With the exception of advance trade-in transactions, when a vehicle is offered for trade by a person other than the purchaser for the benefit of the purchaser, the owner of the vehicle must give written authorization that the vehicle is being offered for trade for the benefit of the purchaser.  The written authorization must be specific to the transaction and must identify the vehicle for which the owner's vehicle is being traded.

 

(Source:  Amended at 46 Ill. Reg. 18120, effective October 25, 2022)

SUBPART E: RETURNS

 

Section 130.501  Monthly Tax Returns – When Due – Contents

 

a)         Except as provided in Section 130.502, 130.510 and 130.2045, on or before the twentieth day of each calendar month, every person engaged in the business of selling tangible personal property at retail in this State during the preceding calendar month shall file a return with the Department for the preceding month, stating the name of the seller, the seller’s residence address and the address of the seller’s principal place of business, and the address of the principal place of business (if that is a different address) from which the seller engaged in the business of selling tangible personal property at retail in this State.  On and after January 1, 2018, except for returns required to be filed prior to January 1, 2023, for motor vehicles, watercraft, aircraft, and trailers that are required to be registered with an agency of this State, with respect to retailers whose annual gross receipts average $20,000 or more, all returns required to be filed pursuant to the Act shall be filed electronically.  On and after January 1, 2023, with respect to retailers whose annual gross receipts average $20,000 or more, all returns required to be filed pursuant to the Act, including, but not limited to, returns for motor vehicles, watercraft, aircraft, and trailers that are required to be registered with an agency of this State, shall be filed electronically.  Retailers who demonstrate that they do not have access to the Internet or demonstrate hardship in filing electronically may petition the Department to waive the electronic filing requirement. [35 ILCS 120/3]

 

b)         In addition, the return shall disclose the following:

 

1)         Total Receipts for the Month from Sales of Tangible Personal Property and Services. Real estate builders and construction contractors, who are also retailers, and who assume the responsibility for accounting for the tax on building materials they purchase, must include, in total receipts, not only their receipts from "over-the-counter" resales of those materials, but also their cost prices of the materials that they convert into real estate (see Section 130.2075). This may be accomplished in the case of a construction contractor by including the contractor’s receipts from construction contracts in total receipts and by deducting those receipts from total receipts only to the extent to which those receipts exceed the cost price to the contractor of the tangible personal property that the contractor incorporates into real estate as a construction contractor.

 

2)         Deductions Allowed by Law

The taxpayer should include in the taxpayer’s total receipts, but should deduct before computing the amount of the tax:

 

A)        taxes collected from sales of the following:

 

i)          general merchandise retail sales;

 

ii)         general merchandise service sales;

 

iii)        food, drugs and medical appliances retail sales;

 

iv)        food, drugs and medical appliances service sales;

 

B)        receipts from sales of tangible personal property for purposes of resale in any form as tangible personal property (see Subparts B and N);

 

C)        receipts from sales that are within the protection of the Commerce Clause of the Constitution of the United States (see Section 130.605);

 

D)        cash refunds for returned merchandise (see Section 130.401);

 

E)        receipts from the sales of newspapers and magazines (see Section 130.2105);

 

F)         State motor fuel taxes collected;

 

G)        the exempt receipts or exempt percentage of receipts from sales of gasohol, biodiesel, renewable diesel, and blended fuels as described in Section 130.320;

 

H)        receipts from sales of any kind to any corporation, society, association, foundation or institution organized and operated exclusively for charitable, religious or educational purposes or any not-for-profit corporation, society, association, foundation, institution or organization that has no compensated officers or employees and that is organized and operated primarily for the recreation of persons 55 years of age and older (see Section 130.2005);

 

I)         receipts from sales of any kind to a governmental body (see Section 130.2080);

 

J)         receipts from nontaxable sales of service;

 

K)        any other deduction allowed by law, such as receipts from isolated or occasional sales (see Section 130.110); federal taxes that are imposed at the level of the retail sale, but not federal excise taxes on manufacturers, etc. (see Section 130.445); and

 

L)        total of all deductions allowed by law.

 

3)         Total receipts that are obtained by subtracting deductions from total receipts.

 

4)         The Amount of Tax Due

 

A)        An allowance is available to reimburse the taxpayer for the expenses incurred in keeping records, preparing and filing returns, remitting the tax and supplying data to the Department on request.  The minimum discount, over the entire period of any given calendar year, for any single taxpayer (if the taxpayer incurs that much tax liability) shall be $5.00 for that calendar year.  This allowance is available when the tax is remitted with a return that is filed when due under the Act, but is not available in any case in which the tax is paid late (with or without a return, and whether or not formally assessed by the Department); in the case of retailers who report and pay the tax on a transaction by transaction basis, the discount shall be taken with each tax remittance instead of when the retailer files its periodic return.  Retailers required to file returns electronically pursuant to the Act who fail to file their returns electronically may not take the discount allowed to reimburse retailers for the expenses incurred in keeping records, preparing and filing returns, remitting the tax and supplying data to the Department on request. 

 

B)        Balance of Tax Due

 

i)          The return should also show the amount of penalty (if any) that is due, the total of the tax and penalty due, and such other reasonable information as the Department may require.

 

ii)         If a total amount of less than $1 is payable, refundable or creditable, the amount shall be disregarded if it is less than 50 cents and shall be increased to $1 if it is 50 cents or more.  Any amount that is required to be shown or reported on any return or other document under the Act shall, if the amount is not a whole-dollar amount, be increased to the nearest whole-dollar amount in any case in which the fractional part of a dollar is 50 cents or more, and decreased to the nearest whole-dollar amount when the fractional part of a dollar is less than 50 cents (Section 3 of the Act).

 

iii)        The Department may require returns to be filed on a quarterly basis. If so required, a return for each calendar quarter shall be filed on or before the twentieth day of the calendar month following the end of such calendar quarter. The taxpayer shall also file a return with the Department for each of the first two months of each calendar quarter, on or before the twentieth day of the following calendar month, stating:

 

•     The name of the seller;

 

•     The address of the principal place of business from which the seller engages in the business of selling tangible personal property at retail in this State;

 

•     The total amount of taxable receipts received by the seller during the preceding calendar month or quarter from sales of tangible personal property by the seller during the preceding calendar month or quarter, including receipts from charge and time sales, but less all deductions allowed by law;

 

•     The amount of credit provided in Section 2d of the Act;

 

•     The amount of tax due;

 

•     The amount of penalty due, if any; and

 

•     Such other reasonable information as the Department may require.  (Section 3 of the Act)

 

c)         Returns must be signed by the taxpayer.  If a taxpayer fails to sign a return within 30 days after the proper notice and demand for signature by the Department, the return shall be considered valid and any amount shown to be due on the return shall be deemed assessed. (Section 3 of the Act)

 

(Source:  Amended at 47 Ill. Reg. 6309, effective April 18, 2023)

 

Section 130.502  Quarterly Tax Returns

 

a)         If a retailer's average monthly tax liability to the Department does not exceed $200, the Department may authorize returns to be filed on a quarter-annual basis, with the return for January, February and March of a given year being due by April 20 of such year; with the return for April, May and June of a given year being due by July 20 of such year; with the return for July, August and September of a given year being due by October 20 of such year, and with the return for October, November and December of a given year being due by January 20 of the following year.

 

b)         The decision to permit quarterly filing will be based on information obtained by the Department, including, but not limited to, registration and audit information regarding the retailer's average monthly liability.  The Department shall periodically review taxpayer information, including returns filed by the taxpayer, to determine if any changes have occurred that require the taxpayer to file returns on other than a quarterly basis.  If the Department determines that a change is required in filing frequency, it shall notify the taxpayer of its determination.

 

c)         Quarterly returns, as to form and substance, shall be subject to the same requirements as monthly returns.

 

(Source:  Amended at 33 Ill. Reg. 15781, effective October 27, 2009)

 

Section 130.505  Returns and How to Prepare

 

a)         Returns shall be filed on forms prescribed and furnished by the Department. It is the duty of the taxpayer to obtain forms, and failure to obtain them will not be an excuse for failure to file returns when and as required by law.

 

b)         In determining the amount of the tax, taxpayers should not include in their return receipts from sales:

 

1)         of intangible personal property, such as shares of stocks, bonds, evidences of interest in property, corporate or other franchises and evidences of debt, and

 

2)         of real property, such as lands and buildings that are permanently attached to the land.

 

(Source:  Amended at 3 Ill. Reg. 46, p. 52, effective November 2, 1979)

 

Section 130.510  Annual Tax Returns

 

a)         If a retailer's average monthly tax liability to the Department does not exceed $50, the Department may authorize returns to be filed on an annual basis, with the return for a given year being due by January 20 of the following year.  The decision to permit annual filing will be based upon information obtained by the Department, including, but not limited to, registration and audit information regarding the retailer's average monthly liability. 

 

b)         The Department shall periodically review taxpayer information, including returns filed by the taxpayer, to determine if any changes have occurred that require the taxpayer to file returns on other than an annual basis.  If the Department determines that a change is required in filing frequency, it shall notify the taxpayer of its determination.

 

c)         Annual returns, as to form and substance, shall be subject to the same requirements as monthly returns.

 

(Source:  Amended at 33 Ill. Reg. 15781, effective October 27, 2009)

 

Section 130.515  First Return

 

In addition, if the business is not a corporation, the first return filed shall show the names and residence addresses of all owners of the business (i.e., persons who share in the profit or loss of such business).

 

(Source:  Amended at 3 Ill. Reg. 46, p. 52, effective November 2, 1979)

 

Section 130.520  Final Returns When Business is Discontinued

 

Notwithstanding any other provision in this Regulation concerning the time within which a retailer may file his return, in the case of any retailer who ceases to engage in a kind of business which makes him responsible for filing returns under this Regulation, such retailer shall file a final return under the Act with the Department not more than one month after discontinuing such business.

 

(Source:  Amended at 3 Ill. Reg. 46, p. 52, effective November 2, 1979)

 

Section 130.525  Who May Sign Returns

 

a)         Returns must be signed by the president, vice president, secretary or treasurer, or by the properly accredited agent whose power of attorney is on file with the Department, if the seller is a corporation.

 

b)         The official title of the person signing a return shall be shown after his signature.

 

c)         If the business is not a corporation but is individually owned, returns shall be signed by the owner of the business or by his duly authorized agent whose power of attorney is on file with the Department.

 

d)         If the business is owned by more than one person (partnership, joint stock company, etc.), but is not a corporation, returns shall be signed by an owner of the business or by a duly authorized agent whose power of attorney is on file with the Department.

 

(Source:  Amended at 3 Ill. Reg. 46, p. 52, effective November 2, 1979)

 

Section 130.530  Returns Covering More Than One Location Under Same Registration -- Separate Returns for Separately Registered Locations

 

a)         Where any taxpayer under the Retailers' Occupation Tax Act conducts, at more than one location within the State, a business which comes within the Act, and as to which separate locations the taxpayer has not obtained separate Certificates of Registration as is permitted by the Act under some circumstances (see Subpart G of this Part), he shall file his returns as consolidated returns covering business operations at all of his locations, and he should not file separate returns for each location.

 

b)         Such consolidated return must be filed on the Sales and Use Tax Return Form ST‑1, supplemented by Form ST-2.  If the taxpayer is engaged in the retail business at more than one location which imposes the Home Rule Municipal Retailers' Occupation Tax, Non-Home Rule Municipal Retailer's Occupation Tax, the Home Rule County Retailers' Occupation Tax, or taxes pursuant to Section 4 of the Water Commission Act, Section 5.01 of the Local Mass Transit District Act or Section 4.03 of the Regional Transportation Authority Act, the tax rate for gross receipts from sales at each site within each entity shall be printed on the ST‑2.

 

c)         The total amount of net tax due shown on Form ST-2 should be equal to the amount of net tax due shown on the return Form ST-1.

 

d)         Where the same person has more than one business registered with the Department under separate registrations under the Act, such persons shall not file each return that is due as a single return covering all such registered businesses, but shall file a separate return for each such registered business.

 

(Source:  Amended at 15 Ill. Reg. 6621, effective April 17, 1991)

 

Section 130.535  Payment of the Tax, Including Quarter Monthly Payments in Certain Instances

 

a)         Except as noted hereinafter, at the same time that a tax return required by the provisions of the Act is filed with the Department, the taxpayer shall pay the tax that is due with such return to the Department.

 

b)         Before October 1, 2000, if the taxpayer's average monthly tax liability to the Department under the Retailers' Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act, the Service Use Tax Act, excluding any liability for prepaid sales tax to be remitted in accordance with Section 2d of the Act, was $10,000 or more during the preceding 4 complete calendar quarters, he shall file a return with the Department each month by the 20^th day of the month next following the month during which such tax liability is incurred and shall make payments to the Department on or before the 7^th, 15^th, 22^nd and last day of the month during which such liability is incurred. If the month during which such tax liability is incurred begins on or after January 1, 1988 and prior to January 1, 1989, each payment shall be in an amount equal to 22.5% of the taxpayer's actual liability for the month or 25% of the taxpayer's liability for the same calendar month of the preceding year. If the month during which such tax liability is incurred begins on or after January 1, 1989, and prior to January 1, 1996, each payment shall be in an amount equal to 22.5% of the taxpayer's actual liability for the month or 25% of the taxpayer's liability for the same calendar month of the preceding year or 100% of the taxpayer's actual liability for the quarter monthly reporting period. If the month during which such tax liability is incurred begins on or after January 1, 1996, each payment shall be in an amount equal to 22.5% of the taxpayer's actual liability for the month or 25% of the taxpayer's liability for the same calendar month of the preceding year. The amount of such payments shall be credited against the final tax liability of the taxpayer's return for that month.  Prior to January 1, 1999, if any such payment is not paid at the time or in the amount required in this subsection, then the taxpayer's 2%, 2.1% or 1.75% vendors' discount shall be reduced by 2%, 2.1% or 1.75% of the difference between the minimum amount due as a payment and the amount of such quarter monthly payment actually and timely paid, and the taxpayer shall be liable for penalties and interest on such difference except insofar as the taxpayer has previously made payments for that month to the Department in excess of the minimum payments previously due as provided in this Section.  Beginning on and after January 1, 1999, if any such payment is not paid at the time or in the amount required in this subsection, then the taxpayer shall be liable for penalties and interest on the difference between the minimum amount due as a payment and the amount of such quarter monthly payment actually and timely paid, except insofar as the taxpayer has previously made payments for that month to the Department in excess of the minimum payments previously due as provided in this Section.

 

On and after October 1, 2000, if the taxpayer's average monthly tax liability to the Department under the Act, the Use Tax Act, the Service Occupation Tax Act, and the Service Use Tax Act, excluding any liability for prepaid sales tax to be remitted in accordance with Section 2d of the Act, was $20,000 or more during the preceding 4 complete calendar quarters, he shall file a return with the Department each month by the 20^th day of the month next following the month during which such tax liability is incurred and shall make payment to the Department on or before the 7^th, 15^th, 22^nd and last day of the month during which such liability is incurred. (Section 3 of the Act)

 

c)         Before October 1, 2001, without regard to whether a taxpayer is required to make quarter monthly payments as specified above, any taxpayer who is required by Section 2d of this Act to collect and remit prepaid taxes and has collected prepaid taxes which average in excess of $25,000 per month during the preceding 2 complete calendar quarters, shall file a return with the Department as required by Section 2f and shall make payments to the Department on or before the 7th, 15th, 22nd and last day of the month during which such liability is incurred. If the month during which such tax liability is incurred begins on or after January 1, 1987, each payment shall be in an amount equal to 22.5% of the taxpayer's actual liability for the month or 26.25% of the taxpayer's liability for the same calendar month of the preceding year.  The amount of such quarter monthly payments shall be credited against the final tax liability of the taxpayer's return for that month filed under this Section or Section 2f, as the case may be.  Once applicable, the requirement of the making of quarter monthly payments to the Department pursuant to this paragraph shall continue until such taxpayer's average monthly prepaid tax collections during the preceding 2 complete calendar quarters is $25,000 or less.  If any such quarter monthly payment is not paid at the time or in the amount required, the taxpayer shall be liable for penalties and interest on such difference, except insofar as the taxpayer has previously made payments for that month in excess of the minimum payments previously due. (Section 3 of the Act)

 

On and after October 1, 2001, without regard to whether a taxpayer is required to make quarter monthly payments as specified above, any taxpayer who is required by Section 2d of the Act to collect and remit prepaid taxes and has collected prepaid taxes that average in excess of $20,000 per month during the preceding 4 complete calendar quarters shall file a return with the Department as required by Section 2f and shall make payments to the Department on or before the 7th, 15th, 22nd and last day of the month during which the liability is incurred.  Each payment shall be in an amount equal to 22.5% of the taxpayer's actual liability for the month or 25% of the taxpayer's liability for the same calendar month of the preceding year.  The amount of the quarter monthly payments shall be credited against the final tax liability of the taxpayer's return for that month filed under this Section or Section 2f of the Act, as the case may be.  Once applicable, the requirement of the making of quarter monthly payments to the Department pursuant to this paragraph shall continue until the taxpayer's average monthly prepaid tax collections during the preceding 4 complete calendar quarters (excluding the month of highest liability and the month of lowest liability) is less than $19,000 or until such taxpayer's average monthly liability to the Department as computed for each calendar quarter of the 4 preceding complete calendar quarters is less than $20,000.  If any such quarter monthly payment is not paid at the time or in the amount required, the taxpayer shall be liable for penalties and interest on such difference, except insofar as the taxpayer has previously made payments for that month in excess of the minimum payments previously due. (Section 3 of the Act)

 

d)         If any such payment or deposit provided for herein exceeds the taxpayer's present and probable future liabilities under the Retailers' Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act and the Service Use Tax Act, the Department shall, if requested by the taxpayer, issue to the taxpayer a credit memorandum, which may be submitted by the taxpayer to the Department in payment of tax liability subsequently to be remitted by the taxpayer to the Department or be assigned by the taxpayer to a similar taxpayer under the Retailers' Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act or the Service Use Tax Act.  If no such request is made, the taxpayer may credit such excess payment against tax liability subsequently to be remitted to the Department under the Act, the Use Tax Act, the Service Occupation Tax Act or the Service Use Tax Act.  If the Department subsequently determines that all or any part of the credit taken was not actually due to the taxpayer, the taxpayer's 2.1% and 1.75% vendor's discount shall be reduced by 2.1% or 1.75% of the difference between the credit taken and that actually due, and that taxpayer shall be liable for penalties and interest on such difference.

 

e)         For the purposes of this Section, the phrase "preceding 4 complete calendar quarters" means the preceding 4 complete calendar quarters for which returns would have been filed or should have been filed for the last month of the 4 quarter period since, until then, the making of the required computations for the 4 quarter period would be impossible.  For example, the preceding 4 complete calendar quarters with reference to a November 1, 1976, date would actually have ended June 30, 1976, since most returns for the last month of that 4 quarter period would not have to have been filed until July 31, 1976, and the preceding 4 complete calendar quarters with reference to a July 1, 1977, date would actually end March 31, 1977, since most returns for the last month of that 4 quarter period would not have to be filed until April 30, 1977.  The calendar quarters are January through March, April through June, July through September and October through December.

 

f)         Beginning October 1, 1993, a taxpayer who has an average monthly tax liability of $150,000 or more shall make all payments required by rules of the Department (see 86 Ill. Adm. Code 750 "Payment of Taxes by Electronic Funds Transfer") by electronic funds transfer.  Beginning October 1, 1994, a taxpayer who has an average monthly tax liability of $100,000 or more shall make all payments required by rules of the Department by electronic funds transfer. Beginning October 1, 1995, a taxpayer who has an average monthly tax liability of $50,000 or more shall make all payments required by rules of the Department by electronic funds transfer.

 

g)         Beginning October 1, 2000, a taxpayer who has an annual tax liability of $200,000 or more shall make all payments required by rules of the Department by electronic funds transfer (see 86 Ill. Adm. Code 750).  The term "annual tax liability" shall be the sum of the taxpayer's liabilities under the Retailers' Occupation Tax Act, and all other State and local occupation and use tax laws administered by the Department, for the immediately preceding calendar year. (Section 3 of the Act)

 

(Source:  Amended at 26 Ill. Reg. 5369, effective April 1, 2002)

 

Section 130.540  Returns on a Transaction by Transaction Basis

 

a)         Who Must File Transaction Reporting Returns

In addition, with respect to motor vehicles, watercraft, trailers, and aircraft (and implements of husbandry or special mobile equipment for which the purchaser intends to apply for an optional title), every retailer selling this kind of tangible personal property in Illinois shall file, with the Department, upon a form prescribed and supplied by the Department, a separate return for each such item of tangible personal property that the retailer sells, except that if, in the same transaction:

 

1)         a retailer of aircraft, watercraft, motor vehicles or trailers transfers more than one aircraft, watercraft, motor vehicle or trailer to another aircraft, watercraft, motor vehicle or trailer retailer for the purpose of resale; or

 

2)         beginning January 1, 2001, a retailer of aircraft, watercraft, motor vehicles, or trailers transfers more than one aircraft, watercraft, motor vehicle, or trailer to a purchaser for use as qualifying rolling stock (see Section 130.340) as provided in Section 2-5 of the Act;

 

then that seller may report the transfer of all aircraft, watercraft, motor vehicles or trailers involved in that transaction to the Department on the same uniform invoice-transaction reporting return form. (Section 3 of the Act) For purposes of the exception in subsection (a)(2) above, retailers may only report multiple sales of items of like kind and character on a single uniform invoice-transaction reporting return form.  For example, retailers may report the sale of 15 motor vehicles to a single purchaser on a single uniform invoice-transaction reporting return form.  However, retailers may not report the sale of 10 trailers and 5 motor vehicles to a single purchaser on a single uniform invoice-transaction reporting return form.  Such a sale requires one uniform invoice-transaction reporting return form for the trailers and a second uniform invoice-transaction reporting return form for the motor vehicles.

 

b)         Function and Contents of Transaction Reporting Returns

 

1)         The transaction reporting return prescribed and supplied to retailers by the Department not only shall serve as such return (for both the buyer and the seller), but also may serve as the dealer's invoice to the purchaser.  Such forms will be numbered.  The Department will keep a record of all of these forms which it supplies to a given retailer, and the retailer is responsible for accounting to the Department for all such forms.  If a transaction reporting return form should be spoiled, the retailer should mark it "voided" and retain it in its books and records for 42 months.  Transaction reporting returns are not transferable by one retailer to another, but must be filed with or otherwise accounted for to the Department by the retailer to whom the particular forms are issued by the Department.

 

2)         Such transaction reporting return must show the name and address of the seller; the name and address of the purchaser; the amount of the selling price including the amount allowed by the retailer for traded-in property, if any; the amount allowed by the retailer for the traded-in tangible personal property, if any; the balance payable after deducting such trade-in allowance from the total selling price; the amount of tax due from the retailer with respect to such transaction; the amount of Use Tax collected from the purchaser by the retailer on such transaction (or satisfactory evidence that such tax is not due in that particular instance, if that is claimed to be the fact); the place and date of the sale; a sufficient identification of the property sold, and such other information as the Department may reasonably require.

 

c)         Transaction Reporting Returns, When Due, Transaction Reporting Returns in Lieu of Monthly Returns

 

1)         Such transaction reporting return shall be filed not later than 20 days after the date of delivery of the item that is being sold, but may be filed by the retailer at any time sooner than that if the retailer chooses to do so.

 

2)         If a retailer's sales of tangible personal property are limited to sales of motor vehicles, aircraft, watercraft, or trailers that are required to be registered with an agency of this State, or a combination of these items, so that all of the retailer's Retailers' Occupation Tax liability is required to be reported, and is reported, on such transaction reporting returns, and such retailer is not otherwise required to file monthly returns, such retailer need not file monthly returns.

 

3)         If a retailer of motor vehicles, aircraft, watercraft, or trailers that are required to be registered with an agency of this State, or a combination of these items, need not file a monthly return, such retailer shall be required to file returns on an annual basis.

 

4)         On and after January 1, 2023, with respect to retailers whose annual gross receipts average $20,000 or more, all returns required to be filed pursuant to the Act, including, but not limited to, returns for motor vehicles, watercraft, aircraft, and trailers that are required to be registered with an agency of this State, shall be filed electronically. Retailers who demonstrate that they do not have access to the Internet or demonstrate hardship in filing electronically may petition the Department to waive the electronic filing requirement. [35 ILCS 120/3]

 

d)         Transmittal of Transaction Reporting Return by Way of Titling or Registering Agency

The transaction reporting return and tax remittance or proof of exemption may be transmitted to the Department by way of the State agency with which, or State officer with whom, the tangible personal property must be titled or registered if the Department and such agency or State officer determine that this procedure will expedite the processing of applications for title or registration.

 

e)         Submission of Tax or Proof of Exemption with Transaction Reporting Returns – Issuance of Use Tax Receipt or Exemption Determination by Department of Revenue

With each such transaction reporting return, the retailer shall remit the proper amount of tax due (or shall submit satisfactory evidence that the sale is not taxable if that is the case), to the Department or its agents, whereupon the Department shall issue, in the purchaser's name, a Use Tax receipt (or a certificate of exemption if the Department is satisfied that the particular sale is tax exempt) which such purchaser may submit to the agency with which, or State officer with whom, the purchaser must title or register the tangible personal property that is involved in support of such purchaser's application for an Illinois certificate or other evidence of title or registration to such tangible personal property.

 

f)         Issuance of Title or Registration Where Retailer Fails or Refuses to Remit Tax Collected by Retailer from User

No retailer's failure or refusal to remit tax hereunder shall preclude a user, who has paid the proper tax to the retailer, from obtaining a certificate of title or other evidence of title or registration upon satisfying the Department that such user has paid the proper tax (if tax is due) to the retailer.

 

g)         Direct Payment of Tax by User to Department on Intrastate Purchase under Certain Circumstances

If the user who would otherwise pay tax to the retailer wants the transaction reporting return filed and the payment of tax or proof of exemption made to the Department before the retailer is willing to take these actions and such user has not paid the tax to the retailer, such user may certify to the fact of such delay by the retailer and may (upon the Department being satisfied of the truth of such certification) transmit the information required by the transaction reporting return and the remittance for tax or proof of exemption directly to the Department and obtain a tax receipt or exemption determination, in which event the transaction reporting return and tax remittance (if a tax payment was required) shall be credited by the Department to the proper retailer's account with the Department, but without the 1.75% discount being allowed.  When the user pays the tax directly to the Department as aforesaid, the user shall pay the tax in the same amount and in the same form in which it would be remitted if the tax had been remitted to the Department by the retailer.

 

(Source:  Amended at 47 Ill. Reg. 6309, effective April 18, 2023)

 

Section 130.541  Returns for Aviation Fuel

 

a)         Every person engaged in the business of selling aviation fuel at retail in this State during the preceding calendar month shall, instead of reporting and paying tax as otherwise required by Section 3 of the Retailers' Occupation Tax Act ("Act"), report and pay such tax on a separate aviation fuel tax return.  The requirements related to the return shall be as provided in Section 3 of the Act.  All sales of aviation fuel must be reported and the tax paid on Form ST-70, Aviation Fuel Sales and Use Tax Return.  Receipts from the sale of aviation fuel must continue to be reported as total receipts on Form ST-1, Sales and Use Tax and E911 Surcharge Return, and then deducted as an Other Deduction on Schedule A, using the description "Sales of Aviation Fuel."

 

b)         Notwithstanding any other provisions of the Act to the contrary, retailers selling aviation fuel shall file all aviation fuel tax returns and shall make all aviation fuel tax payments by electronic means in the manner and form required by the Department.  "Aviation fuel" means jet fuel and aviation gasoline. 

 

c)         The discount under the Act is not allowed for the 1.25% portion of taxes paid on aviation fuel that is subject to the revenue use requirements of 49 U.S.C. 47107(b) and 49 U.S.C. 47133.  The discount allowed under the Act for the 5% portion of taxes paid on aviation fuel is allowed only for returns filed in the manner required by the Act.  [35 ILCS 120/3]  If the aviation return and payment are not made electronically, then the discount is disallowed.  For information regarding any Sustainable Aviation Fuel Purchase Credit, see 86 Ill. Adm. Code 130.333. 

 

(Source:  Added at 49 Ill. Reg. 3180, effective February 26, 2025)

 

Section 130.545  Registrants Must File a Return for Every Return Period

 

Every taxpayer under the Retailers' Occupation Tax Act shall file a return for each reporting period (month, quarter or year, as the case may be) in which he is engaged in the business of selling tangible personal property at retail in this State, notwithstanding the fact that, during one or more of such reporting periods, he may not receive any gross receipts rendering him liable for payment of the tax.  On the return for such a reporting period, the taxpayer should state the facts which disclose that no tax is due for that reporting period.

 

(Source:  Amended at 3 Ill. Reg. 46, p. 52, effective November 2, 1979)

 

Section 130.550  Filing of Returns for Retailers by Suppliers Under Certain Circumstances

 

For greater simplicity of administration, it shall be permissible for manufacturers, importers and wholesalers whose products are sold at retail in Illinois by numerous retailers, and who wish to do so, to assume the responsibility for accounting and paying to the Department all tax accruing under the Act with respect to such sales, if the retailers who are affected do not make written objection to the Department to this arrangement, and provided that such arrangement in any given case is acceptable to the Department.

 

(Source:  Amended at 3 Ill. Reg. 46, p. 52, effective November 2, 1979)

 

Section 130.551  Prepayment of Retailers' Occupation Tax on Motor Fuel

 

a)         Any person engaged in the business of selling motor fuel at retail, as defined in the Motor Fuel Tax Law, and who is not a licensed distributor or supplier, as defined in Section 1.2 or 1.14, respectively, of  the Motor Fuel Tax Law [35 ILCS 505/1.2 and 1.14], shall prepay to their distributor, supplier, or other reseller of motor fuel a portion of the tax imposed by the Retailers' Occupation Tax Act (the Act) if the distributor, supplier, or other reseller of motor fuel is registered under Section 2a or Section 2c of the Act.  The prepayment requirement provided for in this Section does not apply to liquid propane gas.  [35 ILCS 120/2d]  Every distributor, supplier, or other reseller of motor fuel registered under the Motor Fuel Tax Law that collects the tax shall remit the retailers' occupation tax prepayment due from a person engaged in the business of selling any motor fuel to the Department in accordance with Section 2d(g) of the Act.

 

b)         Portion of Retailers' Occupation Tax to be Prepaid by Retailer

 

1)         Before July 1, 2000 and then beginning on January 1, 2001 through June 30, 2003, the Retailers' Occupation Tax paid to the distributor, supplier or other reseller of motor fuel shall be an amount equal to $0.04 per gallon of the motor fuel, except gasohol as defined in Section 2-10 of the Act which shall be an amount equal to $0.03 per gallon, purchased from such distributor, supplier or other reseller.

 

2)         Beginning on July 1, 2000 and through December 31, 2000, the Retailers' Occupation Tax paid to the distributor, supplier, or other reseller shall be an amount equal to $0.01 per gallon of the motor fuel, except gasohol as defined in Section 2-10 of the Act which shall be an amount equal to $0.01 per gallon, purchased from the distributor, supplier, or other reseller.

 

3)         Beginning on July 1, 2003 and through December 10, 2010, the Retailers' Occupation Tax paid to the distributor, supplier, or other reseller shall be an amount equal to $0.06 per gallon of the motor fuel, except for gasohol as defined in Section 2-10 of the Act which shall be an amount equal to $0.05 per gallon, purchased from the distributor, supplier, or other reseller.

 

4)         Beginning on January 1, 2011 and thereafter, the Retailers' Occupation Tax paid to the distributor, supplier, or other reseller shall be at the rate established by the Department under this paragraph.  The rate shall be established by the Department on January 1 and July 1 of each year using the average selling price, as defined in Section 1 of the Act, per gallon of motor fuel sold in the State during the previous 6 months and multiplying that amount by 6.25% to determine the cents per gallon rate.  In the case of biodiesel blends, as defined in Section 3-42 of the Use Tax Act, with no less than 1% and no more than 10% biodiesel, and in the case of gasohol, as defined in Section 3-40 of the Use Tax Act, the rate shall be 80% of the rate established by the Department under this paragraph for motor fuel.  The Department shall provide persons subject to Section 2d of the Act notice of the rate established under this subsection at least 20 days prior to each January 1 and July 1. Publication of the established rate on the Department's internet website shall constitute sufficient notice under Section 2d of the Act.  The Department may use data derived from independent surveys conducted or accumulated by third parties to determine the average selling price per gallon of motor fuel sold in the State.  [35 ILCS 120/2d(b)-(e)]

 

c)         The distributor, supplier or other reseller required to remit such retailers' occupation tax shall file returns and deliver statements of the tax paid in accordance with Sections 2e and 2f of the Act.

 

d)         The vendor's discount provided in Section 3 of the Retailers' Occupation Tax Act shall not apply to the amount of prepaid tax which is remitted to the Department as required by 35 ILCS 120/2d, 2e, and 2f.

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.552  Alcoholic Liquor Reporting

 

a)         Retailer Liquor Report.  Beginning on October 1, 2003, any person that is engaged in the business of selling alcoholic liquor at retail through a liquor store, tavern, or restaurant shall file a monthly statement with the Department listing the total amount paid for alcoholic liquor purchased during the preceding calendar month.  The statement shall be filed on such person's Form ST-1, Sales and Use Tax Return, by including the total amount shown on invoices for alcoholic liquor delivered during the preceding calendar month.  For returns due through January 31, 2012, the Form ST-1 Return shall be filed using the Department's TeleFile program (86 Ill. Adm. Code 770).  For returns due on and after February 1, 2012, the Form ST-1 Return shall be filed by electronic means under the Department's electronic filing program in accordance with regulations at 86 Ill. Adm. Code 760.100.  Upon petition by a taxpayer, the Department may waive the electronic filing requirement if the taxpayer attests that it does not have access to the Internet.  The requirements of this subsection (a) shall not apply to any person who is a licensed distributor, importing distributor, or manufacturer as those persons are described in Sections 1-3.08, 1-3.15, and 1-3.16 of the Liquor Control Act of 1934.  The requirements of this subsection (a) shall not apply to any person who is required to make quarter monthly payments on the 7^th, 15^th, 22^nd, and last day of each month under Section 3 of the Retailers' Occupation Tax Act. [35 ILCS 120/3]  For purposes of this subsection (a):

 

1)         "Liquor store" means any legal entity that is operated primarily to sell alcoholic liquor at retail to the public.  To meet the primary test, the selling price of all the alcoholic liquor sold during a calendar year must exceed 50% of the selling price of all retail sales for that calendar year.

 

2)         "Tavern" means any legal entity that is operated to sell alcoholic liquor at retail to the public for on-premises consumption.

 

3)         "Restaurant" means any legal entity that is operated to sell food and alcoholic liquor at retail to the public for on-premises consumption.

 

b)         Distributor Liquor Reports. 

 

1)         Beginning on October 1, 2003, every distributor, importing distributor, and manufacturer of alcoholic liquor, as those persons are described in Sections 1-3.08, 1-3.15, and 1-3.16 of the Liquor Control Act of 1934, shall file, in an electronic format prescribed by the Department, a statement with the Department of Revenue, no later than the 10^th day of the month for the preceding month during which transactions occurred showing the total amount of gross receipts from the sale of alcoholic liquor sold or distributed during the preceding calendar month to purchasers; identifying the purchaser to whom it was sold or distributed; the purchaser's tax registration number; and such other information reasonably required by the Department.

 

2)         The statement required to be filed with the Department under this subsection (b) shall be filed no later than the 10^th day of the month for the preceding calendar month in an electronic format prescribed by the Department.  If the distributor, importing distributor, or manufacturer files its Form RL-26, Liquor Revenue Return, electronically, the statement required to be filed under this subsection (b) may be filed in conjunction with the electronic filing of the Liquor Revenue Return no later than the 15^th day of the month for the preceding calendar month. [35 ILCS 120/3]

 

3)         Every distributor, importing distributor, or manufacturer of alcoholic liquor must personally deliver, mail, or provide by electronic means to each retailer listed on the monthly statement described in this subsection (b) a retailer's purchase statement containing a cumulative total of that distributor's, importing distributor's, or manufacturer's total sales of alcoholic liquor to that retailer no later than the 10^th day of the month for the preceding month during which those transactions occurred.  For purposes of this subsection (b), the term "electronic means" includes, but is not limited to, the use of a secure Internet website, e-mail, or facsimile. [35 ILCS 120/3]  The distributor, importing distributor, or manufacturer shall notify each retailer as to the method by which the distributor, importing distributor, or manufacturer will provide the retailer's purchase statement by personally delivering a written notice or mailing a written notice to each retailer.  The personal delivery or mailing of the notice may be made by including such information on an invoice provided by mail or in person to the retailer.  The following methods may be used by the distributor, importing distributor, or manufacturer to provide retailer's purchase statements to retailers:

 

A)        mailing a copy of the retailer's purchase statement to each retailer;

 

B)        delivering a copy of the retailer's purchase statement to each retailer, or in lieu of delivering a copy of the statement, by listing a cumulative total of the sales made to that retailer within that calendar month on all invoices delivered to the retailer; or

 

C)        sending or allowing access to the retailer's purchase statement through electronic means, provided that, if a retailer is unable to receive the statement by electronic means, the retailer must provide a written notice, by mail or in person delivery, to the distributor, importing distributor, or manufacturer of alcoholic liquor, stating that the retailer is unable to receive the statement by electronic means.  Beginning with the month following the receipt of such notification from the retailer, the distributor, importing distributor, or manufacturer shall furnish the retailer's purchase statement to that retailer by personal delivery or by mail as described in subsections (b)(3)(A) and (B).

 

(Source:  Amended at 36 Ill. Reg. 6662, effective April 12, 2012)

 

Section 130.555  Vending Machine Information Returns

 

Through December 31, 2011 any person who engages in the business of selling tangible personal property at retail through a vending machine or through vending machines shall file an information report or return with the Department by January 31 of the number of vending machines that person was using in his or her business of selling tangible personal property at retail on the preceding December 31.  For information as to what constitutes engaging in the business of selling tangible personal property at retail through vending machines, see Section 130.2135. Beginning January 1, 2012, if a person who is registered to sell tangible personal property through a vending machine adds an additional vending machine, he or she shall request an additional sub-certificate and report to the Department the number of sub-certificates of registration being requested, as well as the total number of vending machines from which he or she makes retail sales. Additional sub-certificates of registration may be requested electronically on the Department's website at www.tax.illinois.gov.

 

(Source:  Amended at 42 Ill. Reg. 2850, effective January 26, 2018)

 

Section 130.560  Verification of Returns

 

Each return or notice required to be filed under this Act shall contain or be verified by a written declaration that it is made under the penalties of perjury.

 

(Source:  Amended at 3 Ill. Reg. 46, p. 52, effective November 2, 1979)

SUBPART F: INTERSTATE COMMERCE

 

Section 130.601  Preliminary Comments (Repealed)

 

(Source:  Repealed at 38 Ill. Reg. 19998, effective October 1, 2014)

 

Section 130.605  Sales of Property Originating in Illinois; Questions of Interstate Commerce

 

a)         Where tangible personal property is located in this State at the time of its sale (or is subsequently produced in Illinois), and then delivered in Illinois to the purchaser, the seller is taxable if the sale is at retail.

 

1)         The sale is not deemed to be in interstate commerce if the purchaser or his representative receives the physical possession of the property in this State.

 

2)         This is so notwithstanding the fact that the purchaser may, after receiving physical possession of the property in this State, transport or send the property out of the State for use outside the State or for use in the conduct of interstate commerce.

 

3)         The place at which the contract of sale or contract to sell is negotiated and executed and the place at which title to the property passes to the purchaser are immaterial.  The place at which the purchaser resides is also immaterial.  It likewise makes no difference that the purchaser is a carrier when that happens to be the case.

 

b)         There are three exceptions to the rule that the sale is not deemed to be a sale in interstate commerce if the purchaser or his representative receives physical possession of the property in Illinois.

 

1)         Except as otherwise provided in subsection (b)(1)(C), the tax is not imposed upon the sale of a motor vehicle in this State even though the motor vehicle is delivered in this State, if all of the following conditions are met:  the motor vehicle is sold to a nonresident; the motor vehicle is not to be titled in this State; and either a drive-away permit for purposes of transporting the motor vehicle to a destination outside of Illinois is issued to the motor vehicle as provided in Section 3-603 of the Illinois Vehicle Code [625 ILCS 5/3-603], or the nonresident purchaser has non-Illinois vehicle registration plates to transfer to the motor vehicle upon transporting the vehicle outside of Illinois.  The issuance of the drive-away permit or having the out-of-state registration plates to be transferred is prima facie evidence that the motor vehicle will not be titled in this State.  [35 ILCS 120/2-5(25)]

 

A)        Documentation of nonresidency.  The exemption under subsection (b)(1) is available only to nonresidents.  A vehicle purchased by an Illinois resident is not eligible for the exemption (even if the purchaser is only a part-time Illinois resident or has dual residency in both Illinois and another state, and, in the case of more than one purchaser, even if only one of the purchasers is an Illinois resident).  Effective July 1, 2008, if a retailer claims the exemption under subsection (b)(1), the retailer must keep evidence that the purchaser is not a resident of Illinois, along with the records related to the sale (e.g., in the deal jacket).

 

i)          When the purchaser is a natural person, the best evidence of nonresidence is a non-Illinois driver's license.  Retention of a copy of the purchaser's permanent non-Illinois driver's license in the records related to the sale is prima facie evidence that the purchaser is a nonresident eligible for the exemption under this subsection (b)(1).  In addition, the retailer must also obtain and keep in the records related to the sale a certification from the purchaser in substantially the following form:

 

"I, (purchaser), under applicable penalties, including penalties for perjury and fraud, state that I am not an Illinois resident.  I understand that if I am a resident of Illinois or use the motor vehicle in Illinois for more than 30 days in a calendar year, I am also liable for tax, penalty and interest on this purchase."

 

ii)         When the purchaser is a natural person, failure to keep a copy of the purchaser's non-Illinois driver's license or the presence of a copy of the purchaser's Illinois driver's license in the records related to the sale creates a rebuttable presumption that the purchaser is an Illinois resident ineligible for the exemption under this subsection (b)(1).  To rebut this presumption, the retailer must keep evidence of the nonresidency of the purchaser in the records related to the sale, such as a voter registration card listing a non-Illinois address, a copy of a purchase contract or lease agreement for a new residence outside of Illinois, a copy of a tax return from another state that declares residency in that other state, a credit report listing the primary address as out-of-state, property tax records claiming a homestead exemption for an out-of-state residence, or any other documentation that clearly shows that the purchaser is not an Illinois resident.  In addition, the retailer must also obtain and keep in the records related to the sale a certification from the purchaser in substantially the following form:

 

"I, (purchaser), under applicable penalties, including penalties for perjury and fraud, state that I am not an Illinois resident.  I understand that if I am a resident of Illinois or use the motor vehicle in Illinois for more than 30 days in a calendar year, I am also liable for tax, penalty and interest on this purchase."

 

iii)        When the purchaser is not a natural person (e.g., corporation, partnership, limited liability company, trust, etc.), then the purchaser shall be deemed a resident of the state or foreign country under whose laws the purchaser was incorporated, created or organized, as well as the state or foreign country of the purchaser's commercial domicile, if different.  When the purchaser is a grantor trust or other entity that claims it has no state or foreign country of incorporation, creation, organization and commercial domicile, then the purchaser's state or foreign country of residence shall be deemed to be the place of residency of the principal user of the vehicle and a copy of the user's non-Illinois driver's license or other evidence of non-Illinois residency must be kept by the retailer in the records related to the sale.  When the purchaser is not a natural person, the retailer must obtain and keep in the records related to the sale a certificate from the purchaser that states substantially the following:

 

"(Purchaser) states, under applicable penalties, including penalties for perjury and fraud, that it is a (corporation, partnership, LLC, trust, etc.), incorporated, organized or created under the laws of (state or foreign country) and has its commercial domicile in (state or foreign country), or alternatively that it has no state or foreign country of incorporation, creation, organization and commercial domicile, but the principal user's state or foreign country of residence is (state).  The undersigned has authority to sign this certification on behalf of the purchaser, and understands that in doing so, if the purchaser is a resident of Illinois or uses the motor vehicle in Illinois for more than 30 days in a calendar year, it will be liable for tax, penalty and interest on this purchase."

 

iv)        If the retailer meets the requirements of subsection (b)(1)(A)(i), (ii) or (iii) to document the exemption, then, absent fraud, the Department shall pursue any claim that the exemption does not apply solely against the vehicle purchaser.  If, however, the retailer does not meet the requirements of subsection (b)(1)(A)(i), (ii) or (iii) to document the exemption, then the exemption claimed by the retailer shall be disallowed subject to further review by the Department.

 

B)        When the motor vehicle is purchased for lease and delivery to a lessee, the provisions of subsection (b)(1) shall apply to the lessee as if the lessee is the purchaser of the motor vehicle.

 

C)        The exemption under this subsection (b)(1) does not apply if the state in which the motor vehicle will be titled does not allow a reciprocal exemption for a motor vehicle sold and delivered in that state to an Illinois resident but titled in Illinois.  The tax collected under the Retailers' Occupation Tax Act on the sale of a motor vehicle in this State to a resident of another state that does not allow a reciprocal exemption shall be imposed at a rate equal to the state's rate of tax on taxable property in the state in which the purchaser is a resident, except that the tax shall not exceed the tax that would otherwise be imposed under the Retailers' Occupation Tax Act.  (See 35 ILCS 120/2-5(25-5).)

 

D)        For purposes of this subsection (b)(1), the term "motor vehicle" does not include (list not exhaustive):

 

i)          "watercraft" or "personal watercraft" as defined in the Boat Registration and Safety Act [625 ILCS 45] or any boat equipped with an inboard motor, regardless of whether the watercraft, personal watercraft or boat is sold individually or included with the sale of a trailer. If the watercraft, personal watercraft or boat is included with the sale of a trailer, the trailer may be an exempt "motor vehicle" under this subsection (b)(1), but the watercraft, personal watercraft or boat is not an exempt motor vehicle and tax is still owed on it.  If the two items are sold together for one non-itemized price, and the trailer is exempt under this subsection (b)(1), only the gross receipts representing the selling price of the trailer are exempt. Please note that Section 130.540 requires separate transaction returns to be filed with the Department for each item of property sold by the retailer that is required to be titled or registered with an agency of Illinois government;

 

ii)         "all-terrain vehicles" as defined in Section 1-101.8 of the Illinois Vehicle Code;

 

iii)        "motorcycles", as defined in Section 1-147 of the Illinois Vehicle Code, that are not eligible for vehicle registration because they are not properly manufactured or equipped for general highway use;

 

iv)        "motor driven cycles", as defined in Section 1-145.001 of the Illinois Vehicle Code, that are not eligible for vehicle registration because they are not properly manufactured or equipped for general highway use;

 

v)         "off-highway motorcycles" as defined in Section 1-153.1 of the Illinois Vehicle Code; or

 

vi)        "snowmobiles" as defined in Section 1-2.15 of the Snowmobile Registration and Safety Act [625 ILCS 40/1-2.15].

 

2)         Beginning July 1, 2007, the Retailers' Occupation Tax is not imposed on the sale of an aircraft, as that term is defined in Section 3 of the Illinois Aeronautics Act [620 ILCS 5/3], if all of the following three conditions are met:

 

A)        the aircraft leaves this State within 15 days after the later of either the issuance of the final billing for the sale of the aircraft, or the authorized approval for return to service, completion of the maintenance record entry, and completion of the test flight and ground test for inspection, as required by 14 CFR 91.407;

 

B)        the aircraft is not based or registered in this State after the sale of the aircraft; and

 

C)        the seller retains in his or her books and records and provides to the Department a signed and dated certification from the purchaser, on a form prescribed by the Department, certifying that the requirements of this subsection (b)(2) are met.  The certificate must also include the name and address of the purchaser, the address of the location where the aircraft is to be titled or registered, the address of the primary physical location of the aircraft, and other information that the Department may reasonably require.  [35 ILCS 120/2-5(25-7)] (See Section 130.120.)

 

D)        For purposes of this subsection (b)(2):

 

i)          "Based in this State" means hangared, stored, or otherwise used, excluding post-sale customizations, for 10 or more days in each 12-month period immediately following the date of the sale of the aircraft.

 

ii)         "Registered in this State" means an aircraft registered with the Department of Transportation, Aeronautics Division, or titled or registered with the Federal Aviation Administration to an address located in this State.  [35 ILCS 120/2-5(25-7)]

 

3)         The seller does not incur Retailers' Occupation Tax liability with respect to the proceeds from the sale of an item of tangible personal property to a common carrier by rail or motor that receives physical possession of property in Illinois and that transports the property, or shares with another common carrier in transporting the property, out of Illinois on a standard uniform bill of lading showing the seller of the property as the shipper or consignor of the property to a destination outside Illinois, for use outside Illinois.  [35 ILCS 120/2-5(17)] The exception for sales to common carriers by rail or motor, which is described in subsection (b)(3), is also applicable to local occupation taxes administered by the Department. 

 

c)         The tax does not extend to gross receipts from sales in which the seller is obligated, under the terms of his or her agreement with the purchaser, to make physical delivery of the goods from a point in this State to a point outside this State, not to be returned to a point within this State, provided that the delivery is actually made.

 

d)         Nor does the tax apply to gross receipts from sales in which the seller, by carrier (when the carrier is not also the purchaser) or by mail, under the terms of his or her agreement with the purchaser, delivers the goods from a point in this State to a point outside this State not to be returned to a point within this State.  The fact that the purchaser actually arranges for the common carrier or pays the carrier that effects delivery does not destroy the exemption.  However, it is critical that the seller is shown as the consignor or shipper on the bill of lading.  If the purchaser is shown as either the consignor or the shipper, the exemption will not apply.

 

e)         Sales of the type described in subsections (c) and (d) are deemed to be within the protection of the Commerce Clause of the Constitution of the United States.

 

f)         To establish that the gross receipts from any given sale are exempt because the tangible personal property is delivered by the seller from a point within this State to a point outside this State under the terms of an agreement with the purchaser, the seller will be required to retain in his or her records, to support deductions taken on his or her tax returns proof that satisfies the Department that there was an agreement and a bona fide delivery outside this State of the property that is sold.  The most acceptable proof of this fact will be:

 

1)         If shipped by common carrier, a waybill or bill of lading requiring delivery outside this State;

 

2)         if sent by mail, an authorized receipt from the United States Post Office department for articles sent by registered mail, parcel post, ordinary mail or otherwise, showing the name of the addressee, the point outside Illinois to which the property is mailed and the date of the mailing; if the receipt does not comply with these requirements, other supporting evidence will be required;

 

3)         if sent by seller's own transportation equipment, a trip sheet signed by the person making delivery for the seller and showing the name, address and signature of the person to whom the goods were delivered outside this State; or, in lieu thereof, an affidavit signed by the purchaser or his or her representative, showing the name and address of the seller, the name and address of the purchaser and the time and place of the delivery outside Illinois by the seller; together with other supporting data as required by Section 130.810 of this Part and by Section 7 of the Act.

 

g)         Retailers who ship property to freight forwarders who take possession of the property in Illinois and ship the property to foreign countries, not to be returned to the United States, are making exempt sales in foreign commerce and do not incur Retailers' Occupation Tax liability on the gross receipts from those sales.  However, there is no exemption for property delivered in Illinois to foreign vessels.  If foreign vessels purchase items of tangible personal property from Illinois retailers and have those items delivered to the vessels in an Illinois port, the sale is made in Illinois, the purchaser takes possession of the items in Illinois, and therefore, the sale is taxable.

 

(Source:  Amended at 39 Ill. Reg. 12597, effective August 26, 2015)

 

Section 130.610  Sales of Property Originating in Other States (Repealed)

 

(Source:  Repealed at 38 Ill. Reg. 19998, effective October 1, 2014)

SUBPART G: CERTIFICATE OF REGISTRATION

 

Section 130.701  General Information on Obtaining a Certificate of Registration

 

a)         It shall be unlawful for any person to engage in the business of selling tangible personal property at retail in this State without a certificate of registration from the Department.

 

b)         Every person who engages in the business of selling tangible personal property at retail in this State must procure a certificate of registration (and sub-certificate of registration when required) from the Department.

 

c)         For information with respect to penalties for violating this requirement, see Subpart I.

 

d)         The application to register must be made on a form prescribed and furnished by the Department for that purpose.  Upon request therefor, made to the Department of Revenue, an application form will be furnished.  Each application shall be signed and verified.  The application shall contain an acceptance of responsibility by the person or persons who will be responsible for filing returns and payment of the taxes due under the Act.  If the applicant will sell tangible personal property at retail through vending machines, his application to register shall indicate the number of vending machines to be so operated.  [35 ILCS 120/2a]  Applications to register may be submitted electronically on the Department's website at www.tax.illinois.gov.

 

e)         Special Requirements Pertaining to Vending Machines

If the applicant will sell tangible personal property at retail through vending machines, the Department shall furnish the applicant with a sub-certificate of registration for each such vending machine, and the applicant shall display the appropriate sub-certificate of registration on each such vending machine by attaching the sub-certificate of registration to a conspicuous part of such vending machine.  If a person who is registered to sell tangible personal property at retail through vending machines adds an additional vending machine or additional vending machines to the number of vending machines the applicant uses in the applicant’s business of selling tangible personal property at retail, the applicant shall notify the Department, on a form prescribed by the Department, to request an additional sub-certificate or additional sub-certificates of registration, as applicable.  With each such request, the applicant shall report the number of sub-certificates of registration the applicant is requesting as well as the total number of vending machines from which the applicant makes retail sales.  [35 ILCS 120/2a]

 

f)         Posting Bond or Other Security

 

1)         Every applicant for a certificate of registration shall, within 30 days after the applicant commences to engage in the business of selling tangible personal property at retail, furnish a bond from a surety company authorized to do business in the State of Illinois, or a bond signed by 2 personal sureties who have filed, with the Department, sworn statements disclosing net assets equal to at least 3 times the amount of the bond to be required of the applicant, or a bond secured by an assignment of a bank account or certificate of deposit, stocks or bonds, conditioned upon the applicant paying to the State of Illinois all moneys becoming due under the Retailers' Occupation Tax Act and under any other State tax law or municipal or county tax ordinance or resolution under which the certificate of registration that is issued to the applicant under the Retailers' Occupation Tax Act will permit the applicant to engage in business without registering separately under such other law, ordinance or resolution.

 

2)         Maximum Amount of Bond or Other Security

 

A)        The Department shall fix the amount of such security in each case, taking into consideration the amount of money expected to become due from the applicant under the Retailers' Occupation Tax Act and under any other State tax law or municipal or county tax ordinance or resolution under which the certificate of registration that is issued to the applicant under the Retailers' Occupation Tax Act will permit the applicant to engage in business without registering separately under such other law, ordinance or resolution.  The security required by the Department shall be of an amount that, in its opinion, will protect the State of Illinois against failure to pay the amount which may become due from the applicant under the Retailers' Occupation Tax Act and under any other State tax law or municipal or county tax ordinance or resolution under which the certificate of registration that is issued to the applicant under the Retailers' Occupation Tax Act will permit the applicant to engage in business without registering separately under such other law, ordinance or resolution, but the amount of the security required by the Department shall not exceed three times the amount of the applicant's average monthly tax liability, or $50,000, whichever amount is lower.

 

B)        No certificate of registration under the Retailers' Occupation Tax Act shall be issued by the Department until the applicant provides the Department with satisfactory security as provided for in this subsection (f).

 

3)         Exception from Security Requirements for Prior Continuous Compliance Taxpayers

Any taxpayer who has, as verified by the Department, faithfully and continuously complied with the condition of the taxpayer's bond or other security under the provisions of the Act for a period of 3 consecutive years shall be considered to be a Prior Continuous Compliance taxpayer.  Every Prior Continuous Compliance taxpayer shall be exempt from all requirements under the Act concerning the furnishing of security as a condition precedent to the taxpayer being authorized to engage in the business of selling tangible personal property at retail in this State.  This exemption shall continue for each taxpayer until the taxpayer may be determined by the Department to be delinquent in the filing of any returns, or is determined by the Department (either through the Department's issuance of a final assessment that has become final under the Act, or by the taxpayer's filing of a return that admits tax that is not paid to be due) to be delinquent or deficient in the paying of any tax under the Retailers' Occupation Tax Act or under any other State tax law or municipal or county tax ordinance or resolution under which the certificate of registration that is issued to the registrant under the Retailers' Occupation Tax Act will permit the registrant to engage in business without registering separately under such other law, ordinance or resolution, at which time that taxpayer shall become subject to all the financial responsibility requirements of the Act and, as a condition of being allowed to continue to engage in the business of selling tangible personal property at retail, shall be required to post bond or other acceptable security with the Department covering liability that the taxpayer may thereafter incur.  Any taxpayer who fails to pay an admitted or established liability under the Act may also be required to post bond or other acceptable security with this Department guaranteeing the payment of the admitted or established liability.

 

g)         Issuance of Certificate of Registration

Upon receipt of the application for certificate of registration in proper form, and upon approval by the Department of the security furnished by the applicant, the Department shall issue to the applicant a certificate of registration that shall permit the person to whom it is issued to engage in the business of selling tangible personal property at retail in this State.  The Department may deny a certificate of registration to any applicant if a person who is named as the owner, a partner, a manager or member of a limited liability company, or a corporate officer of the applicant on the application for the certificate of registration is or has been named as the owner, a partner, a manager or member of a limited liability company, or a corporate officer on the application for the certificate of registration of another retailer that is in default for moneys due under this Act or any other tax or fee Act administered by the Department.  For purposes of this paragraph only, in determining whether a person is in default for moneys due, the Department shall include only amounts established as a final liability within the 23 years prior to the date of the Department's notice of denial of a certificate of registration.  [35 ILCS 120/2a]

 

h)         No certificate of registration issued prior to July 1, 2017 to a taxpayer who files returns required by the Act on a monthly basis, or renewed prior to July 1, 2017 by a taxpayer who files returns required by the Act on a monthly basis, shall be valid after the expiration of 5 years from the date of its issuance or last renewal.  No certificate of registration issued on or after July 1, 2017 to a taxpayer who files returns required by the Act on a monthly basis or renewed on or after July 1, 2017 by a taxpayer who files returns required by the Act on a monthly basis shall be valid after the expiration of 1 year from the date of its issuance or last renewal.  The expiration date of a sub-certificate of registration shall be that of the certificate of registration to which the sub-certificate relates. Prior to July 1, 2017, a certificate of registration shall be automatically renewed, subject to revocation as provided by the Act, for an additional 5 years from the date of its expiration unless otherwise notified by the Department.  On and after July 1, 2017, a certificate of registration shall automatically be renewed, subject to revocation as provided by the Act, for an additional 1 year from the date of its expiration unless otherwise notified by the Department as provided by subsection (i).

 

i)          When a taxpayer to whom a certificate of registration is issued under the Act is in default to the State of Illinois for delinquent returns or for moneys due under the Act or any other State tax law or municipal or county ordinance administered or enforced by the Department, the Department shall, not less than 60 days before the expiration of the certificate of registration, give notice to the taxpayer to whom the certificate was issued of the account period of the delinquent returns, the amount of tax, penalty and interest due and owing from the taxpayer, and that the certificate of registration shall not be automatically renewed upon its expiration date unless the taxpayer, on or before the date of expiration, has filed and paid the delinquent returns or paid the defaulted amount in full. Upon expiration of a certificate of registration (including all sub-certificates of registration, if any, issued under the certificate), the Department may post notice at the place or places of business, at the front entrance and on the front windows, to which the expired certificate applied, stating that the certificate of registration has expired and that it is unlawful for any person to engage in the business of selling tangible personal property at retail in this State without an active certificate of registration issued by the Department (see Illustration D).

 

j)          The Department may, in its discretion, approve renewal by an applicant who is in default if, at the time of application for renewal, the applicant files all of the delinquent returns or pays to the Department the percentage of the defaulted amount as may be determined by the Department and agrees in writing to waive all limitations upon the Department for collection of the remaining defaulted amount to the Department over a period not to exceed 5 years from the date of renewal of the certificate; however, no renewal application submitted by an applicant who is in default shall be approved if the immediately preceding renewal by the applicant was conditioned upon the installment payment agreement described in this Section.  The payment agreement shall be in addition to, and not in lieu of, the security required by this Section of a taxpayer who is no longer considered a continuous compliance taxpayer.  The execution of the payment agreement as provided in the Act shall not toll the accrual of interest at the statutory rate.  (Section 2a of the Act)

 

(Source:  Amended at 47 Ill. Reg. 1426, effective January 17, 2023)

 

Section 130.705  Procedure in Disputed Cases Involving Certificates of Registration

 

a)         No certificate of registration shall be issued to any person who is in default to the State of Illinois for moneys due under the Retailers' Occupation Tax Act or under any other State tax law or municipal or county tax ordinance or resolution under which the certificate of registration that is issued to the applicant under the Retailers' Occupation Tax Act will permit the applicant to engage in business without registering separately under such other law, ordinance or resolution. [35 ILCS 120/2a]

 

b)         Any person aggrieved by any decision of the Department under Section 2a of the Retailers' Occupation Tax Act may within 20 days after notice of such decision, protest and request a hearing, whereupon the Department shall give notice to such person of the time and place fixed for such hearing and shall hold a hearing in conformity with the provisions of the Retailers' Occupation Tax Act and then issue its final administrative decision in the matter to such person. [35 ILCS 120/2a]

 

c)         In the absence of such a protest within 20 days, the Department's decision shall become final without any further determination being made or notice given. [35 ILCS 120/2a]

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.710  Procedure When Security Must be Forfeited

 

a)         With respect to security other than bonds (upon which the Department may sue in the event of a forfeiture), if the taxpayer fails to pay, when due, any amount whose payment such security guarantees, the Department shall, after such liability is admitted by the taxpayer or established by the Department through the issuance of a final assessment that has become final under the law, convert the security which that taxpayer has furnished into money for the State, after first giving the taxpayer at least 10 days' written notice, by registered or certified mail, to pay the liability or forfeit such security to the Department.

 

b)         If the security consists of stocks or bonds or other securities which are listed on a public exchange, the Department shall sell such securities through such public exchange.

 

c)         If the security consists of a bank certificate of deposit, the Department shall convert the security into money by demanding and collecting the amount of such bank certificate of deposit from the bank which issued such certificate.

 

d)         If the security consists of a type of stocks or other securities which are not listed on a public exchange, the Department shall sell such security to the highest and best bidder after giving at least 10 days' notice of the date, time and place of the intended sale by publication in the "State Official Newspaper".

 

e)         If the Department realizes more than the amount of such liability from the security, plus the expenses incurred by the Department in converting the security into money, the Department shall pay such excess to the person who furnished such security, and the balance shall be paid into the State Treasury.

 

(Source:  Amended and effective September 9, 1969)

 

Section 130.715  Sub-Certificates of Registration

 

a)         When a registered taxpayer, such as a company operating chain stores, engages in the business of selling tangible personal property at retail in this State from more than one location, the Department shall furnish to that registered taxpayer a sub-certificate of registration for each additional place of business.

 

b)         Each sub-certificate will bear the same registration number as that appearing upon the certificate of registration to which the sub-certificate relates.

 

c)         If the applicant will sell tangible personal property at retail through vending machines, the Department shall furnish the applicant with a sub-certificate of registration for each vending machine, and the applicant shall display the appropriate sub-certificate of registration on each vending machine by attaching the sub-certificate of registration to a conspicuous part of the vending machine.

 

d)         Beginning January 1, 2012, if a person who is registered to sell tangible personal property at retail through vending machines adds an additional vending machine or additional vending machines to the number of vending machines he or she uses in his or her business of selling tangible personal property at retail, he or she shall contact the Department, on a form prescribed by the Department, to request an additional sub-certificate or additional sub-certificates of registration, as applicable.  With each such request, the applicant shall report the number of sub-certificates of registration being requested, as well as the total number of vending machines from which retail sales are being made. (Section 2a of the Act)  Additional sub-certificates of registration may be requested electronically on the Department's website at www.tax.illinois.gov.

 

(Source:  Amended at 42 Ill. Reg. 2850, effective January 26, 2018)

 

Section 130.720  Separate Registrations for Different Places of Business of Same Taxpayer Under Some Circumstances

 

When the same person engages in 2 or more businesses of selling tangible personal property at retail in this State, which businesses are substantially different in character or engaged in under different trade names or engaged in under other substantially dissimilar circumstances (so that it is more practicable, from an accounting, auditing or bookkeeping standpoint, for such businesses to be separately registered), the Department may require or permit such person (subject to the same requirements concerning the furnishing of security as those that are provided for hereinbefore in this Regulation as to each application for a certificate of registration) to apply for and obtain a separate certificate of registration for each such business or for any of such businesses instead of registering such person, as to all such businesses, under a single certificate of registration supplemented by related sub-certificates of registration.

At the request of a corporation, the Department may permit separate registration of divisions of that corporation under this Section.  In those cases, each separately registered division is required to file returns under its separate Illinois Business Tax (IBT) number.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.725  Display

 

The taxpayer must conspicuously display his certificate or sub-certificate of registration in the place of business to which it applies.  Wherever possible, the taxpayer must display his certificate or sub-certificate of registration in the place of business to which it applies by affixing such certificate or sub-certificate to the glass part of a window or door which faces or opens upon a public street or highway, or in some similar position. If no window or door faces or opens upon a public street or highway, the certificate or sub-certificate must be posted in some conspicuous place which is as near as is practicable to the entrance of the taxpayer's establishment, and such certificate or sub-certificate must be exposed to public view.

 

(Source:  Amended and effective September 9, 1969)

 

Section 130.730  Replacement of Certificate

 

If any certificate or sub-certificate is destroyed or defaced as a result of natural wear and tear, upon application to the Department, certifying to this fact, a duplicate copy thereof will be issued to the taxpayer concerned.

 

(Source:  Amended and effective September 9, 1969)

 

Section 130.735  Certificate Not Transferable

 

a)         A certificate or sub-certificate of registration is not transferable, and should be destroyed in case the taxpayer's place of business to which such certificate or sub-certificate applies is discontinued by him.  Where any place of business of the taxpayer is moved to another location, the Department should be advised immediately of such removal, and of the destruction of the certificate or sub-certificate of registration at the former location.  Upon application, a duplicate certificate or sub-certificate of registration, bearing the same number as that appearing upon the original, will be issued.

 

b)         If a corporation or other business is no longer in existence due to a reorganization, merger, consolidation, dissolution, or other organizational change, the corporation, other business, or surviving or new corporation must notify the Department of such change in the business' organizational status and terminate the registration of any corporation or other business that is no longer in existence.  (See 86 Ill. Adm. Code 130.520.)  Any new entities arising from a reorganization, merger, consolidation, dissolution or other organizational change must complete a registration application and register the new entity with the Department prior to conducting business.  New or surviving entities should not conduct business nor file returns under the registration number for the corporation or other business that is no longer in existence. The returns for the new or surviving business should be filed under the registration number assigned to the new or surviving corporation.  If a new or surviving entity does file returns under an incorrect registration number (i.e., the registration number for the corporation or other business that is no longer in existence), penalties and interest may be incurred.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.740  Certificate Required For Mobile Vending Units

 

a)         Where a taxpayer, holding a certificate of registration by reason of being engaged in the business of selling tangible personal property at retail in this State from a place of business, also operates a truck, wagon, cart or other vehicle from which sales of tangible personal property at retail are made in this State, a sub-certificate of registration must be displayed by each such vehicle.

 

b)         Where the taxpayer has no place of business from which he engages in the business of selling tangible personal property at retail in this State, but sells at retail in this State exclusively from truck, wagon, cart or other vehicle, he must obtain a certificate of registration for the first vehicle so employed, and a sub‑certificate for each such additional vehicle, if any.  Such certificate or subcertificate of registration shall be conspicuously displayed by each such vehicle.

 

c)         However, a sub-certificate of registration is not required for a vehicle used by a seller exclusively for the delivery of tangible personal property to purchasers, where the sales of the property are actually made and confirmed at the place of business of the seller.

 

(Source:  Amended and effective September 9, 1969)

 

Section 130.745  Revocation of Certificate

 

a)         The Department, after notice and hearing as provided under Section 2505-380 of the Civil Administrative Code [20 ILCS 2505/2505-380] and Section 2b of the Act, shall revoke the certificate of registration (including all sub-certificates of registration, if any, issued thereunder) of any person who fails to file a return, or to pay the tax, fee, penalty, or interest shown in a filed return, or to pay any final assessment of tax, fee, penalty, or interest, as required by the Act or any other Act administered by the Department, or who violates any of the provisions of the Act. Before revocation of a certificate of registration the Department shall, within 90 days after non-compliance and at least 7 days prior to the date of the hearing, give the person so accused notice in writing of the charge against them, and on the date designated shall conduct a hearing upon this matter.  The lapse of such 90-day period shall not preclude the Department from conducting revocation proceedings at a later date if necessary.

 

b)         Upon revocation of the certificate of registration (including all sub-certificates of registration, if any, issued under the certificate), the Department shall post notice at the place or places of business, at the front entrance and on the front windows, to which the revoked certificate applied, stating that the certificate of registration has been revoked and that it is unlawful for any person to engage in the business of selling tangible personal property at retail in this State without a certificate of registration issued by the Department (see Illustration B).

 

c)         The Department shall notify the Department of Financial and Professional Regulation and the Department of Public Health upon revocation of, or a decision not to renew, a certificate of registration issued to a medical cannabis dispensing organization operated under the Compassionate Use of Medical Cannabis Program Act or issued to a dispensing organization under the Cannabis Regulation and Tax Act.

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

SUBPART H: BOOKS AND RECORDS

 

Section 130.801  Books and Records − General Requirements

 

a)         Every person engaged in the business of selling tangible personal property at retail in this State shall keep records and books of all sales and purchases of tangible personal property, including all sales and purchase invoices, purchase orders, merchandise records and requisitions, inventory records prepared as of December 31 of each year or otherwise annually, as has been the custom in the specific trade [35 ILCS 120/7], credit memos, debit memos, bills of lading, shipping records, and all other records pertaining to any and all purchases and sales of goods whether or not the retailer believes them to be taxable under the Act; and the retailer shall also keep summaries, recapitulations, totals, journal entries, ledger accounts, accounts receivable records, accounts payable records, statements, tax returns with all schedules or pertinent working papers used in connection with the preparation of such returns, and other documents listing, summarizing or pertaining to such sales, purchases, inventory changes, shipments, or other transactions.  For a description of what records constitute the minimum required, including the use of machine-sensible records and electronic data interchange, see Section 130.805 of this Part.

 

b)         Retailers must maintain complete books and records covering receipts from all sales and distinguishing taxable from nontaxable receipts.

 

c)         The books and records must clearly indicate and explain all the information, deductions as well as gross receipts, required for tax returns.

 

d)         If a taxpayer retains records required to be retained under this Section in both machine-sensible and hard-copy formats, the taxpayer shall, upon request, make the records available to the Department in machine-sensible format in accordance with Section 130.805(b)(5).

 

e)         The books and records and other papers and documents which are required by the Act to be kept shall be kept in the English language and shall, at all times during business hours of the day, be subject to inspection by the Department or its duly authorized agents and employees. [35 ILCS 120/7]

 

f)         The books and records must be kept within Illinois except in instances where a business has several branches, with the head office being located outside Illinois, and where all books and records have been regularly kept outside the State at such head office.  Under such circumstances, upon written permission from the Department, books and records may be kept outside Illinois, but the taxpayer must, within a reasonable time after notification by the Department, make all pertinent books, records, papers, and documents available at some point within Illinois for the purpose of the inspection and audit as the Department may deem necessary.

 

g)         Request for Books and Records and Documentation During an Audit

 

1)         At the initiation of an audit, the Department will notify the taxpayer of the books and records that the taxpayer will be required to produce to enable the Department to conduct the audit.  During the course of the audit, the Department will provide the taxpayer with information document requests (Form EDA-70 or EDA-70C, "Information Document Request") for books and records the Department is requesting the taxpayer to produce for review.  The taxpayer will be provided 30 days, or the number of days agreed to by the taxpayer and the Department, to respond to an Information Document Request.  If the taxpayer and the Department cannot agree on a date to respond to a request, the taxpayer shall have 30 days to respond.  If the taxpayer does not provide the Department with the books and records requested in the Information Document Request, the Department will issue a second Information Document Request for the books and records.  The taxpayer shall have 30 days to respond to the second Information Document Request.  If the taxpayer again fails to provide the Department with the books and records requested, the Department is authorized to issue a written demand for the books and records pursuant to subsection (i)(3).

 

2)         It shall be presumed that all sales of tangible personal property are subject to tax under the Act until the contrary is established.  The burden of proving that a transaction is not taxable shall be upon the person who would be required to remit the tax to the Department if the transaction is taxable.  In the course of any audit or investigation or hearing by the Department with reference to a given taxpayer, if the Department finds that the taxpayer lacks documentary evidence needed to support the taxpayer's claim to exemption from tax, the Department is authorized to notify the taxpayer in writing to produce such evidence (Form EDA-11-B or EDA-11-BC, "Notice of Demand for Documentary Evidence"), and the taxpayer shall have 60 days subject to the right in the Department to extend this period either on request for good cause shown or on its own motion from the date when such notice is sent to the taxpayer by certified or registered mail (or delivered to the taxpayer if the notice is served personally) in which to obtain and produce such evidence for the Department's inspection and audit, failing which the matter shall be closed, and the transaction shall be conclusively presumed to be taxable.  [35 ILCS 120/7]  In the course of any audit or investigation by the Department with reference to a given taxpayer, if the taxpayer fails to produce the documentary evidence needed to support the taxpayer's claim to exemption from tax within the 60 days or the time allotted, the taxpayer's claim to exemption will be denied and the transactions will be conclusively presumed to be taxable.

 

EXAMPLE:  The auditor requests all the resale certificates and exemption certificates for all tax-exempt sales.  The auditor has issued an Information Document Request pursuant to subsection (g)(1).  The retailer has failed to provide the documentary evidence required to support the exemptions.  The Department issued a written request (Form EDA-11-B or Form EDA-11-BC, "Notice of Demand for Documentary Evidence") pursuant to subsection (g)(2) and provided the taxpayer 60 days to produce the documentation.  If the retailer has not provided all of the certificates after the 60 days has elapsed, the matter will be closed and the transactions will be conclusively presumed to be taxable.  Records penalty cannot be applied solely based on the lack of records associated with the Form EDA-11-B or EDA-11-BC, Notice of Demand for Documentary Evidence.

 

h)         All books and records kept by a medical cannabis dispensing organization under the Compassionate Use of Medical Cannabis Program Act or kept by a dispensing organization pursuant to rules adopted by the Illinois Department of Financial and Professional Regulation to implement the Compassionate Use of Medical Cannabis Program Act and the Cannabis Regulation and Tax Act shall, at all times during business hours of the day, be subject to inspection by the Department or its duly authorized agents and employees.

 

i)          Any person who fails to keep books and records or fails to produce books and records for examination, as required by Section 7 of the Act and this Part, is liable to pay to the Department, for deposit into the Tax Compliance and Administration Fund, a penalty of $1,000 for the first failure to keep books and records or produce books and records for examination and a penalty of $3,000 for each subsequent failure to keep books and records or produce books and records for examination as required by Section 7 of the Act and this Part.  The penalties imposed under Section 7 of the Act and this subsection (i) shall not apply if the taxpayer shows that it acted with ordinary business care and prudence.  [35 ILCS 120/7] 

 

1)         The Act imposes two requirements on retailers: retailers must maintain books and records (see subsection (a)) and they must produce the books and records for inspection and examination by the Department upon request (see subsection (e)).  A retailer may be subject to the penalty in this subsection (i) if it maintains books and records but fails or refuses to produce the records upon request of the Department.  A retailer also may be subject to the penalty in this subsection (i) if it does not maintain books and records and therefore cannot produce the books and records to the Department upon request.  In the latter case, the retailer may be subject to either a penalty for the failure to maintain books and records or the failure to produce books and records; the Department cannot impose two penalties in this case. 

 

2)         If a person fails to produce books and records for examination or inspection by the Department upon request, a prima facie presumption shall arise that the person has failed to keep the books and records so required.  A person who is unable to rebut this presumption is subject to the penalty provided in this subsection (i).  Taxpayers must take reasonable steps to safeguard books and records from the elements and nature to protect the integrity of the records.  Producing books and records that are illegible or unsafe for Department employees to handle shall be considered a failure to produce books and records and shall result in penalties being assessed in this subsection (i).

 

3)         Except as otherwise provided by subsection (i)(8)(A), if a request has been made and not honored, prior to issuing a notice of penalty for a failure to maintain books and records or a failure to produce books and records, the Department must provide the taxpayer with a written demand (Form EDA-11-A or EDA-11-AC, "Notice of Demand for Books and Records").

 

A)        The Notice of Demand for Books and Records shall contain:

 

i)          the name of the person receiving the request;

 

ii)         the name of the business;

 

iii)        the date of the request or requests;

 

iv)        the books and records requested;

 

v)         the books and records that the person failed to produce;

 

vi)        the number of days the person has to produce the books and records; and

 

vii)       the name of the Department agent or employee. 

 

B)        The Department agent or employee shall sign and date the form and provide a copy of the form to the person either in person or by mail.  The person shall have 30 days from the date of the Notice of Demand for Books and Records to produce the books and records the person has failed to produce.  The Department is authorized to extend the period either on written request for good cause shown or on its own motion.  If the person fails to produce the books and records within the time allotted, the Department shall issue a notice of penalty pursuant to this subsection (i).

 

4)         Any person receiving a notice of penalty may:

 

A)        within 60 days after the date on the notice of penalty, protest and request an administrative hearing in writing.  Upon receiving a request for a hearing, the Department shall give notice to the person requesting the hearing of the time and place fixed for the hearing and shall hold a hearing in conformity with the provisions of the Act, and then issue its final administrative decision in the matter to that person.  In the absence of a protest and request for a hearing within 60 days, the Department's decision shall become final without any further determination being made or notice given; or

 

B)        if penalties and interest exceed $15,000, file a petition with the Independent Tax Tribunal within 60 days, or 30 days for cases involving the International Fuel Tax Agreement, after the date on the notice of penalty.  For procedural information for the Independent Tax Tribunal, see 86 Ill. Adm. Code 5000, Subpart D.

 

5)         The Department cannot impose more than one penalty for failure to produce books and records for a calendar month. 

 

EXAMPLE 1:  An authorized agent of the Department inspects a retailer and requests the records for the first week in April.  The retailer does not produce the records.  The agent subsequently requests the records for the remaining 3 weeks in April.  The retailer does not produce the records.  The agent can assess only one penalty for the month of April.

 

EXAMPLE 2:  In April, an authorized agent of the Department inspects a retailer and requests all purchase invoices for tangible personal property purchased in March.  The purchase invoices are not provided by the retailer and the Department issues a notice of penalty in the amount of $1,000.  The agent returns in May and requests to see all the cigarette sales receipts for March.  The retailer fails to produce the sales receipts.  The Department cannot issue a penalty for failure of the retailer to provide sales receipts for March because the agent has previously issued a notice of penalty for failure to produce the purchase invoices for March.

 

6)         A records request can cover multiple periods.  The Department is authorized to issue a separate penalty for each period.

 

EXAMPLE:  An auditor makes multiple requests for books and records for the months of January through July.  The retailer cannot produce the books and records for any of the months.  The auditor fills out a Notice of Demand for Books and Records, provides a copy to the person, and provides 30 days for the person to produce the books and records.  After the 30-day period expires, the retailer does not produce the books and records.  The Department issues a notice of penalty in the amount of $1,000 for the month of January and $3,000 for each of the months February through July, for a total penalty of $19,000.

 

7)         The penalties imposed under this subsection (i) shall not apply if the taxpayer shows that it acted with ordinary business care and prudence.  [35 ILCS 120/7]  When determining whether a taxpayer has acted with ordinary business care and prudence, the Department will consider the size of the business, the amount of gross receipts, the volume of sales, the nature of the business, the type and number of items sold by the business, the types of books and records requested, and whether the books and records constitute the minimum records required by Section 130.805.  In other words, would a taxpayer that exercised ordinary business care and prudence be able to produce the books and records requested by the Department?  "Ordinary care has been defined to be that degree of care which is exercised by ordinarily prudent persons under same or similar circumstances."  Swenson v. City of Rockford, 9 Ill.2d 122, 127 (1956).

 

8)         Requests for Books and Records at the Beginning and During Scheduled Audits

 

A)        When the Department determines it will audit a taxpayer's books and records, it shall notify the taxpayer of the audit and schedule a time to commence the audit that is satisfactory to the Department and the taxpayer.  In no event can this time be later than 6 months after the date of the notice, unless the Department agrees to extend the 6-month period.  If the taxpayer refuses to schedule the commencement of the audit within 6 months after the date of the notice, the taxpayer is subject to a penalty for refusal to produce books and records for every month subject to the audit.  After the 6-month period has expired, the Department may issue a notice of penalty to the taxpayer pursuant to this subsection (i).  The Department is not required to provide the taxpayer with a document request or allow additional time to schedule an audit of the person's books and records. 

 

B)        During the course of an audit, the auditor may issue multiple requests for specific books and records.  Prior to issuing the first notice of penalty during an audit, the auditor shall complete a Notice of Demand for Books and Records in accordance with subsection (i) that identifies all books and records that have not been provided pursuant to all earlier requests for the production of documents.

 

(Source:  Amended at 49 Ill. Reg. 2107, effective February 5, 2025)

 

Section 130.805  Minimum Requirements for Recordkeeping

 

a)         In General. A taxpayer shall maintain all records that are necessary to determine the correct tax liability under the Retailers' Occupation Tax Act ("Act") [35 ILCS 120].  All required records must be made available upon request by the Department. Where a taxpayer's business consists of the sale of tangible personal property at retail, the following records will be deemed by the Department to constitute a minimum for the purposes of the Act:

 

1)         Cash register tapes, point-of-sale system printouts, and other data used to prepare returns, whether monthly, quarterly, or yearly depending on the taxpayer's filing status.  The monthly, quarterly, or yearly records shall have the capability to detail each transaction with sufficient "transaction-level records."  For purposes of this Section, "transaction-level records" means, at a minimum, the date of the transaction, invoice or transaction number, description of the items sold, the selling price, and the amount of tax or proper exempt status.

 

2)         A record of the amount of merchandise purchased.  To fulfill this requirement, copies of all vendors' invoices and taxpayers' copies of purchase orders must be retained serially and in sequence as to date.

 

3)         A true and complete inventory of the value of stock on hand taken at least once each year.

 

4)         Bank statements for all accounts associated with the business.

 

5)         Federal income tax returns, including all schedules, and all working papers used to prepare the federal income tax returns, including all Form 1099-Ks.

 

6)         Sales tax returns, including all schedules and working papers used to prepare the sales tax returns.

 

7)         Monthly statements supporting all Form 1099-Ks received (e.g., from marketplace facilitators, payment processors).

 

8)         Log of all cash disbursements to vendors, employees, and others.

 

9)         Documentation for exempt and other non-taxable receipts including such documentation as the name of the exempt entity, Illinois Account ID number, resale certificate, or records relating to sales in interstate commerce.  See 86 Ill. Adm. Code 130.120, 130.1405, and 130.2081(c).

 

10)       For sales requiring delivery, information detailing the purchaser's name, street address, city, state, and ZIP code for each sales transaction, and if shipped to an address other than the purchaser's, the name, street address, city, state, and ZIP code where delivery is made.

 

11)       Any records identified by the Department from a prior audit that the taxpayer was instructed to keep.

 

12)       The Department reserves the right to request any records necessary to complete verification, keeping in mind changes in technology and the retailer's specific business.

 

b)         Records prepared by Automated Data Processing Systems ("ADP").  When an ADP tax accounting system is used to maintain all or part of a taxpayer's accounting or financial records, such ADP system must include a method of producing legible and readable records which will provide the necessary information for verifying tax liability.  If a taxpayer retains records required to be retained under Section 130.801 of this Part, in both machine-sensible and hard-copy formats, the taxpayer shall make the records available to the Department in machine-sensible format upon request of the Department in accordance with subsection (b)(5) of this Section.  ADP accounting systems encompass all types of data processing systems including, but not limited to, mainframe computer systems, stand-alone, or networked microcomputer systems, Database Management Systems ("DBMS"), and systems using Electronic Data Interchange ("EDI") technology.

 

1)         Definitions

 

A)        "Database Management System" or "DBMS" means a software system that creates, controls, relates, retrieves, and provides accessibility to data stored in a database.

 

B)        "Electronic Data Interchange" or "EDI technology" means the computer-to-computer exchange of business transactions in a standardized structured electronic format.

 

C)        "Machine-sensible record" means a collection of related information in an electronic format.  Machine-sensible records include, but are not limited to, data created by point-of-sale ("POS") systems or accounting software, Excel documents, and searchable portable document format ("PDF").  Machine-sensible records do not include hard-copy records that are created or recorded on paper or stored in or by an imaging system such as storage-only imaging systems.

 

D)        "Storage-only imaging systems" means a system of computer hardware and software that provides for the storage, retention, and retrieval of documents originally created on paper, including but not limited to, static PDFs or joint photographic experts group ("JPEG").  It does not include any system, or part of a system, that manipulates or processes any information or data contained on the document in any manner other than to reproduce the document in hard-copy or as an optical image.

 

E)        "Hard-copy" means any documents, records, reports, or other data printed on paper.

 

F)         "Point-of-sale ("POS") systems" means a system of computer hardware, software, or both that manages customer purchases, accepts payment, and provides receipts.  A POS is also how a retailer and a customer record a transaction.

 

2)         Recordkeeping Requirements - Machine-Sensible Records

 

A)        General Requirements

 

i)          Machine-sensible records used to establish tax compliance shall be retained by the taxpayer.  The retained records shall provide sufficient information to establish matters required to be shown by a taxpayer in any tax or information returns.  The machine-sensible records shall contain sufficient "transaction-level records" as defined in subsection (a)(1) so that the details and the source documents underlying the machine-sensible records can be identified and made available to the Department upon request.

 

ii)         The retained records should reconcile to the books and to the tax return by establishing the relationship (e.g., the audit trail) between the total of the amounts in the retained records to the totals in the books and to the tax return.

 

iii)        The retained records must be capable of being processed.  For purposes of this Section, "capable of being processed" means to be able to retrieve, manipulate, print hard-copy, or produce other output.  This term does not encompass any requirement that the program or system that created the computer data be available to process the data unless the process is essential to a tax-related computation.

 

iv)        Taxpayers are not required to construct machine-sensible records other than those created in the ordinary course of business.  A taxpayer who does not create the electronic equivalent of a traditional paper document in the ordinary course of business is not required to construct such a record for tax purposes.

 

v)         All records required to be retained under this Section shall be preserved unless the Department has provided in writing that the records are no longer required as explained in Section 130.825 of this Part.

 

B)        Electronic Data Interchange ("EDI")

 

i)          Where a taxpayer uses EDI processes and technology, the level of record detail, in combination with other records related to the transaction, must satisfy the minimum "transaction-level records" requirement as detailed in subsection (a)(1).  Taxpayer may use codes to identify some or all of the data elements, as long as the taxpayer provides a method that allows the Department to interpret the coded information.

 

ii)         The taxpayer may capture the information necessary to satisfy subsection (b)(2)(B)(i) at any level within the accounting system and need not retain the original EDI transaction records provided the audit trail, authenticity, and integrity of the retained records can be established.

 

EXAMPLE:  A taxpayer using EDI technology receives electronic invoices from its suppliers.  The taxpayer decides to retain the invoice data from completed and verified EDI transactions in its accounts payable system rather than to retain the EDI transactions themselves. Neither the EDI transaction nor the accounts payable system captures information from the invoice pertaining to the product description or the vendor name (i.e., they contain only codes for that information).  Therefore, the taxpayer must also retain other records, such as its vendor master file and product code description lists, and make them available to the Department.  If the taxpayer does this, the taxpayer need not retain its EDI transaction for tax purposes.

 

C)        Electronic Data Processing Systems Requirements.  The requirements for an electronic data processing accounting system are similar to that of a manual accounting system, in that an adequately designed accounting system should incorporate methods and records that will satisfy the requirements of this Section.

 

3)         Recordkeeping Requirements - ADP Systems Documentation

 

A)        Upon the request of the Department, the taxpayer shall provide a description of the business process that created the retained records.  Such description shall include the relationship between the records and the tax documents prepared by the taxpayer and the measures employed to ensure the authenticity and integrity of the records.

 

B)        The taxpayer shall be capable of demonstrating:

 

i)          the functions being performed as they relate to the flow of data through the system;

 

ii)         the internal controls used to ensure accurate and reliable processing; and

 

iii)        the internal controls used to prevent the unauthorized addition, alteration, or deletion of retained records.

 

C)        The following specific documentation is required for machine-sensible records pursuant to this Section:

 

i)          record formats and layouts;

 

ii)         field definitions, including the meaning of all "codes" used to represent information;

 

iii)        file descriptions (e.g., data set name); and

 

iv)        detailed charts of accounts and account descriptions.

 

D)        Any changes to the items specified in subsections (b)(3)(B) and (C) above, together with their effective dates, shall be documented and made available to the Department upon request.

 

4)         Machine-Sensible Records Maintenance Requirements

 

A)        The establishment of records management practices is solely at the discretion of the taxpayer, who ultimately bears the burden of producing records capable of being processed at the time of an examination by the Department.  The Department recommends but does not require that taxpayers refer to the National Archives and Record Administration's ("NARA") standards for guidance on the maintenance and storage of electronic records.

 

B)        In establishing records management practices, taxpayers should consider the following to maintain the integrity of the records:   the labeling of records, the security of the storage environment, the creation of back-up copies and their storage location, and the use of periodic testing.

 

C)        The NARA standards may be found at 36 CFR 1234, July 1, 1995 edition.

 

D)        The taxpayer's computer hardware or software shall accommodate the processing of or the extraction and conversion of retained machine-sensible records.

 

5)         Access to Machine-Sensible Records.  The manner in which the Department is provided access to machine-sensible records as required in subsection (b) of this Section and Section 130.801(d) of this Part may be satisfied through a variety of means that shall, after consultation with the taxpayer, take into account the taxpayer's individual circumstances.  Such access will be provided in one or more of the following manners:

 

A)        A taxpayer may provide the Department copies of the machine‑sensible records for use on the Department's equipment;

 

B)        The taxpayer may arrange to provide the Department with the hardware, software, and personnel resources necessary to access and process the machine-sensible records;

 

C)        The taxpayer may arrange for a third party to provide the hardware, software, and personnel resources necessary to access and process the machine-sensible records;

 

D)        The taxpayer may convert machine-sensible records to a standard electronic record format specified by the Department.  These records may be processed on the Department's equipment or at the taxpayer's location; or

 

E)        The taxpayer and the Department may agree on other means of providing access to the machine-sensible records.

 

6)         Taxpayer Responsibility and Discretionary Authority

 

A)        Taxpayers are responsible for determining which of their machine-sensible records must be retained and which records may be discarded.  These determinations require a consideration of all the facts and circumstances, including whether duplicated or redundant records exist.

 

B)        In general, taxpayers should retain the machine-sensible records that are the most direct evidence of the transactions and have discretion to discard duplicated records and redundant information.  In exercising this discretion, the taxpayer should generally retain those records that best facilitate the retrieval and processing of the data during an audit.  For example, departmental records stored in departmental data files that are duplicated in a central system could be discarded provided that all required information in the departmental records is contained in the central system and the requirements of this Section are met.  Similarly, daily or weekly data files could be discarded provided that appropriate monthly, quarterly, or annual data files with the ability to access appropriate transaction-level records are available.

 

C)        In conjunction with meeting the requirements of this Section, a taxpayer may create files solely for the use of the Department.  For example, if a database management system is used, it is consistent with this Section for the taxpayer to create and retain a file that contains the transaction-level detail from the database management system and that meets the requirements of the Section.  The taxpayer should document the process that created the separate file to show the relationship between that file and the original records.

 

D)        A taxpayer may contract with a third party to provide custodial or management services of the records.  Such a contract shall not relieve the taxpayer of its responsibilities under this Section.

 

c)         Alternative Storage Media.  For purposes of storage and retention, taxpayers may convert hard-copy documents received or produced in the normal course of business and required to be retained under this Section to storage-only imaging systems, such as static PDFs or JPEGs, and may discard the original hard-copy documents, provided the conditions of this Section are met.  These records are not a substitute for machine-sensible records described in subsection (b) of this Section.  Documents which may be stored on these media include, but are not limited to, general books of account, journals, voucher registers, general and subsidiary ledgers and supporting records of details, such as sales invoices, purchase invoices, exemption certificates, and credit memoranda.  Storage-only imaging systems shall meet the following requirements:

 

1)         Documentation establishing the procedures for converting the hard-copy documents to storage-only imaging systems must be maintained and made available upon request.  Such documentation shall, at a minimum, contain sufficient description to allow an original document to be followed through the conversion system as well as internal procedures established for inspection and quality assurance.

 

2)         Procedures must be established for the effective identification, processing, storage, and preservation of the stored documents and for making them available for the periods they are required to be retained under the Retailers' Occupation Tax Act [35 ILCS 120].

 

3)         All data stored on storage-only imaging systems must be maintained and arranged in a manner that permits the location of any particular record.

 

4)         Storage-only imaging systems records must be indexed, cross-referenced, and labeled to show beginning and ending numbers or beginning and ending alphabetical listing of documents included, and must be systematically filed to permit the immediate location of any particular record. A posting reference must be on each document and a control log or catalog of such documents must be maintained.

 

5)         Upon request of the Department, a taxpayer must provide facilities and equipment, in good working order, for reading, locating, and reproducing any documents maintained on storage-only imaging systems.

 

6)         When displayed on such equipment or reproduced on paper, the documents must exhibit a high degree of legibility and readability.  For this purpose, legibility is defined as the quality of a letter or numeral that enables the observer to identify it positively and quickly to the exclusion of all other letters or numerals.  Readability is defined as the quality of a group of letters or numerals being recognized as words or complete numbers.

 

7)         There must be no substantial evidence that the storage-only imaging systems lack authenticity or integrity.

 

d)         Effect on Hard-Copy Recordkeeping Requirements

 

1)         Except as otherwise provided, the provisions of this Section do not relieve taxpayers of the responsibility to retain hard-copy records that are created or received in the ordinary course of business as required by existing law and regulations.  Hard-copy records may be retained on a recordkeeping medium provided in subsection (c).

 

2)         If hard-copy records are not produced or received or required to be produced or received in the ordinary course of transacting business (i.e., when the taxpayer uses electronic data interchange technology), such hard-copy records need not be created.

 

3)         Unless hard-copy records are required to be provided or received, hard‑copy records generated at the time of a transaction need not be retained if all the details relating to the transaction are subsequently received by the taxpayer in an EDI transaction and are retained by the taxpayer in accordance with this Section.

 

4)         Hard-copy records generated at the time of a transaction using a credit or debit card must be retained unless all the details necessary to determine correct tax liability relating to the transaction are subsequently received and retained by the taxpayer in accordance with this Section.  Such details include, but may not be limited to, those listed in subsection (b)(2)(B).

 

5)         Computer printouts that are created for validation, control, or other temporary purposes need not be retained.

 

6)         Nothing in this Section shall prevent the Department from requesting hard-copy printouts of retained machine-sensible records.  These requests may be made either at the time of an examination or in conjunction with the testing described in Section 130.825 of this Part.

 

(Source:  Amended at 49 Ill. Reg. 2107, effective February 5, 2025)

 

Section 130.810  Records Required to Support Deductions

 

a)         Where the nature of a business is such that charge and time sales are made, or where the nature of the business is such that a portion of its sales:  are for resale; are within the protection of the Commerce Clause of the Constitution of the United States; consist of services; are made to any corporation, society, association, foundation, or institution organized and operated exclusively for charitable, religious, or educational purposes; are made to a governmental body; or are exempt from the retailers' occupation tax on some other ground, then such records as will clearly indicate the information required in filing returns must be kept.

 

b)         To support deductions made on the tax return form, as authorized under the Retailers' Occupation Tax Act ("Act"), on account of receipts:  from isolated or occasional sales of tangible personal property; from sales of tangible personal property for resale; from sales of tangible personal property made within the protection of the Commerce Clause of the Constitution of the United States; from sales made to any corporation, society, association, foundation, or institution organized and operated exclusively for charitable, religious, or educational purposes; from sales made to any governmental body; or on any other ground, entries in any books, records, or other pertinent papers or documents of the taxpayer in relation thereto shall be in detail sufficient to show: 

 

1)         the name and address of the taxpayer's customer in each such transaction;

 

2)         the character of every such transaction (e.g., whether it is a sale for resale, a sale made within the protection of the Commerce Clause of the Constitution of the United States, an isolated or occasional sale, etc.);

 

3)         the date of every such transaction;

 

4)         the amount of receipts realized from every such transaction; and

 

5)         such other information as may be necessary to establish the nontaxable character of such transaction under the Act.

 

c)         Except in the case of a sale to a purchaser who will always resell and deliver the property to its customers outside Illinois, any seller claiming to have made a nontaxable sale for resale in some form as tangible personal property shall also keep a Certificate of Resale from the purchaser that contains the information required under Section 130.1405 of this Part.  The failure to obtain and keep a Certificate of Resale shall create a presumption that the sale was not a sale for resale.  The seller may, however, present other documentary evidence to overcome this presumption (See Section 86 Ill. Adm. Code 130.1405(d)).

 

(Source:  Amended at 49 Ill. Reg. 2107, effective February 5, 2025)

 

Section 130.815  Preservation and Retention of Records

 

a)         Books and records and other papers reflecting gross receipts received during any period with respect to which the Department is authorized to issue notices of tax liability as provided by Sections 4 and 5 of the Act shall be preserved until the expiration of such period unless the Department, in writing, shall authorize their destruction or disposal prior to such expiration.

 

b)         In determining the period for which the Department is authorized to issue a notice of tax liability, the following material from Sections 4 and 5 of the Act must be considered.

 

c)         Except in case of a fraudulent return (in which instance, there is no statute of limitations), or except in the case of an amended return (where a notice of tax liability may be issued on or after each January 1 and July 1 for an amended return filed not more than 3 years prior to such January 1 or July 1, respectively), or except in case of failure to file a return (in which instance, there is no statute of limitations), or except with the consent of the person to whom the notice of tax liability is to be issued, no notice of tax liability shall be issued on and after each January 1 and July 1 covering gross receipts received during any month or period of time more than 3 years prior to such January 1 and July 1, respectively, except that if a return is not filed at the required time, no notice of tax liability may be issued on and after each July 1 and January 1 for such return filed more than 3 years prior to such July 1 and January 1, respectively.  [35 ILCS 120/4 and 5] Provided, however, that the foregoing limitations upon the issuance of a notice of tax liability shall not apply to:

 

1)         the issuance of a notice of tax liability with respect to any period of time prior thereto in cases where the Department has, within the period of limitation then provided, notified the person making the return of a notice of tax liability even though such return, with which the tax that was shown by such return to be due was paid when the return was filed, had not been corrected by the Department in the manner required by Section 4 of the Act prior to the issuance of such notice, and

 

2)       the issuance of any such notice with respect to any period of time prior thereto in cases where the Department has, within the period of limitation then provided, notified a person of the amount of tax computed even though the Department had not determined the amount of tax due from such person in the manner required by Section 5 of the Act prior to the issuance of such notice; but in no case shall the amount of any such notice of tax liability for any period otherwise barred by the Act exceed for such period the amount shown in the notice of tax liability theretofore issued.

 

EXAMPLE 1:  Taxpayer files a tax return on June 20, 2023.  The statute of limitations for the Department to issue a notice of tax liability expires June 30, 2026, for the return filed in June.

 

EXAMPLE 2:  Same facts as above, but the Department does not issue a notice of tax liability by June 20, 2026.  It is later discovered in 2027 that the June 20, 2023, return was fraudulent.  As such, the Department may issue a notice of tax liability at any time; there is no time limit.

 

EXAMPLE 3:  Taxpayer files a tax return on July 20, 2024.  The statute of limitations for the Department to issue a notice of tax liability expires December 31, 2027.

 

EXAMPLE 4:  Taxpayer files all monthly tax returns for the year 2024, except for October.  In January 2028, the Department discovers the taxpayer failed to file the return for October 2024.  While the three-year statute of limitations to issue a notice of tax liability expired on December 31, 2027, the Department may still issue a notice of tax liability for failure to file to a return.

 

d)         If, when a tax or penalty or interest under the Act becomes due and payable, the person alleged to be liable therefor shall be out of the State, the notice of tax liability may be issued, within the times limited by the Act, after his coming into or return to the State; and if, after the tax or penalty or interest under the Act becomes due and payable, the person alleged to be liable therefor departs from and remains out of the State, the time of his absence is no part of the time limited for the issuance of the notice of tax liability; but the foregoing provisions concerning absence from the State shall not apply to any case in which, at the time when a tax or penalty or interest becomes due under the Act, the person allegedly liable therefor is not a resident of this State.

 

e)         The time limitation period on the Department's right to issue a notice of tax liability shall not run during any period of time in which the Order of any Court has the effect of enjoining or restraining the Department from issuing the notice of tax liability.

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.820  Preservation of Books During Pendency of Assessment Proceedings

 

If a notice of tax liability has been issued, and if the questions raised by such notice have not been completely disposed of, books and records reflecting receipts received during the period covered by such notice of tax liability must be preserved until the termination of all proceedings before the Department or any other legal proceeding is concluded.

 

(Source:  Amended at 49 Ill. Reg. 2107, effective February 5, 2025)

 

Section 130.825  Department Authorization to Destroy Records Sooner than Would Otherwise be Permissible

 

a)         In all cases, the Department may, in writing, authorize the destruction of books and records and other papers prior to the expiration of the periods of time during which the taxpayer, is required to keep its books and records.  The Department may authorize destruction of records if the records are preserved in a storage-only imaging systems or an electronic data processing system and meet the conditions as prescribed in Section 130.805.

 

b)         Record Retention Limitation Agreements

 

1)         The Department may, at the request of the taxpayer, enter into a record retention limitation agreement with a taxpayer.  Such an agreement may modify or waive any of the specific requirements of Section 130.805.  A taxpayer's request for such an agreement must specify which records, if any, the taxpayer proposes not to retain and provide the reasons for not retaining such records as well as proposing any other terms of the requested agreement.  The taxpayer shall remain subject to all requirements of Section 130.805 that are not modified, waived, or superseded by a duly approved record retention limitation agreement.

 

2)         The Department may revoke or modify a record retention limitation agreement or any provision thereof.

 

3)         The record retention limitation agreement shall specifically identify which of the taxpayer's records the Department has determined are not necessary for retention and may be discarded.  The agreement shall also clearly state each authorized variance, if any, from the normal provisions of Section 130.805.  The agreement shall also document other understandings reached with the Department, which may include, but not be limited to:

 

A)        the conversion of files created on an obsolete computer system;

 

B)        restoration of lost or damaged files and the actions to be taken; and

 

C)        use of taxpayer computer resources.

 

4)         The Department shall consider a taxpayer's request for a record retention limitation agreement and notify the taxpayer of the actions to be taken.  The Department's decision to enter or not to enter into a record retention limitation agreement shall not relieve the taxpayer of the responsibility under the Retailers' Occupation Tax Act [35 ILCS 120] to keep adequate and complete records necessary to a determination of tax liability.

 

5)         Unless otherwise specified, an agreement shall not apply to accounting and tax systems added subsequent to the effective date of the agreement.  All machine-sensible records produced by a subsequently added accounting or tax system shall be retained by the taxpayer in accordance with Section 130.805 until a new agreement is entered into with the Department.

 

6)         Unless otherwise specified, an agreement shall not apply to any subsidiary or other entity that, subsequent to the effective date of a record retention limitation agreement, is acquired by the taxpayer.  All machine-sensible records produced by the acquired subsidiary shall be retained pursuant to Section 130.805 and any record retention limitation agreement that may have been in effect for the acquired subsidiary ("pre-acquisition agreement").  The provisions of the pre-acquisition agreement shall continue to apply to the acquired subsidiary until revoked or modified by the Department or a new agreement applying to the acquired subsidiary is entered into.

 

7)         To evaluate the propriety of a record retention limitation agreement, the Department may conduct an evaluation of the taxpayer's record retention practices.  The evaluation may include a review of the taxpayer's relevant data processing and accounting systems, including systems using electronic data interchange technology.

 

A)        The Department shall notify the taxpayer of the results of any evaluation, including acceptance or disapproval of any proposals made by the taxpayer (e.g., to discard certain records) or any changes considered necessary to bring the taxpayer's practices into compliance with Section 130.805.

 

B)        The evaluation of a taxpayer's record retention practices under this Section is not directly related to the determination of tax reporting accuracy for a particular period or return.  An evaluation made under this Section is not an "audit".

 

(Source:  Amended at 49 Ill. Reg. 2107, effective February 5, 2025)

SUBPART I: PENALTIES AND INTEREST

 

Section 130.901  Civil Penalties

 

a)         Filing an Incorrect Return

If the tax computed upon the basis of the gross receipts as fixed by the Department is greater than the amount of tax due under the return or returns as filed, the Department shall (or if the tax or any part thereof that is admitted to be due by a return or returns, whether filed on time or not, is not paid, the Department may) issue the taxpayer a notice of tax liability for the amount of tax claimed by the Department to be due, together with a penalty in an amount determined in accordance with Section 3-3 of the Uniform Penalty and Interest Act (UPIA).  Provided, that if the incorrectness of any return or returns as determined by the Department is due to negligence or fraud, said penalty shall be in an amount determined in accordance with Section 3-5 or Section 3-6 of the UPIA.  [35 ILCS 120/4]

 

b)         Failure to File Return When Required, but Payment Prior to Notice of Tax Liability

In case any person engaged in the business of selling tangible personal property at retail fails to file a return when and as herein required, but thereafter, prior to the Department's issuance of a notice of tax liability under this Section, files a return and pays the tax, the person shall also pay a penalty in an amount determined in accordance with Section 3-3 of the UPIA.  [35 ILCS 120/5]

 

c)         Filing Return at Required Time but Failure to Pay Tax

In case any person engaged in the business of selling tangible personal property at retail files the return at the time required by the Act but fails to pay the tax, or any part thereof, when due, a penalty in an amount determined in accordance with Section 3-3 of the UPIA shall be added thereto.  [35 ILCS 120/5]

 

d)         Filing Late Return Without Payment of Entire Tax

In case any person engaged in the business of selling tangible personal property at retail fails to file a return when and as herein required, but thereafter, prior to the Department's issuance of a notice of tax liability under this Section, files a return but fails to pay the entire tax, a penalty in an amount determined in accordance with Section 3-3 of the UPIA shall be added thereto.  [35 ILCS 120/5]

 

e)         Failure to File Return When Required, and Failure to Pay Prior to Notice by Department

In case any person engaged in the business of selling tangible personal property at retail fails to file a return, the Department shall determine the amount of tax due from the person according to its best judgment and information, which amount so fixed by the Department shall be prima facie correct and shall be prima facie evidence of the correctness of the amount of tax due, as shown in such determination.  The Department shall issue the taxpayer a notice of tax liability for the amount of tax claimed by the Department to be due, together with a penalty of 30% thereof.  [35 ILCS 120/5]

 

f)         Notice of Tax Liability

Upon issuance of a notice of tax liability (NTL), a taxpayer or the taxpayer's legal representative may, within 60 days after such notice, file a protest to such notice of tax liability with the Department and request a hearing.  The Department shall provide notice of the time and place of the hearing to the taxpayer or the taxpayer's legal representative and shall hold a hearing in accordance with the Act.  After the hearing, the Department shall issue a final assessment of the amount due to the taxpayer or the taxpayer's legal representative.  If a protest to a notice of tax liability and a request for hearing is not filed within 60 days after issuance of a NTL, such NTL shall become final without the necessity of a final assessment being issued and shall be deemed to be a final assessment.  [35 ILCS 120/5]

 

g)         Effect of a Taxpayer's Bankruptcy Filing Upon a Notice of Tax Liability

If prior to the issuance of the NTL, a taxpayer has filed a petition in U.S. Bankruptcy Court and the automatic stay is still in effect, or if a taxpayer files such a petition within 60 days after the issuance of a NTL, the automatic stay prevents any pre-petition liability included in the NTL from becoming final even though not protested within 60 days after the issuance of the NTL.  If any pre‑petition tax included in the NTL is not paid to the Department through the bankruptcy proceeding, adjudicated by the bankruptcy court, or discharged by the bankruptcy court, the taxpayer has 60 days after termination of the automatic stay to protest the pre-petition liability and request an administrative hearing pursuant to 86 Ill. Adm. Code 200.

 

h)         Over-Collection of Tax or Collection of Tax on Nontaxable Receipts

If a seller collects an amount (however designated) that purports to reimburse the seller for retailers' occupation tax liability measured by receipts that are not subject to retailers' occupation tax, or if a seller, in collecting an amount (however designated) that purports to reimburse the seller for retailers' occupation tax liability measured by receipts that are subject to tax under the Act, collects more from the purchaser than the seller's retailers' occupation tax liability on the transaction, the purchaser shall have a legal right to claim a refund of that amount from the seller.  If, however, that amount is not refunded to the purchaser for any reason, the seller is liable to pay that amount to the Department.  This subsection (h) does not apply to an amount collected by the seller as reimbursement for the seller's retailers' occupation tax liability on receipts that are subject to tax under the Act as long as the collection is made in compliance with the tax collection brackets prescribed by the Department at 86 Ill. Adm. Code 150.Table A.  [35 ILCS 120/2-40]

 

EXAMPLE:  A lessor of tangible personal property who paid Use Tax up front upon acquisition of the rental property collects an amount described in the rental statements as a "tax" from lessees.  Because the lease contract payment amounts do not generate a tax, the amounts collected as a "tax" are a collection of tax on nontaxable receipts and the lessee has a legal right to claim a refund of that amount.  If the amount is not refunded, the taxpayer must pay the amount to the Department.  (See John Nottoli, Inc. v. Department of Revenue, 272 Ill. App. 3d 822 (4th Dist. 1995)).

 

i)          Filing Late Return Due to "Reasonable Cause"

 

1)         The penalties imposed under Sections 3-3, 3-4, and 3-5 of the Uniform Penalty and Interest Act shall not apply if the taxpayer shows that the taxpayer's failure to file a return or pay tax at the required time was due to reasonable cause.  [35 ILCS 735/3-8]

 

2)         The Department will decide whether to abate a penalty by considering the extent to which the taxpayer made a good faith effort to determine the proper tax liability and pay the proper liability in a timely fashion.  In making this determination the Department will use the standards set out in the Reasonable Cause Section (86 Ill. Adm. Code 700.400) of the Uniform Penalty and Interest Act regulations.

 

j)          Failure to Maintain Books and Records and Failure to Produce Books and Records for Examination

Section 7 of the Act imposes a penalty of $1,000 for the first failure to keep books and records or produce books and records for examination and a penalty of $3,000 for each subsequent failure to keep books and records or produce books and records for examination.  [35 ILCS 120/7]  (See Section 86 Ill. Adm. Code 130.801(i)).

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.905  Interest

 

a)         In addition to any penalty provided for in this Act, any amount of tax which is not paid when due shall bear interest at the rate of 1% prior to September 17, 1981, and at the rate of 2% on and after September 17, 1981 and prior to January 1, 1987, and at the rate of 1.25% on and after January 1, 1987 through December 31, 1993, per month or fraction thereof from the date when such tax becomes past due until such tax is paid or a judgment therefor is obtained by the Department (see Section 5 of the Act).  Beginning January 1, 1994, any amount of tax which is not paid when due shall bear interest at the rate and in the manner specified in Sections 3-2 and 3-9 of the Uniform Penalty and Interest Act from the date when such tax becomes past due until such tax is paid or a judgment therefor is obtained by the Department.  Interest shall be simple interest calculated on a daily basis.  Prior to January 1, 2001, interest shall accrue upon tax and penalty due. [35 ILCS 735/3-2(c)]  On and after January 1, 2001, interest shall accrue upon tax due.  [35 ILCS 735/3-2(c-5)]  (See 86 Ill. Adm. Code 700.200, Interest Paid and Interest Charged, 86 Ill. Adm. Code 700.210, Interest Rate Calculation, and 86 Ill. Adm. Code 700.220, Interest Charged Taxpayers.)

 

b)         If the time for making or completing an audit of a taxpayer's books and records is extended with the taxpayer's consent, at the request of and for the convenience of the Department, beyond the date on which the statute of limitations upon the issuance of a notice of tax liability by the Department otherwise would run, no interest shall accrue during the period of such extension or until a Notice of Tax Liability is issued, whichever occurs first. (Section 5 of the Act)

 

(Source:  Amended at 46 Ill. Reg. 15336, effective August 23, 2022)

 

Section 130.910  Criminal Penalties

 

Section 13 of the Act details the criminal penalties for violation of the Retailers' Occupation Tax Act.

 

a)         Failure to File Returns and Filing Fraudulent Returns

When the amount due is under $300, any person engaged in the business of selling tangible personal property at retail in this State who fails to file a return, or who files a fraudulent return, or any officer, employee or agent of a corporation, member, employee or agent of a partnership, or manager, member, agent, or employee of a limited liability company engaged in the business of selling tangible personal property at retail in this State who is under a duty to file a return, who files or causes to be filed or signs or causes to be signed a fraudulent return filed on behalf of such corporation or limited liability company, or any accountant or other agent who knowingly enters false information on the return of any taxpayer under the Act, is guilty of a Class 4 felony.

 

When the amount due is $300 or more, any person engaged in the business of selling tangible personal property at retail in this State who fails to file a return, or who files a fraudulent return, or any officer, employee or agent of a corporation, member, employee or agent of a partnership, or manager, member, agent, or employee of a limited liability company engaged in the business of selling tangible personal property at retail in this State who is under a duty to file a return, who files or causes to be filed or signs or causes to be signed a fraudulent return filed on behalf of such corporation or limited liability company, or any accountant or other agent who knowingly enters false information on the return of any taxpayer under the Act, is guilty of a Class 3 felony.

 

b)         Failure to Comply with Certificate of Registration or Books and Records Requirements

It is unlawful for any person to engage in the business of selling tangible personal property at retail in this State without a certificate of registration issued by the Department pursuant to Section 2a of the Act.  Any person who violates Section 2a of this Act, or who fails to keep books and records, or fails to produce books and records as required by Section 7 of the Act, or who willfully violates a rule or regulation of the Department for the administration and enforcement of the Act, is guilty of a Class A misdemeanor. Any person who engages in the business of selling tangible personal property at retail after the certificate of registration of that person has been revoked is guilty of a Class A misdemeanor.  Each day a person engages in business without a certificate of registration or after revocation of its certificate of registration constitutes a separate offense.

 

c)         Misrepresentation – Registration/Resale Number

Any purchaser who obtains a registration number or resale number from the Department through misrepresentation, or who represents to a seller that such purchaser has a registration number or resale number from the Department when he knows that he does not, or who uses his registration number or resale number to make a seller believe that he is buying tangible personal property for resale when such purchaser in fact knows that this is not the case, is guilty of a Class 4 felony.

 

d)         Over-Collection of Tax

Any seller who collects or attempts to collect an amount (however designated) that purports to reimburse the seller for Retailers' Occupation Tax liability measured by receipts that the seller knows are not subject to Retailers' Occupation Tax, or if a seller knowingly over-collects or attempts to over-collect an amount that purports to reimburse the seller for Retailers' Occupation Tax liability in a transaction subject to tax under the Act, shall be guilty of a Class 4 felony for each such offense.  This subsection does not apply to an amount collected by the seller as reimbursement for the seller's Retailers' Occupation Tax liability on receipts that are subject to tax under the Act as long as such collection is made in compliance with the tax collection brackets prescribed by the Department at 86 Ill. Adm. Code 150.Table A.

 

e)         Prepaid Sales Tax Violations

Any distributor, supplier or other reseller of motor fuel registered pursuant to Section 2a or 2c of the Act who fails to collect the prepaid tax on invoiced gallons of motor fuel sold or who fails to deliver a statement of tax paid to the purchaser or to the Department as required by Sections 2d and 2e of the Act, respectively, shall be guilty of a Class A misdemeanor if the amount due is under $300, and a Class 4 felony if the amount due is $300 or more.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.915  Criminal Investigations

 

a)         All information received by the Department from returns filed under the Retailers' Occupation Tax Act [35 ILCS 120], or from any investigation conducted under the Retailers' Occupation Tax Act, shall be confidential, except for official purposes, and any person who divulges any such information in any manner, except in accordance with a proper judicial order or as otherwise provided by law, shall be guilty of a Class B misdemeanor with a fine not to exceed $7,500. (Section 11 of the Act)

 

b)         When the Department is engaged in a joint investigation with a law enforcement authority, including, but not limited to, State agency law enforcement, federal agency law enforcement, county sheriffs or municipal police, to enforce the Retailers' Occupation Tax Act (ROTA) or another tax Act administered by the Department, it is an official purpose within the meaning of Section 11 of ROTA for the Department to furnish information it receives in administering ROTA with the law enforcement authority. The information shall be provided subject to all confidentiality provisions of Section 11 of ROTA. A person receiving information pursuant to an official purpose who divulges any such information in any manner, except in accordance with a proper judicial order or as otherwise provided by law, shall be guilty of a Class B misdemeanor with a fine not to exceed $7,500.

 

(Source:  Amended at 46 Ill. Reg. 6745, effective April 12, 2022)

SUBPART J: BINDING OPINIONS

 

Section 130.1001  When Opinions from the Department are Binding

 

a)         Taxpayers may not rely on verbal opinions from Department employees. For Department rules concerning the binding effect of Private Letter Rulings and General Information Letters, see 2 Ill. Adm. Code 1200.

 

b)         For Department rules concerning the rescission of Private Letter Rulings, see 2 Ill. Adm. Code 1200.

 

c)         As used in this Part, "Regulation" means any Department rule or Regulation of general application, whether called a "Rule", a "Regulation", an "Article", a "Section", a "Part" or something else.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

SUBPART K: SELLERS LOCATED ON, OR SHIPPING TO, FEDERAL AREAS

 

Section 130.1101  Definition of Federal Area

 

As used in this Regulation, the term "Federal area" means any lands or premises held or acquired by or for the use of the United States or any department, establishment or agency of the United States.  Any Federal area, or any part thereof, which is located within the exterior boundaries of the State of Illinois, is deemed to be a Federal area located within the State of Illinois for the purposes of this Regulation.

 

(Source:  Amended and effective April 8, 1963)

 

Section 130.1105  When Deliveries on Federal Areas Are Taxable

 

Provided the tax would otherwise apply, persons engaged in the business of selling tangible personal property for use or consumption are required to remit Retailers' Occupation Tax to the Department notwithstanding the fact that the delivery of the personal property sold is made on a Federal area.  It is immaterial that the place of business of such persons may be located on the Federal area.  While the Act does not apply to any receipts from sales made by the United States Government, or instrumentalities thereof (see Section 130.2055 of this Part), concessionaires and other retailers having places of business located on Federal areas are subject to the Act.

 

(Source:  Amended and effective April 8, 1963)

 

Section 130.1110  No Distinction Between Deliveries on Federal Areas and Illinois Deliveries Outside Federal Areas

 

The Retailers' Occupation Tax applies and will be collected in the same manner and to the same extent with respect to gross receipts within the purview of this Regulation as when such gross receipts are received by sellers from sales in which delivery of personal property is made within the external boundaries of the State of Illinois as a place other than a "Federal area".

 

(Source:  Amended and effective April 8, 1963)

SUBPART L: TIMELY MAILING TREATED AS TIMELY FILING AND PAYING

 

Section 130.1201  General Information

 

a)         Any report, claim, tax return, statement or other document required or authorized to be filed with or any payment made to the Department of Revenue, which document or payment is transmitted through the United States mail, will be deemed to have been filed with and received by the Department on the date shown by the post office cancellation mark stamped upon the envelope or other appropriate wrapper containing it.  If mailed but not received by the Department, or if received but the cancellation mark is illegible, erroneous or omitted, the document or payment will be deemed to have been filed on the date it was mailed if the sender establishes by competent evidence that the document or payment was deposited in the United States mail on or before the date due for filing. If the envelope or other wrapper bears a postmark made by a private postage meter in addition to a legible postmark made by the United States Postal Service, the postmark not made by the United States Postal Service shall be disregarded.  In the event of the Department's failure to receive a document or payment required by law to be filed, such document or payment will be deemed to have been received by the Department on time if the sender files with the Department a duplicate within 30 days after written notification is given to the sender by the Department of its failure to receive such document or payment, provided proof is furnished that the original of the document was deposited in the United States mail on or before the date due for filing.

 

b)         If any report, claim, tax return, statement, remittance or other document is sent by United States registered mail, certified mail or certificate of mailing, a record authenticated by the United States Post Office of such registration, certification or certificate shall be considered competent evidence that the report, claim, tax return, statement, remittance or other document was mailed, and the date of registration, certification or certificate shall be deemed to be the date of the postmark made by the United States Postal Service.

 

c)         Reports, claims, tax returns, statements, remittances or other documents delivered by means other than the United States mail are considered to be filed on the date they are received by the Department.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.1205  Due Date that Falls on Saturday, Sunday or a Holiday

 

If the due date for any return or other report or payment falls on Saturday, Sunday or a Holiday, such due date shall be considered to be the next business date either for the purpose of submitting such return or other report or payment by mail or for the purpose of submitting such return or other report or payment in person.

 

(Source:  Amended at 3 Ill. Reg. 13, p. 93, effective March 25, 1979)

SUBPART M: LEASED PORTIONS OF LESSOR'S BUSINESS SPACE

 

Section 130.1301  When Lessee of Premises Must File Return for Leased Department

 

Where a person engaging in the business of selling tangible personal property at retail leases to other persons, for use by them in engaging in the business of selling tangible personal property at retail, certain parts of the premises in which the lessor conducts his business, each such lessee may file his own Retailers' Occupation Tax returns with the Department if he operates under his own trade name, and a separate identity from the lessor is made known to the general public.

 

(Source:  Amended and effective January 6, 1969)

 

Section 130.1305  When Lessor of Premises Should File Return for Business Operated on Leased Premises

 

If a lessee operates a business on the lessor's premises under the identity of the lessor,  then the lessor must report and remit the lessee's tax on the lessor's Retailers' Occupation Tax return.  However, if the lessor permits the lessee to file his own Retailers' Occupation Tax return, the Department of Revenue reserves the right to proceed against the lessor or the lessee or both in the event that the Retailers' Occupation Tax liability incurred by the business operated on the lessor's premises is not properly discharged. An example of such an arrangement is an antique store where spaces are rented to different antique dealers, but the entire store is operated under the identity of the antique store/lessor.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.1310  Meaning of "Lessor" and "Lessee" in this Regulation

 

The word "lessor" shall include lessors, concessioners and licensors.  The word "lessee" shall include lessees, concessionaires and licensees.

 

(Source:  Amended and effective January 6, 1969)

SUBPART N: SALES FOR RESALE

 

Section 130.1401  Seller's Responsibility to Determine the Character of the Sale at the Time of the Sale

 

a)         A person who sells tangible personal property to a purchaser who may use or consume such property within the meaning of the Act, but who also may resell such property, must determine, at the time when he sells the property to such purchaser, whether the purchaser is buying the property "for use or consumption" within the meaning of the Act or whether the purchaser is buying the property "for resale".  Section 2c of the Act provides that purchasers of tangible personal property for resale shall apply to the Department for resale numbers. In determining whether a sale is for resale, the seller shall request that the purchaser provide a resale number and certification that the sale is for resale.  This determination is required in order that the seller may properly file the returns required by the Act and compute his tax liability. So long as the seller obtains a certificate of resale from the purchaser that contains all information required by Section 130.1405, the seller need not verify that the tangible personal property he sells for resale is actually resold.

 

b)         This determination is not necessary (and no Certificate of Resale is therefore required) as to sales made to any corporation, society, association, foundation or institution organized and operated exclusively for charitable, religious or educational purposes or any not-for-profit corporation, society, association, foundation, institution or organization which has no compensated officers or employees and which is organized and operated primarily for the recreation of persons 55 years of age or older, or as to sales made on or after March 21, 1963, to a governmental body because receipts from such sales are exempted from the Act whether such sales are at retail or whether such sales are for resale. For information concerning sales to purchasers of the kind listed in the preceding sentence, see Sections 130.2005 and 130.2080 of this Part. If the sale to such a purchaser in fact is a sale for resale, the seller is still permitted to claim exemption from the tax on the ground that such sale is a sale for resale and to obtain a corroborating Certificate of Resale from the purchaser.

 

c)         For information concerning resale certifications by construction contractors who are also retailers of building materials, see Section 130.2075 of this Part.

 

d)         For information concerning resale certifications by servicemen who are also retailers, see the Regulations pertaining to the Service Occupation Tax Act (86 Ill. Adm. Code 140).

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.1405  Seller's Responsibility to Obtain Certificates of Resale and Requirements for Certificates of Resale

 

a)         Except in the case of sales to totally exempt purchasers, when sales for resale are made, sellers should, for their protection, take a Certificate of Resale from the purchaser.  Mere statements by sellers that property was sold for resale will not be accepted by the Department without corroborative evidence.  Certificates of Resale may be made a part of purchase orders signed by the purchaser.

 

b)         A Certificate of Resale is a statement signed by the purchaser that the property purchased by him is purchased for purposes of resale.  Provided that this statement is correct, the Department will accept Certificates of Resale as prima facie proof that sales covered thereby were made for resale.  In addition to the statement, a Certificate of Resale must contain:

 

1)         The seller's name and address;

 

2)         the purchaser's name and address;

 

3)         a description of the items being purchased for resale;

 

4)         purchaser's signature, or the signature of an authorized employee or agent of the purchaser, and date of signing;

 

5)         Registration Number, Resale Number, or Certification of Resale to Out-of-State Purchaser

 

A)        purchaser's registration number with the Illinois Department of Revenue; or

 

B)        purchaser's resale number issued by the Department of Revenue; or

 

C)        a statement that the purchaser is an out-of-State purchaser who will sell only to purchasers located outside the State of Illinois.

 

For information regarding the Seller's Responsibility to Determine the Character of the Sale at the Time of the Sale, see 86 Ill. Adm. Code 130.1401.

 

c)         If all of a purchaser's purchases are for resale, a purchaser may provide a blanket Certificate of Resale to a seller.

 

1)         While there is no statutory requirement that blanket Certificates of Resale be renewed at certain intervals, blanket Certificates should be updated periodically, and no less frequently than every three years.

 

2)         If a purchaser knows that a certain percentage of all purchases from a given seller will be made for purposes of resale, he may accept a blanket Certificate of Resale stating that a designated percentage of the sales made by such seller to such purchaser will be made for purposes of resale.

 

d)         Failure to present an active registration number or resale number and a certification to the seller that a sale is for resale creates a presumption that a sale is not for resale.  This presumption may be rebutted by other evidence that all of the seller's sales are sales for resale, or that a particular sale is a sale for resale (Section 2c of the Act). For example, other evidence that might be used to document a sale for resale, when a registration number or resale number and certification to the seller are not provided, could include an invoice from the purchaser to his customer showing that the item was actually resold, along with a statement from the purchaser explaining why it had not obtained a resale number and certifying that the purchase was a purchase for resale in Illinois.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.1410  Requirements for Certificates of Resale (Repealed)

 

(Source:  Repealed at 15 Ill. Reg. 6621, effective April 17, 1991)

 

Section 130.1415  Resale Number – When Required and How Obtained

 

a)         If the purchaser is not registered with the Department as a taxpayer, but claims to be a reseller of the tangible personal property in such a way that such resales are not taxable under the Retailers' Occupation Tax Act ("Act") or under some other tax law that the Department administers, such purchaser, except in the case of an out-of-State purchaser who will always resell and deliver the property to customers outside Illinois, shall apply to the Department for a resale number.  Such applicant shall state facts detailing why such applicant is not liable for tax under the Act or under some other tax law that the Department administers on any of its resales and shall furnish such additional information as the Department may reasonably require.

 

b)         Examples of purchasers for resale who would need a resale number from the Department are persons who resell only to schools and other totally exempt purchasers and persons who resell only to purchasers who in turn resell the property apart from engaging in a service occupation.

 

c)         Upon approval of the application, the Department will assign a resale number to the applicant and will certify such number to the applicant.  The Department may cancel any such number that is obtained through misrepresentation, that is used to make a purchase tax free when the purchase, in fact, is not a purchase for resale, or that no longer applies because the purchaser has discontinued making tax-exempt resales of the property.

 

d)         The Department may restrict the use of the number to one year at a time or to some other definite period if the Department finds it impracticable or otherwise inadvisable to issue such numbers for indefinite periods.

 

e)         Except as provided in this Section, a sale shall be made tax free on the ground of being a sale for resale if the purchaser has an active registration number or resale number from the Department and furnishes that number to the seller when certifying to the seller that any sale to such purchaser is nontaxable because of being a sale for resale.

 

f)         For the purpose of enabling agricultural producers to buy feed, seed, fertilizer, and baby chicks for resale to the extent permitted by Sections 130.1970, 130.2100, and 130.2110 of this Part and still be in compliance with Section 2c of the Act, such agricultural producers who are not registered with the Department as retailers will be given a resale number as a class, without making application, individually to the Department, with all such persons being assigned the same resale number by the Department.

 

g)         The Department will assign Resale Number 0000-0110 to all such buyers of feed, seed, fertilizer, and baby chicks for this purpose.

 

h)         Nothing that is stated hereinabove changes anything contained in Sections 130.1970, 130.2100, and 130.2110 of this Part.

 

(Source:  Amended at 49 Ill. Reg. 2107, effective February 5, 2025)

 

Section 130.1420  Blanket Certificate of Resale (Repealed)

 

(Source:  Repealed at 15 Ill. Reg. 6621, effective April 17, 1991)

SUBPART O: CLAIMS TO RECOVER ERRONEOUSLY PAID TAX

 

Section 130.1501  Claims for Credit – Limitations – Procedure

 

a)         Limitations Upon Claims

 

1)         Where a taxpayer under the Retailers' Occupation Tax Act pays to the Department an amount of tax or penalty or interest not due under the provisions of the Act, either as the result of a mistake of fact or an error of law, such taxpayer may file a claim for credit with the Department.  Beginning August 17, 1995, tax is deemed to be erroneously paid by a retailer when the manufacturer of a motor vehicle sold by the retailer accepts the return of that automobile and refunds to the purchaser the purchase price of the vehicle, as provided in Section 3 of the New Vehicle Buyer Protection Act [815 ILCS 380/3].  The claim is limited to taxes applicable to the purchase price of the automobile refunded to the consumer, which includes all collateral charges required to be included in the sales tax calculation (e.g., documentary fees), but does not include any reasonable allowance for consumer use of the automobile deducted from the purchase price by the manufacturer.  Retailers filing such claims must comply with all requirements of this Section.

 

2)         The Department cannot approve any claim for credit unless the proof submitted in support thereof clearly establishes that the claimant has borne the burden of the tax erroneously paid or that the claimant has unconditionally repaid the amount of the tax to the vendee from whom the claimant has collected such amount.  In the latter event, the claimant must also prove that the vendee has borne the burden of such amount or has unconditionally repaid persons to whom such vendee has shifted the burden of such amount (see Section 6 of the Retailers' Occupation Tax Act).  The retailer will be considered to have satisfied the unconditional repayment requirement where it provides its purchaser with an instrument upon which the purchaser can make a demand upon the retailer/claimant for payment of the tax recovered if the claim is allowed.  The retailer's provision of unconditional promissory notes or irrevocable credit memoranda to its purchasers who paid tax in error would satisfy this requirement.  The purpose of requiring the retailer to make an unconditional repayment to its purchasers is to prevent unjust enrichment on the part of the retailer.  Therefore, in order to establish that it was not unjustly enriched, the retailer filing a claim for credit must be able to demonstrate that it gave unconditional promissory notes or irrevocable credit memoranda to its purchasers who paid tax in error to the retailer.

 

3)         In addition, if the Retailers' Occupation Tax was paid on receipts from a sale made on or after August 1, 1955, no credit shall be allowed for any such amount paid by or collected from any claimant unless it shall appear that the claimant has unconditionally repaid, to the purchaser, any amount collected from the purchaser and retained by the claimant with respect to the same transaction under the Use Tax Act.

 

4)         The Department cannot approve any claim for credit to the extent that the amount claimed is an amount which has been paid (voluntarily or involuntarily) in total or partial liquidation of an assessment which had become final before the claim for credit to recover the amount so paid is filed with the Department, or if paid in total or partial liquidation of a judgment, order or decree of court.  Also, all claims for credit are subject to the statute of limitations, as follows:

 

Provided that as to any claim for credit filed with the Department on and after each January 1 and July 1 no amount of tax or penalty or interest erroneously paid (either in total or partial liquidation of a tax or penalty or amount of interest under the Act) more than 3 years prior to such January 1 and July 1, respectively, shall be credited; . . . except that if both the Department and the taxpayer have agreed to an extension of time to issue a notice of tax liability as provided in Section 4 of the Act, such claim may be filed at any time prior to the expiration of the period agreed upon. (Section 6 of the Act)

 

Beginning June 25, 2021, for any period included in a claim for credit or refund for which the statute of limitations for issuing a notice of tax liability under this Act will expire less than 6 months after the date a taxpayer files the claim for credit or refund, the statute of limitations is automatically extended for 6 months from the date it would have otherwise expired. (Section 6 of the Act)

 

This means that the normal statute of limitations will vary from 3 to 3½ years as shown in the following examples:

 

A)        On June 29, 2022 a taxpayer files a claim with the Department.  The credit may be allowed for amounts paid on or after January 1, 2019.  The credit will not be allowed for amounts paid on or before December 31, 2018.

 

B)        A taxpayer files a claim with the Department on July 2, 2022.  In this case, amounts paid on or before June 30, 2019 were paid more than three years prior to July 1, 2022 and are not subject to refund.

 

C)        A taxpayer files a claim on November 30, 2021 for the months of October through December 2018.  The claim will be processed by the Department because the time period that is open under the statute of limitations extends back through July 1, 2018.

 

D)        A taxpayer files a claim on January 5, 2000 for the month of October 1996 that was paid on November 20, 1996.  The claim will not be approved by the Department because it is barred by the statute of limitations.  A claim filed on January 5, 2000 only has open periods back through January 1, 1997.

 

E)        During the course of an audit of the periods July 1, 2019 through June 30, 2022, the taxpayer and the Department agree in writing to extend the statute of limitations through December 31, 2023 for the purpose of issuing a notice of tax liability for the audit period.  (See Section 4 of the Act.) This extension of the time for issuing a notice of tax liability also extends the period under which the taxpayer may file a claim.  (See Section 6 of the Act.)  Therefore a claim filed by the taxpayer on November 27, 2023 to recover a payment that was filed and paid on July 20, 2019 will be processed because the open time limit for filing claims extends back to July 1, 2019 pursuant to the agreement.  This is true even if the payment was for the June 2019 monthly return (due date of July 20, 2019) and June 2019 is outside the statute of limitations period for issuing a notice of tax liability.  However, since the claim was filed within 6 months of when the statute of limitations would expire, which in this case is through December 31, 2023, the statute of limitations for issuing a notice of tax liability is automatically extended 6 months through June 30, 2024.  It is important to note that the 6-month automatic extension of time for issuing a notice of tax liability does not grant an extension of time for filing a claim.

 

b)         Filing of Claims

 

1)         Claims for credit shall be prepared and filed upon forms provided by the Department and available at www.tax.illinois.gov.  Each claim shall state:

 

A)        the name and principal business address of the claimant;

 

B)        the period covered by the claim;

 

C)        the total amount of credit claimed, giving in detail the net amount of taxable receipts reported each month or other return period used by the claimant as the basis for filing returns in the period covered by the claim;

 

D)        the total amount of tax paid for each return period;

 

E)        receipts upon which tax liability is admitted for each return period;

 

F)         the amount of receipts on which credit is claimed for each return period;

 

G)        the tax due for each return period as corrected;

 

H)        the amount of credit claimed for each return period;

 

I)         reason or reasons why the amount, for which the claim is filed, is alleged to have been paid in error;

 

J)         a list of the evidence (documentary or otherwise) which the claimant has available to establish its compliance with Section 6 as to bearing the burden of the tax for which the claimant seeks credit;

 

K)        payments or parts thereof (if any) included in the claim and paid by the claimant under protest;

 

L)        sufficient information to identify any suit which involves the Act, and to which the claimant is a party; and

 

M)       such other information as the Department may reasonably require.

 

2)         Where the claimant is a corporation, the claim filed on behalf of such corporation shall be signed by the president, vice-president, secretary or treasurer or by the properly accredited agent of such corporation.

 

3)         A claim for credit shall be considered to have been filed with the Department on the date upon which it is received by the Department.  (See Sections 130.1201 and 130.1205 of this Part for further information regarding when claims are deemed to be "received" by the Department.)

 

4)         Upon receipt of any claim for credit filed under the Act, any officer or employee of the Department, authorized in writing by the Director of Revenue to acknowledge receipt of such claims on behalf of the Department, shall execute on behalf of the Department, and shall deliver or mail to the claimant or its duly authorized agent, a written receipt, acknowledging that the claim has been filed with the Department, describing the claim in sufficient detail to identify it and stating the date upon which the claim was received by the Department.

 

5)         Such written receipt shall be prima facie evidence that the Department received the claim described in such receipt and shall be prima facie evidence of the date when such claim was received by the Department.

 

6)         In the absence of such a written receipt, the records of the Department as to when the claim was received by the Department, or as to whether or not the claim was received at all by the Department, shall be deemed to be prima facie correct upon these questions in the event of any dispute between the claimant (or its legal representative) and the Department concerning these questions. (See Section 6a of the Act.)

 

c)         Procedure After Filing of Claims

 

1)         The Department will examine each claim for credit as soon as practicable after such claim is filed and will notify the claimant (or its legal representative, if the claim is filed by such legal representative, or if the claimant has died or become incompetent and such legal representative has notified the Department of its appointment and qualification as such legal representative, or if the Department, on its own motion, has substituted such legal representative in the proceeding for the deceased or incompetent claimant) of its Tentative Determination of the amount of credit, if any, to which the claimant or its legal representative is entitled.

 

2)         If such claimant, or the legal representative of a deceased or incompetent taxpayer, shall, within 60 days after the Department's Notice of Tentative Determination of Claim, file a protest and request a hearing, the Department shall give notice to the claimant, or to the legal representative of a deceased or incompetent taxpayer, of the time and place fixed for the hearing, and shall hold a hearing in conformity with the provisions of the Act, and pursuant thereto shall issue its Final Determination of the amount of credit, if any, found to be due as a result of the hearing, to the claimant, or to the legal representative of a deceased or incompetent taxpayer.

 

3)         If a protest to the Department's Notice of Tentative Determination of Claim is not filed within 60 days and a request for a hearing is not made as provided in subsection (c)(2), the Notice shall thereupon become and operate as a Final Determination.  (See Sections 6b and 6c of the Act.)

 

4)         If, following the above procedure, a credit is found to be due, as evidence thereof a credit memorandum for such amount shall be issued in the name of the claimant.

 

d)         Credit Memoranda in Amounts Less Than $10.  Where a credit memorandum issued by the Department has an outstanding balance of less than $10 and one year or more has passed from the date of issuance of the credit memorandum, the Department may cancel the credit memorandum and issue a refund in lieu thereof for the remaining balance.  The refund shall be delivered to the person entitled to receive delivery thereof.

 

e)         Use of Credit Memoranda or Refund Issued in Lieu Thereof to Satisfy Prior Rights of Department

 

1)         If there is an established unpaid assessment or an admitted unpaid liability, or unpaid penalty, or unpaid amount of interest, against the claimant either under the Retailers' Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act, the Service Use Tax Act, any local Occupation or Use Tax administered by the Department, Section 4 of the Water Commission Act of 1985 [70 ILCS 3720/4], Section 5.01(b), (c) and (d) of the Local Mass Transit District Act [70 ILCS 3610/5.01], or Section 4.03(e), (f) and (g) of the Regional Transportation Authority Act [70 ILCS 3615/4.03], the amount of the credit or refund issued in lieu thereof shall be credited against the tax or penalty or interest due or to become due under the Retailers' Occupation Tax Act, or under the Use Tax Act, the Service Occupation Tax Act, the Service Use Tax Act, the Home Rule Municipal Retailers' Occupation Tax Act, the Non-Home Rule Municipal Retailers' Occupation Tax Act, any local Occupation or Use Tax administered by the Department, Section 4 of the Water Commission Act of 1985, Section 5.01(b), (c) and (d) of the Local Mass Transit District Act, or Section 4.03(e), (f) and (g) of the Regional Transportation Authority Act, from the person who made the erroneous payment.

 

2)         If the credit or refund issued in lieu thereof is in an amount less than that of the unpaid liability, it shall be applied pro tanto.

 

3)         If the amount of the credit or refund issued in lieu thereof exceeds that of the unpaid liability, after crediting an amount sufficient to liquidate or cancel out such unpaid liability, a new credit memorandum or refund shall be issued for an amount representing the difference between that of the original credit found to be due and that of the liability liquidated or paid as aforesaid, and such new credit memorandum or refund shall be delivered to the person entitled to receive delivery thereof, provided that no proceeding is pending against the claimant to establish an unpaid liability under the Retailers' Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act, the Service Use Tax Act, any local Occupation or Use Tax administered by the Department, Section 4 of the Water Commission Act of 1985, Section 5.01(b), (c) and (d) of the Local Mass Transit District Act, or Section 4.03(e), (f) and (g) of the Regional Transportation Authority Act.

 

4)         If a proceeding to establish such an unpaid liability is pending, the credit memorandum or refund in lieu thereof shall be held by the Department until such proceeding is concluded; and if such proceeding results in the issuance of an assessment which becomes final, the credit or refund in lieu thereof shall be applied by the Department, to the extent which may be necessary, in liquidation of such assessment, or any interest that may accrue thereon, and the balance of the credit or refund in lieu thereof, if any (after cancellation of the credit memorandum or refund in lieu thereof applied in liquidation of such liability), shall be issued in the form of a new credit memorandum or refund and delivered to the person entitled to receive delivery thereof.

 

(Source:  Amended at 47 Ill. Reg. 5751, effective April 4, 2023)

 

Section 130.1505  Disposition of Credit Memoranda by Holders Thereof

 

a)         Assignment of Credit Memoranda

 

1)         Credit memoranda issued in accordance with the provisions of Section 6 of the Act may be assigned or transferred only after a request for that purpose is filed with the Department upon forms prescribed and furnished by it, and subject to the following conditions:

 

A)        That the assignment is made to a person who is subject to the Retailers' Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act, the Service Use Tax Act, the Home Rule Municipal Retailers' Occupation Tax Act, the Non-Home Rule Municipal Retailers' Occupation Tax Act, the Home Rule Municipal Service Occupation Tax Act, the Non-Home Rule Municipal Service Occupation Tax Act, the Home Rule County Retailers' Occupation Tax Act, the County Supplementary Retailers' Occupation Tax Act, the Home Rule County Service Occupation Tax Act, Section 4 of the Water Commission Act of 1985, subsections (b), (c) and (d) of Section 5.01 of the Local Mass Transit District Act, or subsections (e), (f) and (g) of Section 4.03 of the Regional Transportation Authority Act;

 

B)        that there is no proceeding pending to establish an unpaid liability against the assignor pursuant to notice given of the Department's proposal to assess an amount against him either under the Retailers' Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act, the Service Use Tax Act, the Home Rule Municipal Retailers' Occupation Tax Act, the Non-Home Rule Municipal Retailers' Occupation Tax Act, the Home Rule Municipal Service Occupation Tax Act, the Non-Home Rule Municipal Service Occupation Tax Act, Section 4 of the Water Commission Act of 1985, subsections (b), (c) and (d) of Section 5.01 of the Local Mass Transit District Act, or subsections (e), (f) and (g) of Section 4.03 of the Regional Transportation Authority Act, and

 

C)        that there is no established assessment or admitted liability or interest or penalty unpaid by the assignor, either under the Retailers' Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act, the Service Use Tax Act, the Home Rule Municipal Retailers' Occupation Tax Act, the Non-Home Rule Municipal Retailers' Occupation Tax Act, the Home Rule Municipal Service Occupation Tax Act, the Non-Home Rule Municipal Service Occupation Tax Act, the Home Rule County Retailers' Occupation Tax Act, the Home Rule County Service Occupation Tax Act, Section 4 of the Water Commission Act of 1985, subsections (b), (c) and (d) of Section 5.01 of the Local Mass Transit District Act, or subsections (e), (f) and (g) of Section 4.03 of the Regional Transportation Authority Act:  Provided that if the amount of the credit memorandum must first be applied, in whole or in part, against an established unpaid assessment which has been issued to the claimant-assignor, or in total or partial liquidation of an unpaid admitted tax liability, or unpaid penalty, or unpaid amount of interest, of the claimant-assignor, notice to this effect shall be given to the claimant-assignor by the Department.

 

2)         If any balance is due such claimant-assignor, after application of the credit memorandum in the manner and to the purposes aforesaid, such balance may be assigned upon receipt by the Department of instructions to that effect.  If there are no unpaid established assessments or unpaid admitted tax liabilities, or unpaid penalties, or unpaid amounts of interest, due from the claimant-assignor, and if there are no pending proceedings as herein outlined, against the claimant-assignor, and if the contemplated assignee is a person who is subject to the Retailers' Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act, the Service Use Tax Act, the Home Rule Municipal Retailers' Occupation Tax Act, the Non-Home Rule Municipal Retailers' Occupation Tax Act, the Home Rule Municipal Service Occupation Tax Act, the Non-Home Rule Municipal Service Occupation Tax Act, the Home Rule County Retailers' Occupation Tax Act, the Home Rule County Service Occupation Tax Act, Section 4 of the Water Commission Act of 1985, subsections (b), (c) and (d) of Section 5.01 of the Local Mass Transit District Act, or subsections (e), (f) and (g) of Section 4.03 of the Regional Transportation Authority Act, the request for leave to assign shall be approved; the original credit memorandum shall be cancelled, and a new credit memorandum shall be issued to the assignee in the amount shown on the canceled memorandum, except that where the credit balance is in an amount less than $10, the Department may issue a refund to the claimant-assignor in lieu of approving the assignment and issuing of a credit memorandum to the assignee.  However, before a credit memorandum is issued to the assignee, the amount of such credit shall be applied, to the extent that may be necessary, in liquidation of any established or admitted unpaid liability due from the assignee under the Retailers' Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act, the Service Use Tax Act, Home Rule the Municipal Retailers' Occupation Tax Act, the Non-Home Rule Municipal Retailers' Occupation Tax Act, the Home Rule Municipal Service Occupation Tax Act, the Home Rule County Retailers' Occupation Tax Act, the the Home Rule County Service Occupation Tax Act, Section 4 of the Water Commission Act of 1985, subsections (b), (c) and (d) of Section 5.01 of the Local Mass Transit District Act, or subsections (e), (f) and (g) of Section 4.03 of the Regional Transportation Authority Act, and a credit memorandum for the balance of the credit, if any, shall then be issued to the assignee, except that where the balance of the credit is less than $10, a refund may be issued to the assignee in lieu of a credit memorandum:  Provided that there is no proceeding pending against the assignee to establish an unpaid liability against him.  If a proceeding to establish such an unpaid liability is pending, the credit memorandum or refund shall be held by the Department until such proceeding is concluded; and if such proceeding results in the issuance of an assessment which becomes final, the credit or refund shall be applied by the Department, to the extent which may be necessary, in liquidation of such assessment, and any interest that may accrue thereon, and the balance of the credit or refund, if any (after cancellation of the credit memorandum or refund applied in liquidation of such liability), shall be issued in the form of a new credit memorandum or refund and delivered to the assignor for transmittal to the assignee.

 

b)         Submission of Credit Memoranda With Tax Returns

 

1)         Credit memoranda, in the hands either of the original claimant or of his assignee, may be submitted to the Department, along with tax returns, in payment of any tax liability or penalty or interest under the Retailers' Occupation Tax Act or the Use Tax Act, the Service Occupation Tax Act, the Service Use Tax Act, the Home Rule Municipal Retailers' Occupation Tax Act, the Non-Home Rule Municipal Retailers' Occupation Tax Act, the Home Rule the Non-Home Municipal Service Occupation Tax Act, Municipal Service Occupation Tax Act, the Home Rule County Service Occupation Tax Act, Section 4 of the Water Commission Act of 1985, subsections (b), (c) and (d) of Section 5.01 of the Local Mass Transit District Act, or subsections (e), (f) and (g) of Section 4.03 of the Regional Transportation Authority Act, incurred by the holder of such credit memoranda.

 

2)         If, after applying any such credit memorandum against the amount of liability shown to be due by the tax return with which the credit memorandum is submitted, there is a balance of the credit memorandum in favor of the taxpayer, the Department will cancel the credit memorandum which the taxpayer submits with his return and will issue and deliver to such taxpayer a new credit memorandum for such balance.  This process will be followed until the credit, to which such taxpayer is entitled, is exhausted, except that in the event the credit balance drops to an amount less than $10, the Department may issue a refund of the credit balance to the taxpayer in lieu of a credit memorandum.

 

3)         However, any new credit memorandum or refund, which is issued for a balance of credit due the taxpayer after applying the amount of a credit memorandum to the payment of current taxes, is subject to the prior rights of the Department to the same extent that such prior rights take precedence when a credit memorandum is first issued (see Section 130.1501(d) of this Part) or when leave to assign a credit memorandum is requested (see Section 130.1505(a) of this Part.)

 

(Source:  Amended at 25 Ill. Reg. 12841, effective October 1, 2001)

 

Section 130.1510  Refunds

 

In case the Department determines that the claimant is entitled to a refund, such refund shall be made only from such appropriation as may be available for that purpose.  If it appears unlikely that the amount appropriated would permit everyone having a claim allowed during the period covered by such appropriation to elect to receive a cash refund, the Department will make such refunds only in hardship cases (i.e., in cases in which the claimant cannot use a credit memorandum).  The two most likely situations where this would be the case are the situation in which the claimant has discontinued business and the situation in which the claimant will have a small volume of liability to the Department in the foreseeable future, but receives a large credit memorandum which it therefore might take the claimant a long time to liquidate by using it to pay current taxes.  In these instances, the claimant probably would have to sell the credit memorandum at a loss in order to realize anything from it within any reasonable period of time.

 

(Source:  Amended and effective August 26, 1971)

 

Section 130.1515  Interest

 

a)         Interest paid by the Department to taxpayers and interest charged to taxpayers by the Department shall be at the rate set forth in Section 3-2 of the Uniform Penalty and Interest Act [35 ILCS 735/3-2].

 

b)         No interest will be allowed if the overpayment is found by the Department to have been made deliberately for the purpose of drawing interest, or if the overpayment is ascertained not to have been bona fide for some other reason.

 

c)         When a claim that is allowed is paid by means of a credit memorandum, the claim will be considered to have been paid when the credit memorandum is issued by the Department to the claimant, and no interest will be allowed or paid by the Department for any period subsequent to that, even if the claimant does not use or assign the credit memorandum immediately after it is issued.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.1520  Verified Credit

 

a)         Verified credit.  A verified credit is a specific type of credit arising under Section 3 of the Retailers' Occupation Tax Act, which states:

 

If any payment provided for in this Section exceeds the taxpayer's liabilities under this Act, the Use Tax Act, the Service Occupation Tax Act and the Service Use Tax Act, as shown on an original monthly return, the Department shall, if requested by the taxpayer, issue to the taxpayer a credit memorandum no later than 30 days after the date of payment.  The credit evidenced by such credit memorandum may be assigned by the taxpayer to a similar taxpayer under this Act, the Use Tax Act, the Service Occupation Tax Act or the Service Use Tax Act, in accordance with reasonable rules and regulations to be prescribed by the Department. If no such request is made, the taxpayer may credit such excess payment against tax liability subsequently to be remitted to the Department under this Act, the Use Tax Act, the Service Occupation Tax Act or the Service Use Tax Act, in accordance with reasonable rules and regulations prescribed by the Department.  If the Department subsequently determined that all or any part of the credit taken was not actually due to the taxpayer, the taxpayer's 2.1% and 1.75% vendor's discount shall be reduced by 2.1% or 1.75% of the difference between the credit taken and that actually due, and that taxpayer shall be liable for penalties and interest on such difference.  [35 ILCS 120/3]

 

b)         Verified credit – explanation – no interest paid.  A verified credit is an amount of tax overpaid in a prior period that may be rolled over and applied to subsequent tax liabilities without the need to comply with the formalities involved in submitting a claim for credit.  Since the taxpayer has the immediate use of the verified credit to apply against its liability without the need to file a claim for credit and prove the overpayment, interest is not paid on verified credits.  (See also, 86 Ill. Adm. Code 700.230(a)(2)).  Verified credits appear on a taxpayer's Statement of Account.

 

c)         Verified credit − How used.  A verified credit may be used by a taxpayer in only 3 ways:

 

1)         It can be used to offset liability of the taxpayer that arises under this Act, the Use Tax Act, the Service Occupation Tax Act, or the Service Use Tax Act subsequent to the origination of the verified credit;

 

2)         It can be converted to a credit memorandum no later than 30 days after the date of overpayment, by making a request to the Department using forms prescribed by the Department and available at www.tax.illinois.gov.  See [35 ILCS 120/6a], for information required to be included.  Interest is not paid on verified credits that are converted to credit memoranda in accordance with this subsection (c)(2); and

 

3)         It can be converted to a credit memorandum at any time, starting 30 days after the date of overpayment, by making a request to the Department using forms prescribed by the Department and available at www.tax.illinois.gov, and without regard to the limitations on claims for refund.  See also 86 Ill. Adm. Code 150.1401 for information on limitations and procedures.  Interest is not paid on verified credits that are converted to credit memoranda in accordance with this subsection (c)(3).

 

d)         A verified credit that is converted to a credit memorandum under this subsection (d) may be assigned to another taxpayer in the same manner as other credit memoranda issued to taxpayers by the Department.

 

(Source:  Added at 46 Ill. Reg. 18827, effective November 1, 2022)

SUBPART P: PROCEDURE TO BE FOLLOWED UPON SELLING OUT OR DISCONTINUING BUSINESS

 

Section 130.1601  When Returns are Required After a Business is Discontinued

 

Where a taxpayer under the Retailers' Occupation Tax Act sells out or discontinues his business, such taxpayer shall continue to file returns regularly and pay tax with such returns with respect to gross receipts (i.e., collections) accruing thereafter on account of sales at retail made by him up to the date upon which he sells out or discontinues his business.  Such gross receipts should be reported and paid upon notwithstanding the fact that the taxpayer is not still actively engaged in the business of selling tangible personal property for use or consumption.  For the purposes of filing a final return under Section 130.520 of this Part, the taxpayer is not considered to have discontinued business as long as he continues to collect receipts on which he is required to remit tax to the Department.

 

(Source:  Amended and effective April 8, 1963)

 

Section 130.1605  When Returns Are Not Required After Discontinuation of a Business

 

However, if such taxpayer has been duly granted permission by the Department, and has consistently used gross amount of sales as the method of computing his liability for tax under the Act, he will not be required to continue to file returns or to pay any tax after selling out or discontinuing his business except for the final return which would be due from him in any event under Section 130.520 of this Part for the last reporting period in which he did operate his business, but, in this event, he must file with the Department a Certificate of Discontinuation of Business.  Since such taxpayer has filed returns and paid tax with respect to all sales made by him at the time when such sales were made, he does not receive any further receipts which are subject to the Retailers' Occupation Tax.

 

(Source:  Amended and effective April 8, 1963)

 

Section 130.1610  Cross Reference to Bulk Sales Regulation

 

For information concerning Bulk Sales of businesses under the Retailers' Occupation Tax (Ill. Rev. Stat. 1979, ch. 120, par. 444j), see Subpart Q of this Part.

 

(Source:  Amended and effective April 8, 1963)

SUBPART Q: NOTICE OF SALES OF GOODS IN BULK

 

Section 130.1701  Bulk Sales:  Notices of Sales of Business Assets

 

a)         If any taxpayer, outside the usual course of his or her business, sells or transfers the major part of any one or more of:

 

1)         the stock of goods which the taxpayer is engaged in the business of selling, or

 

2)         the furniture or fixtures, the machinery or equipment, or the real property of any business that is subject to the provisions of the Act,

 

the purchaser or transferee of such assets shall, no later than 10 business days prior to the sale or transfer, file a notice of sale or transfer of business assets with the Department disclosing the name and address of the seller or transferor, the name and address of the purchaser or transferee, the date of the sale or transfer, a copy of the sales contract and financing agreements, which shall include a description of the property sold, the amount of the purchase price or a statement of other consideration for the sale or transfer, the terms for payment of the purchase price and such other information as the Department may reasonably require.  If the purchaser or transferee fails to file the above-described notice of sale with the Department within the prescribed time, the purchaser or transferee shall be personally liable for the amount owed under this Section by the seller or transferor to the Department up to the amount of the reasonable value of the property acquired by the purchaser or transferee.  The seller or transferor shall pay the Department the amount of tax, penalty and interest (if any) due from him or her under the Act up to the date of the payment of tax.  The seller or transferor, or the purchaser or transferee, at least 10 business days before the date of the sale or transfer, may notify the Department of the intended sale or transfer and request the Department to audit the books and records of the seller or transferor, or to do whatever else may be necessary to determine how much the seller or transferor owes to the Department under the Act up to the date of the sale or transfer.  The Department shall take such steps as may be appropriate to comply with the request.

 

b)         Any order issued by the Department pursuant to the Act and this Section to withhold from the purchase price shall be issued within 10 business days after the Department receives notification of a sale as provided in the Act and this Section.  The purchaser or transferee shall withhold such portion of the purchase price as may be directed by the Department, but not to exceed a minimum amount varying by type of business, as determined by the Department pursuant to this Part, plus twice the outstanding unpaid liabilities and twice the average liability of preceding filings times the number of unfiled returns, to cover the amount of all tax, penalty and interest due and unpaid by the seller or transferor under the Act or, if the payment of money or property is not involved, shall withhold the performance of the condition that constitutes the consideration for the sale or transfer. Within 60 business days after issuance of the initial order to withhold, the Department shall provide written notice to the purchaser or transferee of the actual amount of all taxes, penalties and interest then due and whether or not additional amounts may become due as a result of unfiled returns, pending assessments and audits not completed. The purchaser or transferee shall continue to withhold the amount directed to be withheld by the initial order or such lesser amount as is specified by the final withholding order or to withhold the performance of the condition which constitutes the consideration for the sale or transfer until the purchaser or transferee receives from the Department a certificate showing that such tax, penalty and interest have been paid or a certificate from the Department showing that no tax, penalty or interest is due from the seller or transferor under the Act.

 

c)         The purchaser or transferee is relieved of any duty to continue to withhold from the purchase price and of any liability for tax, penalty or interest due under the Act from the seller or transferor if the Department fails to notify the purchaser or transferee in the manner provided in this Section of the amount to be withheld within 10 business days after the sale or transfer has been reported to the Department or within 60 business days after issuance of the initial order to withhold as the case may be. The Department shall have the right to determine amounts claimed on an estimated basis to allow for non-filed periods, pending assessments and audits not completed, however, the purchaser or transferee shall be personally liable only for the actual amount due when determined.

 

d)         If the seller or transferor fails to pay the tax, penalty and interest (if any) due from him or her under the Act and the Department makes timely claim therefor against the purchaser or transferee as provided in subsection (b), then the purchaser or transferee shall pay the amount so withheld from the purchase price to the Department. If the purchaser or transferee fails to comply with the requirements of Section 5j of the Act, the purchaser or transferee shall be personally liable to the Department for the amount owed under the Act by the seller or transferor to the Department up to the amount of the reasonable value of the property acquired by the purchaser or transferee.

 

e)         Any person who shall acquire any property or rights thereto which, at the time of such acquisition, is subject to a valid lien in favor of the Department shall be personally liable to the Department for a sum equal to the amount of taxes secured by such lien but not to exceed the reasonable value of such property acquired by that person. (Section 5j of the Retailers' Occupation Tax Act)

 

f)         Examples of situations where bulk sales reporting is required:

 

1)         When a store selling clothing and shoes sells the clothing inventory of the business to another entity, bulk sales reporting is required.

 

2)         When a company sells its business on a contract for deed basis, bulk sales reporting is required when the contract is entered into.

 

g)         Examples of situations where bulk sales reporting is not required:

 

1)         When a corporation is merged into another corporation pursuant to the Business Corporation Act of 1983 [805 ILCS 5], there are no bulk sales reporting requirements because the surviving corporation retains all of the liabilities of the merged corporation.

 

2)         When one or more corporations are consolidated into a new corporation pursuant to the Business Corporation Act of 1983 [805 ILCS 5], there are no bulk sales reporting requirements because the new corporation retains all of the liabilities of the consolidated corporations.

 

3)         A repossession of equipment and inventory by a lender upon default by a borrower does not constitute a transfer within the meaning of the bulk sales provisions of the Act.  For example, when a company is in default on a loan for business furniture and fixtures and the holder of the security interest forecloses and enters the business to repossess the furniture and fixtures, bulk sales reporting is not required.

 

4)         A transfer of the majority of assets from one location to another location where a business has multiple locations and operates such locations under the same certificate of registration number is not a transfer that requires bulk sales reporting.

 

(Source:  Amended at 46 Ill. Reg. 18120, effective October 25, 2022)

SUBPART R: POWER OF ATTORNEY

 

Section 130.1801  When Powers of Attorney May be Given

 

In certain instances, persons liable for tax under the Retailers' Occupation Tax Act desire, for convenience, to have other persons make the returns, pay the tax, request Private Letter Rulings, and perform any and all other duties required of them under the Act.  In all cases, where the revenues of the State will not be jeopardized, the Department will permit taxpayers, by properly executed and acknowledged powers of attorney, to appoint other persons to act as their attorneys for the purpose of filing returns and of performing other acts under the Retailers' Occupation Tax Act.  (Also see Practice and Procedure for Hearings Before the Illinois Department of Revenue, 86 Ill. Adm. Code 200.110(c) and Public Information, Rulemaking and Organization, 2 Ill. Adm. Code 1200.110(b)(8).)

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.1805  Filing of Power of Attorney With Department

 

In all instances, an original, a duplicate original or photostatic copy of such power of attorney, with signature of the principal duly acknowledged before a person authorized to take acknowledgments, must be filed with the Department.

 

(Source:  Amended and effective April 8, 1963)

 

Section 130.1810  Filing of Papers by Agent Under Power of Attorney

 

Returns, claims or other papers filed by an agent for a principal must be filed in the name of the principal by the agent as Agent or as Attorney in Fact. If an agent files returns for more than one principal, he must file separate returns for each such principal.

 

(Source:  Amended and effective April 8, 1963)

SUBPART S: SPECIFIC APPLICATIONS

 

Section 130.1901  Addition Agents to Plating Baths

 

a)         Various chemical compounds and addition agents are added to plating baths in order to improve the finished product, make the process more economical, make the process faster, improve anode corrosion, lower the surface tension, aid in maintaining constant pH, sequester impurities, remove impurities, or, in fact, make the process operative.

 

b)         These addition agents are divided into two main types. Sales, to manufacturers, of Type I agents are exempt. Sales, to manufacturers, of Type II agents are taxable.

 

c)         Type I (Exempt):  Products which are added to the bath for the purpose of actually modifying the deposit by changing some characteristic such as brightness, smoothness, grain size, hardness, ductility or tensile strength.  These products function in whole or in part by codeposition or absorption into the deposit.

 

d)         To qualify as a Type I product, a compound must meet the following two requirements:

 

1)         The addition agent must be purchased to modify, and must modify, the end product by improving some desirable physical characteristic of the deposit, such as brightness, grain size, hardness, ductility, smoothness or tensile strength; and

 

2)         a measurable part of the product must become a part of the end product as established by:

 

A)        Chemical or physical analysis indicating some degree of codeposition or absorption in the plated deposit; or

 

B)        Addition to the baths in proportion to ampere hours passed through the plating solution.

 

e)         Even if products do not meet all of the criteria set forth in subsections (d)(1) and (2) of this Section, sales of Type I products that are incorporated into the end product may nonetheless qualify as sales for resale (see Section 130.1405 of this Part for the documentation required to claim resale).  If such products do not qualify as sales for resale, such products may also qualify for exemption as Manufacturing Machinery and Equipment (see Section 130.330 of this Part).

 

f)         Type II (Taxable):  Products which are added to the bath for purposes other than those of Type I compounds.  In this category are those products of which the primary function is to improve the plating process by altering the surface tension, suppressing fumes, controlling pH, buffering the solution, acting as a catalyst, acting as a purifier, improving anode efficiency, or acting as a complexing agent.

 

g)         The following test shall be conducted by either a disinterested laboratory or a State of Illinois monitored plating industry laboratory to determine whether or not a product, or an identifiable part thereof, fulfills the following two requirements and, therefore, qualifies as a Type I product:

 

1)         Prepare a plating solution in a plating test cell without the addition agent in question.  Plate a panel.  Repeat after adding each of the additional agents, or components comprising a Type I product in the order recommended by the manufacturer.  Repeat again after several different number of ampere hours.  Make a second addition of each addition agent or component comprising the alleged Type I product to the test cell and run respective final panels.  In those cases where an addition agent system is comprised of more than one product to be used in conjunction, a separate test shall be run on each product.

 

2)         If the brightness or some other physical property is improved after the initial respective charges of addition agents or components comprising the alleged Type I product then tends to approach the original condition after the passage of several ampere hours of current and finally is charged again by second respective charges of addition agents or components comprising the product, it can be assumed that the respective addition agents or components comprising the product are being consumed on an ampere hour basis and are being codeposited.

 

h)         Caution:  For reasons of convenience and economics, products of Type I and Type II are often combined; the burden is on the taxpayer to show that a particular component qualified as a Type I product and is, therefore, exempt.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.1905  Agricultural Producers

 

a)         Agricultural Producers − When Liable For Tax

 

1)         Persons who engage in the business of selling agricultural products, such as milk and other dairy products, livestock, meats, hay, grain, vegetables, fruit, plants, flowers, eggs, young trees or any other such items of tangible personal property, to purchasers for use or consumption, are required to remit retailers' occupation tax to the Department upon their receipts from such sales, notwithstanding the fact that such persons may themselves produce the agricultural products which they sell.

 

2)         For example, a dairy farmer who produces milk and sells it to purchasers for use or consumption becomes liable for the tax.

 

3)         Similarly, farmers who sell products to purchasers for use or consumption from roadside stands or from vending vehicles to purchasers for use or consumption, or who rent or lease space at an established market, "sales barn" or other similar place and sell commodities in their own names to purchasers for use or consumption, are engaged in the business of selling tangible personal property to purchasers for use or consumption within the meaning of the Retailers' Occupation Tax Act.

 

b)         Agricultural Producers − When Not Liable For Tax

Agricultural producers are not required to remit retailers' occupation tax measured by their gross receipts from sales of tangible personal property to purchasers for purposes of resale.  For example, a farmer who sells eggs to a grocer who purchases such eggs for resale to the grocer's customers is selling tangible personal property to a purchaser for purposes of resale.  However, except in the case of sales to totally exempt purchasers, when sales for resale are made, sellers should, for their protection, take a Certificate of Resale from the purchaser.  Mere statements by sellers that property was sold for resale will not be accepted by the Department without corroborative evidence.  See Section 130.1405 for a seller's responsibility to obtain certificates of resale and the requirements for certificates of resale.

 

c)         Associations of Agriculturists − When Liable For Tax

When an association of agriculturists conducts a market, "sales barn" or other similar place at which agricultural produce is sold to purchasers for use or consumption by the association as agent for principals who are unknown or undisclosed (see Section 130.1915 of this Part, entitled "Auctioneers and Agents"), such association is engaged in the business of selling tangible personal property to purchasers for use or consumption within the meaning of the Act and is required to remit retailers' occupation tax upon the gross receipts from such sales.  The management of such association is required to file returns and pay the tax under such circumstances.

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.1910  Antiques, Curios, Art Work, Collectors' Coins, Collectors' Postage Stamps and Like Articles

 

a)         When Tax Applies

Sales of antiques, curios, art work, collectors' coins, collectors' postage stamps and like articles to art collectors, philatelists, numismatists or other persons who purchase such items of tangible personal property for use and not for resale are within the Retailers' Occupation Tax Act.  Persons engaged in the business of selling these items of tangible personal property to purchasers for use or consumption are required to remit Retailers' Occupation Tax to the Department on their gross receipts from such sales.

 

b)         Special Provisions Concerning Stamps

 

1)         Sales of canceled domestic or foreign postage stamps, or of uncanceled foreign postage stamps, which are not valid for the transportation of mail in the United States, constitute sales within the Act, and persons engaged in the business of selling such stamps to purchasers for use or consumption are liable for the Retailers' Occupation Tax.

 

2)         Effective June 1, 1965, the same is true of postage stamps which are valid for the transportation of mail if such postage stamps are sold for an amount which exceeds the face value of the stamp by at least 50% of such face value, in which case they will be presumed to have value as a collectors' postage stamp and will be subject to Retailers' Occupation Tax on the full sales price.

 

3)         Sales of United States uncanceled postage or revenue stamps which are valid for the transportation of mail or for revenue tax purposes, and which are sold for an amount that does not exceed the face value of the stamp by at least 50% of such face value, are not subject to the Retailers' Occupation Tax.

 

c)         Special Provisions Concerning Coins

Gross receipts from the sales of legal tender, currency, medallions, or gold or silver coinage issued by the State of Illinois, the government of the United States of America, or the government of any foreign country, and bullion are exempt from Retailers' Occupation Tax.

 

d)         Special Provisions Concerning Art Work

The sale of art work, even on a commissioned basis, is a transfer of tangible personal property subject to the Retailers' Occupation Tax.  In order for the sale of art work not to be subject to Retailers' Occupation Tax, it must be of no commercial value to anyone other than the purchaser.  An example of this type of art work might be a commissioned portrait of the purchaser. (For information regarding taxation of such art work, see the regulations for the Service Occupation Tax at 86 Ill. Adm. Code 140.)

 

e)         Special Provisions Concerning Comic Books

 

1)         Comic books that are published and sold as current serial publications are exempt from Retailers' Occupation Tax as newsprint and ink.  (For information regarding the Newsprint and Ink Exemption from sales tax see 86 Ill. Adm. Code 130.2105.)

 

2)         Comic books sold as collectors' items rather than as newsprint and ink are subject to Retailers' Occupation Tax.  For example, old comic books sold at conventions that are not current serial publications are subject to tax.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.1915  Auctioneers and Agents

 

a)         When Persons Act As Agents

 

1)         Every auctioneer or agent, acting for an unknown or undisclosed principal, or entrusted with the possession of any bill of lading, custom house permit or warehouseman's receipt for delivery of any tangible personal property, or entrusted with the possession of any such personal property for the purpose of sale, is deemed to be the owner thereof, and upon the sale of such property to a purchaser for use or consumption, is required to file a return of the receipts from the sale and to pay to the Department a tax measured by such receipts.

 

2)         The receipts from any such sale, when made by an auctioneer or agent who is acting for a known or disclosed principal, are taxable to the principal, provided the principal is engaged in the business of selling such tangible personal property at retail.  For a sale to qualify under this subsection(a)(2), the principal must be clearly disclosed to the purchasers by the auctioneer or agent so that the purchasers are able to determine who owns the goods that are being sold.

 

3)         The same rule applies to lienors such as storagemen and pawnbrokers.

 

b)         When Principal is Disclosed

For the purposes of this Section, a principal is deemed to be disclosed to a purchaser for use or consumption only when the name and address of such principal is made known to such purchaser at or before the time of the sale and when the name and address of the principal appears upon the books and records of the auctioneer or agent.  A verbal announcement of the principals' names at the auction is not sufficient to document disclosure.  Acceptable evidence of disclosure includes:

 

1)         naming the principals and their addresses (city only is sufficient) in newspapers and other public advertising;

 

2)         posting a written list of the principals' names and their addresses (city only is sufficient) at the auction site;

 

3)         distributing sale bills or brochures that name the principals and their addresses (city only is sufficient);

 

4)         recording the principals' names and their addresses (city only is sufficient) on legal documents regarding the item that is sold, such as automobile titles; or

 

5)         other methods that provide a permanent, written record of the disclosure of the names and addresses (city only is sufficient) of the principals.

 

c)         Auctioneers as marketplace facilitators

 

1)         Beginning January 1, 2020, through December 31, 2020, auctioneers are considered marketplace facilitators. These sales are governed by the disclosed and undisclosed principal rules set out in this Section. For sales sourced to Illinois, the disclosed principal, not the auctioneer, incurs State and local retailers’ occupation tax at the rate in effect at the location where the selling occurs (origin rate) (see 86 Ill. Adm. Code 270.115), subject to subsection (a)(2). However, if the principal is undisclosed, the auctioneer (acting as the retailer) would incur State and local retailers’ occupation tax at the rate in effect at the location where the selling occurs (origin rate) (see 86 Ill. Adm. Code 270.115) on these sales. For sales sourced outside of Illinois, the auctioneer, regardless of if the principal is disclosed or undisclosed, would be required to remit Use Tax and be considered the retailer for all such sales.

 

2)         Beginning January 1, 2021, through August 26, 2021, auctioneers meeting a tax remittance threshold set out in 86 Ill. Adm. Code 131.135(a) are considered marketplace facilitators subject to State and local retailers’ occupation taxes on all sales made on their marketplace. These sales must be sourced as follows:

 

A)        If an auctioneer makes a sale on behalf of an identified marketplace seller (e.g., a marketplace seller that is disclosed) the auctioneer will incur Retailers’ Occupation Tax at the rate in effect at the location where the tangible personal property is shipped or delivered or at which possession is taken by the purchaser (destination rate).

 

B)        If an auctioneer makes a sale on behalf of a marketplace seller not identified to the purchaser on the marketplace (e.g., a marketplace seller that is not disclosed), then, for tax remittance purposes, the auctioneer is considered the seller and is required to file its own return, separate from the return for sales made on behalf of marketplace sellers and pay State and local retailers’ occupation taxes to the Department on that sale.  The auctioneer would incur State and local retailers’ occupation tax at either the rate in effect at the location where the selling occurs (origin rate) (see 86 Ill. Adm. Code 270.115) or if the sale is fulfilled from inventory located outside Illinois and selling activities otherwise occur at a location outside of Illinois, the rate in effect at the location to which the tangible personal property is shipped or delivered or at which possession is taken by the purchaser (destination rate). (For further information on the application of the Retailers’ Occupation Tax Act to marketplace facilitators, see 86 Ill. Adm. Code 131.130, 131.135, 131.140, 131.145, and 131.155).

 

3)         On and after August 27, 2021, “marketplace facilitator” does not include any person licensed under the Auction License Act.  This exemption does not apply to any person who is an Internet auction listing service, as defined by the Auction License Act.  [35 ILCS 120/1].  Therefore, on and after August 27, 2021, except as otherwise provided in this subsection (c)(3), the Leveling the Playing Field for Illinois Retail Act administrative rules do not apply to transactions made by auctioneers. These transactions are governed by the rules under subsections (a) and (b) of this Section. However, those meeting the definition of “Internet auction listing service” are still considered marketplace facilitators and remain subject to the Leveling the Playing Field for Illinois Retail Act administrative rules, which apply as set forth in subsections (c)(1) and (c)(2), but without the August 26, 2021 ending date. (For further information on the application of the Act to marketplace facilitators, see 86 Ill. Adm. Code 131.130, 131.135, 131.140, and 131.145).

 

4)         Definitions

 

A)        “Auctioneer” means a person or entity who, for another, for a fee, compensation, commission, or any other valuable consideration at auction or with the intention or expectation of receiving valuable consideration by the means of or process of an auction or sale at auction or providing an auction service, offers, negotiates, or attempts to negotiate an auction contract, sale, purchase, or exchange of goods, chattels, merchandise, personal property, real property, or any commodity that may be lawfully kept or offered for sale by or at auction. [225 ILCS 407]

 

B)        “Internet Auction Listing Service” means a website on the Internet, or other interactive computer service, that is designed to allow or advertise as a means of allowing users to offer personal property or services for sale or lease to a prospective buyer or lessee through an online bid submission process using that website or interactive computer service and that does not examine, set the price, prepare the description of the personal property or service to be offered, or in any way utilize the services of a natural person as an auctioneer. [225 ILCS 407]

 

(Source:  Amended at 47 Ill. Reg. 2116, effective January 24, 2023)

 

Section 130.1920  Barbers and Beauty Shop Operators

 

a)         When Liable For Tax

When barbers or beauty shop operators sell tangible personal property to purchasers for use or consumption apart from their rendering of service as barbers or beauty shop operators, they incur Retailers' Occupation Tax liability.  This is the case, for example, where barbers or beauty shop operators sell package cosmetics, hair tonics, lotions or other merchandise "over-the-counter" to purchasers for use or consumption apart from their rendering of service.

 

b)         When Not Liable For Tax

Barbers and beauty shop operators are engaged primarily in service occupations. To the extent to which they engage in such service occupations, they are not engaged in the business of selling tangible personal property to purchasers for use or consumption within the meaning of the Act.  Consequently, they are not required to remit Retailers' Occupation Tax measured by their receipts from engaging in such service occupations, including receipts from both labor and tangible personal property.

 

c)         Liability under the Service Occupation Tax Act

For information concerning the application of the Service Occupation Tax to purchases by barbers and beauty shop operators of tangible personal property which they retransfer as an incident to rendering service, see the Service Occupation Tax, 86 Ill. Adm. Code 140.

 

(Source:  Amended at 15 Ill. Reg. 6621, effective April 17, 1991)

 

Section 130.1925  Blacksmiths

 

a)         When Liable for Retailers' Occupation Tax

When blacksmiths engage in the business of selling or of fabricating and selling horseshoes or other items of tangible personal property to purchasers for use or consumption, they incur Retailers' Occupation Tax liability.

 

b)         When Not Liable for Retailers' Occupation Tax

A blacksmith does not incur Retailers' Occupation Tax liability when repairing his customer's tangible personal property even if the repair work involves the transferring and adding of repair parts and materials to the customer's property.  See Section 130.2015 of this Part.

 

c)         Cross Reference to Service Occupation Tax Regulations

However, when the blacksmith purchases repair parts and other tangible personal property which he retransfers to users as an incident to his sales of service, the transaction is governed by the Service Occupation Tax Act. For information concerning the tax on persons engaged in the business of making sales of service, see the Regulations pertaining to the Service Occupation Tax Act (86 Ill. Adm. Code 140).

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.1930  Chiropodists, Osteopaths, and Chiropractors

 

a)         When Liable for Tax

When chiropodists, osteopaths, or chiropractors sell such items as shoes, arch supports, trusses, braces, appliances, or other tangible personal property to purchasers for use or consumption apart from their rendering of service as chiropodists, osteopaths, or chiropractors, they incur retailers' occupation tax liability. For information about whether these items qualify as medical appliances, see 86 Ill. Adm. Code 130.311.

 

b)         When Not Liable for Tax

Chiropodists, osteopaths, and chiropractors are engaged in professions and primarily render service.  To the extent they engage in such professions, they are not engaged in the business of selling tangible personal property to purchasers for use or consumption within the meaning of the Retailers' Occupation Tax Act.  Consequently, they are not required to remit retailers' occupation tax measured by their receipts from engaging in such professions, including receipts from both services and tangible personal property transferred incident to those services.  However, to the extent tangible personal property is transferred incident to service, chiropodists, osteopaths, and chiropractors may be liable for service occupation tax.

 

c)         Liability Under the Service Occupation Tax Act

For information concerning the application of the Service Occupation Tax Act to sales by chiropodists, osteopaths, and chiropractors of tangible personal property that they transfer as an incident to rendering service, see 86 Ill. Adm. Code 140.

 

(Source:  Amended at 48 Ill. Reg. 10646, effective July 2, 2024)

 

Section 130.1934  Community Water Supply

 

a)         Tangible Personal Property Used in the Construction and Maintenance of a Community Water Supply – In General

Beginning January 1, 2008, tangible personal property used in the construction or maintenance of a community water supply, as defined under Section 3.145 of the Environmental Protection Act, that is operated by a not-for-profit corporation that holds a valid water supply permit issued under Title IV of the Environmental Protection Act is exempt from the tax imposed by the Retailers' Occupation Tax Act.  [35 ILCS 120/2-5(39)]

 

b)         Definitions

 

"Community water supply" means a public water supply which serves or is intended to serve at least 15 service connections used by residents or regularly serves at least 25 residents.  (Section 3.145 of the Environmental Protection Act [415 ILCS 5/3.145])

 

"Construction" means building, construction, reconstruction, alteration, replacement, extension, rehabilitation, betterment, development, embellishment, remodeling, remediation, renovation or improvement of a community water supply, and adding to or subtracting from any building, structure, plant, works or facility, or any part thereof.

 

"Maintenance" means routine, recurring and usual work for the preservation, protection and keeping of any community water supply for its intended purposes in a safe and continually usable condition for which it was designed, improved, constructed, altered or repaired.

 

"Not-for-profit corporation" means a corporation subject to the General Not For Profit Corporation Act of 1986 [805 ILCS 105/101.01].

 

"Public water supply" means all mains, pipes and structures through which water is obtained and distributed to the public, including wells and well structures, intakes and cribs, pumping stations, treatment plants, reservoirs, storage tanks and appurtenances, collectively or severally, actually used or intended for use for the purpose of furnishing water for drinking or general domestic use and which serve at least 15 service connections or which regularly serve at least 25 persons at least 60 days per year.  [415 ILCS 5/3.365]

 

c)         Tangible Personal Property Used in the Construction and Maintenance of a Community Water Supply − Tangible Personal Property Qualifying for the Exemption

 

1)         Tangible personal property purchased and used in the construction or maintenance of structures and physical plant owned by a community water supply that is physically incorporated into the structures and physical plant qualifies for the exemption.  For example, gross receipts from sales of:

 

A)        storage tanks, well structures, intakes and cribs, pumps, filters, pipes, treatment facilities and plants, and appurtenances, used for the purpose of furnishing water, can qualify for the exemption;

 

B)        common building materials such as lumber, bricks, cement, windows, doors, insulation, roofing materials and sheet metal can qualify for the exemption;

 

C)        plumbing systems and components of those systems such as bathtubs, lavatories, sinks, faucets, garbage disposals, water pumps, water heaters, water softeners and water pipes can qualify for the exemption;

 

D)        heating systems and components of those systems such as furnaces, ductwork, vents, stokers, boilers, heating pipes and radiators can qualify for the exemption;

 

E)        electrical systems and components of those systems such as wiring, outlets and light fixtures that are physically incorporated into the real estate can qualify for the exemption;

 

F)         central air conditioning systems, ventilation systems and components of those systems that are physically incorporated into the real estate can qualify for the exemption;

 

G)        built-in cabinets physically incorporated into the real estate can qualify for the exemption;

 

H)        built-in appliances such as refrigerators, stoves, ovens and trash compactors that are physically incorporated into the real estate can qualify for the exemption; and

 

I)         floor coverings such as tile, linoleum and carpeting that are glued or otherwise permanently affixed to the real estate by use of tacks, staples, or wood stripping filled with nails that protrude upward (sometimes referred to as "tacking strips" or "tack-down strips") can qualify for the exemption.

 

2)         Tangible personal property purchased and owned by a community water supply that is not physically incorporated into the structures and physical plant owned by a community water supply but is used in the construction and maintenance of a community water supply qualifies for the exemption.  For example, gross receipts from sales of:

 

A)        tools, machinery and other similar items that are used to construct or maintain the community water supply qualify for the exemption;

 

B)        backhoes, trenchers, bulldozers and other similar equipment used to construct or maintain the community water supply qualify for the exemption; and

 

C)        trucks and motor vehicles used by field personnel to construct or maintain the community water qualify for the exemption.

 

3)         Tangible personal property purchased and owned by a community water supply that is not used in the construction and maintenance of a community water supply or that is not physically incorporated into the structures and physical plant owned by a community water supply does not qualify for the exemption.  For example, gross receipts from sales of:

 

A)        motor vehicles used by managers and office personnel do not qualify for the exemption;

 

B)        plants and landscaping materials do not qualify for the exemption;

 

C)        concrete, cement, asphalt and outdoor lighting used in the construction or maintenance of parking facilities do not qualify for the exemption;

 

D)        free-standing appliances such as stoves, oven, refrigerators, washing machines, portable ventilation units, window air conditioning units, lamps, clothes washers, clothes dryers, trash compactors and dishwashers that may be connected to and operate from a building's electrical or plumbing system but that are not physically incorporated into the real estate do not qualify for the exemption; and

 

E)        floor coverings such as rugs that do not qualify under (c)(1)(I) or that are attached to the structure or physical plant using only two-sided tape do not qualify for the exemption.

 

4)         Tangible personal property purchased and owned by a community water supply used in the operation of a community public water supply does not qualify for the exemption.  For example, gross receipts from sales of:

 

A)        fuel used to operate the community water supply, trucks, vehicles, backhoes, trenchers, bulldozers and equipment owned by the community water supply does not qualify for the exemption;

 

B)        office supplies, cleaning supplies and office equipment do not qualify for the exemption;

 

C)        cell phones, communication devices and personal digital assistants do not qualify for the exemption; and

 

D)        chemicals or minerals such as chlorine, lime or charcoal do             not qualify for the exemption.

 

d)         Tangible Personal Property Purchased by Lessors for Lease to Community Water Supply Entities

Tangible personal property that qualifies under this Section that is purchased by a lessor and leased to a community water supply does not qualify for the community water supply exemption.  The exemption does not extend to lessors.  Lessors of tangible personal property under true leases are deemed to be the users of that property. Consequently, lessors incur a Use Tax liability (and applicable local occupation tax reimbursement obligations) based on their cost price of the items.  See 86 Ill. Adm. Code 130.220 (Sales to Lessors of Tangible Personal Property) and 86 Ill. Adm. Code 130.2010 (Persons Who Rent or Lease the Use of Tangible Personal Property to Others).

 

e)         Certificates of Eligibility for Sales Tax Exemption

 

1)         To document the exemption, the retailer must obtain from the purchaser a copy of the Certificate of Eligibility for Sales Tax Exemption issued by the not-for-profit corporation that operates the community water supply.  The Certificate of Eligibility for Sales Tax Exemption must be obtained by the retailer at the time of sale.  If the retailer obtains the necessary certifications from the community water supply, the retailer shall be relieved of any tax liability relating to the sale in the event the tangible personal property purchased by the community water supply from the retailer is not used by the community water supply in the construction or maintenance of the community water supply identified in the Certificate of Eligibility for Sales Tax Exemption issued by the not-for-profit corporation.

 

2)         The Certificate of Eligibility for Sales Tax Exemption must contain all of the following:

 

A)        the name of the not-for-profit corporation operating the community water supply;

 

B)        the location or address of the community water supply;

 

C)        a statement that the community water supply identified in the Certificate meets all the requirements of Section 2-5(39) of the Retailers' Occupation Tax Act;

 

D)        a statement that the not-for-profit corporation is in good standing and has not been dissolved; in addition, a foreign not-for-profit corporation shall also state that it has obtained a certificate of authority to conduct affairs in this State and the certificate has not been withdrawn;

 

E)        a description of the tangible personal property being purchased;

 

F)         a statement that the tangible personal property is either:

 

i)          being purchased and used in the construction or maintenance of structures and physical plant owned by a community water supply and physically incorporated into the structures and physical plant; or

 

ii)         being purchased for use in the construction or maintenance of a community water supply by a community water supply;

 

G)        the signature of the chief executive officer of the not-for-profit corporation operating the community water supply or the chief executive officer's duly authorized designee.

 

f)         Contractors

 

1)         This exemption extends to and includes qualifying tangible personal property identified in subsection (c)(1) used in the construction or maintenance of a community water supply purchased by a contractor who transfers the tangible personal property in fulfillment of a construction contract with a not-for-profit corporation that operates a community water supply.  This community water supply exemption does not extend to contractors purchasing tangible personal property identified in subsection (c)(2).  To document the exemption, the contractor should certify to the retailer that the qualifying tangible personal property will be used in the construction or maintenance of a community water supply and provide the retailer with a copy of the Certificate of Eligibility for Sales Tax Exemption issued by the not-for-profit corporation that operates the community water supply.

 

2)         If the retailer obtains the necessary certifications from the contractor, the retailer shall be relieved of any tax liability relating to the sale in the event the tangible personal property purchased by the contractor from the retailer is not used by the contractor in the construction or maintenance of the community water supply identified in the Certificate of Eligibility for Sales Tax Exemption issued by the not-for-profit corporation.  If it is subsequently determined that the tangible personal property was not used by the contractor in the construction or maintenance of a community water supply, the contractor shall be liable for Use Tax on the purchase of the tangible personal property for which an exemption was claimed under this Section.  The contractor shall be liable for Use Tax on tangible personal property physically incorporated into a community water supply when the tangible personal property or the community water supply does not qualify for the exemption provided by this Section.

 

g)         Sunset

The exemption for tangible personal property used in the construction or maintenance of a community water supply contained in Section 2-5(39) of the Retailers' Occupation Tax Act and this Section is not subject to the sunset provisions of Section 2-70 of the Retailers' Occupation Tax Act.

 

(Source:  Added at 34 Ill. Reg. 9405, effective June 23, 2010)

 

Section 130.1935  Computer Software

 

a)         Computer software means all types of software including operational, applicational, utilities, compliers, templates, shells, and all other forms.  Canned software is considered to be tangible personal property regardless of the form in which it is transferred or transmitted, including tape, disc, card, electronic means, or other media.  The sale at retail, or transfer, of canned software intended for general or repeated use is taxable, including the transfer by a retailer of software which is subject to manufacturer licenses restricting the use or reproduction of the software.

 

1)         A license of software is not a taxable retail sale if:

 

A)        it is evidenced by a written agreement signed by the licensor and the customer;

 

i)          An electronic agreement in which the customer accepts the license by means of an electronic signature that is verifiable and can be authenticated and is attached to or made part of the license will comply with this requirement.

 

ii)         A license agreement in which the customer electronically accepts the terms by clicking "I agree" does not comply with this requirement.

 

B)        it restricts the customer's duplication and use of the software;

 

C)        it prohibits the customer from licensing, sublicensing, or transferring the software to a third party (except to a related party) without the permission and continued control of the licensor;

 

D)        the licensor has a policy of providing another copy at minimal or no charge if the customer loses or damages the software, or of permitting the licensee to make and keep an archival copy, and such policy is either stated in the license agreement, supported by the licensor's books and records, or supported by a notarized statement made under penalties of perjury by the licensor; and

 

E)        the customer must destroy or return all copies of the software to the licensor at the end of the license period. This provision is deemed to be met, in the case of a perpetual license, without being set forth in the license agreement.

 

EXAMPLE:  A retailer of computer software and related products sells or transfers a shrink-wrapped software program to a customer.  A "license agreement" contained on or in the package, which by its terms becomes effective upon opening of the package, states that the customer does not receive title to the program and that the customer may not copy the program except to make a backup or archival copy while the customer owns the program.  The license agreement is not evidenced by a written agreement signed by the customer.  The license does not prohibit the customer from selling the program to a third party.  If the customer loses or damages the program, the vendor will not replace it for free or for a minimal charge.  Since it fails to meet all the requirements for treatment as an exempt license, the transfer from the vendor to the customer is a taxable retail sale of software.

 

2)         Value-added resellers who acquire software for relicensing or transfer to consumers after modification or adaptation of the software may acquire the software as a sale for resale by presenting their suppliers with valid certificates (see Section 130.1410 of this Part).

 

3)         Computer software provided through a cloud-based delivery system is not subject to tax.  A cloud-based delivery system is one in which computer software is never downloaded onto a client's computer and only accessed remotely.

 

4)         If a provider of a service provides to the subscriber an API, applet, desktop agent, or a remote access agent to enable the subscriber to access the provider's network and services, the subscriber is receiving computer software.

 

b)         Tax applies to the entire charge made to the customer, including charges for all associated documentation and materials.  Charges for updates of canned software are considered to be sales of software.  Charges for training, telephone assistance, installation, and consultation are exempt if they are separately stated from the selling price of canned software.  Maintenance agreements for software will be treated in the same manner as other maintenance agreements.  Sellers of maintenance agreements must pay tax on their cost price of the materials transferred incident to the completion of a maintenance agreement.

 

c)         Custom Computer Programs

 

1)         Custom computer programs prepared to the special order of the customer are not subject to tax under the Retailers' Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act, or the Service Use Tax Act.  To be considered exempt software, the following elements must be present:

 

A)        Preparation or selection of the program for the customer's use requires an analysis of the customer's requirements by the vendor; and

 

B)        The program requires adaptation by the vendor to be used in a specific work environment, e.g., a particular make and model of a computer using a specified input or output device.

 

2)         Custom computer programs do not include "canned" or prewritten computer programs held for general or repeated sale or lease.  Modification of an existing prewritten program to meet the customer's needs is custom software. If modified software is held for general or repeated sale or lease, it is canned software.  Custom software means the software which results from real and substantial changes to the operational coding of canned or pre-written software in order to meet the specific individualized requirements of the purchaser for the purchaser's limited or particular use.

 

EXAMPLE:  Canned software is purchased with a resale certificate by a programmer who modifies it to meet a customer's specific needs.  The transfer to the customer is exempt from tax.  If that program, as modified, is sold to other customers without further modification, it is taxable canned software, as are copies or repeat orders of such modified software.

 

3)         The selection of pre-written or canned programs or program modules assembled by the vendor into a software package does not constitute custom software unless real and substantial changes are made to the programs or creation of program interfacing logic.  If the pre-written program or module was previously marketed, the new program will qualify as a custom program if the price of the pre-written program was 50% or less of the price of the new program.  If the pre-written program was not previously marketed, the new program will qualify as a custom program if the charge made to the customer for custom programming services, as evidenced by the records of the seller, was more than 50% of the contract price to the consumer.

 

d)         All software used to operate exempt manufacturing machinery and equipment (see 86 Ill. Adm. Code 130.330) is exempt.

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.1940  Construction Contractors and Real Estate Developers

 

a)         Definitions

 

1)         "Construction Contractor."  The word "construction contractor" when used in this Subpart includes general contractor, subcontractor and specialized contractor such as a landscape contractor.  "Contractor" means any person who is engaged in the occupation of entering into and performing construction contracts for owners.

 

2)         "Owner" means any person who enters into a contract with a contractor relative to the construction of a structure.

 

3)         "Construct" means build, erect, construct, reconstruct, install, plant, repair, renovate or remodel.

 

4)         "Structure" includes any building, house, edifice, tunnel, sewer, highway, road, bridge or any other type of structure, or any part thereof (including any system of plumbing, heating, ventilating, refrigerating, air conditioning, or any part thereof), or any other improvement to real estate.

 

5)         "Materials" means all of the tangible personal property, including fixtures, which enter into a structure or otherwise become incorporated into real estate.

 

6)         "Construction Contract" means a contract, written or oral, to "construct" (as that term is defined in subsection (a)(3) above), a "structure" (as that term is defined in subsection (a)(4), above) or to otherwise incorporate tangible personal property into real estate.

 

7)         "Real Estate Developer" means any person engaged in the business of transferring title (legal or equitable) to real estate to others.  The term does not include an isolated or occasional sale of real estate by a person not engaged in the business of selling real estate, and the term does not include a person who acts merely as agent for a commission to bring sellers and buyers of real estate together without ever actually taking either the legal or the equitable title to the real estate.

 

b)         Construction Contractors – When Liable For Tax

 

1)         Construction contractors incur Retailers' Occupation Tax liability when they engage in selling any kind of tangible personal property without installation to purchasers for use or consumption.

 

2)         A construction contractor incurs Retailers' Occupation Tax liability when he sells furniture and furnishings, curtains, drapes, floor covering (except when he cements or otherwise permanently affixes the floor covering to a portion of the building), trade fixtures and machinery (unless in the case of machinery Section 130.2115(b) of this Part applies) to purchasers for use or consumption, with or without installation by the seller, whether or not the seller furnishes and installs such items as a part of a construction contract. The same is true where he purchases and sells in finished form gas or electric stoves, refrigerators, washing machines, portable ventilating units and other portable equipment of this kind, which may be connected to and operated from a building's electrical, plumbing or other specialized system, but which is not actually a part of any such system and is considered to remain personal property when installed, even if the contractor does install such equipment pursuant to a construction contract.

 

3)         For information concerning the seller's taxability on receipts from installation charges where the seller is taxable notwithstanding his installation of the item, see Section 130.450 of this Part.

 

4)         If the seller is taxable notwithstanding installation, but the sale and installation are made by the seller pursuant to his performance of a construction contract, the seller's receipts from that part of the transaction which actually comprises the construction contract are not subject to the Retailers' Occupation Tax.  In this situation, if a separate charge is made for the tangible personal property as to which the construction contractor is taxable, the value of such property for purposes of computing the Retailers' Occupation Tax is the amount charged for such property, but not less than the cost of such property to the construction contractor.  If no separate charge is made in this situation for the tangible personal property as to which the construction contractor incurs Retailers' Occupation Tax liability, the value of such property for computing the Retailers' Occupation Tax is the cost of such property to the construction contractor.

 

c)         Construction Contractors – When Not Liable For Tax

A construction contractor does not incur Retailers' Occupation Tax liability as to receipts from labor furnished and tangible personal property (materials and fixtures) incorporated into a structure as an integral part thereof for an owner when furnished and installed as an incident of a construction contract.  The construction contractor incurs Use Tax on the cost price of the tangible personal property that is incorporated into real estate.  (See also Section 130.2075 of this Part.)

 

1)         For example, a construction contractor does not incur Retailers' Occupation Tax liability on receipts from selling and installing screen doors and windows; storm doors and windows; weather stripping; insulation material; Venetian blinds; window shades; awnings; cabinets built into the structure; floor coverings cemented or otherwise permanently affixed to the structure by use of tacks, staples, or wood stripping filled with nails that protrude upward (sometimes referred to as "tacking strips" or "tack-down strips"), but not including floor coverings that are area rugs or that are attached to the structure using only two-sided tape; plumbing systems or parts thereof, such as bathtubs, lavatories, sinks, faucets, water pumps, water heaters, water softeners, water pipes, etc.; heating systems or parts thereof, such as furnaces, stokers, boilers, heating pipes, etc.; ventilation systems or parts thereof; commercial refrigeration systems or parts thereof; electrical systems or parts thereof; brick; lumber; sheet metal; roofing materials, and other similar items.

 

2)         A landscape contractor does not incur Retailers' Occupation Tax liability as to receipts from labor furnished and tangible personal property incorporated into real estate as an integral part thereof for an owner when furnished and installed as an incident to a landscape contract.  For example, a landscape contractor does not incur Retailers' Occupation Tax liability on receipts from selling and installing plants such as trees, shrubs, seedlings, sod and grass seed when planted in the ground, including fertilizer, mulch and soil incorporated into the ground in connection with such planting (plants sold in pots or other containers without being planted in the ground by the landscape contractor are not deemed to be planted in the ground).

 

3)         Construction contractors who contract for the improvement of real estate consisting of engineering, installation, and maintenance of voice, data, video, security, and all telecommunication systems incur Use Tax, rather than Retailers' Occupation Tax, liability on those items if they are sold at one specified contract price.  This provision applies to all of the items in this subsection (c)(3) even if they are not incorporated into real estate.

 

d)         Real Estate Developers

 

1)         A real estate developer does not incur Retailers' Occupation Tax liability on his receipts from selling real estate.  However, for information concerning the fact that a real estate developer is taxable on his cost price of the tangible personal property that he purchases and incorporates into real estate, see Section 130.2075 of this Part.

 

2)         A real estate developer incurs Retailers' Occupation Tax liability when transferring, to a user, tangible personal property which he purchases and sells in a finished form, and which remains personal property when installed, even though he includes the transfer of such tangible personal property in his sale of or his contract to sell real estate.  The value of such tangible personal property for computing Retailers' Occupation Tax is the amount charged for such tangible personal property by the transferor if a separate charge is made, but not less than the cost of such tangible personal property to the transferor.  If no separate charge is made for such tangible personal property, the value of such property for computing Retailers' Occupation Tax is the cost of such property to the transferor.

 

e)         Certain sales of building materials purchased for incorporation into real estate located in an enterprise zone are exempt from Retailers' Occupation Tax liability (see Section 130.1951 of this Part).  Certain sales of building materials purchased for incorporation into real estate located in an area designated by the Department of Commerce and Community Affairs under Section 5.5 of the Illinois Enterprise Zone Act are exempt from Retailers' Occupation Tax liability (see Section 130.1952 of this Part).

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.1945  Co-operative Associations

 

a)         In General

 

1)         A co-operative association consists of a group of persons, whether incorporated or not, organized for the purpose of purchasing or producing, and selling to shareholders, members or others, such items as groceries, provisions or other articles of merchandise, for cash or otherwise, at retail, at such reasonable prices over the cost thereof as will enable the shareholders or members of such association to obtain or to dispose of such commodities at the smallest practicable rate of cost.

 

2)         Such co-operative associations are deemed to operate for pecuniary profit. Their receipts from all retail sales of tangible personal property are subject to the Retailers' Occupation Tax.

 

b)         Agricultural Co-operative Associations

 

1)         Agricultural Co-operative Associations, organized under the Agricultural Co-operative Act [805 ILCS 315], although deemed nonprofit organizations, nevertheless engage in the business of marketing and selling agricultural products for the purpose of making a profit for the payment of dividends on shares held by members who are producers.  Their receipts from all retail sales of tangible personal property are subject to Retailers' Occupation Tax Act.

 

2)         To the extent that Agricultural Co-operative Associations engage in selling services, those receipts are subject to the Service Occupation Tax Act.

 

(Source:  Amended at 22 Ill. Reg. 19919, effective October 28, 1998)

 

Section 130.1946  Tangible Personal Property Used or Consumed in Graphic Arts Production within Enterprise Zones Located in a County of more than 4,000 Persons and less than 45,000 Persons

 

a)         Section 1d of the Retailers' Occupation Tax Act provides an exemption for tangible personal property to be used or consumed in the process of graphic arts production if used or consumed at a facility that is certified by the Department of Commerce and Economic Opportunity (DCEO) and located in a county of more than 4,000 persons and less than 45,000 persons.  [35 ILCS 120/1d]

 

b)         To qualify for the exemption, a business must meet the following requirements contained in Section 1d and 1f of the Retailers' Occupation Tax Act:

 

1)         be located in an enterprise zone established pursuant to the Illinois Enterprise Zone Act;

 

2)         use or consume the tangible personal property at a facility located in a county of more than 4,000 but less than 45,000 persons;

 

3)         make investments:

 

A)        which cause the creation of a minimum of 200 full-time equivalent jobs in Illinois; or

 

B)        which cause the retention of a minimum of 2,000 full-time jobs in Illinois; or

 

C)        of a minimum of $40,000,000 and retain at least 90% of the jobs in place on the date on which the exemption is granted and for the duration of the exemption; and

 

4)         be certified by DCEO as complying with the requirements specified in this subsection (b).  [35 ILCS 120/1d and 1f]

 

c)         Businesses seeking certificates of eligibility must make application to the DCEO on application forms provided by DCEO. [35 ILCS 120/1f]  The Illinois Department of Revenue does not certify businesses as eligible for this exemption.

 

d)         To qualify for the exemption, the tangible personal property must be used or consumed within the enterprise zone in the process of graphic arts production.  Sales of tangible personal property used or consumed in activities that do not constitute graphic arts production remain subject to the tax.  For purposes of this Section, "graphic arts production" means the production of tangible personal property for wholesale or retail sale or lease by means of printing, including ink jet printing, by one or more of the processes described in Groups 323110 through 323122 of Subsector 323, Groups 511110 through 511199 of Subsector 511, and Group 512230 of Subsector 512 of the North American Industry Classification System published by the U.S. Office of Management and Budget, 1997 edition. Graphic arts production does not include the transfer of images onto paper or other tangible personal property by means of photocopying or final printed products in electronic or audio form, including the production of software or audiobooks. Persons engaged primarily in the business of printing or publishing newspapers or magazines that qualify as newsprint and ink, by one or more of the processes described in Groups 511110 through 511199 of subsector 511 of the North American Industry Classification System are deemed to be engaged in graphic arts production.  [35 ILCS 120/2-30]

 

e)         The exemption includes repair and replacement parts for machinery and equipment used primarily in the process of graphic arts production.  [35 ILCS 120/1d]  The exemption also includes equipment, manufacturing fuels, material and supplies for the maintenance, repair or operation of such graphic arts machinery or equipment. 

 

f)         Examples of items that qualify for the exemption are:

 

1)         machinery and equipment that would otherwise qualify under the graphic arts machinery and equipment exemption because of being used in the activities described in Section 130.330(g)(3) and for repair and replacement parts for the machinery and equipment;

 

2)         printing plates, film, fountain solution, blanket wash, and ink additives used in the activities set out at Section 130.330(g)(3);

 

3)         materials and prep supplies, such as mylar, masking sheets, developer, hardener, fixer, replenishers, and tape used or consumed in the activities set out at Section 130.330(g)(3);

 

4)         machinery and equipment and hand tools used to maintain, repair or operate machinery and equipment that qualifies for the graphic arts machinery and equipment exemption as set out in Section 130.330(g);

 

5)         materials and supplies, such as lubricants, coolants, adhesives, solvents or cleaning compounds used to maintain, repair or operate machinery or equipment that qualifies for the graphic arts machinery and equipment exemption as set out in Section 130.330(g);

 

6)         any fuel, such as coal, diesel oil, gasoline, natural gas, artificial gas or steam that would be subject to retailers' occupation tax or use tax liability when sold at retail is exempt from those taxes when sold for use as fuel for machinery and equipment that qualifies for the graphic arts machinery and equipment exemption as set out in Section 130.330(g);

 

7)         protective clothing and safety equipment, such as ear plugs, safety shoes, gloves, coveralls, aprons, goggles, safety glasses, face masks and air filter masks used when maintaining, repairing or operating machinery and equipment that qualifies for the graphic arts machinery and equipment exemption as set out in Section 130.330(g).

 

g)         The tangible personal property must be used primarily in graphic arts production.  Therefore, tangible personal property that is used primarily in an exempt process and partially in a nonexempt manner would qualify for exemption.  However, the purchaser must be able to establish through adequate records that the tangible personal property is used over 50 percent in an exempt manner in order to claim the exemption.

 

h)         The exemption does not extend to tangible personal property that is not used or consumed in the graphic arts production process itself.  This is true even though the item is used in an activity that is essential to graphic arts production.  The exemption does not extend, for example, to:

 

1)         tangible personal property used or consumed in general production plant maintenance activities or in the maintenance of machinery and equipment that would not qualify for the graphic arts production exemption;

 

2)         tangible personal property used to store, convey, handle, or transport materials prior to their entrance into the production cycle;

 

3)         tangible personal property used to store, convey, handle, or transport finished articles after completion of the production cycle;

 

4)         tangible personal property used to transport work-in-process or finished articles between production plants;

 

5)         machinery and equipment used to gather information, photograph, transmit data, edit text, prepare drafts or copy, or perform other data-related functions prior to final composition, typesetting, engraving, or other preparation of the image carrier;

 

6)         xerographic or photocopying machines;

 

7)         word processing, text editing machinery or computerized equipment unless it is an integral part of a final graphic arts operation such as a computer-controlled typesetting machine or equivalent that is used primarily in graphic arts production;

 

8)         computers used to store data and generate text, maps, graphs, or other print-out formats unless the product is an image carrier to be used to repetitively transfer images by printing.  For example, a computer that generates an image that may later be reproduced by a graphic arts process would not qualify while a computer-controlled engraving system that produces printing cylinders and computer-controlled digital typesetting equipment would qualify;

 

9)         tangible personal property used or consumed in managerial, sales or other nonproduction, nonoperational activities, such as disposal of waste, scrap or residue, inventory control, production scheduling, work routing, purchasing, receiving, accounting, fiscal management, general communications, plant security, product exhibition and promotion, or personnel recruitment, selection or training;

 

10)         tangible personal property used or consumed as general production plant safety equipment; or

 

11)         tangible personal property and fuel used or consumed in general production plant ventilation, heating, cooling, climate control, or illumination, not required by a graphic arts production process.

 

i)          This exemption from the Retailers' Occupation Tax is available to all retailers registered to collect or remit Illinois tax.  It is not restricted to retailers located in jurisdictions that have established enterprise zones.

 

j)          If the purchaser of the machinery or equipment leases the machinery and equipment to a certified business that uses it in an exempt manner, the sale to the purchaser-lessor will be exempt from tax.  A retailer may exclude these sales from taxable gross receipts provided that the purchaser-lessor provides to the retailer a properly completed exemption certificate and the information contained in the certificate would support an exemption if the sale were made directly to the certified business.  Should a purchaser-lessor subsequently lease the machinery or equipment to a business who does not use it in an exempt manner that would qualify directly for the exemption, the purchaser-lessor will become liable for the tax from which he or she was previously exempted.

 

k)         Documentation of Exemption

 

1)         When a certified business (or the lessor to a certified business) initially purchases qualifying items from an Illinois registered retailer, the retailer must be provided with:

 

A)        a copy of the current certificate of eligibility issued by DCEO; and

 

B)        a written statement signed by the certified business (or its lessor) that the items being purchased will be used or consumed (or leased for use or consumption) in a graphic arts production process at a location in an enterprise zone established under the authority of the Illinois Enterprise Zone Act. 

 

2)         So long as a copy of a current certificate of eligibility and a statement of exemption are maintained by a retailer, the certified business (or its lessor) may claim the exemption on subsequent purchases from that retailer by indicating on the face of purchase orders that the transaction is exempt by referencing the certificate of eligibility and statement of exemption.  This procedure on subsequent purchases is authorized only so long as the certificate of eligibility remains current.  That is, the exemption can be claimed only as to purchases made during the effective period of the certificate of eligibility specified by DCEO on the face of the certificate of eligibility.

 

3)         If a certified business (or its lessor) purchases tangible personal property that is to be used in the process of graphic arts production, the certified business (or its lessor) must certify that fact to the retailer in writing in order to relieve the retailer of the duty of collecting and remitting tax.  However, the purchaser who certifies that the item is being purchased for a qualifying use within an enterprise zone by a qualified business will be held liable for the tax by the Department if it is found that the item was not so used.

 

l)          An item that initially is used primarily in a qualifying manner but that is converted to a nonexempt use or is moved to a nonqualifying location will become subject to tax at the time of its conversion, based on the fair market value of the item at the time of conversion.

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.1947  Tangible Personal Property Used or Consumed in the Process of Manufacturing and Assembly within Enterprise Zones or by High Impact Businesses

 

a)         Section 1d of the Retailers' Occupation Tax Act provides an exemption for tangible personal property to be used or consumed within an enterprise zone established pursuant to the Illinois Enterprise Zone Act or to be used or consumed by any High Impact Business, in the process of the manufacturing or assembly of tangible personal property for wholesale or retail sale or lease if used or consumed by a business certified by the Department of Commerce and Economic Opportunity (DCEO). [35 ILCS 120/1d]

 

b)         Tangible Personal Property Used or Consumed in the Process of Manufacturing or Assembling within an Enterprise Zone

To qualify for the exemption, a business located in an enterprise zone must meet the following requirements contained in Section 1f of the Retailers' Occupation Tax Act:

 

1)         be located in an Enterprise Zone established pursuant to the Illinois Enterprise Zone Act;

 

2)         make investments:

 

A)        which cause the creation of a minimum of 200 full-time equivalent jobs in Illinois; or

 

B)        which make investments that cause the retention of a minimum of 2,000 full-time jobs in Illinois; or

 

C)        of a minimum of $40,000,000 and retain at least 90% of the jobs in place on the date on which the exemption is granted and for the duration of the exemption; and

 

3)         be certified by DCEO as complying with the requirements specified in this subsection (b). [35 ILCS 120/1f]

 

c)         Tangible Personal Property Used or Consumed in the Process of Manufacturing or Assembling by a High Impact Business

To qualify for the exemption as a High Impact Business, the business must not be located within an enterprise zone at the time of its designation and must meet the following requirements contained in Section 5.5(a)(3)(A) of the Illinois Enterprise Zone Act [20 ILCS 655]:

 

1)         the business intends to make a minimum investment of:

 

A)        $12,000,000 which will be placed in service in qualified property and intends to create 500 full-time equivalent jobs at a designated location in Illinois; or

 

B)        $30,000,000 which will be placed in service in qualified property and intends to retain 1,500 full-time jobs at a designated location in Illinois;

 

2)         the business certifies in writing that the investments would not be placed in service in qualified property and the job creation or job retention would not occur without the tax credits and exemptions set forth in Section 5.5(b) of the Illinois Enterprise Zone Act.  The terms "placed in service" and "qualified property" have the same meanings as described in Section 201(h) of the Illinois Income Tax Act [20 ILCS 655/5.5(a)(3)(A)];

 

3)         is certified by DCEO as complying with the requirements specified in this subsection (c); and

 

4)         for purposes of this subsection (c):

 

A)        the exemption is not authorized until the minimum investments set forth in subsection (c)(1) have been placed in service in qualified properties and the minimum full-time equivalent jobs or full-time retained jobs set forth in subsection (c)(1) have been created or retained [20 ILCS 655/5.5(b)];

 

B)        the terms "placed in service" and "qualified property" have the same meanings as described in Section 201 (h) of the Illinois Income Tax Act [20 ILCS 655].

 

d)         Businesses seeking certificates of eligibility must make application to the DCEO on application forms provided by DCEO.  [35 ILCS 120/1f]  The Illinois Department of Revenue does not certify business enterprises as eligible for this exemption.

 

e)         Once a business is certified to qualify for the exemption, the tangible personal property must be used or consumed within the enterprise zone or at the certified location of the High Impact Business in the process of manufacturing or assembling of tangible personal property for wholesale or retail sale or lease.  Sales of tangible personal property used or consumed in activities that do not constitute manufacturing or assembling remain subject to the tax.  For purposes of this Section, "manufacturing" and "assembling" shall have the same meaning ascribed to those terms in Section 130.330(b)(1) through (9).

 

f)         The exemption includes repair and replacement parts for machinery and equipment used primarily in the process of manufacturing or assembling tangible personal property for wholesale or retail sale or lease. The exemption also includes equipment, manufacturing fuels, material and supplies for the maintenance, repair or operation of the manufacturing or assembling machinery or equipment.  [35 ILCS 120/1d]

 

g)         Examples of items that qualify for the exemption are:

 

1)         machinery and equipment that would otherwise qualify under the manufacturing machinery and equipment exemption because it is used in the activities set forth in Section 130.330(c)(3), and repair and replacement parts for that machinery and equipment;

 

2)         hand tools used in the activities set forth in Section 130.330(c)(3);

 

3)         materials and supplies, such as abrasives, acids, polishing compounds or lubricants used or consumed in the activities set forth in Section 130.330(c)(3);

 

4)         machinery and equipment and hand tools used to maintain, repair or operate machinery and equipment that qualifies for the manufacturing machinery and equipment exemption set forth in Section 130.330;

 

5)         materials and supplies, such as lubricants, coolants, adhesives, solvents or cleaning compounds used to maintain, repair or operate machinery or equipment that qualifies for the manufacturing machinery and equipment exemption set forth in Section 130.330;

 

6)         any fuel, such as coal, diesel oil, gasoline, natural gas, artificial gas or steam that would be subject to retailers' occupation tax or use tax liability when sold at retail is exempt from those taxes when sold for use as fuel for machinery and equipment that qualifies for the manufacturing machinery and equipment exemption set forth in Section 130.330; and

 

7)         protective clothing and safety equipment such as gloves, coveralls, aprons, goggles, safety glasses, face masks and air filter masks used when maintaining, repairing or operating machinery and equipment that qualifies for the manufacturing machinery and equipment exemption set forth in Section 130.330.

 

h)         The tangible personal property must be used primarily in manufacturing or assembling.  Therefore, tangible personal property that is used primarily in an exempt process and partially in a nonexempt manner would qualify for exemption.  However, the purchaser must be able to establish through adequate records that the tangible personal property is used over 50 percent in an exempt manner in order to claim the exemption.

 

i)          The exemption provided in this Section for tangible personal property to be used or consumed in the process of manufacturing or assembly of tangible personal property for wholesale or retail sale or lease, and the repair and replacement parts for that machinery and equipment, does not apply to such property used or consumed in the generation of electricity for wholesale or retail sale; the generation or treatment of natural or artificial gas for wholesale or retail sale that is delivered to customers through pipes, pipelines, or mains; or the treatment of water for wholesale or retail sale that is delivered to customers through pipes, pipelines, or mains.  The provisions set forth in this subsection implementing Public Act 98-0583 are declaratory of existing law as to the meaning and scope of this exemption.  [35 ILCS 120/1d] 

 

j)          The exemption provided under Section 1d of the Retailers' Occupation Tax Act and this Section does not extend to tangible personal property that is not used or consumed in the manufacturing or assembling process itself.  This is true even though the item is used in an activity that is essential to manufacturing or assembling.  For example, the exemption does not extend to:

 

1)         tangible personal property used or consumed in general production plant maintenance activities or in the maintenance of machinery and equipment that would not qualify for the manufacturing machinery and equipment exemption;

 

2)         tangible personal property used or consumed in research and development of new products, production techniques, or production machinery;

 

3)         tangible personal property used to store, convey, handle, or transport materials, parts or subassemblies prior to their entrance into the production cycle;

 

4)         tangible personal property used to store, convey, handle, or transport finished articles after completion of the production cycle;

 

5)         tangible personal property used to transport work-in-process or finished articles between production plants;

 

6)         tangible personal property used or consumed in managerial, sales or other nonproduction, nonoperational activities, such as disposal of waste, scrap or residue, inventory control, production scheduling, work routing, purchasing, receiving, accounting, fiscal management, general communications, plant security, product exhibition and promotion, or personnel recruitment, selection or training;

 

7)         tangible personal property used or consumed as general production plant safety equipment;

 

8)         tangible personal property and fuel used or consumed in general production plant ventilation, heating, cooling, climate control, or illumination, not required by a manufacturing or assembling process;

 

9)         tangible personal property used or consumed in the preparation of food and beverages by a retailer for retail sale, such as restaurants, vending machines, and food service establishments;

 

10)        fuel used or consumed in the operation of any machinery or equipment that would not qualify for exemption under the manufacturing machinery and equipment exemption set out in Section 130.330;

 

11)        building materials that become physically incorporated into foundations or housings for machinery and equipment; the building materials may qualify for exemption under the provisions of Section 130.1951 if all requirements set out in that Section are met; and

 

12)        building materials dedicated to general construction purposes at a production plant; the building materials may qualify for exemption under the provisions of Section 130.1951 if all the requirements of that Section are met.

 

k)         This exemption from Illinois Retailers' Occupation Tax is available to all retailers registered to collect or remit Illinois tax.  It is not restricted to retailers located in jurisdictions that have established enterprise zones.

 

l)          The tangible personal property resulting from the process of manufacturing or assembling must be for wholesale or retail sale or lease.  For purposes of this Section, see Section 130.330(a)(6) and (7) for requirements relating to sale or lease of the tangible personal property produced in the process of manufacturing or assembling.

 

m)        If a certified business (or its lessor) purchases tangible personal property that is to be used in the process of manufacturing and assembly, then the certified business (or its lessor) must certify that fact to the retailer in writing in order to relieve the retailer of the duty of collecting and remitting tax.  However, the purchaser who certifies that the item is being purchased for a qualifying use within an enterprise zone by a certified business will be held liable for the tax by the Department if it is found that the item was not so used.

 

n)         Documentation of Exemption

 

1)         When a certified business (or the lessor to a certified business) initially purchases qualifying items from an Illinois registered retailer, the retailer must be provided with:

 

A)        a copy of the current certificate of eligibility issued by DCEO; and

 

B)        a written certification signed by the certified business (or its lessor) that the items being purchased will be used or consumed (or leased for use or consumption) in a manufacturing or assembling process at a location in an enterprise zone established pursuant to the Illinois Enterprise Zone Act or by a High Impact Business.

 

2)         If a copy of a certified business' current certificate of eligibility and certification are maintained by a retailer, the certified business (or its lessor) may claim the exemption on subsequent purchases from that retailer by indicating on the face of purchase orders that the transaction is exempt by making reference to the certificate of eligibility and certification.  This procedure on subsequent purchases is authorized as long as the certificate of eligibility remains valid.  The exemption can only be claimed for purchases made during the effective period of the certificate of eligibility specified by DCEO on the face of the certificate of eligibility.

 

3)         The retailer must receive a certificate of eligibility and the purchaser's written certificate to relieve the retailer of the duty of collecting and remitting tax on a sale. 

 

4)         An item that initially is used primarily in a qualifying manner at a qualifying location but that is converted to a nonexempt use or is moved to a nonqualified location will become subject to tax at the time of its conversion based on the lesser of the purchase price or fair market value of the item at the time of conversion.

 

o)         Beginning on July 1, 2019, the manufacturing and assembling machinery and equipment exemption provided in Section 2-45 of the Act and Section 130.330 includes production related tangible personal property. See 130.330(h) to determine if any of the items identified in subsection (j) qualify as production related tangible personal property under the manufacturing and assembling machinery and equipment exemption.

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.1948  Tangible Personal Property Used or Consumed in the Operation of Pollution Control Facilities Located within Enterprise Zones

 

a)         The Retailers' Occupation Tax Act provides an exemption for tangible personal property used or consumed in the operation of pollution control facilities, as defined in Section 1a of the Retailers' Occupation Tax Act, located within an enterprise zone established pursuant to the Illinois Enterprise Zone Act [35 ILCS 120/1e]. The exemption contained in Section 1e of the Retailers' Occupation Tax Act applies to tangible personal property used or consumed in the operation of pollution control facilities located within an enterprise zone; the exemption does not apply to pollution control facilities that were exempt under Section 1a of the Retailers' Occupation Tax Act until July 1, 2003. 

 

b)         The exemption only applies to a business that meets the following requirements contained in Section 1f of the Retailers' Occupation Tax Act:

 

1)         is located in an enterprise zone established pursuant to the Illinois Enterprise Zone Act;

 

2)         makes investments that:

 

A)        cause the creation of a minimum of 200 full-time equivalent jobs in Illinois; or

 

B)        cause the retention of a minimum of 2,000 full-time jobs in Illinois; or

 

C)        total a minimum of $40,000,000 and retain at least 90% of the jobs in place on the date on which the exemption is granted and for the duration of the exemption; and

 

3)         is certified by the Department of Commerce and Economic Opportunity (DCEO) as complying with the requirements specified in this subsection (b).  [35 ILCS 120/1f]

 

c)         The phrase "pollution control facilities" means any system, method, construction, device, or appliance appurtenant thereto, sold or used or intended for the primary purpose of eliminating, preventing, or reducing air and water pollution as the term "air pollution" or "water pollution" is defined in the Environmental Protection Act [415 ILCS 5]or for the primary purpose of treating, pretreating, modifying or disposing of any potential solid, liquid or gaseous pollutant that, if released without such treatment, pretreatment, modification or disposal, might be harmful, detrimental or offensive to human, plant or animal life, or to property.  [35 ILCS 120/1a]

 

d)         If a business enterprise is certified by DCEO, all tangible personal property used or consumed by that enterprise in the operation of pollution control facilities within an enterprise zone is exempt from tax.  In order to qualify, the item must be used exclusively in the enterprise zone and the pollution control facility must be located in the enterprise zone.  By way of illustration, this exemption includes:

 

1)         fuel used in operating pollution control facilities;

 

2)         chemicals used in the operation of pollution control facilities;

 

3)         catalysts used in the operation of pollution control facilities;

 

4)         equipment used to test, monitor or otherwise ascertain the suitability of a fuel, chemical or catalyst for use in the operation of pollution control facilities;

 

5)         equipment used to monitor or otherwise ascertain the effectiveness of pollution control facilities;

 

6)         lubricants and coolants used in the operation of pollution control facilities;

 

7)         protective clothing and safety equipment used in the operation of pollution control facilities;

 

8)         equipment used to transport fuel, chemicals, catalysts, lubricants, coolants or other operational supplies from a stock pile located in the enterprise zone to a pollution control facility located in the same enterprise zone;

 

9)         equipment used to transport filtered, treated or modified pollutants from a pollution control facility in an enterprise zone to another pollution control facility within the same enterprise zone for further filtering, treatment or modification; and

 

10)         equipment used to transport filtered, treated or modified pollutants from a pollution control facility in an enterprise zone to a disposal site in the same enterprise zone.

 

e)         No item used primarily in any activity other than the operation of pollution control facilities within an enterprise zone can qualify for this exemption.  No item used or consumed outside the enterprise zone can qualify for the exemption.  No item used or consumed in the operation of pollution control facilities that are located outside the enterprise zone can qualify for the exemption.  By way of illustration, the exemption does not extend to:

 

1)         equipment used to transport fuel, chemicals, catalysts or any other tangible personal property from a point outside the enterprise zone to a pollution control facility inside the enterprise zone;

 

2)         equipment used to transport filtered, treated or modified pollutants from a pollution control facility in an enterprise zone to any location outside the enterprise zone;

 

3)         testing equipment used at a location outside an enterprise zone to monitor or otherwise ascertain the effectiveness of pollution control facilities located in an enterprise zone; or

 

4)         testing equipment used at a location in an enterprise zone to monitor or otherwise ascertain the effectiveness of pollution control facilities located outside the enterprise zone.

 

f)         This exemption from Illinois Retailers' Occupation Tax is available to all retailers registered to collect or remit Illinois sales tax.  It is not restricted to retailers located in the enterprise zone.

 

g)         For this exemption to apply, the purchaser need not itself employ the tangible personal property in the operation of pollution control facilities.  If the purchaser leases the items to a certified business that uses the items in an exempt manner, the sale to the purchaser-lessor will be exempt from tax.  A retailer may deduct the sales from taxable gross receipts provided the purchaser-lessor provides to the retailer a properly completed exemption certificate and the information contained in the certificate would support the exemption if the sale were made directly to the certified business.  Should a purchaser-lessor lease the items to a lessee that is not a certified business or to a certified business that does not use those items in the operation of pollution control facilities within an enterprise zone, the purchaser‑lessor will become liable for the tax from which it was previously exempted.

 

h)         Documentation of Exemption

 

1)         When a certified business (or the lessor of a certified business) initially purchases qualifying items from an Illinois registered retailer, the retailer must be provided with:

 

A)        a copy of the current certificate of eligibility issued by DCEO; and

 

B)        a written statement of exemption signed by the certified business (or its lessor) that the items being purchased will be used or consumed (or leased for use or consumption) in the operation of pollution control facilities at a specified location in a named enterprise zone established under the authority of the Illinois Enterprise Zone Act.

 

2)         If a copy of a certified business' current certificate of eligibility and statement of exemption are maintained by a retailer, the certified business (or its lessor) may claim the exemption on subsequent purchases from that retailer by indicating on the face of purchase orders that the transaction is exempt by referencing the certificate of eligibility and statement of exemption.  This procedure on subsequent purchases is authorized only so long as the certificate of eligibility remains current.  That is, the exemption can be claimed only as to purchases made during the effective period of the certificate of eligibility specified by DCEO on the face of the certificate of eligibility.

 

3)         If a certified business (or its lessor) purchases tangible personal property that could reasonably be used in the operation of pollution control facilities, the certified business (or its lessor) should certify to the retailer in writing in order to relieve the retailer of the duty of collecting and remitting tax on the sale.  However, the purchaser who certifies that the item is being purchased for a qualifying use in an enterprise zone by a certified business will be held liable for the tax by the Department if it is found that the item was not so used.

 

i)          An item that is used primarily in a qualifying manner at a qualifying location but that is converted to a nonexempt use or is moved to a nonexempt location will become subject to tax at the time of its conversion based on the fair market value of the item at the time of conversion to the nonexempt use.

 

(Source:  Added at 39 Ill. Reg. 14616, effective October 22, 2015)

 

Section 130.1949  Sales of Building Materials Incorporated into the South Suburban Airport

 

a)         Section 1s of the Retailers' Occupation Tax Act creates an exemption for the sale of building materials to be incorporated into the South Suburban Airport as defined in the Public Private Agreements for South Suburban Airport Act [620 ILCS 75].  Each retailer that makes a qualified sale of building materials to be incorporated into the South Suburban Airport, by remodeling, rehabilitating, or new construction, may deduct receipts from those sales when calculating the tax imposed by the Retailers' Occupation Tax Act. As used in this Section, "qualified sale" means a sale of building materials that will be incorporated into the South Suburban Airport for which a Certificate of Eligibility for Sales Tax Exemption has been issued by the Illinois Department of Transportation (IDOT), which has authority over the project.  [35 ILCS 120/1s]  A purchaser shall not make tax-free purchases unless it has an active Certificate of Eligibility for Sales Tax Exemption issued by IDOT at the time of purchase.

 

b)         To document the exemption allowed under this Section, the retailer must obtain from the purchaser:

 

1)         a copy of the Certificate of Eligibility for Sales Tax Exemption issued by IDOT; and

 

2)         a written certification that contains all of the following:

 

A)        a statement that the building materials are being purchased for incorporation into the South Suburban Airport in accordance with the Public-Private Agreements for the South Suburban Airport Act;

 

B)        the location or address of the project into which the building materials will be incorporated;

 

C)        the name of the project;

 

D)        a description of the building materials being purchased;

 

E)        the purchaser's signature; and

 

F)         the date of purchase.  [35 ILCS 120/1s(c) and (d)]

 

c)         In order to qualify for the exemption, the materials being purchased must be building materials.  That is, they must be purchased for physical incorporation into the South Suburban Airport location.  For example, gross receipts from sales of the following can qualify for the exemption if they are physically incorporated into the South Suburban Airport location:

 

1)         building materials, such as cement and asphalt used to construct roadways, runways and taxiways;

 

2)         common building materials, such as lumber, bricks, cement, windows, doors, insulation, roofing materials and sheet metal;

 

3)         plumbing systems and their components, such as bathtubs, lavatories, sinks, faucets, garbage disposals, water pumps, water heaters, water softeners and water pipes;

 

4)         heating systems and their components, such as furnaces, ductwork, vents, stokers, boilers, heating pipes and radiators;

 

5)         electrical systems and their components, such as wiring, outlets and light fixtures;

 

6)         central air conditioning systems and ventilation systems and their components;

 

7)         built-in cabinets and other woodwork;

 

8)         built-in appliances, such as refrigerators, stoves, ovens and trash compactors;

 

9)         floor coverings, such as tile, linoleum and carpeting that are glued or otherwise permanently affixed by use of tacks, staples or wood stripping filled with nails that protrude upward (sometimes referred to as "tacking strips" or "tack-down strips"); and

 

10)         landscape products, such as trees, shrubs, topsoil and sod.

 

d)         Items that are not physically incorporated into the South Suburban Airport location cannot qualify for the exemption.  For example, gross receipts from sales of the following do not qualify for the exemption:

 

1)         tools, machinery, equipment, fuel, forms and other items that may be used by a construction contractor at the South Suburban Airport location, but that are not physically incorporated into the South Suburban Airport location;

 

2)         free-standing appliances, such as stoves, ovens, refrigerators, washing machines, portable ventilation units, window air conditioning units, lamps, clothes washers, clothes dryers, trash compactors and dishwashers that may be connected to and operate from a building's electrical or plumbing system but that do not become a component of those systems;

 

3)         floor coverings that are area rugs or that are attached to the structure using only two-sided tape.

 

(Source:  Added at 39 Ill. Reg. 14616, effective October 22, 2015)

 

Section 130.1950  Sales of Building Materials Incorporated into the Illiana Expressway  

 

a)         Section 1q of the Retailers' Occupation Tax Act creates an exemption for the sale of qualified building materials to be incorporated into the Illiana Expressway as defined in the Public Private Agreements for the Illiana Expressway Act [605 ILCS 130].  Each retailer that makes a qualified sale of building materials to be incorporated into the Illiana Expressway by remodeling, rehabilitating, or new construction, may deduct receipts from those sales when calculating the tax imposed by this Act.  As used in this Section, "qualified sale" means a sale of building materials that will be incorporated into the Illiana Expressway for which a Certificate of Eligibility for Sales Tax Exemption (Exemption Certificate) has been issued by the Illinois Department of Transportation (IDOT), which has authority over the project.  [35 ILCS 120/1q]  A purchaser shall not make tax-free purchases unless it has an active Exemption Certificate issued by IDOT at the time of purchase.

 

b)         To document the exemption allowed under this Section, the retailer must obtain from the purchaser:

 

1)         a copy of the Exemption Certificate issued by IDOT, and

 

2)         a written certification that contains all of the following:

 

A)        a statement that the building materials are being purchased for incorporation into the Illiana Expressway in accordance with the Public Private Agreements for the Illiana Expressway Act;

 

B)        the location or address of the project into which the building materials will be incorporated;

 

C)        the name of the project;

 

D)        a description of the building materials being purchased; and

 

E)        the purchaser's signature and date of purchase.  [35 ILCS 120/1q (c) and (d)]

 

c)         In order to qualify for the exemption, the materials being purchased must be building materials.  That is, they must be purchased for physical incorporation into an Illiana Expressway location.  For example, gross receipts from sales of the following can qualify for the exemption:

 

1)         building materials, such as cement or asphalt used to construct roadways, on ramps and off ramps:

 

2)         common building materials, such as lumber, bricks, cement, windows, doors, insulation, roofing materials and sheet metal;

 

3)         plumbing systems and their components, such as bathtubs, lavatories, sinks, faucets, garbage disposals, water pumps, water heaters, water softeners and water pipes;

 

4)         heating systems and their components, such as furnaces, ductwork, vents, stokers, boilers, heating pipes and radiators;

 

5)         electrical systems and their components, such as wiring, outlets and light fixtures that are physically incorporated into an Illiana Expressway location;

 

6)         central air conditioning systems, ventilation systems and their components that are physically incorporated into an Illiana Expressway location;

 

7)         built-in cabinets and other woodwork that is physically incorporated into an Illiana Expressway location;

 

8)         built-in appliances, such as refrigerators, stoves, ovens and trash compactors that are physically incorporated into an Illiana Expressway location;

 

9)         floor coverings, such as tile, linoleum and carpeting that are glued or otherwise permanently affixed to an Illiana Expressway location by use of tacks, staples, or wood stripping filled with nails that protrude upward (sometimes referred to as "tacking strips" or "tack-down strips"); and

 

10)         landscape products, such as trees, shrubs, topsoil and sod that are physically incorporated (i.e., transplanted) into an Illiana Expressway location.

 

d)         Items that are not physically incorporated into an Illiana Expressway location cannot qualify for the exemption.  For example, gross receipts from sales of the following do not qualify for the exemption:

 

1)         tools, machinery, equipment, fuel, forms and other items that may be used by a construction contractor at an Illiana Expressway location, but that are not physically incorporated into an Illiana Expressway location;

 

2)         free-standing appliances, such as stoves, ovens, refrigerators, washing machines, portable ventilation units, window air conditioning units, lamps, clothes washers, clothes dryers, trash compactors and dishwashers that may be connected to and operate from a building's electrical or plumbing system but do not become a component of those systems,

 

3)         floor coverings that are area rugs or that are attached to the structure using only two-sided tape.

 

(Source:  Amended at 39 Ill. Reg. 14616, effective October 22, 2015)

 

Section 130.1951  Sales of Building Materials Incorporated into Real Estate within Enterprise Zones

 

a)         An exemption from Illinois Retailers' Occupation Tax liability exists for gross receipts from qualified sales of building materials that will be incorporated into real estate located in an enterprise zone established by a county or municipality under the Illinois Enterprise Zone Act by remodeling, rehabilitation or new construction.  [35 ILCS 120/5k]

 

b)         Documentation for Sales Made on and after August 6, 2002 through June 30, 2013

 

1)         "Qualified sale" means a sale of building materials that will be incorporated into real estate as part of a building project for which a Certificate of Eligibility for Sales Tax Exemption (Exemption Certificate) has been issued by the administrator of the enterprise zone in which the building project is located.  [35 ILCS 120/5k] During this period, there is no requirement that the retailer from whom the materials are purchased be located in a jurisdiction that created the enterprise zone into which the materials will be incorporated; likewise, restrictions in the enterprise zone ordinance in effect at the retailer's location do not apply to purchases of building materials for incorporation into another enterprise zone.  The municipality or county that created the enterprise zone into which the materials will be incorporated can limit the exemption by ordinance, except that the ordinance may not require that the materials be purchased from any class of retailers, and it may not prohibit the purchase being made from any class of retailers.  All "qualified sales" of building materials sold for incorporation into any Illinois enterprise zone are eligible for the exemption. 

 

2)         The Certificate of Eligibility for Sales Tax Exemption must contain:

 

A)        a statement that the building project identified in the Certificate meets all of the requirements of the enterprise zone ordinance of the jurisdiction in which the building project is located; 

 

B)        the location or street address of the building project that is the subject of the Certificate;

 

C)        the signature of the administrator of the enterprise zone in which the building project is located. 

 

3)         Certification.  A retailer claiming the exemption on and after August 6, 2002 through June 30, 2013, must have among its books and records:

 

A)        a copy of the Certificate of Eligibility for Sales Tax Exemption from the administrator of the enterprise zone into which the materials will be incorporated; and

 

B)        a certification from the purchaser of the building materials containing the following:

 

i)          a statement that the building materials being purchased are being purchased for incorporation into real estate located in an Illinois enterprise zone,

 

ii)         the location or address of that real estate,

 

iii)        the name of the enterprise zone in which that real estate is located,

 

iv)        a description of the building materials being purchased for incorporation into that real estate,

 

v)         the date of the purchase, and

 

vi)        the purchaser's signature.

 

c)         Issuance of Exemption Certificates for Purchases Made on and after July 1, 2013

 

1)         On and after July 1, 2013, "qualified sale" means a sale 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 the purchase.  [35 ILCS 120/5k(a)] The exemption allowed by this Section for the sale of building materials may be limited to the extent authorized by ordinance by the municipality or county that created the enterprise zone into which the building materials will be incorporated.  The ordinance, however, may neither require nor prohibit the purchase of building materials from any retailer or class of retailers in order to qualify for the exemption allowed under Section 5k of the Retailers' Occupation Tax Act. [35 ILCS 120/5k(d)]

 

2)         Upon request from an enterprise zone administrator, the Department shall issue an Exemption Certificate for each construction contractor or other entity identified by the enterprise zone administrator.  The Department shall make the Exemption Certificates available directly to each enterprise zone administrator, construction contractor or other entity.

 

A)        The request for an Exemption Certificate from the enterprise zone administrator to the Department must include the following information:

 

i)          the name, address, telephone number and e-mail address of the construction contractor or other entity;

 

ii)         the name and number of the enterprise zone;

 

iii)        the name and location or address of the building project in the enterprise zone;

 

iv)        the estimated amount of the exemption for each construction contractor or other entity for which a request for Exemption Certificate is made, based on a stated estimated average tax rate and the percentage of the contract that consists of materials;

 

v)         the period of time over which supplies for the project are expected to be purchased; and

 

vi)        the FEIN of the applicant.

 

B)        The Department shall issue an Exemption Certificate within 3 business days after receipt of a request from the zone administrator, unless the Department, for reasonable cause, is unable to issue an Exemption Certificate within 3 business days. Examples of "reasonable cause" include, but are not limited to, receipt of a request lacking all the information required by subsection (c)(2)(A), the receipt of a large number of requests for Exemption Certificates from a zone administrator, or lack of sufficient staff to process the number of existing requests.

 

C)        The Department may refuse to issue an Exemption Certificate if the owner, any partner, or a corporate officer, and in the case of a limited liability company, any manager or member, of the construction contractor or other entity is or has been the owner, a partner, a corporate officer, and in the case of a limited liability company, a manager or member, of a person that is in default for moneys due to the Department under this Act or any other tax or fee Act administered by the Department.

 

D)        The request for an Exemption Certificate must be submitted electronically.

 

E)        An Exemption Certificate shall be effective for no more than 2 years after the date of issuance.  At the request of a zone administrator, the Department may renew an Exemption Certificate.

 

F)         After the Department issues an Exemption Certificate for a given enterprise zone building project, an enterprise zone administrator may notify the Department of additional construction contractors or other entities eligible for Exemption Certificates.  Upon notification by an enterprise zone administrator, and subject to the other provisions of this subsection (c), the Department shall issue an Exemption Certificate to each additional construction contractor or other entity identified by the enterprise zone administrator.

 

G)        An enterprise zone administrator may notify the Department to rescind an Exemption Certificate previously issued by the Department but that has not yet expired.  Upon notification by the enterprise zone administrator, and subject to the other provisions of this subsection (c), the Department shall issue the rescission of the Exemption Certificate to the construction contractor or other entity identified by the enterprise zone administrator and provide a copy to the enterprise zone administrator. [35 ILCS 120/5k]

 

3)         Notwithstanding anything to the contrary in this subsection (c), for Enterprise Zone building projects already in existence and for which construction contracts are already in place on July 1, 2013, the request for Exemption Certificates from an enterprise zone administrator to the Department for pre-existing construction contractors and other entities must include the information required under subsection (c)(2)(A), but need not include the information listed in subsections (c)(2)(A)(iv) and (v).  For any new construction contract entered into on or after July 1, 2013, however, all of the information in subsection (c) of this Section must be provided. [35 ILCS 120/5k(a)]

 

d)         Documentation of the Exemption for Purchases made on or after July 1, 2013

 

1)         On and after July 1, 2013, to document the exemption allowed under this Section, the retailer must obtain from the purchaser the purchaser's Exemption Certificate number issued by the Department, along with a copy of the certification required by subsection (d)(2). [35 ILCS 120/5k(b)] 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 purchase.  [35 ILCS 120/5k(a)]

 

2)         The retailer must obtain a certification from the purchaser that contains:

 

A)        a statement that the building materials are being purchased for incorporation into real estate located in an Illinois enterprise zone;

 

B)        the location or address of the real estate into which the building materials will be incorporated;

 

C)        the name of the enterprise zone in which that real estate is located;

 

D)        a description of the building materials being purchased;

 

E)        the purchaser's Exemption Certificate number issued by the Department; and

 

F)         the purchaser's signature and date of purchase [35 ILCS 120/5k(c)].

 

3)         The retailer may comply with this subsection (d) certification requirement by securing from the purchaser a completed and signed Form EZ-1.

 

e)         Qualified Sales of Tangible Personal Property.  In order to qualify for the building materials exemption under this Section, the materials being purchased must be building materials.  That is, they must be purchased for physical incorporation into real estate.  For example, gross receipts from sales of:

 

1)         common building materials such as lumber, bricks, cement, windows, doors, insulation, roofing materials and sheet metal can qualify for the exemption;

 

2)         plumbing systems and components thereof such as bathtubs, lavatories, sinks, faucets, garbage disposals, water pumps, water heaters, water softeners and water pipes can qualify for the exemption;

 

3)         heating systems and components thereof such as furnaces, ductwork, vents, stokers, boilers, heating pipes and radiators can qualify for the exemption;

 

4)         electrical systems and components thereof such as wiring, outlets and light fixtures that are physically incorporated into the real estate can qualify for the exemption;

 

5)         central air conditioning systems, ventilation systems and components thereof that are physically incorporated into the real estate can qualify for the exemption;

 

6)         built-in cabinets and other woodwork that are physically incorporated into the real estate can qualify for the exemption;

 

7)         built-in appliances such as refrigerators, stoves, ovens and trash compactors that are physically incorporated into the real estate can qualify for the exemption;

 

8)         floor coverings such as tile, linoleum and carpeting that are glued or otherwise permanently affixed to the real estate by use of tacks, staples, or wood stripping filled with nails that protrude upward (sometimes referred to as "tacking strips" or "tack-down strips") can qualify for the exemption.

 

f)         Sales of Tangible Personal Property that Do Not Qualify for the Exemption.  Items that are not physically incorporated into the real estate cannot qualify for the exemption.  For example, gross receipts from sales of:

 

1)         tools, machinery, equipment, fuel, forms and other items that may be used by a construction contractor at an enterprise zone building site, but that are not physically incorporated into the real estate, do not qualify for the exemption;

 

2)         free-standing appliances such as stoves, ovens, refrigerators, washing machines, portable ventilation units, window air conditioning units, lamps, clothes washers, clothes dryers, trash compactors and dishwashers that may be connected to and operate from a building's electrical or plumbing system but which do not become a component of those systems do not qualify for the exemption;

 

3)         floor coverings that are area rugs or that are attached to the structure using only two-sided tape do not qualify for the exemption.

 

g)         Penalties – Revocation − Protest Procedures

 

1)         If the Department determines that a construction contractor or other entity that was issued an Exemption Certificate under subsection (c) made a tax‑exempt purchase, as described in this Section, that was not eligible for exemption under this Section, or allowed another person to make a tax‑exempt purchase, as described in this Section, that was not eligible for exemption under this Section, then, in addition to any tax or other penalty imposed, the construction contractor or other entity is subject to a penalty equal to the tax that would have been paid by the retailer under the Act, including any applicable local retailers' occupation tax on the purchase that was not eligible for the exemption.

 

2)         Each contractor or other entity that has been issued an Exemption Certificate under Section 5k of the Retailers' Occupation Tax Act shall annually report to the Department the total tax benefits for taxes imposed by the State that are received under Enterprise Zone building materials exemption broken down by Enterprise Zone. Reports are due no later than May 31 of each year and shall cover the previous calendar year. Failure to report data may result in revocation of the Exemption Certificate issued to the contractor or other entity.  [20 ILCS 655/8.1(a-5)].

 

3)         Suspension of Exemption Certificate for Failure to Report Data.  A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (g)(2) shall have the Exemption Certificate for which it failed to report suspended.

 

A)        First Offense: A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (g)(2) shall have the Exemption Certificate suspended until the contractor or other entity complies with the reporting requirements of subsection (g)(2).

 

B)        Second Offense:  A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (g)(2) for two reporting periods within a five-year period shall have all Exemption Certificates issued to it suspended until 30 days after the contractor or other entity complies with the reporting requirements of subsection (g)(2).

 

C)        Subsequent Offenses:  A contractor or other entity that fails to comply with the reporting requirements or deadlines of subsection (g)(2) for more than two reporting periods within a five-year period shall have all Exemption Certificates issued to it suspended until 180 days after the contractor or other entity complies with the reporting requirements of subsection (g)(2).

 

4)         Suspension or Revocation of Exemption Certificate for Both Failure to Report Data and Unlawful Use of Exemption Certificate.  The Department shall suspend or revoke the Exemption Certificate of a contractor or other entity found to have both failed to comply with the reporting requirements of subsection (g)(2) and to have used an Exemption Certificate in violation of subsection (g)(1), as follows:

 

A)        First Offense:  In addition to all other penalties provided by law, a first offense shall result in the suspension of all Exemption Certificates issued to a contractor or other entity for 1 year.

 

B)        Second Offense:  In addition to all other penalties provided by law, a second offense shall result in permanent revocation of all Exemption Certificates issued to the contractor or other entity.

 

5)         Ineligibility.  A contractor or other entity is not eligible to receive additional Exemption Certificates during the period that one or more Exemption Certificates issued to it are subject to suspension or revocation.

 

6)         Protest Procedures.  Any person aggrieved by any decision of the Department under subsections (g)(3) through (g)(4) may, within 20 days after notice of the decision, protest and request a hearing, whereupon the Department shall give notice to that person of the time and place fixed for a hearing and shall hold a hearing and then issue its final administrative decision in the matter to that person. In the absence of a protest within 20 days, the Department's decision shall become final without any further determination being made or notice given.

 

(Source:  Amended at 39 Ill. Reg. 14616, effective October 22, 2015)

 

Section 130.1952  Sales of Building Materials to a High Impact Business

 

a)         Beginning January 1, 1995, each retailer who makes a sale of building materials that will be incorporated into a High Impact Business (HIB) location as designated by the Department of Commerce and Economic Opportunity (DCEO) under Section 5.5 of the Illinois Enterprise Zone Act may deduct receipts from such sales when calculating the 6.25% State rate of tax imposed by the Retailers' Occupation Tax Act and any local taxes.  [35 ILCS 120/5l]

 

b)         A retailer claiming the exemption must have among its books and records a written statement signed by the purchaser setting out facts which establish the exemption.  For purchases made through June 30, 2013, this purchaser's statement must contain the following information:

 

1)         a certification by the purchaser that the building materials being purchased are being purchased for incorporation into a HIB location;

 

2)         a description of the building materials being purchased (this may be done by a cross reference to the retailer's invoice number);

 

3)         the name of the HIB location into which the building materials will be incorporated and, if applicable, the street address of the real estate; and

 

4)         the purchaser's signature and date of signing.

 

c)         Issuance of Exemption Certificates for Purchases Made on and after July 1, 2013

 

1)         Each retailer who makes a sale of building materials that will be incorporated into a High Impact Business location as designated by the DCEO under Section 5.5 of the Illinois Enterprise Zone Act may deduct receipts from such sales when calculating the tax imposed by the Act and when calculating any applicable local taxes.  No retailer who is eligible for the exemption under Section 5k of the Act for making a sale of building materials to be incorporated into real estate in an enterprise zone by rehabilitation, remodeling or new construction shall be eligible for the exemption authorized under this Section.  [35 ILCS 120/5l]

 

2)         Upon request from a designated High Impact Business, the Department shall issue a High Impact Business Building Materials Exemption Certificate (Exemption Certificate) for each construction contractor or other entity identified by the designated High Impact Business.  The Department shall make an Exemption Certificate available to each construction contractor or other entity and the designated High Impact Business.  [35 ILCS 120/5l(b)]

 

A)        A request for an Exemption Certificate from the designated High Impact Business must include the following information:

 

i)          the name, address, telephone number and e-mail address of the construction contractor or other entity;

 

ii)         the name and location or address of the designated High Impact Business;

 

iii)        the estimated amount of the exemption for each construction contractor or other entity for which a request for Exemption Certificate is made, based on a stated estimated average tax rate and the percentage of the contract that consists of materials;

 

iv)        the period of time over which supplies for the project are expected to be purchased; and

 

v)         the FEIN of the applicant.

 

B)        The Department shall issue an Exemption Certificates within 3 business days after receipt of a request from the designated High Impact Business, unless the Department, for reasonable cause, is unable to issue the Exemption Certificate within 3 business days. Examples of "reasonable cause" include, but are not limited to, receipt of a request lacking all the information required by subsection (c)(2)(A), the receipt of a large number of requests for Exemption Certificates from a zone administrator, or lack of sufficient staff to process the number of existing requests.

 

C)        The Department may refuse to issue an Exemption Certificate if the owner, any partner, or a corporate officer, and in the case of a limited liability company, any manager or member, of the construction contractor or other entity is or has been the owner, a partner, a corporate officer, and in the case of a limited liability company, a manager or member, of a person that is in default for moneys due to the Department under the Retailers' Occupation Tax Act or any other tax or fee Act administered by the Department.

 

D)        The request for an Exemption Certificate must be submitted electronically.

 

E)        An Exemption Certificate shall be effective for no more than 2 years after the date of issuance.  At the request of the designated High Impact Business, the Department may renew an Exemption Certificate.

 

F)         After the Department issues Exemption Certificates for a designated High Impact Business building project, the designated High Impact Business may notify the Department of additional construction contractors or other entities eligible for an Exemption Certificate.  Upon notification by the designated High Impact Business, and subject to the other provisions of this subsection (c), the Department shall issue an Exemption Certificate to each additional construction contractor or other entity identified by the designated High Impact Business.

 

G)        A designated High Impact Business may notify the Department to rescind an Exemption Certificate previously issued by the Department but that has not yet expired.  Upon notification by the designated High Impact Business, and subject to the other provisions of this subsection (c), the Department shall issue the rescission of the Exemption Certificate to the construction contractor or other entity identified by the designated High Impact Business and provide a copy to the designated High Impact Business.

 

3)         Notwithstanding anything to the contrary in this Section, for High Impact Businesses' building projects already in existence and for which construction contracts are already in place on July 1, 2013, the request for Exemption Certificates from the designated High Impact Business to the Department for these pre-existing construction contractors and other entities must include the information required under subsection (c)(2)(A), but need not include the information listed in subsection (c)(2)(A)(iii) and (iv).  For any new construction contract entered into on or after July 1, 2013, however, all of the information in subsection (c) must be provided.  [35 ILCS 120/5l(c)]

 

d)         Documentation of Exemption for Purchases Made on or after July 1, 2013

 

1)         On and after July 1, 2013, to document the exemption allowed under this Section, the retailer must obtain from the purchaser the purchaser's Exemption Certificate number issued by the Department along with a certification identified in subsection (d)(2). 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 purchase.  [35 ILCS 120/5l(b)]

 

2)         The retailer must obtain a certification from the purchaser that contains:

 

A)        a statement that the building materials are being purchased for incorporation into a designated High Impact Business location;

 

B)        the location or address of the designated High Impact Business into which the building materials will be incorporated;

 

C)        The name of the designated High Impact Business;

 

D)        a description of the building materials being purchased;

 

E)        the purchaser's Exemption Certificate number issued by the Department; and

 

F)         the purchaser's signature and date of purchase.

 

3)         The retailer may comply with this subsection (d) certification requirement by securing from the purchaser a completed and signed Form EZ-1.

 

e)         Qualified Sales of Tangible Personal Property.  In order to qualify for the deduction, the materials being purchased must be building materials.  That is, they must be purchased for physical incorporation into an HIB location.  For example, gross receipts from sales of the following can qualify for the exemption:

 

1)         common building materials such as lumber, bricks, cement, windows, doors, insulation, roofing materials and sheet metal;

 

2)         plumbing systems and components thereof such as bathtubs, lavatories, sinks, faucets, garbage disposals, water pumps, water heaters, water softeners and water pipes;

 

3)         heating systems and components thereof such as furnaces, ductwork, vents, stokers, boilers, heating pipes and radiators;

 

4)         electrical systems and components thereof such as wiring, outlets and light fixtures which are physically incorporated into the HIB location;

 

5)         central air conditioning systems, ventilation systems and components thereof which are physically incorporated into the HIB location;

 

6)         built-in cabinets and other woodwork which is physically incorporated into the HIB location;

 

7)         built-in appliances such as refrigerators, stoves, ovens and trash compactors which are physically incorporated into the HIB location;

 

8)         floor coverings such as tile, linoleum and carpeting that are glued or otherwise permanently affixed to the HIB location by use of tacks, staples, or wood stripping filled with nails that protrude upward (sometimes referred to as "tacking strips" or "tack-down strips");

 

9)         landscape products such as trees, shrubs, topsoil and sod which are physically incorporated (i.e., transplanted) into the HIB location.

 

f)         Sales of Tangible Personal Property that Do Not Qualify for the Exemption.  Items that are not physically incorporated into an HIB location cannot qualify for the exemption.  For example, gross receipts from sales of the following do not qualify for the exemption:

 

1)         tools, machinery, equipment, fuel, forms and other items which may be used by a construction contractor at an HIB location, but which are not physically incorporated into the HIB location;

 

2)         free-standing appliances such as stoves, ovens, refrigerators, washing machines, portable ventilation units, window air conditioning units, lamps, clothes washers, clothes dryers, trash compactors and dishwashers which may be connected to and operate from a building's electrical or plumbing system but which do not become a component of those systems;

 

3)         floor coverings that are area rugs or that are attached to the structure using only two-sided tape.

 

g)         Penalties − Revocation − Protest Procedures

 

1)         If the Department determines that a construction contractor or other entity that was issued an Exemption Certificate under subsection (c) made a tax‑exempt purchase, as described in this Section, that was not eligible for exemption under this Section, or allowed another person to make a tax‑exempt purchase, as described in this Section, that was not eligible for exemption under this Section, then, in addition to any tax or other penalty imposed, the construction contractor or other entity is subject to a penalty equal to the tax that would have been paid by the retailer under the Retailers' Occupation Tax Act as well as any applicable local retailers' occupation tax on the purchase that was not eligible for the exemption [35 ILCS 120/5l(b)].

 

2)         Each contractor or other entity that has been issued an Exemption Certificate shall annually report to the Department the total tax benefits for taxes imposed by the State that are received under Exemption Certificates and shall be broken down by designated High Impact Business.  Reports are due no later than May 31 of each year and shall cover the previous calendar year.  Failure to report the data may result in revocation of the Exemption Certificate issued to the contractor or other entity. [20 ILCS 655/8.1(a-5)]

 

3)         Suspension of Exemption Certificate for Failure to Report Data.  A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (g)(2) shall have the Exemption Certificate for which it failed to report suspended.

 

A)        First Offense: A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (g)(2) shall have the Exemption Certificate suspended until the contractor or other entity complies with the reporting requirements of subsection (g)(2).

 

B)        Second Offense:  A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (g)(2) for two reporting periods within a five-year period shall have all Exemption Certificates issued to it suspended until 30 days after the contractor or other entity complies with the reporting requirements of subsection (g)(2). 

 

C)        Subsequent Offenses:  A contractor or other entity that fails to comply with the reporting requirements or deadlines of subsection (g)(2) for more than two reporting periods within a five-year period shall have all Exemption Certificates issued to it suspended until 180 days after the contractor or other entity complies with the reporting requirements of subsection (g)(2).

 

4)         Suspension or Revocation of Exemption Certificate for Both Failure to Report Data and Unlawful Use of Exemption Certificate.  The Department shall revoke or suspend, as follows, the Exemption Certificate of a contractor or other entity that has, for the same certificate, both failed to comply with the reporting requirements of subsection (g)(2) and has been found to have used the Exemption Certificate in violation of subsection (g)(1): 

 

A)        First Offense:  In addition to all other penalties provided by law, a first offense shall result in the suspension of all Exemption Certificates issued to a contractor or other entity for 1 year.

 

B)        Second Offense:  In addition to all other penalties provided by law, a second offense shall result in permanent revocation of all Exemption Certificates issued to the contractor or other entity.

 

5)         Ineligibility.  A contractor or other entity is not eligible to receive additional Exemption Certificates during the period that one or more Exemption Certificates issued to it are subject to suspension or revocation.

 

6)         Protest Procedures.  Any person aggrieved by any decision of the Department under subsections (g)(3) through (g)(4) may, within 20 days after notice of the decision, protest and request a hearing, whereupon the Department shall give notice to that person of the time and place fixed for a hearing and shall hold a hearing and then issue its final administrative decision in the matter to that person. In the absence of a protest within 20 days, the Department's decision shall become final without any further determination being made or notice given.

 

(Source:  Amended at 39 Ill. Reg. 14616, effective October 22, 2015)

 

Section 130.1953  Sales of Building Materials to be Incorporated into a Redevelopment Project Area within an Intermodal Terminal Facility Area

 

a)         Beginning January 1, 2006, each retailer that makes a qualified sale of building materials to be incorporated into real estate in a redevelopment project area within an intermodal terminal facility area in accordance with Section 11-74.4-3.1 of the Illinois Municipal Code by remodeling, rehabilitating, or new construction may deduct receipts from those sales when calculating the tax imposed by the Retailers' Occupation Tax Act.  [35 ILCS 120/2-6]

 

b)         Definitions

 

1)         As used in this Section, "intermodal terminal facility" means land, improvements to land, equipment, and appliances necessary for the receipt and transfer of goods between one mode of transportation and another, at least one of which must be transportation by rail. "Intermodal terminal facility area" means an area that:

 

A)        does not include any existing intermodal facility or includes an obsolete intermodal facility;

 

B)        comprises a minimum of 150 acres and not more than 2 square miles in total area, exclusive of lakes and waterways;

 

C)        has at least one Class 1 railroad right-of-way located within it or within one quarter mile of it; and

 

D)        has no boundary limit further than 3 miles from the right-of-way. [65 ILCS 5/11-74.4-3.1(c)]

 

2)         For purposes of this Section, "qualified sale" means a sale of building materials that will be incorporated into real estate as part of an industrial or commercial project for which a Certificate of Eligibility for Sales Tax Exemption has been issued by the corporate authorities of the municipality in which the building project is located.  [35 ILCS 120/2-6]

 

c)         Qualifying Building Materials

In order to qualify for the deduction, the materials being purchased must be building materials purchased for physical incorporation into real estate as part of an industrial or commercial project in a redevelopment project area within an intermodal terminal facility area certified by the corporate authorities of the municipality in which the building project is located.  For example, gross receipts from sales of the following can qualify for the deduction:

 

1)         Common building materials such as lumber, bricks, cement, windows, doors, insulation, roofing materials, and sheet metal;

 

2)         Any trackage, ties, ballast, spikes, plates, high mast lighting, and cranes that are physically incorporated into the redevelopment project area of the intermodal terminal facility;

 

3)         Plumbing systems and their components such as bathtubs, lavatories, sinks, faucets, garbage disposals, water pumps, water heaters, water softeners, and water pipes;

 

4)         Heating systems and their components such as furnaces, ductwork, vents, stokers, boilers, heating pipes, and radiators;

 

5)         Electrical systems and their components such as wiring, outlets, and light fixtures that are physically incorporated into the redevelopment project area of the intermodal terminal facility;

 

6)         Central air-conditioning systems, ventilation systems and their components that are physically incorporated into the redevelopment project area of the intermodal terminal facility;

 

7)         Built-in cabinets and other woodwork that is physically incorporated into the building located in the redevelopment project area of the intermodal terminal facility;

 

8)         Built-in appliances such as refrigerators, stoves, ovens, and trash compactors that are physically incorporated into the building located in the redevelopment project area of the intermodal terminal facility;

 

9)         Floor coverings such as tile, linoleum and carpeting that are glued or otherwise permanently affixed to the building in the redevelopment project area location by use of tacks, staples, or wood stripping filled with nails that protrude upward (sometimes referred to as "tacking strips" or "tack-down strips"); and

 

10)         Landscape products such as trees, shrubs, topsoil, and sod that are physically incorporated (i.e., permanently transplanted) into the redevelopment project area within the intermodal terminal facility area.

 

d)         Non-Qualifying Building Materials

Items that are not physically incorporated into an industrial or commercial project within the redevelopment project area within an intermodal terminal facility as certified by the corporate authorities of the municipality in which the redevelopment project area is located cannot qualify for the deduction.  For example, gross receipts from sales of the following do not qualify for the deduction:

 

1)         Tools, machinery, equipment, fuel, forms, and other items that may be used by a construction contractor at a redevelopment project area location, but are not physically incorporated into the redevelopment project area;

 

2)         Free standing appliances such as stoves, ovens, refrigerators, washing machines, portable ventilation units, window air conditioning units, lamps, clothes washers, clothes dryers, trash compactors, and dishwashers that may be connected to and operate from a building's electrical or plumbing system, but do not become a component of those systems;

 

3)         Floor coverings that are area rugs or that are attached to the structure using only two-sided tape; and

 

4)         Mobile equipment, trucks or cranes not physically incorporated into the redevelopment project area of the intermodal terminal facility area.

 

e)         Records – Required to Document Exemption

To document the exemption allowed under this Section, the retailer must obtain from the purchaser a purchaser's certificate and a copy of the Certificate of Eligibility for Sales Tax Exemption issued by the corporate authorities of the municipality in which the real estate into which the building materials will be incorporated is located. [35 ILCS 120/2-6]

 

1)         Purchaser's Certificate − The retailer must obtain a certificate from the purchaser that contains all of the following:

 

A)        A statement that the building materials are being purchased for incorporation into real estate located in an intermodal terminal facility area certified in accordance with Section 11-74.4-3.1 of the Illinois Municipal Code;

 

B)        The location or address of the real estate into which the building materials will be incorporated;

 

C)        The name of the intermodal facility area in which the real estate is located;

 

D)        A description of the building materials being purchased; and

 

E)        The purchaser's signature and date of purchase. [35 ILCS 120/2-6]

 

2)         Certificate of Eligibility for Sales Tax Exemption − The retailer must obtain and keep in its books and records a copy of the Certificate of Eligibility for Sales Tax Exemption issued by the municipality that must contain all of the following:

 

A)        A statement that the commercial or industrial project identified in the Certificate meets all the requirements of the jurisdiction in which the project is located;

 

B)        The location or address of the building project; and

 

C)        The signature of the chief executive office of the municipality in which the building project is located, or the chief executive officer's delegate. [35 ILCS 120/2-6]

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.1954  Sales of Building Materials Incorporated into Real Estate within River Edge Redevelopment Zones

 

a)         River Edge Redevelopment Zone − In General

 

1)         Effective July 12, 2006, each retailer that makes a qualified sale of building materials to be incorporated into real estate within a River Edge Redevelopment Zone in accordance with the River Edge Redevelopment Zone Act by remodeling, rehabilitating, or new construction may deduct receipts from those sales when calculating the tax imposed by the Act.  (Section 2-54 of the Retailers' Occupation Tax Act [35 ILCS 120/2-54])

 

2)         A "qualified sale" means a sale of building materials that will be incorporated into real estate as part of an industrial or commercial project for which a Certificate of Eligibility for Sales Tax Exemption has been issued by the corporate authorities of the municipality in which the building project is located before July 1, 2013, and for which a River Edge Building Materials Exemption Certificate has been issued by the Department on or after July 1, 2013. (Section 2-54 of the Retailers' Occupation Tax Act [35 ILCS 120/2-54])

 

3)         "Industrial project" means:

 

A)        a capital project, including one or more buildings and other structures, improvements, machinery and equipment, whether or not on the same site or sites, suitable for use by any manufacturing, industrial, research, transportation or commercial enterprise, including but not limited to use as a factory, mill, processing plant, assembly plant, packaging plant, fabricating plant, ethanol plant, office building, industrial distribution center, warehouse, repair, overhaul or service facility, freight terminal, research facility, test facility, railroad facility, port facility, solid waste and wastewater treatment and disposal sites and other pollution control facilities, resource or waste reduction, recovery, treatment and disposal facilities, and:

 

i)          the sites of any of the facilities listed in this subsection (a)(3)(A) and other rights in land for those facilities, whether improved or unimproved;

 

ii)         site preparation and landscaping for facilities listed in this subsection (a)(3)(A); and

 

iii)        all appurtenances and facilities incidental to the facilities listed in this subsection (a)(3)(A), such as utilities, access roads, railroad sidings, truck docking and similar facilities, parking facilities, dockage, wharfage, railroad roadbed, track, trestle, depot, terminal, switching and signaling equipment or related equipment, and other necessary or convenient improvements; or

 

B)        any land, buildings, machinery or equipment comprising an addition to or renovation, rehabilitation or improvement of any existing capital project.

 

4)         "Commercial project" means any project, including but not limited to one or more buildings and other structures, improvements, machinery and equipment, whether or not on the same site or sites, suitable for use by any retail or wholesale concern, distributorship or agency, any cultural facilities of a for-profit or not-for-profit type, including but not limited to educational, theatrical, recreational and entertainment, sports facilities, racetracks, stadiums, convention centers, exhibition halls, arenas, opera houses and theaters, waterfront improvements, swimming pools, boat storage, moorage, docking facilities, restaurants, velodromes, coliseums, sports training facilities, parking facilities, terminals, hotels and motels, gymnasiums, medical facilities and port facilities.

 

5)         Nothing in the definitions of "industrial project" or "commercial project" is meant to imply that the building materials exemption for an industrial project or commercial project may extend beyond the borders of the River Edge Redevelopment Zone or may extend beyond the exemption of sales of building materials incorporated into an industrial project or commercial project.

 

b)         Building Materials Purchased for Physical Incorporation into Real Estate Located in a River Edge Redevelopment Zone

 

1)         In order to qualify for the exemption, the materials being purchased must be building materials.  That is, they must be purchased for physical incorporation into real estate.  For example, gross receipts from sales of the following items can qualify for the exemption:

 

A)        common building materials such as lumber, bricks, cement, windows, doors, insulation, roofing materials and sheet metal;

 

B)        plumbing systems and components such as bathtubs, lavatories, sinks, faucets, garbage disposals, water pumps, water heaters, water softeners and water pipes;

 

C)        heating systems and components such as furnaces, ductwork, vents, stokers, boilers, heating pipes and radiators;

 

D)        electrical systems and components such as wiring, outlets and light fixtures that are physically incorporated into the real estate;

 

E)        central air conditioning systems, ventilation systems and components that are physically incorporated into the real estate;

 

F)         built-in cabinets and other woodwork that are physically incorporated into the real estate can qualify for the deduction;

 

G)        built-in appliances such as refrigerators, stoves, ovens and trash compactors that are physically incorporated into the real estate; and

 

H)        floor coverings such as tile, linoleum and carpeting that are glued or otherwise permanently affixed to the real estate by use of tacks, staples, or wood stripping filled with nails that protrude upward (sometimes referred to as tacking strips or tack-down strips).

 

2)         Items that are not physically incorporated into the real estate cannot qualify for the exemption.  For example, gross receipts from sales of the following do not qualify:

 

A)        tools, machinery, equipment, fuel, forms and other items that may be used by a construction contractor at a River Edge Redevelopment Zone site, but that are not physically incorporated into the real estate;

 

B)        free-standing appliances such as stoves, oven, refrigerators, washing machines, portable ventilation units, window air conditioning units, lamps, clothes washers, clothes dryers, trash compactors and dishwashers that may be connected to and operate from a building's electrical or plumbing system but that do not become a component of those systems; and

 

C)        floor coverings that are area rugs or that are attached to the structure using only two-sided tape.

 

3)         Building materials incorporated into stand-alone residential homes, residential apartments, residential condominiums, residential townhouses, residential duplexes, residential buildings or residential structures do not qualify for the exemption.  Building materials physically incorporated into a commercial project, a portion of which is dedicated for residential purposes, shall be allocated on a square-footage basis for common building materials (for example, lumber, cement, bricks, insulation, air conditioning and heating equipment serving an entire project and roofing materials) and directly allocated to either the commercial portion or residential portion when direct allocation of the building materials is possible (for example, bathtubs, sinks, lavatories, cabinets, built-in appliances and air conditioning and heating equipment serving individually owned or leased units or space).  Only the building materials allocated to the commercial portion of the project can qualify for the exemption.

 

c)         Certificate of Eligibility for Sales Tax Exemption for Purchases Made through June 30, 2013

 

1)         To document the exemption, the retailer must obtain from the purchaser a copy of the Certificate of Eligibility for Sales Tax Exemption issued by the corporate authorities of the municipality in which the real estate into which the building materials will be incorporated is located.  The Certificate of Eligibility for Sales Tax Exemption must be obtained by the retailer prior to the sale. 

 

2)         The Certificate of Eligibility for Sales Tax Exemption must contain all of the following:

 

A)        a statement that the commercial or industrial project identified in the Certificate meets all the requirements of the jurisdiction in which the project is located;

 

B)        the location or address of the building project; and

 

C)        the signature of the chief executive officer of the municipality in which the building project is located, or the chief executive officer's delegate.

 

3)         In order to properly document this exemption, prior to the sale the retailer must also obtain a certificate from the purchaser that contains all of the following:

 

A)        a statement that the building materials are being purchased for incorporation into real estate located in a River Edge Redevelopment Zone included in a redevelopment project area in accordance with the River Edge Redevelopment Zone Act:

 

B)        the location or address of the real estate into which the building materials will be incorporated;

 

C)        the name of the River Edge Redevelopment Zone in which the real estate is located;

 

D)        a description of the building materials being purchased; and

 

E)        the purchaser's signature and date of purchase.  [35 ILCS 120/2‑54]

 

d)         Issuance of Exemption Certificates for Purchases Made on and after July 1, 2013

 

1)         Upon request from the corporate authorities of the municipality in which the building project is located, the Department shall issue a River Edge Building Materials Exemption Certificate (Exemption Certificate) for each construction contractor or other entity identified by the corporate authorities of the municipality in which the building project is located.  The Department shall make the Exemption Certificates available to the corporate authorities of the municipality in which the building project is located and each construction contractor or other entity.

 

A)        The request for Exemption Certificates from the corporate authorities of the municipality in which the building project is located to the Department must include the following information:

 

i)          the name, address, telephone number and e-mail address of the construction contractor or other entity;

 

ii)         the name and number of the River Edge Redevelopment Zone in which the building project is located;

 

iii)        the name and location or address of the building project in the River Edge Redevelopment Zone;

 

iv)        the estimated amount of the exemption for each construction contractor or other entity for which a request for Exemption Certificate is made, based on a stated estimated average tax rate and the percentage of the contract that consists of materials;

 

v)         the period of time over which supplies for the project are expected to be purchased; and

 

vi)        the FEIN of the construction contractor or other entity.

 

B)        The Department shall issue the Exemption Certificates within 3 business days after receipt of request from the corporate authorities of the municipality in which the building project is located unless the Department, for reasonable cause, is unable to issue the Exemption Certificate within 3 business days. Examples of "reasonable cause" include, but are not limited to, receipt of a request lacking all the information required by subsection (d)(1)(A), the receipt of a large number of requests for Exemption Certificates from a zone administrator, or lack of sufficient staff to process the number of existing requests.

 

C)        The Department may refuse to issue an Exemption Certificate if the owner, any partner, or a corporate officer, and in the case of a limited liability company, any manager or member, of the construction contractor or other entity is or has been the owner, a partner, a corporate officer, and in the case of a limited liability company, a manager or member, of a person that is in default for moneys due to the Department under the Retailers' Occupation Tax Act or any other tax or fee Act administered by the Department.

 

D)        The request for Exemption Certificates must be submitted electronically.

 

E)        The Exemption Certificate shall be effective for no more than 2 years after the date of issuance.  At the request of the corporate authorities of the municipality in which the building project is located, the Department may renew an Exemption Certificate.

 

F)         After the Department issues Exemption Certificates for a given River Edge building project, the corporate authorities of the municipality in which the building project is located may notify the Department of additional construction contractors or other entities eligible for an Exemption Certificate.  Upon notification by the corporate authorities of the municipality in which the building project is located, and subject to the other provisions of this subsection (d), the Department shall issue an Exemption Certificate to each additional construction contractor or other entity identified by the corporate authorities of the municipality in which the building project is located.

 

G)        The corporate authorities of the municipality in which the building project is located may notify the Department to rescind an Exemption Certificate previously issued by the Department but that has not yet expired.  Upon notification by the corporate authorities of the municipality in which the building project is located, and subject to the other provisions of this subsection (d), the Department shall issue the rescission of the Exemption Certificate to the construction contractor or other entity identified by the corporate authorities of the municipality in which the building project is located and provide a copy to the corporate authorities of the municipality in which the building project is located.

 

2)         Notwithstanding anything to the contrary in subsection (d), for River Edge building projects already in existence and for which construction contracts are already in place on July 1, 2013, the request for Exemption Certificates from the corporate authorities of the municipality in which the building project is located to the Department for these pre-existing construction contractors and other entities must include the information required under subsection (d)(1)(A), but not including the information listed in subsections (d)(1)(A)(iv) and (v).  For any new construction contract entered into on or after July 1, 2013, however, all of the information in subsection (d) must be provided. [35 ILCS 120/2-54(d)]

 

e)         Documentation of the Exemption for Purchases Made on or after July 1, 2013

 

1)         On and after July 1, 2013, to document the exemption allowed under this Section, the retailer must obtain from the purchaser the purchaser's Exemption Certificate number issued 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 purchase. [35 ILCS 120/5l(b)]

 

2)         The retailer must obtain a certification from the purchaser that contains:

 

A)        a statement that the building materials are being purchased for incorporation into real estate located in a River Edge Redevelopment Zone;

 

B)        the location or address of the real estate into which the building materials will be incorporated;

 

C)        the name of the River Edge Redevelopment Zone in which that real estate is located;

 

D)        a description of the building materials being purchased;

 

E)        the purchaser's Exemption Certificate number issued by the Department; and

 

F)         the purchaser's signature and date of purchase.

 

3)         The retailer may comply with this subsection (e) certification requirement by securing from the purchaser a completed and signed Form EZ-1.

 

f)         Penalties − Revocation − Protest Procedures

 

1)         If the Department of Revenue determines that a construction contractor or other entity that was issued an Exemption Certificate under subsection (d) made a tax-exempt purchase, as described in this Section, that was not eligible for exemption under subsection (d), or allowed another person to make a tax-exempt purchase, as described in subsection (d), that was not eligible for exemption under subsection (d), then, in addition to any tax or other penalty imposed, the construction contractor or other entity is subject to a penalty equal to the tax that would have been paid by the retailer under the Retailers' Occupation Tax Act as well as any applicable local retailers' occupation tax on the purchase that was not eligible for the exemption. [35 ILCS 120/5l(b)]

 

2)         Each contractor or other entity that has been issued an Exemption Certificate under Section 2-54 of the Retailers' Occupation Tax Act shall annually report to the Department the total tax benefits for taxes imposed by the State that are received under River Edge building materials exemption.  Reports shall contain information reasonably required by the Department to enable it to verify and calculate the total tax benefits for taxes imposed by the State, and shall be broken down by River Edge Redevelopment Zone.  Reports are due no later than May 31 of each year and shall cover the previous calendar year.  Failure to report data may result in revocation of the River Edge Building Materials Exemption Certificate issued to the contractor or other entity. [65 ILCS 115/10‑10.2(a-5)]

 

3)         Suspension of Exemption Certificate for Failure to Report Data:  A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (f)(2) shall have the Exemption Certificate for which it failed to report suspended.

 

A)        First Offense: A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (f)(2) shall have the Exemption Certificate suspended until the contractor or other entity complies with the reporting requirements of subsection (f)(2).

 

B)        Second Offense:  A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (f)(2) for two reporting periods within a five-year period shall have all Exemption Certificates issued to it suspended until 30 days after the contractor or other entity complies with the reporting requirements of subsection (f)(2). 

 

C)        Subsequent Offenses:  A contractor or other entity that fails to comply with the reporting requirements or deadlines of subsection (g)(2) for more than two reporting periods within a five-year period shall have all Exemption Certificates issued to it suspended until 180 days after the contractor or other entity complies with the reporting requirements of subsection (f)(2).

 

4)         Suspension or Revocation of Exemption Certificate for Both Failure to Report Data and Unlawful Use of Exemption Certificate.  Use by a contractor or other entity of its Exemption Certificate in violation of subsection (f)(1) and failure to comply with the reporting requirements of subsection (f)(2) for the same certificate shall result in the suspension or revocation of the contractor's or other entity's Exemption Certificates.

 

A)        First Offense:  In addition to all other penalties provided by law, a first offense shall result in the suspension of all Exemption Certificates issued to a contractor or other entity for 1 year.

 

B)        Second Offense:  In addition to all other penalties provided by law, a second offense shall result in permanent revocation of all Exemption Certificates issued to the contractor or other entity.

 

5)         Ineligibility.  A contractor or other entity is not eligible to receive additional Exemption Certificates during the period that one or more Exemption Certificates issued to it are subject to suspension or revocation.

 

6)         Protest Procedures.  Any person aggrieved by any decision of the Department under subsections (f)(3) through (f)(4) may, within 20 days after notice of the decision, protest and request a hearing, whereupon the Department shall give notice to that person of the time and place fixed for a hearing and shall hold a hearing and then issue its final administrative decision in the matter to that person. In the absence of a protest within 20 days, the Department's decision shall become final without any further determination being made or notice given.

 

(Source:  Amended at 39 Ill. Reg. 14616, effective October 22, 2015)

 

Section 130.1955  Farm Chemicals

 

a)         Vendors of farm chemicals are exempt from Retailers' Occupation Tax on their receipts from such sales.  [35 ILCS 120/2-5(a)]

 

b)         Farm chemicals include any chemical product used in production agriculture, the products of which are to be sold, or in the production or care of animals that are to be sold or the products of which are to be sold.  Examples of exempted items include, but are not limited to, stock sprays, disinfectants and the like, stock tonics, serums, vaccines, poultry remedies and other medicinal preparations and conditioners, water purifying products, insecticides, and weed killers and the like. 

 

c)         Specific examples include:

 

1)         Chemicals applied to crops or fields to control disease, pests, and weeds qualify for the exemption as well as chemicals applied to farm animals to control disease or pests as long as they are used in conjunction with animals to be sold or the products of which are to be sold.

 

2)         Chemicals used to reduce the hardness of water and to increase water penetration into the soil are exempt. 

 

3)         Shading chemicals sprayed on greenhouse windows qualify because they are used in connection with the raising of crops by regulating the amount of sunlight exposure on the plants.  See Mid-American Growers, Inc v. Department of Revenue, 143 Ill. App. 3d 600, 606 (3d Dist. 1986).

 

4)         The retail sale of nematodes qualifies for the farm chemical exemption if the nematodes are used in production agriculture.  Nematodes are tiny worms that kill insects and fleas when applied to agricultural fields, lawns, etc.  However, the production of nematodes does not qualify for the farm chemical exemption, the manufacturing machinery and equipment exemption, or the farm machinery and equipment exemption.

 

d)         Chemicals and disinfectants used for general farm maintenance, such as to clean milking machines and pipelines do not qualify for the farm chemical exemption.

 

(Source:  Amended at 49 Ill. Reg. 2107, effective February 5, 2025)

 

Section 130.1956  Dentists

 

a)         When Liable For Tax

When dentists sell items of tangible personal property, such as mouthwash, toothpaste, dental floss, and the like, to purchasers for use or consumption apart from their rendering of service as dentists, they incur Retailers' Occupation Tax liability.

 

b)         When Not Liable For Tax

Dentists are engaged primarily in a profession or service occupation.  To the extent to which they engage in that profession or service occupation, they are not engaged in the business of selling tangible personal property to purchasers for use or consumption within the meaning of the Act.  Consequently, they are not required to remit Retailers' Occupation Tax measured by their receipts from engaging in such profession or service occupation, including receipts from both services and tangible personal property.

 

c)         Liability Under the Service Occupation Tax Act

For information concerning the application of the Service Occupation Tax to purchases by dentists of tangible personal property that they retransfer as an incident to rendering service, see the Service Occupation Tax Part 86 Ill. Adm. Code 140.

 

(Source:  Added at 39 Ill. Reg. 14616, effective October 22, 2015)

 

Section 130.1957  Tangible Personal Property Used in the Construction or Operation of Data Centers

 

a)         Effective January 1, 2020, qualified tangible personal property used in the construction or operation of a data center that has been granted a certificate of exemption by the Department of Commerce and Economic Opportunity ("DCEO"), whether that tangible personal property is purchased by the owner, operator, or tenant, of the data center or by a contractor or subcontractor of the owner, operator, or tenant is exempt from Retailers' Occupation Tax. (Section 2-5(44) of the Act) To receive the exemption, the data center must obtain a certificate of exemption from DCEO pursuant to Section 605-1025 of the Department of Commerce and Economic Opportunity Law (DCEO Law) [20 ILCS 605].

 

b)         For purposes of this Section:

 

1)         "Data center" means a building or a series of buildings rehabilitated or constructed to house working servers in one physical location or multiple sites within the State of Illinois. (Section 2-5 (44) of the Act).

 

2)         Qualified Tangible Personal Property

 

A)        "Qualified Tangible Personal Property" means:

 

i)          electrical systems and equipment; climate control and chilling equipment and systems; mechanical systems and equipment; monitoring and secure systems; emergency generators; hardware; computers; servers; data storage devices; network connectivity equipment; racks; cabinets; telecommunications cabling infrastructure; raised floor systems; peripheral components or systems; software; mechanical, electrical, or plumbing systems; battery systems; cooling systems and towers; temperature control systems; other cabling; and other data center infrastructure equipment and systems necessary to operate qualified tangible personal property, including fixtures; and

 

ii)         component parts of any of the property listed in subsection (b)(2)(A)(i), including installation, maintenance, repair, refurbishment, and replacement of qualified tangible personal property to generate, transform, transmit, distribute, or manage electricity necessary to operate qualified tangible personal property; and all other tangible personal property that is essential to the operations of a computer data center.

 

B)        The term "qualified tangible personal property" also includes building materials physically incorporated into the qualifying data center. (Section 2-5(44) of the Act)

 

3)         "Qualifying Illinois data center" for purposes of applying, for a certificate of exemption, means a new or existing data center that meets the requirements of Section 605-1025 of the DCEO Law.

 

c)         Each owner, operator, or tenant of a data center, or a contractor or subcontractor of the owner, operator or tenant, must provide an active certificate of exemption before it can make tax exempt purchases of qualified tangible personal property.

 

d)         Data centers that would have qualified for a certificate of exemption prior to January 1, 2020, had P.A. 101-31 been in effect, may apply for and obtain an exemption for subsequent purchases of computer equipment or enabling software purchased or leased to upgrade, supplement, or replace computer equipment or enabling software purchased or leased in the original investment that would have qualified. (Section 2-5(44) of the Act)

 

e)         To document the exemption allowed under this Section, the retailer must obtain from the owner, operator, or tenant of a data center, or a contractor or subcontractor of the owner, operator or tenant, a copy of the certificate of exemption issued by DCEO.

 

1)         In addition, the retailer must obtain a certification that contains:

 

A)        the name and description of the purchaser (i.e., owner, operator, contractor, subcontractor, or tenant);

 

B)        a statement that the tangible personal property is being purchased for use in the construction or operation of a data center located in Illinois;

 

C)        the location or address of the data center;

 

D)        a description of the tangible personal property being purchased;

 

E)        the purchaser's signature and date of purchase.

 

2)         The use of blanket certificates of exemption will be permitted.

 

f)         Tangible Personal Property Used in the Rehabilitation, Construction and Operation of a Data Center − Tangible Personal Property Qualifying for the Exemption

 

1)         Tangible personal property purchased and used in the rehabilitation and construction of a building or series of buildings that house working servers, and that is physically incorporated into the building or series of buildings, qualifies for the exemption.  For example, gross receipts from sales of the following items qualify for the exemption:

 

A)        common building materials, such as lumber, bricks, cement, windows, doors, insulation, roofing materials and sheet metal;

 

B)        plumbing systems and components of those systems, such as bathtubs, lavatories, sinks, faucets, garbage disposals, water pumps, water heaters, water softeners and water pipes;

 

C)        heating systems and components of those systems, such as furnaces, ductwork, vents, stokers, boilers, heating pipes and radiators;

 

D)        electrical systems and components of those systems, such as wiring, outlets and light fixtures that are physically incorporated into the real estate;

 

E)        central air conditioning systems, ventilation systems and components of those systems that are physically incorporated into the real estate;

 

F)         built-in cabinets physically incorporated into the real estate;

 

G)        built-in appliances, such as refrigerators, stoves, ovens and trash compactors that are physically incorporated into the real estate; and;

 

H)        floor coverings, such as tile, linoleum and carpeting that are glued or otherwise permanently affixed to the real estate by use of tacks, staples, or wood stripping filled with nails that protrude upward (sometimes referred to as "tacking strips" or "tack-down strips").

 

2)         Tangible personal property purchased and used in the rehabilitation and construction of a building or series of buildings that house working servers and that is not physically incorporated into the building or series of buildings qualifies for the exemption.  For example, gross receipts from sales of tools, machinery and other similar items that are used to rehabilitate and construct the data center qualify for the exemption. 

 

3)         Tangible personal property purchased and used in the operation of a data center qualifies for the exemption. An example of this tangible personal property is the equipment used to provide data or cloud services.  The exemption does not extend to tangible personal property used by personnel in the day-to-day operations of the business.  For example, gross receipts from the sales of the following do not qualify for the exemption:

 

A)        office supplies, cleaning supplies and office equipment; and

 

B)        cell phones and personal communication devices.

 

4)         Tangible personal property used in the installation, maintenance, repair, refurbishment and replacement of qualified tangible personal property to generate, transform, transmit, distribute or manage electricity necessary to operate qualified tangible personal property is exempt. Except as provided in this subsection (f)(4) and subsection (h)(3), the exemption does not include tangible personal property used to maintain, repair, refurbish or replace qualified tangible personal property or to install that tangible personal property.

 

5)         Tangible personal property purchased that is not used in the construction or operation of a data center does not qualify for the exemption.  For example, gross receipts from sales of the following items do not qualify for the exemption:

 

A)        motor vehicles used by managers and office personnel;

 

B)        indoor and outdoor plants and landscaping materials;

 

C)        concrete, cement, asphalt and outdoor lighting used in the construction or maintenance of parking facilities;

 

D)        free-standing appliances, such as stoves, oven, refrigerators, washing machines, portable ventilation units, window air conditioning units, lamps, clothes washers, clothes dryers, trash compactors and dishwashers, that may be connected to and operate from a building's electrical or plumbing system but that are not physically incorporated into the real estate;

 

E)        floor coverings, such as rugs, that do not qualify under subsection (f)(1)(H) or that are attached to the structure or physical plant using only two-sided tape; and

 

F)         fuel used in the of operation of a data center, except that fuel used in emergency back-up generators to supply uninterrupted power to the data center servers and equipment qualifies for the exemption.

 

g)         If the retailer obtains the documents identified in subsection (e) from the owner, operator or tenant of a data center, or a contractor or subcontractor of the owner, operator or tenant of a data center, the retailer shall be relieved of any tax liability relating to the sale in the event the tangible personal property purchased by the owner, operator, tenant, contractor or subcontractor from the retailer is not used by the owner, operator, tenant, contractor or subcontractor in the construction or operation of a data center identified in the exemption certificate issued by DCEO.  If it is subsequently determined that the tangible personal property was not used in the construction or operation of a qualifying data center, the owner, operator, tenant, contractor or subcontractor shall be liable for Use Tax on the purchase of the tangible personal property for which an exemption was claimed under this Section.

 

h)         Tangible Personal Property Leased to Owners, Operators, Contractors, Subcontractors and Tenants of Data Centers

 

1)         Except as provided in subsections (h)(2) and (h)(3), and tangible personal property that is purchased by a lessor and leased to an owner, operator or tenant, or a contractor or subcontractor of the owner, operator or tenant, of a data center, does not qualify for the data center exemption.  The exemption does not extend to lessors.  Lessors of tangible personal property under true leases are deemed to be the users of that property. Consequently, lessors incur a Use Tax liability (and applicable local occupation tax reimbursement obligations) based on their cost price for the items. (See Section 130.220 (Sales to Lessors of Tangible Personal Property) and Section 130.2010 (Persons Who Rent or Lease the Use of Tangible Personal Property to Others).)

 

2)         Tangible personal property that is purchased by an owner, operator or tenant, or a contractor or subcontractor of the owner, operator or tenant, of a data center, as a lessor, and leased to an owner, operator or tenant of a data center, will qualify for the data center exemption.

 

EXAMPLE:  The owner of a data center purchases servers from its supplier and leases the servers to a tenant of the data center for use in the data center.  The servers meet the definition of "qualified tangible personal property" and the owner may purchase the servers using the data center exemption.

 

3)         In the case of data centers that were in existence prior to January 1, 2020 and have obtained an exemption certificate, computer equipment or enabling software leased to upgrade, supplement or replace existing computer equipment or enabling software purchased or leased, that would have qualified as qualified tangible personal property when purchased or leased, is exempt.  (See subsection (d).)  In the case of data centers that were in existence prior to January 1, 2020, the lessor of the computer equipment or enabling software that is leased to the owner, operator or tenant of the data center after January 1, 2020 may claim the exemption for the first lease of computer equipment or enabling software after January 1, 2020 to upgrade, supplement or replace existing computer equipment or enabling software.

 

i)          An item that initially qualifies for the data center exemption that is converted to a nonexempt use or is moved to a nonqualified location will become subject to tax at the time of its conversion based on the lesser of the purchase price or fair market value of the item at the time of conversion.

 

j)          The exemption, for tangible personal property used in the construction or operation of a data center, in Section 2-5(44) of the Retailers' Occupation Tax Act and this Section is not subject to the sunset provisions of Section 2-70 of the Retailers' Occupation Tax Act.

 

(Source:  Added at 44 Ill. Reg. 5392, effective March 16, 2020)

 

Section 130.1958  Sales of Building Materials to be Incorporated into Real Estate in a Qualified Facility under the Manufacturing Illinois Chips for Real Opportunity (MICRO) Act

 

a)         Each retailer who makes a sale of building materials that will be incorporated into real estate in a qualified facility for which a certificate of exemption has been issued by the Department of Commerce and Economic Opportunity ("DCEO") under Section 110-105 of the Manufacturing Illinois Chips for Real Opportunity (MICRO) Act ("MICRO Act") (35 ILCS 45/110-105), may deduct receipts from such sales when calculating any State or local use and occupation taxes. [35 ILCS 120/5n]

 

b)         No retailer who is eligible for the deduction or credit under Section 5k of the Retailers' Occupation Tax Act ("ROTA") related to enterprise zones or Section 5l of the ROTA related to High Impact Businesses for a given sale shall be eligible for the deduction or credit authorized under Section 5n of the ROTA for that same sale.  [35 ILCS 120/5n]

 

c)         Building materials that are physically incorporated into the real estate in a qualified facility and thus qualify for the exemption include, but are not limited to:

 

1)         Common building materials such as lumber, bricks, cement, windows, doors, insulation, roofing materials, and sheet metal;

 

2)         Plumbing systems and components such as bathtubs, lavatories, sinks, faucets, garbage disposals, water pumps, water heaters, water softeners, and water pipes;

 

3)         Heating systems and components such as furnaces, ductwork, vents, stokers, boilers, heating pipes, and radiators;

 

4)         Electrical systems and components such as wiring, outlets, and light fixtures that are physically incorporated into the real estate;

 

5)         Central air conditioning systems, ventilation systems, and components that are physically incorporated into the real estate;

 

6)         Built-in cabinets and other woodwork that are physically incorporated into the real estate;

 

7)         Built-in appliances such as refrigerators, stoves, ovens, and trash compactors that are physically incorporated into the real estate; and

 

8)         Floor coverings such as tile, linoleum, and carpeting that are glued or otherwise permanently affixed to the real estate by use of tacks, staples, or wood stripping filled with nails that protrude upward also known as tacking strips or tack-down strips.

 

d)         Building materials that are not physically incorporated into the real estate in a qualified facility and thus do not qualify for the exemption include, but are not limited to:

 

1)         Tools, machinery, equipment, fuel, forms, and other items that may be used by a construction contractor at a qualified facility, but that are not physically incorporated into the real estate;

 

2)         Free-standing appliances such as stoves, ovens, refrigerators, washing machines, portable ventilation units, window air conditioning units, lamps, clothes washers, clothes dryers, trash compactors, and dishwashers that may be connected to and operate from a building's electrical or plumbing system but that do not become a component of those systems; and

 

3)         Floor coverings that are area rugs or that are attached to the structure using only two-sided tape.

 

e)         Certification of Exemption from DCEO

 

1)         DCEO may certify a taxpayer with a project that meets the qualifications under paragraphs (1), (2), or (4) of subsection (c) of Section 110-20 of the MICRO Act (35 ILCS 45/110-20), subject to an agreement under the MICRO Act, for an exemption from any State or local use tax or retailers' occupation tax on building materials for the construction of its project facilities.  The taxpayer must meet any criteria for certification set by DCEO under the MICRO Act.  [35 ILCS 45/110-105(a)]

 

2)         Upon certification by DCEO under Section 110-105 of the MICRO Act, DCEO will notify the Department of Revenue of the certification.  [35 ILCS 45/110-105(a)]

 

f)         MICRO Illinois Building Materials Exemption Certificate from the Department of Revenue

 

1)         Upon request from a person that has been certified by DCEO under the MICRO Act, the Department shall issue a MICRO Illinois Building Materials Exemption Certificate for each construction contractor or other entity identified by the person so certified.  The Department shall make the MICRO Illinois Building Materials Exemption Certificates available to each construction contractor or other entity as well as the person certified under the MICRO Act.  [35 ILCS 120/5n]

 

2)         Request for exemption certificates shall be submitted electronically and must contain the following information:

 

A)        The name and address of the construction contractor or other entity;

 

B)        The name and location or address of the building project site;

 

C)        The estimated amount of the exemption for each construction contractor or other entity for which a request for an exemption certificate is made, based on a stated estimated average tax rate and the percentage of the contract that consists of materials;

 

D)        The period of time over which supplies for the project are expected to be purchased; and

 

E)        FEIN numbers of the contractor and entity, to determine if the contractor or other entity, or any partner, or a corporate officer, and in the case of a limited liability company, any manager or member, of the construction contractor or other entity, is or has been the owner, a partner, a corporate officer, and in the case of a limited liability company, a manager or member, of a person that is in default for moneys due to the Department under the ROTA or any other tax or fee Act administered by the Department.  [35 ILCS 120/5n]

 

3)         The Department shall issue the exemption certificates electronically and the certificates shall contain the following information:

 

A)        Unique identifying number;

 

B)        Name of entity to whom the exemption certificate is issued;

 

C)        Expiration date which shall be no more than 5 years after the issuance date; and

 

D)        Language that, if the construction contractor or other entity who is issued the exemption certificate makes a tax-exempt purchase, as described in Section 5n of the ROTA, that is not eligible for exemption under Section 5n of the ROTA or allows another person to make a tax-exempt purchase, as described in Section 5n of the ROTA, that is not eligible for exemption under Section 5n of the ROTA, then, in addition to any tax or other penalty imposed, the construction contractor or other entity is subject to a penalty equal to the tax that would have been paid by the retailer under the ROTA as well as any applicable local retailers' occupation tax on the purchase that is not eligible for the exemption.  [35 ILCS 120/5n]

 

4)         The Department shall issue the exemption certificate within 3 business days after receipt of request.  This requirement does not apply in circumstances where the Department, for reasonable cause, is unable to issue the exemption certificate within 3 business days.  [35 ILCS 120/5n]  Examples of "reasonable cause" include, but are not limited to, receipt of a request lacking all the information required by 35 ILCS 120/5n, the receipt of a large number of requests for exemption certificates, or lack of sufficient staff to process the number of existing requests.

 

5)         The exemption status shall take effect within 3 months after certification of the taxpayer and notice to the Department of Revenue by DCEO.  [35 ILCS 45/110-105(a)]

 

6)         The exemption period shall not exceed 5 years.  [35 ILCS 120/5n; 35 ILCS 45/110-105(a)]

 

7)         The Department may refuse to issue an exemption certificate under Section 5n of the ROTA if the owner, any partner, or a corporate officer, and in the case of a limited liability company, any manager or member, of the construction contractor or other entity is or has been the owner, a partner, a corporate officer, and in the case of a limited liability company, a manager or member, of a person that is in default for moneys due to the Department under the ROTA or any other tax or fee Act administered by the Department.  [35 ILCS 120/5n]

 

8)         At the request of the entity to whom the exemption certificate is issued, the Department may renew an exemption certificate issued under Section 5n of the ROTA.  [35 ILCS 120/5n]

 

9)         After the Department issues exemption certificates under Section 5n of the ROTA, the certified entity may notify the Department of additional construction contractors or other entities eligible for an exemption certificate under Section 5n of the ROTA.  Upon such a notification and subject to the other provisions of Section 5n of the ROTA, the Department shall issue an exemption certificate to each additional qualified construction contractor or other entity so identified.  [35 ILCS 120/5n]

 

10)       A certified entity may notify the Department to rescind an exemption certificate previously issued by the Department that has not yet expired.  Upon such a notification and subject to the other provisions of Section 5n of the ROTA, the Department shall rescind the exemption certificate.  [35 ILCS 120/5n]

 

11)       The request to issue, renew, or rescind an exemption certificate, or the request to add additional construction contractors or other entities, must be submitted to the Department by an employee, corporate officer, partner, limited liability company manager or member, or designated agent who cannot be a contractor or subcontractor, of the person or entity certified by DCEO under the MICRO Act.  The designation of agent must be made in writing to the Department by the corporate officer, partner, limited liability company manager or member of the person or entity certified by DCEO under the MICRO Act.

 

g)         Required Documentation of Sale

 

1)         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 purchase.  [35 ILCS 120/5n]

 

2)         In addition to any other requirements to document the exemption allowed under Section 5n of the ROTA, the retailer must obtain the purchaser's exemption certificate number issued by the Department.  [35 ILCS 120/5n]

 

3)         The retailer must also obtain a certification from the purchaser that contains:

 

A)        A statement that the building materials are being purchased for incorporation into real estate in a qualified facility;

 

B)        The location or address of the real estate into which the building materials will be incorporated;

 

C)        The name and address of the construction contractor or other entity;

 

D)        A description of the building materials being purchased;

 

E)        The purchaser's MICRO Illinois Building Materials Exemption Certificate number issued by the Department of Revenue; and

 

F)         The purchaser's signature and date of purchase.

 

4)         The retailer may comply with this subsection (g) certification requirement by securing from the purchaser a completed and signed Form EZ-1.

 

h)         Annual Reports 

 

1)         For applicants issued a certificate of exemption under Section 110-105 of the MICRO Act, the report shall be the same as required for a High Impact Business under subsection (a-5) of Section 8.1 of the Illinois Enterprise Zone Act (20 ILCS 655/8.1(a-5)).  [35 ILCS 45/30(f)]

 

A)        Each contractor or other entity that has been issued a MICRO Illinois Building Materials Exemption Certificate under Section 5n of the ROTA shall annually report to the Department of Revenue the total value of the MICRO Illinois building materials exemption from State taxes.

 

B)        Reports shall contain information reasonably required by the Department of Revenue to enable it to verify and calculate the total tax benefits for taxes imposed by the State and shall be broken down by MICRO Illinois Project site.

 

C)        Reports are due no later than May 31 of each year and shall cover the previous calendar year.

 

2)         Suspension of Exemption Certificate for Failure to Report Data.  A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (h)(1) shall have the exemption certificate for which it failed to report suspended.

 

A)        First Offense:  A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (h)(1) shall have the MICRO Illinois Building Materials Exemption Certificate suspended until the contractor or other entity complies with the reporting requirements.

 

B)        Second Offense:  A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (h)(1) for two reporting periods within a five-year period shall have the MICRO Illinois Building Materials Exemption Certificate issued to it suspended until 30 days after the contractor or other entity complies with the reporting requirements.

 

C)        Subsequent Offenses:  A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (h)(1) for more than two reporting periods within a five-year period shall have the MICRO Illinois Building Materials Exemption Certificate issued to it suspended until 180 days after the contractor or other entity complies with the reporting requirements.

 

i)          Unlawful Use of Exemption Certificate

 

1)         If the Department of Revenue determines that a construction contractor or other entity that was issued an exemption certificate under Section 5n of the ROTA made a tax-exempt purchase, as described in Section 5n of the ROTA, that was not eligible for exemption under Section 5n of the ROTA or allowed another person to make a tax-exempt purchase, as described in Section 5n of the ROTA, that was not eligible for exemption under Section 5n of the ROTA, then, in addition to any tax or other penalty imposed, the construction contractor or other entity is subject to a penalty equal to the tax that would have been paid by the retailer under the ROTA as well as any applicable local retailers' occupation tax on the purchase that was not eligible for the exemption.  [35 ILCS 120/5n]

 

2)         Suspension or Revocation of Exemption Certificate for Unlawful Use of Exemption Certificate.  The Department shall suspend or revoke the exemption certificate of a contractor or other entity found to have used an exemption certificate in violation of 35 ILCS 120/5n as reflected in subsection (i)(1), as follows:

 

A)        First Offense:  In addition to all other penalties provided by law, a first offense shall result in the suspension of the MICRO Illinois Building Materials Exemption Certificate issued to a contractor or other entity for one year.

 

B)        Second Offense:  In addition to all other penalties provided by law, a second offense shall result in permanent revocation of the MICRO Illinois Building Materials Exemption Certificate issued to the contractor or other entity.

 

j)          Ineligibility and Protest Procedures

 

1)         A contractor or other entity is not eligible to be issued additional exemption certificates under Section 5n during the period that one or more exemption certificates issued to it under Section 5n are subject to suspension or revocation.

 

2)         Any person aggrieved by any decision of the Department under subsections (h) and (i) may, within 20 days after notice of the decision, protest and request a hearing, whereupon the Department shall give notice to that person of the time and place fixed for a hearing, shall hold a hearing and then issue its final administrative decision in the matter to that person.  In the absence of a protest within 20 days, the Department's decision shall become final without any further determination being made or notice given.  For information about practice and procedure for hearings before the Illinois Department of Revenue see 86 Ill. Adm. Code 200.

 

(Source:  Added at 48 Ill. Reg. 16529, effective November 4, 2024)

 

Section 130.1959  Sales of Building Materials to be Incorporated into a REV Illinois Project under the Reimagining Energy and Vehicles in Illinois Act

 

a)         Each retailer who makes a sale of building materials that will be incorporated into a REV Illinois Project for which a certificate of exemption has been issued by the Department of Commerce and Economic Opportunity ("DCEO") under Section 105 of the Reimagining Energy and Vehicles in Illinois Act (20 ILCS 686/105) ("REV Illinois Act"), may deduct receipts from those sales when calculating any State or local use and occupation taxes.  [35 ILCS 120/5m]  Such REV Illinois Projects include electric vehicle manufacturers, electric vehicle component parts manufacturers, or renewable energy manufacturers.  See 20 ILCS 686/20(c)(1), (2), and (4) for more information on qualifications.

 

b)         No retailer who is eligible for the deduction or credit under Section 5k of the Retailers' Occupation Tax Act ("ROTA") related to enterprise zones or Section 5l of the ROTA related to High Impact Businesses for a given sale shall be eligible for the deduction or credit authorized under Section 5m of the ROTA for that same sale.  [35 ILCS 120/5m]

 

c)         To qualify for the exemption, building materials must be incorporated into a REV Illinois Project.  Examples of qualifying building materials include, but are not limited to:

 

1)         Common building materials such as lumber, bricks, cement, windows, doors, insulation, roofing materials, and sheet metal;

 

2)         Plumbing systems and components such as bathtubs, lavatories, sinks, faucets, garbage disposals, water pumps, water heaters, water softeners, and water pipes;

 

3)         Heating systems and components such as furnaces, ductwork, vents, stokers, boilers, heating pipes, and radiators;

 

4)         Electrical systems and components such as wiring, outlets, and light fixtures that are incorporated into a REV Illinois Project;

 

5)         Central air conditioning systems, ventilation systems, and components that are incorporated into a REV Illinois Project;

 

6)         Built-in cabinets and other woodwork that are incorporated into a REV Illinois Project;

 

7)         Built-in appliances such as refrigerators, stoves, ovens, and trash compactors that are incorporated into a REV Illinois Project; and

 

8)         Floor coverings such as tile, linoleum, and carpeting that are glued or otherwise incorporated into a REV Illinois Project by use of tacks, staples, or wood stripping filled with nails that protrude upward also known as tacking strips or tack-down strips. 

 

d)         Building materials that are not incorporated into a REV Illinois Project and thus do not qualify for the exemption include but are not limited to:

 

1)         Tools, machinery, equipment, fuel, forms, and other items that may be used by a construction contractor at a REV Illinois Project, but that are not incorporated into a REV Illinois Project;

 

2)         Free-standing appliances such as stoves, ovens, refrigerators, washing machines, portable ventilation units, window air conditioning units, lamps, clothes washers, clothes dryers, trash compactors, and dishwashers that may be connected to and operate from a building's electrical or plumbing system but that do not become a component of those systems; and

 

3)         Floor coverings that are area rugs or that are attached to the structure using only two-sided tape.

 

e)         Certification of Exemption from DCEO

 

1)         DCEO may certify a Taxpayer with a REV Illinois Project that meets the qualifications under paragraphs (1), (2), (4), (4.1), or (5) of subsection (c) of Section 20 of the REV Illinois Act, subject to an agreement under the REV Illinois Act, for an exemption from any State or local use tax or retailers' occupation tax on building materials for the construction of its project facilities. The taxpayer must meet any criteria for certification set by DCEO under REV Illinois Act.  [20 ILCS 686/105]

 

2)         Upon certification by DCEO under Section 105 of the REV Illinois Act, DCEO will notify the Department of Revenue of the certification.  [20 ILCS 686/105]

 

f)         REV Illinois Building Materials Exemption Certificate from the Department of Revenue

 

1)         Upon request from the certified manufacturer, the Department shall issue a REV Illinois Building Materials Exemption Certificate for each construction contractor or other entity identified by the certified manufacturer.  The Department shall make the REV Illinois Building Materials Exemption Certificates available to each construction contractor or other entity identified by the certified manufacturer and to the certified manufacturer.  [35 ILCS 120/5m]

 

2)         Request for exemption certificates shall be submitted electronically and must contain the following information:

 

A)        The name and address of the construction contractor or other entity;

 

B)        The name and location or address of the building project site;

 

C)        The estimated amount of the exemption for each construction contractor or other entity for which a request for a REV Illinois Building Materials Exemption Certificate is made, based on a stated estimated average tax rate and the percentage of the contract that consists of materials;

 

D)        The period of time over which supplies for the project are expected to be purchased; and

 

E)        FEIN numbers of the contractor and entity, to determine if the contractor or other entity, or any partner, or a corporate officer, and in the case of a limited liability company, any manager or member, of the construction contractor or other entity, is or has been the owner, a partner, a corporate officer, and in the case of a limited liability company, a manager or member, of a person that is in default for moneys due to the Department under the ROTA or any other tax or fee Act administered by the Department.  [35 ILCS 120/5m]

 

3)         The Department shall issue the exemption certificates electronically and the certificates shall contain the following information:

 

A)        Unique identifying number;

 

B)        Name of the REV Illinois project site and the construction contractor or other entity to whom the exemption certificate is issued;

 

C)        Expiration date which shall be no more than 5 years after the issuance date; and

 

D)        Language stating that if the construction contractor or other entity who is issued the Exemption Certificate makes a tax-exempt purchase, as described in Section 5m of the ROTA, that is not eligible for exemption under Section 5m of the ROTA or allows another person to make a tax-exempt purchase, as described in Section 5m of the ROTA, that is not eligible for exemption under Section 5m of the ROTA, then, in addition to any tax or other penalty imposed, the construction contractor or other entity is subject to a penalty equal to the tax that would have been paid by the retailer under the ROTA as well as any applicable local retailers' occupation tax on the purchase that is not eligible for the exemption.  [35 ILCS 120/5m]

 

4)         The Department shall issue the REV Illinois Building Materials Exemption Certificates within 3 business days after receipt of the request from the certified manufacturer. This requirement does not apply in circumstances where the Department, for reasonable cause, is unable to issue the Exemption Certificate within 3 business days.  [35 ILCS 120/5m]  Examples of "reasonable cause" include, but are not limited to, receipt of a request lacking all the information required by 35 ILCS 120/5m, the receipt of a large number of requests for exemption certificates, or lack of sufficient staff to process the number of existing requests.

 

5)         The exemption status shall take effect within 3 months after certification of the taxpayer and notice to the Department of Revenue by DCEO.  [20 ILCS 686/105(a)]

 

6)         The exemption period shall not exceed 5 years.  [35 ILCS 120/5m; 20 ILCS 686/105(a)]

 

7)         The Department may refuse to issue a REV Illinois Building Materials Exemption Certificate if the owner, any partner, or a corporate officer, and in the case of a limited liability company, any manager or member, of the construction contractor or other entity is or has been the owner, a partner, a corporate officer, and in the case of a limited liability company, a manager or member, of a person that is in default for moneys due to the Department under the ROTA or any other tax or fee Act administered by the Department.  [35 ILCS 120/5m]

 

8)         At the request of the certified manufacturer, the Department may renew a REV Illinois Building Materials Exemption Certificate.  [35 ILCS 120/5m]

 

9)         After the Department issues Exemption Certificates for a given REV Illinois project site, the certified manufacturer may notify the Department of additional construction contractors or other entities that are eligible for a REV Illinois Building Materials Exemption Certificate.  Upon receiving such a notification and subject to the other provisions of Section 5m of the ROTA, the Department shall issue a REV Illinois Building Materials Exemption Certificate to each additional construction contractor or other entity so identified.  [35 ILCS 120/5m]

 

10)       A certified manufacturer may ask the Department to rescind a REV Illinois Building Materials Exemption Certificate previously issued by the Department to a construction contractor or other entity working at that certified manufacturer's REV Illinois project site if that REV Illinois Building Materials Exemption Certificate has not yet expired.  Upon receiving such a request and subject to the other provisions of Section 5m of ROTA, the Department shall issue the rescission of the REV Illinois Building Materials Exemption Certificate to the construction contractor or other entity identified by the certified manufacturer and provide a copy of the rescission to the construction contractor or other entity and to the certified manufacturer.  [35 ILCS 120/5m]

 

11)       The request to issue, renew, or rescind an exemption certificate, or the request to add additional construction contractors or other entities, must be submitted to the Department by an employee, corporate officer, partner, limited liability company manager or member, or designated agent who cannot be a contractor or subcontractor, of the certified manufacturer under the REV Illinois Act.  The designation of agent must be made in writing to the Department by the corporate officer, partner, limited liability company manager or member of the certified manufacturer under the REV Illinois Act.

 

g)         Required Documentation of Sale

 

1)         A construction contractor or other entity shall not make tax-free purchases under Section 5m of the ROTA unless it has an active REV Illinois Building Materials Exemption Certificate issued by the Department of Revenue at the time of purchase.  [35 ILCS 120/5m]

 

2)         In addition to any other requirements to document the exemption allowed under Section 5m of the ROTA, the retailer must obtain the purchaser's REV Illinois Building Materials Exemption Certificate number issued by the Department.  [35 ILCS 120/5m]

 

3)         The retailer must also obtain a certification from the purchaser that contains:

 

A)        A statement that the building materials are being purchased for incorporation into a REV Illinois Project;

 

B)        The location or address of the REV Illinois Project into which the building materials will be incorporated;

 

C)        The name and address of the construction contractor or other entity;

 

D)        A description of the building materials being purchased;

 

E)        The purchaser's REV Illinois Building Materials Exemption Certificate number issued by the Department of Revenue; and

 

F)         The purchaser's signature and date of purchase.

 

4)         The retailer may comply with this subsection (g) certification requirement by securing from the purchaser a completed and signed Form EZ-1.

 

h)         Annual Reports

 

1)         For applicants issued a certificate of exemption under Section 105 of the REV Illinois Act, the report shall be the same as required for a High Impact Business under subsection (a-5) of Section 8.1 of the Illinois Enterprise Zone Act (20 ILCS 655/8.1(a-5)).  [20 ILCS 686/30(f)]

 

A)        Each contractor or other entity that has been issued a REV Illinois Building Materials Exemption Certificate under Section 5m of the ROTA shall annually report to the Department of Revenue the total value of the REV Illinois building materials exemption from State taxes.

 

B)        Reports shall contain information reasonably required by the Department of Revenue to enable it to verify and calculate the total tax benefits for taxes imposed by the State and shall be broken down by REV Illinois Project site.

 

C)        Reports are due no later than May 31 of each year and shall cover the previous calendar year.

 

2)         Suspension of Exemption Certificate for Failure to Report Data.  A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (h)(1) shall have the exemption certificate for which it failed to report suspended.

 

A)        First Offense:  A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (h)(1) shall have the REV Illinois Building Materials Exemption Certificate suspended until the contractor or other entity complies with the reporting requirements.

 

B)        Second Offense:  A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (h)(1) for two reporting periods within a five-year period shall have the REV Illinois Building Materials Exemption Certificate issued to it suspended until 30 days after the contractor or other entity complies with the reporting requirements.

 

C)        Subsequent Offenses:  A contractor or other entity that fails to comply with the reporting requirements or deadlines provided in subsection (h)(1) for more than two reporting periods within a five-year period shall have the REV Illinois Building Materials Exemption Certificate issued to it suspended until 180 days after the contractor or other entity complies with the reporting requirements.

 

i)          Unlawful Use of Exemption Certificate

 

1)         If the Department of Revenue determines that a construction contractor or other entity that was issued an Exemption Certificate under Section 5m of the ROTA made a tax-exempt purchase, as described in Section 5m of the ROTA, that was not eligible for exemption under Section 5m of the ROTA or allowed another person to make a tax-exempt purchase, as described in Section 5m of the ROTA, that was not eligible for exemption under Section 5m of the ROTA, then, in addition to any tax or other penalty imposed, the construction contractor or other entity is subject to a penalty equal to the tax that would have been paid by the retailer under the ROTA as well as any applicable local retailers' occupation tax on the purchase that was not eligible for the exemption.  [35 ILCS 120/5m]

 

2)         Suspension or Revocation of Exemption Certificate for Unlawful Use of Exemption Certificate.  The Department shall suspend or revoke the exemption certificate of a contractor or other entity found to have used an exemption certificate in violation of 35 ILCS 120/5m as reflected in subsection (i)(1), as follows:

 

A)        First Offense:  In addition to all other penalties provided by law, a first offense shall result in the suspension of the REV Illinois Building Materials Exemption Certificate issued to a contractor or other entity for one year.

 

B)        Second Offense:  In addition to all other penalties provided by law, a second offense shall result in permanent revocation of the REV Illinois Building Materials Exemption Certificate issued to the contractor or other entity.

 

j)          Ineligibility and Protest Procedures

 

1)         A contractor or other entity is not eligible to be issued additional exemption certificates under Section 5m during the period that one or more exemption certificates issued to it under Section 5m are subject to suspension or revocation.

 

2)         Any person aggrieved by any decision of the Department under subsections (h) and (i) may, within 20 days after notice of the decision, protest and request a hearing, whereupon the Department shall give notice to that person of the time and place fixed for a hearing, shall hold a hearing and then issue its final administrative decision in the matter to that person.  In the absence of a protest within 20 days, the Department's decision shall become final without any further determination being made or notice given.  For information about practice and procedure for hearings before the Illinois Department of Revenue see 86 Ill. Adm. Code 200.

 

(Source:  Added at 48 Ill. Reg. 16529, effective November 4, 2024)

 

Section 130.1960  Finance Companies and Other Lending Agencies – Installment Contracts – Bad Debts

 

a)         Lending Agencies – When Liable For Tax

Finance companies and other lending agencies are not relieved from liability for tax in cases in which they engage in the business of selling to users or consumers tangible personal property to which they hold or acquire title.  Except as provided in subsection (b), when a lending agency transfers title to a repossessed car to a user, the lending agency is engaging in the business of selling tangible personal property at retail and incurs Retailers' Occupation Tax (ROT) liability on its receipts from those sales.  It shall be registered as a retailer under the Retailers' Occupation Tax Act and shall file returns and otherwise comply with that Act.

 

b)         Lending Agencies – When Not Liable For Tax

 

1)         Finance companies and other lending agencies are engaged primarily in the business of financing or acquiring the promissory notes given by purchasers of automobiles, furniture, refrigerators or other items of tangible personal property.

 

2)         To guarantee payment of these promissory notes, lending agencies sometimes take as security chattel mortgages upon the tangible personal property.  When the purchaser of the automobile or other tangible personal property fails to meet its obligation, the lending agency repossesses the property and sells it to satisfy the obligation evidenced by the notes.  In connection with these sales, the lending agency acts as agent for the owner of the repossessed property if the owner is known or disclosed to the purchaser and if the lending agency does not take title to the property; the lending agency, under these circumstances, is not liable for payment of any ROT with respect to the proceeds from these sales.

 

3)         Even if the lending agency does title a repossessed motor vehicle in its name, if the original buyer, after the expiration of the redemption period provided for in the Retail Installment Sales Act [815 ILCS 405], is granted permission to redeem and to resume possession of the vehicle and to continue performance under the buyer's original installment contract without any change in the terms of the contract, and the lending agency re-endorses the repossession title to the original buyer, the transaction is not regarded as a sale and so is not taxable.

 

c)         Installment Sales

 

1)         When a retailer of tangible personal property sells an installment contract or "paper" to a third party, the difference between the selling price of the tangible personal property and the selling price of the installment contract or "paper" is a cost of doing business and is therefore not deductible in computing ROT liability.  ROT is measured by the total selling price of the tangible personal property purchased from the retailer for use or consumption.  Upon sale of the installment contract or "paper" to a third party, ROT becomes due based on the entire selling price to the purchaser of the tangible personal property, with credit allowed for any tax already remitted to the Department based on the receipts from the sale of the tangible personal property.  As an illustration, a computer vendor enters into an installment sales contract with a business for a computer system.  The selling price of the computer system is $120,000 and the contract requires monthly installment payments of $10,000 for one year.  After the business makes the first payment, the computer vendor sells the installment contract to a bank for $90,000.  Upon the sale of the installment contract to the bank, the computer vendor incurs ROT on $120,000 (the entire selling price to the original purchaser), with credit allowed for the tax that was remitted on the first $10,000 payment made by the business.

 

2)         For purposes of this Section, "paper" means any instrument of indebtedness that was acquired by the retailer from the purchaser of the tangible personal property.  Sales of "paper" to a third party includes the sale of accounts receivable as well as assignments or sales of the actual instruments of indebtedness themselves.

 

d)         Bad Debts

 

1)         Definitions.  For purposes of this subsection (d):

 

A)        "Bad debt" means any portion of a debt arising from a taxable sale at retail that is:

 

i)          found to be worthless or uncollectible;

 

ii)         has been charged off in the retailer's or lender's books and records; and

 

iii)        has, except as provided in subsections (d)(2)(F) and (G), been claimed as a deduction pursuant to the Internal Revenue Code, U.S. Code: Title 26.  For information on calculation of the bad debt deduction see subsection (d)(4).

 

B)        "Retailer" means a person who holds itself out as being engaged (or who habitually engages) in selling tangible personal property at retail with respect to such sales and includes a retailer's affiliates.

 

C)        "Lender" means a person, or an affiliate, assignee, or transferee of that person, who owns or has owned a private-label credit card account or an interest in a private-label credit card receivable that the person purchased directly from a retailer who remitted the tax imposed under the Retailers' Occupation Tax Act; originated pursuant to that person's contract with the retailer who remitted the tax imposed under the Retailers' Occupation Tax Act; or acquired from a third party.

 

D)        "Private-label Credit Card" means a charge card or credit card that carries, refers to, or is branded with the name or logo of a retailer and may only be used to make purchases from that retailer or that retailer's affiliates.

 

E)        "Affiliate" means an entity affiliated under section 1504 of the Internal Revenue Code, or an entity that would be an affiliate under that section had the entity been a corporation. [35 ILCS 120/6d]

 

2)         Bad Debt Claimed by Retailers

 

A)        In case a retailer repossesses any tangible personal property and subsequently resells that property to a purchaser for use or consumption, the retailer's gross receipts from that sale are subject to ROT.  The retailer is entitled to a bad debt credit with respect to the original sale in which the default has occurred to the extent to which it has paid ROT on a portion of the price that the retailer does not collect, or that the retailer is not permitted to retain because of being required to make a repayment of that portion to a lending agency under a "with recourse" agreement.

 

B)        Retailers of tangible personal property other than motor vehicles, watercraft, trailers and aircraft that must be registered with an agency of this State may obtain this bad debt credit by taking a deduction on the returns they file with the Department for the month in which the federal income tax return or amended federal income tax return on which the receivable is written off is filed, or by filing a claim for credit as provided in subsection (d)(2)(E). 

 

C)        Because retailers of motor vehicles, watercraft, trailers and aircraft do not pay ROT to the Department on retail sales of motor vehicles, watercraft, trailers and aircraft with monthly returns, but remit the tax to the Department on a transaction by transaction basis, they are unable to take a deduction on the returns that they file with the Department, but may file a claim for credit with the Department, as provided in subsections (d)(2)(E), (F), (G) and (d)(5)(B) on any transaction with respect to which they desire to receive the benefit of the repossession credit.

 

D)        Retailers who incur bad debt on any tangible personal property that is not repossessed may also obtain bad debt credit as provided in subsections (d)(2)(A), (E), (F) and (G).

 

E)        In the case of tax paid on an account receivable that becomes a bad debt, the tax paid becomes a tax paid in error, for which a claim for credit may be filed in accordance with Section 6 of the Retailers' Occupation Tax Act, on the date that the federal income tax return or amended return on which the receivable, including as provided in subsections (d)(2)(F) and (G), is written off is filed.

 

F)         Ordinarily, a deduction for uncollectible debts is allowed only for a retailer who uses the gross sales (accrual) method of accounting to keep its books and records and to file its federal income tax and sales and use tax returns.  However, in the limited situation in which a cash basis retailer has prepaid the tax, such retailer is allowed to claim a bad debt deduction if the debt:

 

i)          has been found to be worthless or uncollectible; and

 

ii)         would be eligible to be both charged off in the retailer's books and records and claimed as a deduction under the Internal Revenue Code if the retailer had kept accounts on an accrual basis.

 

G)        Likewise, retailers who use the gross sales method for filing their sales tax returns, but who file their income tax returns on a cash basis are allowed to claim a bad debt deduction if the debt:

 

i)          has been found to be worthless or uncollectible; and

 

ii)         has been charged off in the retailer's books and records and would be eligible to be claimed as a deduction under the Internal Revenue Code on the income tax return filed by the retailer if its income tax return was not filed on the cash basis.

 

EXAMPLE:  ABC Auto Inc. reports on the cash method of accounting and is in the business of making retail sales of automobiles.  On occasion, ABC Auto Inc. will itself finance sales for some of its customers and pay the full amount of sales tax upfront so that its customers can obtain license plates.  In 2020, ABC Auto Inc. financed a sale to a customer and paid the sales tax upfront.  The customer never made a payment, and in 2021 the debt was found to be worthless.  If ABC Auto Inc. reported on the accrual method, the debt would be eligible to be both charged off as a bad debt in the retailer's books and records and claimed as a deduction pursuant to the Internal Revenue Code.  Therefore, ABC Auto Inc. can file a claim for the sales taxes it paid out-of-pocket to the Department.  For purposes of filing a claim with the Department, the bad debt will be considered claimed as a deduction pursuant to the Internal Revenue Code on the 2021 income tax return filed by ABC Auto Inc.

 

H)        For information on claiming a deduction or refund for tax previously paid, see subsection (d)(5).

 

3)         Private-label Credit Cards – Bad Debt on and after July 31, 2015

 

A)        On and after July 31, 2015, with respect to the payment of taxes on purchases made through a private-label credit card, if consumer accounts or receivables are found to be worthless or uncollectible, the retailer may claim a deduction on a return in an amount equal to, or may obtain a refund of, the tax remitted by the retailer on the unpaid balance due if:

 

i)          the accounts or receivables have been charged off as bad debt on the lender's books and records on or after January 1, 2016;

 

ii)         the accounts or receivables have been claimed as a deduction pursuant to Section 166 of the Internal Revenue Code on the federal income tax return filed by the lender; and

 

iii)        a deduction was not previously claimed and a refund was not previously allowed on that portion of the account receivable.

 

B)        The deduction or refund allowed under subsection (d)(3)(A):

 

i)          does not apply to credit sale transaction amounts resulting from purchases of titled property;

 

ii)         includes only those credit sale transaction amounts that represent purchases from the retailer whose name or logo appears on the private-label credit card used to make those purchases;

 

iii)        may only be taken by the taxpayer, or its successors, that filed the return and remitted tax on the original sale on which the deduction or refund claim is based; and

 

iv)        includes all credit sale transaction amounts eligible under subsection (d)(3)(B)(ii) that are outstanding with respect to the specific private-label credit card account or receivable at the time the account or receivable is charged off, regardless of the date the credit sale transaction actually occurred.

 

4)         Bad Debt Calculation

 

A)        If the amount of an account found to be worthless is comprised in part of nontaxable receipts, such as interest, insurance, and other charges exempt from sales or use tax, and in part of taxable receipts upon which tax has been paid, a bad debt deduction may be claimed only with respect to the unpaid amount upon which tax has been paid.

 

B)        Accounts found to be worthless include receivables written off as uncollectible by a retailer or lender who uses the bad debt reserve method or allowance for doubtful account method of recognizing bad debt expenses pursuant to the Internal Revenue Code.

 

C)        No deduction is allowed for expenses incurred in attempting to enforce collection of any account receivable, or repossession expenses.

 

D)        No deduction is allowed for payments of late fees, and other penalty charges that occur when customers do not comply with the terms of the sales contract.

 

E)        The fair market value of repossessed property is not factored into a bad debt calculation.

 

F)         For purposes of computing the deduction or refund, payments on the accounts or receivables shall be prorated against the amounts outstanding on the accounts or receivables.  For information on claiming a deduction or refund using an alternative method, see subsection (d)(4)(G).

 

i)          For revolving credit loans involving private label credit cards, retailers may calculate the uncollectible taxable amount by applying the percentage of charges that went to taxable purchases to the outstanding balance on the account.

 

Example: ABC Retailer Inc. allows customers to finance purchases using a private label credit card. During the time the card was active, the customer had the following charges added to the customer's account:

 

Charge	Amount	Percentage
Taxable Merchandise:	$10,000	87.7%
IL State and local sales taxes:	$800	7.0%
Interest fees:	$500	4.4%
Late fees:	$100	0.9%
Total:	$11,400

 

The outstanding balance at the time of the charge off was $1,000.  Applying the 87.7% merchandise proration percentage to the $1,000 charge off amount results in an uncollectible taxable amount of $877.  (The merchandise proration percentage is calculated by dividing the charge item amount by the total charge amount).

 

ii)         For installment loans, the formula for calculating the uncollectible taxable amount is the unpaid balance when the receivable is charged off divided by the total amount of the finance contract multiplied by the taxable amount financed.

 

Example: XYZ Auto Inc. sells an automobile for $20,000. The tax due on the sale at 6.25% is $1,250.  The customer makes a $1,000 down payment and finances the remaining amount of the purchase price plus the sales taxes through XYZ Auto Inc.  The applicable loan details are as follows:

 

Total Amount Financed:	$20,250
Taxable Amount Financed:	$19,000
Total Interest Payments:	$10,000
Total Finance Contract:	$30,250

 

The customer makes $5,000 in payments but then stops paying with the unpaid balance of the total finance contract being $25,250.  ($30,250 - $5,000).  XYZ Auto Inc. determines the loan is uncollectible.  The uncollectible taxable amount is calculated as follows:

 

Uncollectible Taxable Amount	=	(unpaid balance when charged off / total amount of the finance contract) x taxable amount financed
Uncollectible Taxable Amount	=	$25,250/$30,250 x $19,000
Uncollectible Taxable Amount	=	$15,860

 

G)        The Department may allow an alternative method of substantiating the deduction or refund where the volume and character of the uncollectible accounts would warrant use of alternative computations and the Department finds that, subject to the provisions of this Section, the method used fairly and equitably

 

i)          prorates the taxable and nontaxable elements of a bad debt; and

 

ii)         computes the amount of sales tax imposed and remitted with respect to the taxable charges remaining unpaid on the bad debt.

 

H)        In situations where the books and records of the retailer or lender support an allocation of the bad debt allowance among multiple states, an allocation of the bad debt is allowed between Illinois and the other state or states.

 

5)         Bad Debt Procedural Requirements – Record Keeping – Limitations

 

A)        Retailers of tangible personal property other than motor vehicles, watercraft, trailers, and aircraft that must be registered with an agency of this State may obtain this bad debt credit by taking a deduction on the returns they file with the Department for the month in which the federal income tax return or amended federal income tax return on which the receivable is written off is filed.  Failure to take the deduction on the proper return will not in itself prevent the allowance of a deduction or refund provided an amended return for that month or claim for refund is filed with the Department within the statute of limitations as provided in subsections (d)(2)(A) and (B).

 

i)          When a retailer who uses the bad debt reserve or allowance for doubtful account method of recognizing bad debt expenses takes a deduction on the federal income tax return prior to writing off the receivable in its books and records, the retailer may take a deduction on the return filed with the Department for the month in which the federal income tax return or amended federal income tax return covering the period in which the receivable is written off in its books and records is filed.

 

ii)         If the bad debt deduction exceeds the amount of the taxable sales on the Form ST-1 return for the period in which the retailer's federal income tax return is filed or amended, the taxpayer is allowed to carry forward the unclaimed portion of the bad debt deduction and apply it to succeeding Form ST-1 returns until it has been deducted in its entirety.

 

iii)        Any amount of a bad debt deduction taken that is subsequently collected by the retailer, in whole or part, shall be included in the first return filed after the collection, and the tax shall be paid with the return.

 

B)        Because retailers of motor vehicles, watercraft, aircraft, and trailers do not pay Retailers' Occupation Tax to the Department on retail sales of motor vehicles, watercraft, trailers and aircraft with monthly returns, but remit the tax to the Department on a transaction-by-transaction basis, they are unable to take a deduction on the returns that they file with the Department but instead may file a claim for credit with the Department, as provided in Section 6 of the Retailers' Occupation Tax Act, using Form ST-557, available at https://tax.illinois.gov/.

 

C)        The retailer and lender shall maintain adequate books, records or other documentation supporting the charge off of the accounts or receivables for which a deduction was taken or a refund was claimed under Sections 6 or 6d of the Retailers' Occupation Tax Act, including, but not limited to, a copy of that part of the federal return on which the deduction was claimed, including any supporting statements or schedules.

 

D)        If a retailer or lender does not charge off an account receivable that is found to be worthless or uncollectible as a bad debt in its books and records and does not claim a deduction pursuant to the Internal Revenue Code on its federal income tax return or amended return, or, for cash basis retailers, the account receivable would not be eligible to be claimed as a deduction pursuant to the Internal Revenue Code on its federal income tax return or amended return if the retailer or lender filed a federal income tax return on an accrual basis, the tax paid on that bad debt or receivable will not be considered a tax paid in error.  Thus, the retailer will not be able to file a deduction or claim for credit in accordance with Sections 6 or 6d of the Retailers' Occupation Tax Act.

 

E)        For purposes of the deduction or refund allowable under Section 6d of the Retailers' Occupation Tax Act, the limitations period for claiming the deduction or refund shall be the same as the limitations period set forth in Section 6 of the Retailers' Occupation Tax Act for filing a claim for credit, and shall commence on the date that the accounts or receivables have been claimed as a bad debt deduction pursuant to section 166 of the Internal Revenue Code on the federal income tax return filed by the lender, regardless of the date on which the sale of the tangible personal property actually occurred.  [35 ILCS 120/6d].

 

(Source:  Amended at 48 Ill. Reg. 2856, effective February 8, 2024)

 

Section 130.1965  Florists and Nurserymen

 

a)         Florists – When Liable For Tax

Florists are engaged in the business of selling tangible personal property at retail and are liable for payment of the Retailers' Occupation Tax measured by receipts from sales of flowers, wreaths, bouquets, potted plants and other such items of tangible personal property to purchasers for use or consumption.  This is true even though such items are made by the florist on special order.

 

b)         Transactions Involving Florist Delivery Associations

Where florists conduct transactions through a florists' delivery association, the following rules will apply in the computation of tax liability:

 

1)         On all retail orders taken by an Illinois florist and transmitted to a second florist in Illinois for delivery in this State, the sending florist will be held liable for Retailers' Occupation Tax with respect to the total amount which he collects from his customers, except for the cost of the message conveying delivery instructions where this item is charged for separately from the selling price of the flowers.

 

2)         Where an Illinois florist receives an order pursuant to which he gives instructions to a second florist located outside Illinois for delivery of flowers to a point outside Illinois, tax will likewise be owing with respect to the receipts of the Illinois florist from the customer who placed the order.  (Effective July 1, 1971)

 

3)         Where Illinois florists receive instructions from other florists located either within or outside of Illinois for the delivery of flowers, the receiving florist will not be held liable for tax with respect to any receipts which he may realize from the transaction. In this instance, if the order originated in Illinois, the tax will be due from and payable by the Illinois florist who first received the order and transmitted instructions to the second florist.

 

c)         Nurserymen

 

1)         Where a nurseryman, landscape contractor or florist sells shrubbery, young trees and similar items to purchasers for use or consumption, and does not, as part of the transaction, plant the items in the ground, the entire receipts from the transaction are subject to Retailers' Occupation Tax.

 

2)         However, where the items are transplanted by the seller in the land of the purchaser, the transaction is not subject to Retailers' Occupation Tax liability.  In this situation, the seller functions as a construction contractor and incurs a Use Tax liability on his cost price of the items affixed to the purchaser's real estate.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.1970  Hatcheries

 

a)         When Liable for Tax

 

1)         Sales of baby chicks that are purchased for the buyer's consumption and are consumed by such buyer and not subsequently resold on the market, constitute retail sales, the receipts from which are subject to the Retailers' Occupation Tax.

 

2)         Hatchery operators also incur retailers' occupation tax liability when selling brooders, water troughs, and other poultry-raising equipment to purchasers for use or consumption unless the item qualifies for the farm machinery and equipment exemption.  See 86 Ill. Adm. Code 130.305.

 

b)         When Not Liable for Tax

 

1)         Persons selling baby chicks to purchasers for resale on the market as poultry and not to be consumed by such purchaser, or for the production of eggs for sale, are deemed to be sales for purposes of resale by the hatchery operator.  The hatchery operator is not liable for tax with respect to the receipts from such sales of baby chicks for resale.

 

2)         Persons engaged in the business of operating incubators or hatcheries, who hatch baby chicks for other persons from eggs belonging to such persons (i.e., custom hatching), are deemed to render service with respect to such transactions, and they are not required to remit retailers' occupation tax measured by their gross receipts from their rendering of such service.

 

c)         Records of Sales of Baby Chicks

If a seller of baby chicks has adequate records to establish which sales of baby chicks are at retail and which sales are for resale, such records will control.  See 86 Ill. Adm. Code 130.805, 130.810, and 130.1415 regarding what constitutes minimum records.  

 

(Source:  Amended at 49 Ill. Reg. 2107, effective February 5, 2025)

 

Section 130.1971  Sellers of Pets and the Like

 

a)         Sellers of Pets and the Like, Including Horses, Fish, Birds, and Insects – When Liable For Tax

When persons who are in the business of selling pets, animals, horses, fish, birds, insects and the like sell those items (whether alive or not) to purchasers for use or consumption, those persons are engaged in the business of selling tangible personal property to purchasers for use or consumption and are required to remit Retailers' Occupation Tax to the Department on their gross receipts from sales.  Examples of such use or consumption include, but are not limited to, use as pets, for racing, for show, for medical experimentation, and for bait or use as food for other animals or fish.  Examples of such sellers are pet stores that sell dogs, cats, snakes, hamsters, lizards, rabbits, monkeys, and birds; and bait shops that sell minnows, crayfish, worms, crickets, and leaches.

 

b)         Sellers of Animals, Horses, Fish, Birds, Insects, and the Like – When Not Liable For Tax

Sellers of breeding animals, horses, fish, birds, insects, and the like are not liable for Retailers' Occupation Tax with respect to the gross receipts received from such sales to purchasers for the purpose of breeding and sale of the offspring. (See Section 130.2100(d) of this Part.) The purchasers must be engaged in that type of business.  For example, when a person holds himself out to the public as a breeder of dogs (i.e., he breeds dogs and sells the offspring), he is considered to be engaging in this particular type of business.  These types of sales are not subject to Retailers' Occupation Tax because they are considered sales for resale.  (See Sections 130.1401 and 130.1405 of this Part.)

 

c)         Beginning May 30, 1995, sellers of horses that make sales of horses that are registered with and meet the requirements of the Arabian Horse Club Registry of America, Appaloosa Horse Club, American Quarter Horse Association, United States Trotting Association, or Jockey Club, as appropriate, and that are used for purposes of breeding or racing for prizes, do not incur Retailers' Occupation Tax liability on those sales.

 

(Source:  Added at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.1975  Operators of Games of Chance and Their Suppliers

 

a)         Operators Of Games Of Chance

Persons who engage in conducting raffles or other games of chance are not engaged in the business of selling tangible personal property at retail to the extent of such activities and are not required to remit Retailers' Occupation Tax measured by their receipts from the operation of such games of chance. These cases must be distinguished from those in which vending machines are used for selling tangible personal property at retail (see Section 130.2135 of this Part).

 

b)         Suppliers Of Operators Of Games Of Chance

Persons who engage in selling tangible personal property to operators of raffles, punch boards, mechanical gambling devices and other games of chance, for disposition to players in the course of the operation of such games of chance, are engaged in the business of selling tangible personal property at retail and incur Retailers' Occupation Tax liability when making such sales.  The same is true of persons who engage in selling gambling devices themselves (such as punch boards, slot machines, wheels, paddles and other gambling devices) to operators of games of chance for use in the conduct of such games or gambling enterprises.

 

c)         Other Gaming Acts

For information on bingo, see Part 430 of this Title, the Bingo License and Tax Act, for information on pull tabs and jar games, see Part 432 of this Title, the Pull Tabs and Jar Games Act, for information on charitable games, see 86 Ill. Adm. Code 435, the Charitable Games Act, and for information on coin‑in‑the‑slot‑operated amusement devices and redemption machines, see 86 Ill. Adm. Code 460, Coin-Operated Amusement Device Tax.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.1980  Optometrists and Opticians

 

a)         Optometrists – When Liable for Tax

When optometrists sell tangible personal property to purchasers for use or consumption apart from their rendering of service as optometrists, they incur retailers' occupation tax liability.  This is the case, for example, where optometrists sell spectacles, frames, or mountings, without examination or treatment of the eyes, to purchasers for use or consumption, or where optometrists sell such items as sunglasses, cleaning solutions for lenses, barometers, telescopes, field glasses, opera glasses, or other tangible personal property to purchasers for use or consumption apart from their rendering of service.  For information about whether these items qualify as medical appliances, see 86 Ill. Adm. Code 130.311.

 

b)         Optometrists – When Not Liable for Tax

Optometrists are engaged in professions and primarily render service.  To the extent they engage in such profession, they are not engaged in the business of selling tangible personal property to purchasers for use or consumption within the meaning of the Retailers' Occupation Tax Act.  Consequently, they are not required to remit retailers' occupation tax measured by their receipts from engaging in such professions, including receipts from both services and tangible personal property transferred incident to those services.  However, to the extent tangible personal property is transferred incident to service, optometrists may be liable for service occupation tax.

 

c)         Opticians

 

1)         When opticians sell such tangible personal property as lenses that they produce in accordance with the prescriptions of licensed optometrists, the opticians are engaged primarily in a service occupation and do not incur retailers' occupation tax liability on their receipts from such sales. However, opticians may be liable for service occupation tax.  For information concerning the tax on persons engaged in the business of making sales of service, see 86 Ill. Adm. Code 140.

 

2)         An optician would incur retailers' occupation tax liability if the optician should engage in selling any tangible personal property at retail apart from engaging in a service occupation (e.g., selling eyeglass cases or lens cleaning solutions over-the-counter).

 

(Source:  Amended at 48 Ill. Reg. 10646, effective July 2, 2024)

 

Section 130.1985  Pawnbrokers

 

a)         Pawnbrokers Primarily In Service Occupation

Pawnbrokers are primarily engaged in the business of lending money for the repayment of which they accept tangible personal property from the pawner or pledgor as security.

 

b)         When Liable For Tax

In case the pawner or pledgor does not redeem the property pledged or pawned within the specified statutory time, such property is forfeited to the pawnbroker, to whom title to the property passes at the time of such forfeiture. Where pawnbrokers thereafter engage in the business of selling such articles for use or consumption, they are making sales within the Retailers' Occupation Tax Act and are required to remit Retailers' Occupation Tax to the Department on their gross receipts from such sales.

 

(Source:  Amended and effective May 21, 1962)

 

Section 130.1990  Peddlers, Hawkers, and Itinerant Vendors

 

a)         When Liable For Tax

 

1)         Persons who transport a supply of tangible goods from place to place, whether upon trucks, wagons or otherwise, exposing such goods for sale, soliciting and negotiating sales, and immediately delivering the goods sold, are considered to be peddlers, hawkers or itinerant vendors.  Where such peddlers, hawkers or itinerant vendors sell such tangible personal property at retail in Illinois, on their own behalf, they are required to obtain a certificate of registration from the Department, file tax returns in conformance with the requirements of Section 3 of the Act and Subpart E of this Part and remit to the Department the retailers' occupation tax on their receipts from such sales.  It is unlawful for any person to engage in the business of selling tangible personal property at retail in this State without a certificate of registration from the Department.  [35 ILCS 120/2a]

 

2)         It is immaterial what methods are employed in consummating sales, whether door-to-door canvass, solicitation by telephone or mail, or display in salesrooms.

 

b)         When Not Liable For Tax

 

1)         Where such persons do not sell on their own behalf, but merely act as agents for a manufacturer or distributor, or other person as a disclosed principal, such disclosed principal is liable for retailers' occupation tax if the principal is engaged in this State in the business of selling tangible personal property to purchasers for use or consumption (see Subpart F of this Part).

 

2)         Even if such manufacturer, distributor, or other disclosed principal is exempt from the Retailers' Occupation Tax because of interstate commerce under Section 130.605 of Subpart F, such disclosed principal is required to register and act as an Illinois Use Tax collector if the principal comes within the definition of "retailer maintaining a place of business in this State" in Section 2 of the Use Tax Act and in Subpart B of the Use Tax Regulations (86 Ill. Adm. Code 150).

 

c)         Display Of Certificate

Each peddler, hawker, or itinerant vendor, selling goods on their own behalf to purchasers for use or consumption, must display prominently, in connection with their business, the Certificate of Registration issued by the Department. If a vehicle is used, the Certificate must be affixed conspicuously thereto.  If no vehicle is used, the Certificate should be attached, in such a manner as to be readily visible by the public, to the sample case or other container used by the peddler, hawker, or itinerant vendor in transacting their business.

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.1995  Personalizing Tangible Personal Property

 

a)         When The Tax Applies

 

1)         Thermometers, pencils, pens, mirrors, silverware, notebooks, diaries, baby books, guest registers and other similar books of general utility for the recording of information, brief cases, wallets, toys, paper weights, pins and other jewelry, watches, rulers, match books, playing cards, blotters, calendars, bags and other fairly standard salable containers, napkins, dishes (whether made from paper or some other material), handkerchiefs and other articles of merchandise which bear the name, monogram or trade-mark of the purchaser or of some other person, or which bear advertising inscriptions of the purchaser or of some other person, have intrinsic usefulness and general utility and so have commercial value (i.e., value to persons other than the purchaser), notwithstanding the fact that such items are personalized for the purchaser by the seller by printing, engraving or some other process by means of which the purchaser's name, monogram, trade-mark or special advertising matter is placed upon the article for the purchaser by the seller.

 

2)         Retail vendors of such items incur Retailers' Occupation Tax liability.  This is also true even if the seller produces such items only upon receipt of an order therefor.  The value or size of the article sold is not material.

 

3)         For information concerning what constitutes a "sale at retail" see Subpart B of this Part.  For information concerning the taxability or exemption of receipts from personalizing charges where the seller incurs Retailers' Occupation Tax liability despite his furnishing of a personalizing service as an incident to the sale, see Section 130.450 of this Part.

 

b)         When The Tax Does Not Apply

 

1)         Sellers of personalized business calling cards, greeting cards, letterheads, envelopes, labels, name plates, badges, medallions and the like do not incur Retailers' Occupation Tax liability on their receipts from such sales because they are primarily engaged in a service occupation in producing or procuring such items, which have no commercial value for their customers.

 

2)         Persons who personalize tangible personal property which already belongs to their customers also are engaged primarily in a service occupation and do not incur Retailers' Occupation Tax liability upon their receipts from engaging in such service occupation.

 

3)         For information concerning the application of the Service Occupation Tax to the purchase and retransfer of tangible personal property by servicemen as an incident to sales of service, see the Service Occupation Tax Regulations.

 

(Source:  Amended at 19 Ill. Reg. 13568, effective September 11, 1995)

 

Section 130.2000  Persons Engaged in the Printing, Graphic Arts or Related Occupations, and Their Suppliers

 

a)         Classification of Businesses

Falling into the classification of persons engaged in the graphic arts or related occupations are printers, book binders, typographers, portrait or commercial photographers, commercial artists, portrait painters, sign painters, photostaters, and blueprinters.  This list is illustrative, but not exhaustive.  Persons falling under this Part may or may not qualify for the graphic arts machinery and equipment exemption set forth in Section 130.330(g).

 

b)         Persons Engaged in the Graphic Arts – When Liable For Tax

 

1)         Persons engaged in the graphic arts or related occupations may, under certain circumstances, be considered to be engaged in the business of selling tangible personal property to purchasers for use or consumption, in which event they incur retailers' occupation tax liability.  This is the case, for example, when they sell to purchasers for use or consumption tangible personal property which is standard enough to be stocked for sale or offered for sale from catalogues or other sales literature, or which otherwise is sold at retail apart from the seller's engaging in a service occupation.  Illustrations would include legal forms, stock or standard greeting cards, pictures or other items which are stocked for sale or offered for sale to the public generally, or products of photoprocessing.

 

2)         Effective August 1, 1961, a person who is engaged in the graphic arts also incurs retailers' occupation tax liability on receipts from sales, to users, of items which such person produces on special order if such item serves substantially the same function as stock or standard items of tangible personal property that are sold at retail. Items which "serve substantially the same function" are those which, when produced on special order, could be sold substantially as produced to someone other than the original purchaser at substantially the same price. A printed item that is personalized is always considered to be printed on special order.

 

3)         Effective September 1, 1988, photographers, film makers, and other servicemen, are subject to retailers' occupation tax on the photoprocessing component of their total service charge when they sell products of photoprocessing.  The tax on the photoprocessing component will apply regardless of whether the photographer performs the photoprocessing in-house or engages a third-party photoprocessor.  For purposes of the tax imposed on photographs, negatives and positives by the Act, photoprocessing includes, but is not limited to, developing films, positives, negatives, and transparencies, as well as tinting, coloring, making, and enlarging prints. Photoprocessing does not include color separation, typesetting, and platemaking by photographic means in the graphic arts industry and does not include any procedure, process, or activity connected with the creation of the images on the film from which the negatives, positives, or photographs are derived.  The charge for in-house photoprocessing may not be less than the photoprocessor's cost price of materials. In transactions in which products of photoprocessing are sold in conjunction with other services, if a charge for the photoprocessing component is not separately stated, tax is imposed on 50% of the entire selling price unless the sale is made by a professional photographer, in which case tax shall be imposed on 10% of the entire selling price.  [35 ILCS 120/2-15]  The tax on photoprocessing may be paid when purchasing self-developing film, such as Polaroid, or film which includes photoprocessing charges in the purchase of the film.

 

A)        EXAMPLE:  The professional photographer receives an assignment to shoot a specified layout from an advertising agency.  The photographer selects the location, hires the models, arranges for the make-up, rents the equipment and shoots the scene.  The photographer sends the undeveloped film to an outside photoprocessing laboratory for development.  The photographer's bill for the sale of the photograph includes a charge for the photographer's artistic and other services and a separately-stated charge for the photoprocessing component which is either the charge made to the photographer by the photoprocessing laboratory or such an amount plus the photographer's customary mark-up. The tax should only be applied to the photoprocessing component.

 

B)        EXAMPLE:  The same facts as above except the professional photographer does not separately state a charge for the photoprocessing component and bills the client a lump sum.  A tax is collected on 10% of the lump sum price.

 

C)        EXAMPLE:  A portrait photographer photographs a family in the photographer's studio and develops the film in-house.  The photographer's bill includes a sitting fee and a separately-stated charge for the product of photoprocessing.  A tax is collected on the photoprocessing charge only.

 

D)        EXAMPLE:  A photographer develops exposed film and transfers negatives and prints to a consumer. Tax is collected on the entire bill.

 

E)        EXAMPLE:  An advertising agency prepares advertising brochures for a customer using images provided by the customer on film, which the advertising agency develops, enlarges, and prints.  The photoprocessing component is not separately stated on the bill.  Tax is based upon 50% of the bill.

 

c)         Persons Engaged in the Graphic Arts – When Not Liable For Tax

 

1)         A photostater who is employed to reproduce material for a customer by the photostating process, or a printer who is employed to print material for a customer in accordance with copy supplied to the printer by the customer or otherwise in accordance with the customer's specifications and special order, or a person who otherwise engages primarily in the transaction in furnishing graphic arts' services is not engaged in such transaction in the business of selling tangible personal property within the meaning of the Act, if the item so produced does not serve substantially the same function as stock or standard items of tangible personal property that are sold at retail, but is engaged in such transaction primarily in a service occupation.  For example, a printer that is hired by a customer to print personalized wedding invitations or greeting cards is engaged in the transaction as a serviceman.

 

2)         To the extent to which any such person engages in a service occupation, the person is not liable for retailers' occupation tax on the receipts therefrom, including receipts from both labor and tangible personal property.  (For further illustrations, see Section 130.1995(b) of this Part.)

 

3)         If the tax exemption described in this Section would otherwise apply, the person supplying the printed item or other item that is produced through the graphic arts' processes to the user will not lose that exemption because of the fact that the person outsources the work of producing the item to someone else.

 

d)         Suppliers of Persons Engaged in the Graphic Arts – When Liable For Tax

 

1)         When persons who are engaged in the business of selling tangible personal property sell any such tangible personal property, for use or consumption, to persons engaged in the graphic arts or related occupations, such vendors incur retailers' occupation tax liability unless such purchases qualify for the graphic arts Machinery and Equipment Exemption (see Section 130.330(g)). This class of sales includes, but is not limited to, sales of machinery, tools, equipment, office supplies and other tangible personal property which the purchasers retain and use or consume. This class of sales also includes sales of plates, film, pre-sensitized plates, alcohol, chemicals, etc., which are consumed by those engaged in the graphic arts or related occupations in the course of the performance of their work.

 

2)         It is not material whether the plates, film, pre-sensitized plates, alcohol, chemicals, etc., are consumed in the course of producing, by the graphic arts' processes, items which have a commercial value, or whether the plates, film, pre-sensitized plates, alcohol, chemicals, etc., are consumed in producing, on special order, items of noncommercial value.

 

3)         Likewise, this class of sales includes sales of film to photographers who use such film in producing negatives which remain the property of such photographers.

 

4)         Furthermore, this class of sales includes sales of paper stock, ink, duplicating materials (stencil sheet masters, offset masters and spirit masters) and other tangible personal property to printers and other graphic arts' servicemen who incorporate such tangible personal property as ingredients into items which remain the property of such servicemen instead of being resold by them in some manner.

 

e)         Suppliers of Persons Engaged in the Graphic Arts – When Not Liable For Tax

 

1)         Persons who sell tangible personal property to persons who are engaged in the graphic arts or related occupations and who resell such property to others are not required to remit retailers' occupation tax measured by their gross receipts from such sales.  This class of sales includes sales of ink, paper stock, chemicals, developing paper, sensitized paper, bookbindings, metal, wood, glue, brads, staples, binding tape, and other tangible personal property where such property is purchased by persons engaged in the graphic arts or related occupations and incorporated by them into printed matter, pictures, or other tangible personal property which they sell.  However, except in the case of sales to totally exempt purchasers, when sales for resale are made, sellers should, for their protection, take a Certificate of Resale from the purchaser. Mere statements by sellers that property was sold for resale will not be accepted by the Department without corroborative evidence. See Section 130.1405 for a seller's responsibility to obtain certificates of resale and the requirements for certificates of resale.

 

2)         It is not material whether the ink, paper, developing paper and other similar items are resold as ingredients of articles which have a commercial value or whether the ink, paper stock, developing paper and other similar items are resold as ingredients of articles which are produced on special order and which have no commercial value.

 

f)         Liability Under the Service Occupation Tax

For information concerning the application of the Service Occupation Tax to purchases, by graphic arts' servicemen, of tangible personal property which they retransfer as an incident to rendering service, see the Service Occupation Tax, 86 Ill. Adm. Code 140.

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.2004  Sales to Nonprofit Arts or Cultural Organizations

 

a)         Between August 6, 1999 and June 30, 2001, notwithstanding the fact that sales may be at retail, the Retailers' Occupation Tax does not apply to sales of tangible personal property to a not-for-profit arts or cultural organization that establishes that it has received an exemption under Section 501(c)(3) of the Internal Revenue Code and that is organized and operated for the presentation or support of arts or cultural programming, activities, or services. (Section 2-5(9) of the Act)

 

b)         On and after July 1, 2001, the Retailers' Occupation Tax does not apply to sales of tangible personal property to a not-for-profit arts or cultural organization that establishes that it has received an exemption under Section 501(c)(3) of the Internal Revenue Code and that is organized and operated primarily for the presentation or support of arts or cultural programming, activities, or services.  An entity otherwise eligible for this exemption shall not make tax-free purchases unless it has an active identification number issued by the Department. (Section 2-5(9) of the Act)

 

1)         Only nonprofit organizations that are organized and operated primarily for the presentation or support of arts or cultural programming, activities, or services can qualify for this exemption from sales tax.  To demonstrate qualification, an organization must be operated so that its proceeds and activities in their totality are primarily devoted to the presentation or support of arts or cultural programming, activities, or services.  The fact that an organization is organized and operated primarily for the presentation or support of arts or cultural programming, activities, or services must also be reflected in its organizational documents.  Organizations are required to apply for and obtain a tax exemption identification number.  To establish eligibility for this exemption, an organization should submit the following documents to the Illinois Department of Revenue:

 

A)        Copy of the Internal Revenue Service letter under which it received an exemption under Section 501(c)(3) of the Internal Revenue Code.

 

B)        If incorporated, copy of Articles of Incorporation.

 

C)        If unincorporated, copy of organization's Charter or Constitution.

 

D)        Copy of By-laws.

 

E)        A narrative explaining purposes, functions and activities of the organization.

 

F)         Copy of brochures or other printed material explaining the purposes, functions and activities of the organization.

 

G)        Copy of most recent financial statement.

 

2)         The information noted in subsections (b)(1)(A)-(G) will allow the Department to determine that the organization qualifies for the nonprofit arts or cultural organization exemption from sales tax.  If an organization does qualify, the Department will issue an exemption identification number that the organization can provide to vendors. Nonprofit arts and cultural organizations are required to obtain this number in order to make tax-free purchases.  The exemption applies to purchases of tangible personal property invoiced to the organization that will be used in furtherance of the organization's purposes.  The exemption does not extend to purchases of tangible personal property made by individual members or officers of the organization for their own use.

 

3)         An exempt nonprofit arts or cultural organization must have as the majority of its purposes or activities the presentation or support of arts or cultural programming, activities or services. By way of illustration and not limitation, the following not-for-profit purposes or activities are examples:

 

A)        Presenting or supporting artists and their works.

 

B)        Presenting or supporting musical performances, including instrumental and choral.

 

C)        Presenting or supporting the dramatic arts.

 

D)        Preserving and exhibiting to the general public objects, artifacts, or displays of historical, scientific or cultural value.

 

E)        Promoting and increasing the musical knowledge, appreciation, experience and performing ability of young people and of the general public, by establishing, maintaining and operating a youth symphony orchestra.

 

F)         Operating a school of dance, music, painting or sculpture.

 

G)        Conducting festivals on a regular basis to provide filmmakers with an opportunity to display their films.

 

H)        Educating young people and the general public about the arts or humanities through museum exhibits, classes, lectures and performances.

 

I)         Producing, presenting or distributing displays of visual or media arts such as photographs, paintings, sculptures, videos or films.

 

J)         Preparing, publishing and distributing a journal or other literature on a regular basis that provides an opportunity for authors to have their articles or stories published.

 

(Source:  Amended at 26 Ill. Reg. 5369, effective April 1, 2002)

 

Section 130.2005  Persons Engaged in Nonprofit Service Enterprises and in Similar Enterprises Operated as Businesses, and Suppliers of Such Persons

 

a)         Sales by Nonprofit Service Organizations

Effective August 1, 1961, nonprofit country clubs, boat clubs, employees' clubs or organizations, and other nonprofit social, athletic, or recreational organizations, lodges, patriotic organizations, fraternities, sororities, professional and trade associations, civic organizations, labor unions, and other nonprofit persons who are not exclusively charitable, religious, or educational organizations are liable for retailers' occupation tax when selling tangible personal property at retail to members, guests, or others.  The same is true of exclusively charitable, religious, or educational organizations and institutions with certain limited exceptions.

 

1)         Scope of the Exemption

 

A)        There still are some very limited exemptions under the Retailers' Occupation Tax Act ("Act") for sales by exclusively charitable, religious, and educational organizations and institutions.  However, the exemption is not available unless the selling organization or institution qualifies as an "exclusively" charitable, religious, or educational organization or institution.

 

B)        It is not enough simply to be a nonprofit organization or institution. In case of doubt concerning any such seller's retailers' occupation tax obligation, apply to the Department of Revenue for a letter ruling, submitting copies of the charter or constitution and bylaws and other relevant information for this purpose.

 

C)        The exemption that is available under some circumstances for sales by exclusively charitable, religious, or educational organizations or institutions is not available in all situations.  For instance, the exemption does not apply to sales by other kinds of nonprofit organizations such as civic clubs, nonprofit social and recreational organizations, patriotic organizations, lodges and their auxiliaries, trade associations, etc.  Even though the latter types of organizations do a considerable amount of charitable work, they are not "exclusively" charitable organizations under Illinois Supreme Court decisions, so any retail selling that they do is subject to the Act.

 

D)        Some of the kinds of organizations that qualify as exclusively charitable organizations are Parent-Teacher organizations, the American National Red Cross, Community Fund or United Fund organizations, the Y.M.C.A., the Y.W.C.A., Boy Scout organizations, and Girl Scout organizations.

 

E)        Exclusively charitable, religious, and educational organizations incur retailers' occupation tax liability when they engage in selling tangible personal property at retail except in three situations as provided in subsections (a)(2), (a)(3), and (a)(4).

 

2)         Sales to Members, etc.

 

A)        The first exception is that the sales by such an organization are not taxable if they are made to the organization's members, to its students in the case of a school, or to its patients in the case of a nonprofit hospital that qualifies as a charitable institution, primarily for the purposes of the selling organization.

 

B)        Examples of sales that come under this exemption are sales of uniforms, insignia, and Scouting equipment by Scout organizations to their members; sales of Bibles by a church to its members; and sales of choir robes by a church to the members of the church's choir.  The selling organization would incur retailers' occupation tax liability if it should engage in selling any of the foregoing items at retail to the public.

 

C)        The selling of schoolbooks and school supplies by schools at retail to students shall not be deemed to be "primarily for the purpose of" the school that does such selling.  Consequently, schools incur retailers' occupation tax liability when they engage in selling schoolbooks or school supplies at retail to their students or to others.

 

3)         Noncompetitive Sales

 

A)        The second exception is that sales by exclusively charitable, religious, or educational organizations are not taxable if it can be said that such selling is noncompetitive with business establishments.

 

B)        The Attorney General has laid down the following tests for determining that such selling is noncompetitive:

 

i)          The transactions are conducted by members of the charitable entity and not by any franchisee or licensee.

 

ii)         All of the proceeds must go to the charity.

 

iii)        The transaction must not be a continuing one but rather should be held either annually or a reasonably small number of times within a year.  The test of reasonableness would be an administrative decision, to be made by the Department.

 

iv)        The reasonably ascertainable dominant motive of most transferees of the items sold must be the making of a charitable contribution, with the transfer of property being merely incidental and secondary to the dominant purpose of making a gift to the charity.

 

C)        In addition, the Attorney General has stated that there are these further considerations for the purpose of furnishing some guides to the resolution of questions raised by each individual situation:

 

i)          The nature of the particular item sold.  All other things being equal, the decision as to candy might well be different from the decision as to refrigerators.

 

ii)         The character of the particular sale, and the real practical effect upon punitive competition.

 

D)        Under this second exception, examples of exempt sales are infrequent sales of cookies, doughnuts, candy, calendars, or Christmas trees by Scout organizations, by other exclusively charitable organizations, or by exclusively religious organizations.  In this category, the Attorney General's opinion stresses that the sale must be infrequent, and that the dominant motive of the purchase must be the making of a donation to the charitable or religious organization that conducts the sale, rather than the acquisition of property.

 

E)        Even if the sale to the public occurs only once a year, the charitable or religious organization that conducts the sale would incur retailers' occupation tax liability if it sells hats, greeting cards, or other items for which the dominant motive of the purchase is the acquisition of the property rather than the exchanging of the property merely as a token for the making of a donation.

 

4)         Occasional Dinners and Similar Activities

 

A)        The third exception is that occasional dinners, socials, or other similar activities conducted by exclusively charitable, religious, or educational organizations or institutions are not taxable, whether or not such activities are open to the public.  This exemption extends to occasional dinners, ice cream socials, fun fairs, carnivals, rummage sales, bazaars, bake sales, and the like, when conducted by exclusively charitable, religious, or educational organizations or institutions, whether the items that are sold are purchased or donated for the purposes of the sale, and even if the sale is open to the public.

 

B)        For the purposes of this exemption, "occasional" means not more than twice in any calendar year.  Where more than two events are held in any calendar year, the organization or institution may select which two events held within that year will be considered exempt.  Once the organization or institution has made the selections, the selections cannot be changed.  All other events in that year will be considered taxable.

 

C)        This exemption does not extend to "occasional" sales, by exclusively charitable, religious, or educational organizations or institutions, of hats, greeting cards, cookbooks, flag kits, and other similar items because these are not "occasional" dinners, socials or similar activities within the meaning of the Act, and the selling of these kinds of items at retail even on an occasional basis does generally place the selling organization in substantial competition with business establishments.

 

b)         Rules Governing Some Special Kinds of Selling by Exclusively Charitable and Religious Organizations

 

1)         Hospital Sales

 

A)        Nonprofit hospitals that qualify as exclusively charitable institutions are not taxable when selling food or medicine to their patients in connection with the furnishing of hospital services to them, nor on the operation of restaurant facilities that are conducted primarily for the benefit of the hospital's employees, and that are not open to the public.  However, sales made in a hospital cafeteria that is open to the public will be taxable sales.  A nonprofit hospital dining facility is not considered to be open to the public if the dining facility is restricted to patients and their visitors, hospital employees (including staff doctors), volunteer workers in the hospital, and doctors attending patients in the hospital.

 

B)        In the case of hospitals that qualify as charitable institutions, such hospitals are not taxable when selling drugs to anyone because this is for the relief of the sick (which is the hospital's primary purpose) and so is "primarily for the purpose of" such hospitals, thus qualifying such transactions for tax exemption.  However, a hospital or hospital auxiliary incurs retailers' occupation tax liability when selling candy, chewing gum, tobacco products, razor blades, and the like at retail even when such items are sold only to patients because unlike food and medicine these items are not necessary to the furnishing of hospital services, and the sales of such items are competitive.

 

C)        The same distinctions apply to nonprofit sanitaria and nonprofit nursing homes when they qualify as exclusively charitable institutions.

 

2)         Gift Shops and Rummage Stores

Charitable or religious organizations incur retailers' occupation tax liability on the retail selling which they do in the course of operating gift shops and rummage stores.

 

3)         Meals

 

A)        Charitable or religious organizations incur retailers' occupation tax liability on their receipts from sales of meals to the public unless such selling constitutes an occasional dinner or other similar activity, as authorized in subsection (a)(4)(B) above.  No more than two such occasional dinners or other similar activities are authorized in any calendar year.  Such sales are tax exempt, provided that all the profits from such sales are used for charitable or religious purposes.  If such sales occur more than twice in any calendar year, refer to subsection (a)(4)(B) above.

 

B)        Also, a church or religious organization does not incur retailers' occupation tax liability on its receipts from sales of meals when the following conditions are met:

 

i)          the profits, if any, are used for religious purposes;

 

ii)         the meals are confined to the members of such church and their guests and are not open to the public; and

 

iii)        the serving of the meals is connected with some religious service or function.

 

C)        Under the circumstances just described, even if this type of selling of meals is done rather frequently, it is exempt under the Act because it is categorized as sales to members "primarily for the purposes of" the religious organization (the seller).

 

c)         Special Rules Concerning Sales by Educational Institutions

 

1)         Dining Facilities

Generally, a school does not incur retailers' occupation tax liability on its operation of a cafeteria or other dining facility that is conducted on the school's premises, and that confines its selling to the students and employees of the school.  If a dining facility is opened to the public, all sales that are made at such facility while that condition continues to prevail are taxable.

 

A)        Sales by a university may be made tax free to students in a cafeteria or dining facility that is open to the public, in limited circumstances, when:

 

i)          the students live in university housing and have purchased a mandatory meal plan, including any "dining dollars" or similar "dining credits" that are purchased as part of a meal plan; and

 

ii)         the university has a mechanism for identifying and documenting sales to students living in university housing and enrolled in a meal plan.  Such mechanisms must provide both an auditable and verifiable record of food sales to these students.  The mechanism for identifying and documenting such sales must consist of something more than simply showing an identification card.  No cash sales to students may be made tax exempt in facilities open to the public.

 

B)        Meals sold to employees of the university and other persons, including off-campus students, are subject to tax in facilities open to the public.  Even if the employees of the university or off-campus students have purchased a meal plan, such sales are taxable because they are not made to students living in university housing.

 

C)        On-campus food services include not only traditional sales of food by a university, but also sales by a university operating a dining facility as a licensee of franchise or commercial vendor.  Such sales are competitive and are subject to tax except for those sales to students living in university housing and using a mandatory meal plan or dining credits that are purchased as part of a mandatory meal plan.  There must also be an auditable and verifiable record system for tracking sales to these students.

 

EXAMPLE 1:  A student living in university housing purchases a mandatory meal plan that includes $100 of dining dollars to be used at a dining facility where the university operates as a licensee.  In this instance, the sale may be tax free if the university has a verifiable record system to track these dining dollar sales and distinguish them from other sales.

 

EXAMPLE 2:  Same as Example 1 above but the student uses all of the initial $100 of dining dollars and purchases $50 more in dining dollars to use at a dining facility operated by the university as a licensee.  In this instance, the purchases made with the additional dining dollars are taxable as the reloaded dining dollars are not part of a mandatory meal plan.

 

D)        Food vendors that sell meals to students and not to the school incur sales tax liability on meals purchased by the students.  The fact that a school permits the food vendor to sell meals to the students or may collect the cost of the meals from the students and remit the money to the food vendor does not change the food vendor's tax liability.  For sales to be tax exempt, the sales must be made to the school.

 

EXAMPLE 3:  A third-party vendor makes sales directly to students, with a percentage of the proceeds being donated to the school or PTO.  In this scenario, students or parents select from a range of food options and submit their orders and payment to the vendor, sometimes with the school or PTO facilitating the sales as an intermediary.  Sales made directly to the students are fully taxable and any percentage donated to the school or PTO is still taxable.  Vendors cannot rely on the exempt status of the schools or PTOs acting as intermediaries to avoid having to collect tax on these sales.

 

EXAMPLE 4:  A third-party vendor makes bulk sales of prepared meals for students to the school, and the school then resells the meals to the students.  In this scenario, students do not submit orders or payments directly to the vendor.  The school conducts the sale using school staff or further contracts for labor in dispensing the meals.  Food vendors making sales of previously prepared meals to schools that are resold by the schools to their students do not incur sales tax liability, provided that the schools provide their E-number to the food vendors.  The schools are the seller in this scenario; the vendor only acts as a supplier.

 

EXAMPLE 5:  A third-party vendor makes sales of prepared meals for students to a PTO, and the PTO then resells the meals to students.  Again, in this scenario, students do not submit orders or payment directly to the vendor.  The PTO conducts the sale.  PTOs engaging in sales to students must register with the Department as a retailer and remit tax on those sales.  PTOs possessing an E-number cannot use their E-number nor the school's E-number to purchase the meals tax free because the purchases are not for their use.  Note, however, that the sale may be exempt if it qualifies under subsection (a)(4) as an occasional dinner.

 

E)        Meaning of "Student"

In this Section, a "student" is a person who is taking a course from a school for credit.

 

2)         Schoolbooks and School Supplies

 

A)        A school incurs retailers' occupation tax liability when selling schoolbooks and school supplies to its students or others for use.  Sales of digital textbooks that are downloaded electronically do not incur tax as they are considered intangibles.  See 86 Ill. Adm. Code 130.2105.

 

B)        Schools are not taxable on their sales of school yearbooks because these are noncompetitive items.

 

3)         Clothing and Dormitory Supplies

Schools incur retailers' occupation tax liability when they sell sweaters, sweatshirts, gym shoes, jackets, and other items of clothing to students or others for use.  The same is true when a school sells furniture, rugs, or other dormitory supplies to users.

 

4)         Miscellaneous Items

A school or school organization incurs retailers' occupation tax liability when it sells soft drinks, candy, peanuts, popcorn, chewing gum, and the like to students or to members of the public for use or consumption, where these items are sold at a school bookstore, through vending machines, or otherwise than in a restricted school cafeteria or dining facility as provided in subsection (c)(1)(A)-(D) above.  However, the proceeds from the sale of tangible personal property by teacher-sponsored student organizations affiliated with an elementary or secondary school located in Illinois are exempt from retailers' occupation tax.  [35 ILCS 120/2-5(6)] (See also 86 Ill. Adm. Code 130.2006).

 

d)         Registration and Returns

 

1)         Nonprofit organizations that incur retailers' occupation tax liability as retail sellers of tangible personal property are required to register with the Department and file periodic returns.  Returns are due monthly, except that if the taxpayer's average monthly liability to the Department is $50.00 or less, the taxpayer may apply to the Department for permission to file one return each year covering the calendar year, with the return being due by January 20 of the following year.  Whenever tax is due for a return period, the remittance for the tax should accompany the return which discloses such tax to be due.

 

2)         For more information concerning the filing of returns with the Department, see Subpart E of this Part.

 

3)         Registration and return forms may be obtained from the Department on request.

 

4)         In the case of a church, it is recommended that a single certificate of registration be applied for by the church and that this be allowed to cover the selling activities of that church and all of its organizations.  Registration must be obtained prior to the commencement of selling activities.  (See 35 ILCS 120/2a).

 

5)         In the case of public schools or school organizations that incur some retailers' occupation tax liability so as to be required to register with the Department, the Board of Education that governs the school district, rather than each individual school or school organization, should apply to the Department for a certificate of registration, and such Board of Education should file a single return for the return period covering all the taxable school activities that occur under its jurisdiction during the return period covered by the return.

 

e)         Suppliers of Nonprofit Institutions, Associations, and Organizations

 

1)         Suppliers of nonprofit institutions, associations, and organizations do not incur retailers' occupation tax liability when they sell tangible personal property to any such purchaser for resale in any form as tangible personal property.

 

2)         Suppliers of such purchasers incur retailers' occupation tax liability when they sell tangible personal property to any such purchaser at retail (i.e., for use or consumption by the purchaser or to be given away by the purchaser, and not for resale in any form as tangible personal property), provided that the tax does not apply to receipts received by the seller from sales of any kind made to any purchaser of this character who is able to qualify as a corporation, society, association, foundation, or institution organized and operated exclusively for charitable, religious, or educational purposes, or any not-for-profit corporation, society, association, foundation, institution, or organization that has no compensated officers or employees and that is organized and operated primarily for the recreation of persons 55 years of age or older.  See also 86 Ill. Adm. Code 130.2081 for documentation required to support an exempt sale to a qualifying organization.

 

3)         Many difficult questions of interpretation will arise in applying the above proviso.  Each case will have to be decided on its own facts, but a few principles based on Supreme Court decisions in somewhat analogous cases are stated below for guidance.

 

f)         Nonprofit Social, Recreational, and Athletic Organizations -- Nonprofit Fraternal Organizations

 

1)         A purchaser is not necessarily qualified for this total exemption as to receipts received by the seller from all sales made to such purchaser merely because the purchaser is a not-for-profit service organization.  For example, if the purchaser is incorporated or otherwise organized primarily to provide entertainment, social, recreational, or athletic activities or facilities to its members, the purchaser is not organized and operated exclusively for charitable, religious, or educational purposes.  Such a purchaser is not organized and operated exclusively for charitable purposes even though it does some charitable work.  This is true even though such purchaser is organized and operated as a not-for-profit corporation, association, etc.

 

2)         The same is true of nonprofit fraternal benefit societies that derive their funds from their members and are organized primarily to provide different forms of insurance benefits to their members and to persons standing in designated relationships to their members, except when such fraternal benefit societies are organized under a statutory provision that expressly declares them to be exclusively charitable organizations.

 

3)         Nonprofit fraternities and sororities are not considered to be organized and operated exclusively for charitable, religious, or educational purposes.

 

g)         Lodges

 

1)         Similarly, nonprofit corporations, societies, associations, etc. that have a substantial purpose in providing a lodge system with ritualistic work and social activities for members and that derive their funds in large measure from such members, are not organized and operated exclusively for charitable, religious, or educational purposes, even though they engage to some extent in one or more of these activities, because a substantial purpose for the existence of such an organization is one that does nothing to relieve the public of a duty to the persons benefited and otherwise bestows no benefit upon the public.

 

2)         For example, the Supreme Court has held a Masonic Lodge not to be charitable and has held that a Masonic Home for aged and destitute Masons is charitable.  The Department will follow that distinction in this Section when separate legal entities are involved, considering receipts from retail sales to the former to be taxable, and considering receipts from retail sales made to the latter to be exempt.  However, if the same legal entity operates the noncharitable lodge and the charitable home, the Department will not regard such entity (when making purchases) as coming within this exemption.  This is true because the importance of the noncharitable lodge function makes it impossible to say that such a purchaser is organized and operated exclusively for charitable, religious, or educational purposes.

 

h)         Nonprofit Professional and Trade Associations – Labor Unions – Civic Clubs – Patriotic Organizations

Nonprofit Bar Associations, Medical Associations, Lions Clubs, Rotary Clubs, Chambers of Commerce, and other professional, trade, or business associations and labor unions that draw their funds largely from their own members, and that have an important purpose to protect and advance the interests of their members in the business world, are not organized and operated exclusively for charitable or educational purposes, even though such organizations may engage in some charitable and educational work.  The same conclusion applies to the American Legion, Veterans of Foreign Wars, Amvets, the Daughters of the American Revolution, and other similar nonprofit, patriotic organizations.

 

i)          Organization Must be Nonprofit to be Exclusively Charitable

On the other hand, a purchaser cannot qualify as being organized and operated exclusively for charitable purposes unless it is organized and conducted on a not-for-profit basis, with no personal profit inuring to anyone as a result of the purchaser's operation.  The payment of reasonable salaries to necessary employees for services actually rendered does not convert a nonprofit enterprise into a business enterprise.

 

j)          Other Conditions Necessary for Being Exclusively Charitable

 

1)         In the case of a corporation, there can be no capital structure nor capital stock, no provision for disbursing dividends or other profits, and no payment of directors' fees if the corporation seeks to qualify as an exclusively charitable corporation.

 

2)         The Supreme Court has stated that a charitable purpose may refer to almost anything that promotes the well-being of society and that is not forbidden by law; but to qualify as a charity, the purchaser must be organized and operated to benefit an indefinite number of the public. There may be restrictions on the group to be benefited, such as an organization for women, for children, for the aged, etc., but the service rendered to those eligible for benefits must, nevertheless, in some way relieve the public of a duty that it would have to such beneficiaries or otherwise confer some benefit on the public.

 

k)         Determination of the Purpose for which an Organization or Institution is "Organized and Operated"

 

1)         In the case of a corporation, the purpose for which it is "organized" will be determined by reference to its charter.  For example, the Supreme Court has held that an Elks Lodge, whose charter stated it was incorporated for the mutual benefit and social intercourse of its members, was not "organized" exclusively for "charitable purposes", even though the corporation engaged in a considerable amount of charitable work.

 

2)         In the case of an unincorporated society, association, etc., the constitution and bylaws will determine the purpose for which it is organized.

 

3)         To qualify for total exemption, the purchaser must be "organized and operated" exclusively for charitable, religious, or educational purposes.

 

l)          Examples of Exempt Purchasers

 

1)         Some examples of purchasers within this exemption are churches, Sunday Schools, Church Ladies' Aid Societies, the Salvation Army, and other nonprofit corporations, societies, associations, foundations, and institutions organized and operated exclusively for religious purposes (but not including Ministers or other individuals when making purchases from their own funds); corporations, societies, associations, foundations, and institutions organized and operated exclusively for educational purposes, whether such purchaser is organized and operated as a business enterprise or on a not-for-profit basis (but see subsection (m) below); homes for the aged that are not organized or operated as a business enterprise with a view to profit and that otherwise qualify as charitable institutions; nonprofit corporations, societies, associations, foundations, and institutions organized and operated exclusively for the purpose of conducting scientific research of a character that would be beneficial to the public (held to be a charitable purpose); the American National Red Cross, Community Fund, or United Fund organizations; the Y.M.C.A., the Y.W.C.A., Boy Scouts of America (as a corporation, but not as individuals), and Girl Scouts of America (as a corporation or association, but not as individuals); nonprofit Parent-Teacher Associations; the National Safety Council and similar organizations; nonprofit societies for the prevention of cruelty to children or animals (all classified as charitable); free public libraries that are not operated for profit and that are not operated by commercial enterprises (whether such libraries are governmental units or not); and local housing authorities.

 

2)         These examples are illustrative, but not exhaustive.

 

3)         To come within this exemption, the purchaser (in addition to being organized and operated exclusively for charitable, religious, or educational purposes) must be a "corporation", a "society", an "association", a "foundation", or an "institution".

 

m)        "Educational Purposes" and "School" Defined and Illustrated

 

1)         Receipts received from retail sales to corporations, societies, associations, foundations, and institutions that are organized and operated exclusively for educational purposes are not taxable.  There is no specific exemption in the Constitution for "educational purposes" as to any kind of tax, but Section 6 of Article IX of the Illinois Constitution authorizes the General Assembly to grant a property tax exemption for property that is used for "school...purposes".  Consequently, the Department will construe the retailers' occupation tax exemption for "educational purposes" as meaning for "school... purposes", as the phrase "school... purposes" has been interpreted or may be interpreted by the Supreme Court.  Section 2h of the Act provides the statutory definition of "a corporation, society, association, foundation or institution organized and operated exclusively for educational purposes."  [35 ILCS 120/2h]

 

2)         The Supreme Court has said that a school is a place where systematic instruction in useful branches of learning is given by methods common to schools and institutions of learning and does not include schools for teaching dancing, riding, and deportment.  For example, the Supreme Court has held that an organization that conducts a four-week training school each summer for funeral directors is not a school because the courses given and the intensity of their instruction do not compare favorably with those in a department of mortuary science and mortuary practice at regular colleges and universities, but represent only a superficial or brief instruction in courses constituting a minor part of the study of mortuary science.

 

3)         Consequently, flying schools, driving schools, art association schools, modeling schools, charm schools, and the like are not organized and operated exclusively for educational purposes because they do not offer courses that constitute systematic instruction in useful branches by methods common to public schools and that compare favorably in their scope and intensity with the course of study presented in tax-supported schools within the meaning of the Act.

 

4)         However, the exemption for educational purposes includes private schools (such as parochial grade and high schools, private colleges, and the like) as well as government-owned, tax-supported schools so long as the institution qualifies as a school as above described.

 

5)         Also, the "educational purposes" exemption is not limited by the statute to nonprofit institutions.  The exemption includes vocational or technical schools or institutions organized and operated exclusively to provide a course of study of not less than 6 weeks duration and designed to prepare individuals to follow a trade or to pursue a manual, technical, mechanical, industrial, business or commercial occupation (such as a business-operated law school) as long as the institution otherwise qualifies as a school within the meaning of this subsection and the Act.  [35 ILCS 120/2h]  (See also subsection (r) of this Section).

 

6)         In addition, for Property Tax purposes, the Supreme Court has held that an association that is not itself a school in the ordinary sense, but that provides a substantial service in improving the educational standards of schools (such as the Association of American Medical Colleges) is within the "school purposes" exemption, so the Department will consider such an organization to be "organized and operated" exclusively for "educational purposes" under the Act.

 

7)         Literary societies, though somewhat educational, are mainly for the benefit of their own members as a hobby or pastime and do not relieve the public of a duty nor contribute sufficiently to the public to qualify for an exemption, and they are not places where systematic instruction in useful branches of learning is given by methods common to schools and institutions of learning in the ordinary or commonly accepted meanings of those terms.

 

n)         Nonprofit Hospitals and Sanitaria

 

1)         In the case of a privately-owned hospital, in addition to the fact that the hospital must be organized and operated as a nonprofit enterprise (with proceeds, if any, over expenses being put into the expansion of the hospital's services, equipment, and physical plant), the Supreme Court has required the following tests to be met before the hospital can qualify as being organized and operated exclusively for charitable purposes:

 

A)        the hospital must not discriminate against patients or doctors because of race, color, creed, or religion; and

 

B)        the hospital must not refuse admittance to any patient because of the patient's inability to pay for hospital services.

 

2)         It is immaterial that most of the hospital's patients may be paying patients if the hospital does not adopt any policy that is calculated to prevent persons who cannot pay from seeking and obtaining admittance to the hospital.

 

3)         Delaying the admittance of nonemergency cases while the hospital makes an investigation to try to find someone who will give the prospective patient financial help has been held not to be an obstacle to admittance if the hospital does not engage in such delaying tactics in the case of emergency patients and if the hospital ultimately admits destitute patients notwithstanding the fact that they cannot pay for services and cannot procure financial help.

 

4)         A hospital does not lose its character as a charitable organization because it refuses admittance to patients who are suffering from dangerously contagious diseases.

 

5)         Government-owned hospitals are deemed by the Department to be organized and operated exclusively for charitable purposes within the meaning of this Section.

 

6)         The principles stated in this subsection with respect to hospitals apply also to sanitaria and clinics.

 

o)         Meaning of "Exclusively"

 

1)         Although the provision of the Act under discussion, in excluding receipts from all sales to certain kinds of purchasers, refers to them as being organized and operated "exclusively" for charitable, religious, or educational purposes, the Supreme Court has not given the word "exclusively" its most literal interpretation under similar circumstances because of the virtual impossibility of anyone being engaged "exclusively" in anything, and so the Department will follow a similar policy in applying the word "exclusively", as used in the Act and in this Section, in order to carry out the manifest intention of the General Assembly.

 

2)         However, if a substantial purpose or activity of the purchaser is not charitable, religious, or educational, the Department will not consider the purchaser to be organized and operated exclusively for charitable, religious, or educational purposes within the meaning of the Act.

 

p)         Educational, Scientific, and Similar Institutions, Associations, and Organizations Operated as "Business" Enterprises – When Liable for Tax

Persons engaged habitually, for livelihood or gain, in hospital, educational, religious, scientific, social, or cultural enterprises are among those who are engaged in a service occupation that is nevertheless a "business" within the meaning of the Act.  When persons who operate businesses of the type described in the preceding sentence sell tangible personal property to purchasers for use or consumption apart from their rendering of service, such persons incur retailers' occupation tax liability.  This is the case, for example, where hospitals that are conducted as "business" enterprises operate public dining rooms, public pharmaceutical dispensaries, or otherwise sell tangible personal property at retail to the general public, or where schools that are operated as "business" enterprises sell tangible personal property at retail to the general public or make retail sales to students of clothing, dormitory supplies, or other items that cannot be said to be used "primarily for the purposes of" the school.  Also, business-operated schools incur retailers' occupation tax liability on their retail sales of schoolbooks and school supplies to their students and faculty members.

 

q)         Educational, Scientific, and Similar Institutions, Associations, and Organizations Operated as "Business" Enterprises – When Not Liable for Tax

 

1)         Persons of the type described in the preceding paragraph are engaged primarily in rendering service, and, to this extent, they are engaged in a service occupation.  To the extent to which they engage in such service occupation, they are not required to remit retailers' occupation tax measured by any of their receipts, which they realize from their rendering of service, including those receipts that represent the price of tangible personal property transferred incident to their rendering of service. The sale of meals to patients and the furnishing of medicine for a consideration to patients in the course of treatment by business-operated hospitals and business-operated, licensed nursing homes come within this service occupation exemption for retailers' occupation tax purposes.  However, the tax liability of the person engaged in such service occupation is governed by the Service Occupation Tax Act [35 ILCS 115]  (See also Subpart A of the Service Occupation Tax Regulations, 86 Ill. Adm. Code 140).

 

2)         Business-operated schools do not incur retailers' occupation tax liability on their sales of meals in a dining facility that is located on the premises of the school and is confined to the students and employees of the school.  For more information about dining facilities, see subsection (c)(1).

 

r)          Suppliers of Educational, Scientific, and Similar Institutions, Associations, and Organizations Operated as "Business" Enterprises

 

1)         Suppliers of educational, scientific, and similar institutions, associations, and organizations operated as "business" enterprises do not incur retailers' occupation tax liability when they sell tangible personal property to any such purchaser for resale either in connection with or apart from the purchaser's rendering of service to others.  However, for information concerning the fact that purchases of food, medicine, and other tangible personal property by business-operated hospitals or business-operated, licensed nursing homes for retransfer to patients as an incident to service are subject to the Service Occupation Tax Act, see Subpart A of the Service Occupation Tax Regulations.  (86 Ill. Adm. Code 140).  Suppliers of purchasers of the kind referred to in the first sentence of this paragraph incur retailers' occupation tax liability when they sell tangible personal property to any such purchaser at retail (i.e., for use or consumption by the purchaser or to be given away by the purchaser, and not for resale in any form as tangible personal property), provided that the tax does not apply to receipts received by the supplier from sales of any kind made to any purchaser of this character who is able to qualify as a school.  In excluding from the measure of the tax receipts received by the supplier from sales of any kind to a school, the Act does not distinguish between business and nonprofit schools.

 

2)         Nevertheless, while the Department recognizes that a purchaser may qualify as a school for exemption purposes notwithstanding the fact that the purchaser is organized and operated as a business enterprise, the Department takes the position that such a purchaser cannot be organized and operated exclusively for charitable or religious purposes if such purchaser is organized and operated as a business enterprise with a view to profit.

 

s)         Reporting – Records – Burden of Proof

 

1)         When a seller claims an exemption from the retailers' occupation tax for receipts received by the seller from sales of tangible personal property to a corporation, society, association, foundation, or institution organized and operated exclusively for charitable, religious, or educational purposes, the seller should include such receipts in the seller's tax return form, but then should deduct such receipts on the line provided for that purpose in the return form.  (See Subpart E of this Part).

 

2)         The seller must maintain adequate books and records to sustain such deductions.  (See Subpart H of this Part).

 

3)         Sellers claiming the benefit of this exemption are cautioned against laxity in claiming this exemption without verifying the status of the purchaser since the sellers will have the burden of proof in establishing their right to any such claimed exemption.  The courts have held repeatedly that the burden of sustaining a right to a tax exemption is on the person claiming such exemption.  Tax exemption provisions in statutes are strictly construed against the taxpayer, although the words employed in such provisions will be given their commonly accepted and understood meanings.

 

(Source:  Amended at 48 Ill. Reg. 10646, effective July 2, 2024)

 

Section 130.2006  Sales by Teacher-Sponsored Student Organizations

 

a)         Sales by teacher-sponsored student organizations affiliated with an elementary or secondary school located in Illinois are exempt from Retailers' Occupation Tax. (Ill. Rev. Stat. 1983, ch. 120, par. 441)

 

b)         "A teacher-sponsored student organization affiliated with a public elementary or secondary school" means an organization which collects and disburses monies as approved by the local Board of Education pursuant to the provisions of 23 Ill. Adm. Code 125.  Such organizations would include student councils, student clubs, choral and band groups, etc.  This particular exemption does not extend to sales by the school itself, a school bookstore, a faculty lounge, PTA, or any other entity which does not meet the requirements described above.  Teacher-sponsored student organizations of private elementary or secondary schools not under the jurisdiction of the State Board of Education are similar organizations which must comply with procedures set by the school when expending funds.

 

c)         In order for student organizations to be allowed to purchase items for resale without paying tax to their suppliers, the school, school district or treasurer appointed by the local Board of Education must apply to the Department of Revenue for a reseller's certificate to be issued in the name of the school, school district or student activity fund. Suppliers selling to teacher-sponsored student organizations for resale must obtain a Certificate of Resale.

 

d)         Student organizations selling tangible personal property obtained under a Certificate of Resale need not file sales tax returns with respect to such sales.  Also, there is no limitation on the amount of nor frequency of such sales.

 

e)         Purchases by teacher-sponsored student organizations of items for use or consumption by the organization or activity are subject to sales tax.  Only items which are resold may be acquired without payment of tax. For example, if a qualified organization buys modeling clay for a purpose other than resale, it must pay sales tax on its purchase of the clay.

 

(Source:  Added at 10 Ill. Reg. 1937, effective January 10, 1986)

 

Section 130.2007  Exemption Identification Numbers

 

a)         Tax-exempt Purchases

            On and after July 1, 1987, an entity which would otherwise qualify for tax-exempt status on its purchases of tangible personal property for use or consumption (refer to Section 130.2005 and Section 130.2080) cannot make tax-free purchases unless it has an active exemption identification number issued by the Department.

 

b)         Application for Exemption Identification Numbers – Requirements

            An entity seeking exemption from sales tax should furnish the Department with the following:

 

1)         If incorporated, copy of Articles of Incorporation.

 

2)         If unincorporated, copy of organization's Constitution.

 

3)         Copy of By-laws.

 

4)         A narrative explaining purposes, functions and activities of the organization.

 

5)         Copy of Internal Revenue Service (I.R.S.) letter, respecting federal tax-exempt status, if organization has one.

 

6)         Copy of brochures or other printed material explaining the purposes, functions and activities of the organization.

 

7)         Copy of most recent financial statement (religious organizations need not submit a financial statement with the initial application).

 

8)         Any other information which reflects the purposes, functions and activities of the organization.

 

c)         Determination

            The information noted in subsection (b), above, enables the Department to determine the status of an organization for sales tax purposes (refer to Section 130.2005).

 

d)         Exempt Entities with Multiple Subsidiaries, Issuance of Number

            The Department, in its sole discretion, may issue to a tax-exempt organization with more than 50 subsidiaries operating in Illinois, one exemption identification number for the use of the Parent Organization and each of its subsidiary organizations.  (Section 1g of the Act.)   The Department will consider the size, uniformity, structure, and purposes of the organization as well as administrative burdens of the Department and the applicants.

 

(Source:  Amended at 19 Ill. Reg. 13446, effective September 12, 1995)

 

Section 130.2008  Sales by Nonprofit Service Enterprises

 

a)         The Retailers' Occupation Tax does not apply to some sales of merchandise by nonprofit organizations whose main purpose is to benefit persons who are 65 years of age or older.  These organizations are called "service enterprises".

 

b)         An organization will be viewed as a service enterprise if it is organized and operated on a not-for-profit basis and if it provides services which are primarily designed to benefit persons 65 years of age or older.  The types of services offered can include, but are not limited to, the following:

 

            Counseling services;

 

            employment services;

 

            facilities improvement services;

 

            health services;

 

            nutritional services;

 

            transportation services;

 

            volunteer program services.

 

c)         Qualifying not-for-profit service enterprises are not required to remit tax to the Department on their sales of merchandise at retail if such organizations did not originally purchase the merchandise free from tax.  The term "merchandise" includes raw materials which are fabricated into such merchandise.

 

d)         If a qualifying not-for-profit enterprise sells merchandise which was purchased tax-free under either a Certificate of Resale or an exemption identification number, it must collect and remit tax to the Department.

 

(Source:  Added at 15 Ill. Reg. 6621, effective April 17, 1991)

 

Section 130.2009  Personal Property Purchased Through Certain Fundraising Events for the Benefit of Certain Schools

 

a)         Beginning January 1, 2000, the Retailers' Occupation Tax does not apply to the sale of personal property, including food, purchased through fundraising events for the benefit of a public or private elementary or secondary school, a group of those schools, or one or more school districts if the events are sponsored by an entity recognized by the school district that consists primarily of volunteers and includes parents and teachers of the school children.  This subsection (a) does not apply to fundraising events:

 

1)         for the benefit of private home instruction; or

 

2)         for which the fundraising entity purchases the personal property sold at the events from another individual or entity that sold the property for the purpose of resale by the fundraising entity and that profits from the sale to the fundraising entity (Section 2-5 of the Act).  The following requirements must be met for the exemption to apply:

 

A)        The fundraising event must be for the benefit of the school.  If the event benefits others, the exemption does not apply.  For example, if a parent-teacher association sells clothes donated to it by parents and gives a portion of the sales proceeds back to the donors, the exemption does not apply because the sale benefits the donors.  However, if the parent-teacher association sells donated clothes and the entire proceeds benefit the school, the exemption applies; and

 

B)        The fundraising event must be sponsored by an entity "recognized" by the school district or districts.  A school district must grant approval to the entity, in the form of a written certification, to sell tangible personal property for the purpose of benefiting the school, schools, school district, or school districts.  In the case of fundraising events benefiting a private school that is not part of a school district, the private school must grant approval to the entity, in the form of a written certification, to sell tangible personal property for the purpose of benefiting the school; and

 

C)        The entity sponsoring the fundraising event must be comprised primarily of volunteers, including parents and teachers of the school children.

 

b)         The exemption does not apply to situations in which the fundraising group purchases items that it will in turn sell from a supplier who sells the items to the fundraising group for the purpose of resale and profits from the sale to the fundraising group.  For example, the exemption does not apply to a fundraising group that purchases complete, ready-to-sell items, such as greeting cards, wrapping paper, holiday ornaments, candy bars, and frozen pizzas, for resale from a supplier who profits from the sale to the fundraising group.   However, the exemption applies when a parent-teacher association purchases items that it will use in making a meal for a spaghetti dinner fundraiser (e.g., spaghetti sauce, meatballs, bread, and soft drinks) from a supermarket.  In this case, the items purchased by the parent-teacher association are not complete and ready-to-sell items.  Rather, the parent-teacher association must prepare the items for the fundraising event.  The parent-teacher association may use its exemption identification number ("E" number) to purchase the food items tax-free at the supermarket (however, if the fundraising group does not have an "E" number, it would be required to pay tax to the supermarket).  The proceeds from the spaghetti dinner would be exempt from Retailers' Occupation Tax.

 

c)         A fundraising group may engage in tax-free selling under this Section only when it sells items that it has prepared or that are donated to it.  By way of illustration, these types of sales include the following:

 

1)         Bake sales or bazaars selling items that are prepared by or donated to the fundraising group; or

 

2)         Sales of donated clothes or other items by a fundraising group, provided that the funds go solely to benefit the school; or

 

3)         Spaghetti dinner events selling food that is prepared by a parent-teacher association.

 

d)         By way of illustration, the following types of selling are not exempt:

 

1)         A parent-teacher association's sale of wrapping paper, holiday goods, and ready-to-sell food products (such as candy bars, nuts, or frozen pizzas) that are purchased from a supplier for purposes of resale, where the supplier makes a profit from the sale to the parent-teacher association.  Such items fall outside the restriction that the items be prepared by or donated to the parent-teacher association.

 

2)         Sales of class rings by a parent-teacher association.  These items are not prepared by or donated to the parent-teacher association.  Such rings have been purchased from a supplier for resale, and the supplier has made a profit from the sale to the parent-teacher association.

 

3)         If a parent-teacher association contracts with a caterer for a fundraising dinner, sales of the dinner cannot be made tax-free.  Again, the parent-teacher association has purchased ready-made items from a caterer for purposes of resale, and the caterer has profited from the sale.

 

(Source:  Added at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.2010  Persons Who Rent or Lease the Use of Tangible Personal Property to Others

 

a)         Persons Who Rent or Lease the Use of Tangible Personal Property to Others – When Liable For Retailers' Occupation Tax

            If persons who are engaged in the business of selling tangible personal property to purchasers for use or consumption purport to rent or lease the use of any such property to a nominal lessee or bailee, but in fact sell such tangible personal property to the nominal lessee or bailee for use or consumption, such persons are liable for payment of the Retailers' Occupation Tax.  This is the case, for example, when the transaction involves a lease with a dollar or other nominal option to purchase.  Such a transaction is considered to be a conditional sale from the outset, and all of the receipts from the transaction are subject to Retailers' Occupation Tax.

 

b)         Persons Who Rent or Lease the Use of Tangible Personal Property to Others – When Not Liable For Retailers' Occupation Tax

            Persons who, under bona fide agreements, rent or lease the use of automobiles under lease terms of more than one year, furniture, bus tires, costumes, towels, linens or other tangible personal property to others are, to this extent, not engaged in the business of selling tangible personal property to purchasers for use or consumption within the meaning of the Retailers' Occupation Tax Act and are not required to remit Retailers' Occupation Tax measured by their gross receipts from such transactions.  However, such lessors (not being resellers) are users of the property and are subject to the Use Tax when purchasing tangible personal property which they rent or lease to others (see Sections 150.201 and 150.305(e) of the Use Tax (86 Ill. Adm. Code 150) and Section 130.220 of this Part).  Except as provided in Sections 130.2011 and 130.2012 of this Part, such lessors incur Use Tax even if the tangible personal property is leased to an exempt entity that has been issued an exemption identification number under Section 130.2007 of this Part.

 

c)         Rentors of automobiles under lease terms of one year or less incur neither Use Tax liability on the cost price of the vehicle(s), nor Retailers' Occupation Tax liability on rental receipts.  Persons engaged in this State in the business of renting automobiles in Illinois under lease terms of one year or less incur liability under the Automobile Renting Occupation and Use Tax Act [35 ILCS 155]. The Automobile Renting Occupation Tax rules are found at 86 Ill. Adm. Code 180.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.2011  Sales to Persons Who Lease Tangible Personal Property to Exempt Hospitals

 

a)         Effective January 1, 1996 through December 31, 2000, and on and after August 2, 2001, sales of computers and communications equipment utilized for any hospital purpose that are sold to persons who lease those items to exempt hospitals are not subject to Retailers' Occupation Tax. As noted in this subsection, the exemption is not available during the period January 1, 2001 through August 1, 2001 because it expired under the provisions of Section 2-70 of the Retailers' Occupation Tax Act [35 ILCS 120/2-70] and was not reinstated until August 2, 2001.  The exemption is otherwise available, provided that:

 

1)         the computers and communications equipment described above must all be purchased for lease to a tax exempt hospital under a lease that has been executed or is in effect at the time of purchase;

 

2)         the lease must be for a period of one year or longer; and

 

3)         the lease must be to a hospital that has an active tax exemption identification number issued by the Department under Section 1g of the Retailers' Occupation Tax Act (see Section 130.2007 of this Part).

 

b)         Effective January 1, 1996 through December 31, 2000, and on and after August 2, 2001, sales of equipment, other than that specified in subsection (a), used in the diagnosis, analysis, or treatment of hospital patients that is sold to persons who lease that equipment to exempt hospitals is not subject to Retailers' Occupation Tax.  As noted in this subsection, the exemption is not available during the period January 1, 2001 through August 1, 2001 because it expired under the provisions of Section 2-70 of the Retailers' Occupation Tax Act [35 ILCS 120/2-70] and was not reinstated until August 2, 2001.  The exemption is otherwise available, provided that:

 

1)         the equipment described above must all be purchased for lease to a tax exempt hospital under a lease that has been executed or is in effect at the time of purchase;

 

2)         the lease must be for a period of one year or longer; and

 

3)         the lease must be to a hospital that has an active tax exemption identification number issued by the Department under Section 1g of the Retailers' Occupation Tax Act (see Section 130.2007 of this Part).

 

c)         The retailer must retain the certification described below in the retailers' books and records to properly document the exemption described in this Section.

 

1)         When this exemption may be properly claimed on the purchase of computer or other communications equipment, the purchaser must give the seller a certification stating that the computer or other communications equipment is being purchased for lease to a tax exempt hospital under a lease for a period of one year or longer executed or in effect at the time of the purchase.

 

2)         When this exemption may be properly claimed on the purchase of equipment used in the diagnosis, analysis, or treatment of hospital patients, the purchaser must give the seller a certification stating that the equipment is being purchased for lease to a tax exempt hospital under a lease for a period of one year or longer executed or in effect at the time of the purchase, and that the equipment is for use in the diagnosis, analysis, or treatment of hospital patients.

 

3)         The certification described in subsections (c)(1) and (c)(2) of this Section must also contain all of the following:

 

A)        The seller's name and address;

 

B)        The purchaser's name and address;

 

C)        A description of the tangible personal property being purchased;

 

D)        The purchaser's signature and date of signing;

 

E)        The name and address of the hospital and its tax exemption identification number issued by the Department; and

 

F)         The date the lease was executed and the lease period.

 

d)         For purposes of this Section, "hospital patients" means persons who seek any form of medical care including, but not limited to, medical treatment, testing, diagnosis, or therapy at a hospital or at another location under the control and supervision of a hospital.  For example, persons who are sent by doctors for X-rays or other tests at qualifying hospitals, even though those persons are not admitted to those hospitals, are considered hospital patients.

 

(Source:  Amended at 26 Ill. Reg. 958, effective January 15, 2002)

 

Section 130.2012  Sales to Persons Who Lease Tangible Personal Property to Governmental Bodies

 

a)         Effective January 1, 1996 through December 31, 2000, and on and after August 2, 2001, sales of tangible personal property to a lessor who leases that property to a governmental body are not subject to Retailers' Occupation Tax.  As noted in this subsection, the exemption is not available during the period January 1, 2001 through August 1, 2001 because it expired under the provisions of Section 2-70 of the Retailers' Occupation Tax Act [35 ILCS 120/2-70] and was not reinstated until August 2, 2001.  The exemption is otherwise available, provided that:

 

1)         the tangible personal property must be purchased  for lease to a governmental body under a lease that has been executed or is in effect at the time of purchase;

 

2)         the lease must be for a period of one year or longer; and

 

3)         the lease must be to a governmental body that has an active tax exemption identification number issued by the Department under Section 1g of the Retailers' Occupation Tax Act (see Section 130.2007 of this Part).

 

b)         When this exemption may be properly claimed, the purchaser must give the seller a certification stating that the property is being purchased for lease to a governmental body, under a lease of one year or longer executed or in effect at the time of the purchase and containing all of the following:

 

1)         The seller's name and address;

 

2)         The purchaser's name and address;

 

3)         A description of the tangible personal property being purchased;

 

4)         The purchaser's signature and date of signing;

 

5)         The name of the governmental body and its tax exemption identification number issued by the Department; and

 

6)         The date the lease was executed and the lease period.

 

(Source:  Amended at 26 Ill. Reg. 958, effective January 15, 2002)

 

Section 130.2013  Persons in the Business of Both Renting and Selling Tangible Personal Property – Tax Liabilities, Credit

 

a)         Purchases of Tangible Personal Property for Rental

            Use Tax is due whenever tangible personal property is purchased for use. For Illinois sales tax purposes, lessors of tangible personal property under true leases are deemed to be the users of that property.  Consequently, lessors incur a Use Tax liability (and applicable local occupation tax reimbursement obligations) based on their cost price of the items they purchase for rental purposes.  (See Section 130.2010 of this Part.)  The only exception is the rentor of an automobile under a lease term of one year or less.  (See 86 Ill. Adm. Code 180.101.) (Further references in this Section to "Use Tax" due on a purchase includes the Use Tax and all applicable local occupation tax reimbursement obligations due on that purchase.)

 

            Persons who sell tangible personal property to lessors who will rent or lease that property incur Illinois and local Retailers' Occupation Tax liabilities on their gross receipts from such sales.  Consequently, when a lessor purchases tangible personal property for rental purposes, he should pay his Use Tax liability to his supplier.  If the lessor does not pay the Use Tax to his supplier, he must self-assess and pay it directly to the Department.  Persons who are lessors and whose only selling activity consists of selling items that come off lease and are no longer needed for rental purposes cannot purchase for resale.

 

            If an item is placed in a rental inventory, it has been purchased for rental purposes and Use Tax is due.  "Rental inventory" means that the owner, in order to state his intended use of the property as rental property, has recorded the property in his books and records as rental property in accordance with generally accepted accounting principles.  Depreciation of property used for rental purposes demonstrates an intent to include that property in rental inventory.

 

b)         Purchases of Tangible Personal Property for Resale

            If a retailer purchases tangible personal property for resale, no tax is due on that transaction so long as all of the requirements of Section 130.1405 of this Part are satisfied.  If an item is purchased for resale and placed in a sales inventory immediately after it is purchased, the Department will determine that it has been purchased for resale for so long as it remains in the sales inventory.  "Sales inventory" means that the owner, in order to demonstrate his intention to resell the property, has recorded the property in his books and records as being for sale in accordance with generally accepted accounting principles.

 

c)         Purchases of Tangible Personal Property by Persons Who Both Rent It and Sell It to Others but Who Do Not Maintain Separate Rental and Sales Inventories

            Some persons function as combination lessors/retailers and do not maintain separate rental and sales inventories.  These persons purchase tangible personal property to rent to others and also purchase tangible personal property to sell to others without making such property available for rental.  The question of whether the combination lessor/retailer, who does not maintain separate sales and rental inventories, incurs a Use Tax liability when purchasing items for his combined inventory depends on whether he is primarily engaged in the business of renting or is primarily engaged in the business of selling.  In order to make that determination, the Department will look to this lessor/retailer's gross receipts.

 

1)         If the gross receipts from Illinois locations are primarily from rentals, the combination lessor/retailer who does not maintain separate rental and sales inventories is primarily a lessor who incurs a Use Tax liability on items purchased for rental purposes and a Retailers' Occupation Tax liability on all items sold at retail.  This combination lessor/retailer can give suppliers certificates of resale, but only for items that will be resold without being rented.  If the lessor/retailer knows, at the time of purchase, that a percentage of the items being purchased will be resold without being rented, he may give his supplier a certificate of resale specifying the percentage of items that will be resold without being rented and pay tax only on those items that will be rented before they are sold.  The combination lessor/retailer who does not maintain separate rental and sales inventories and who is primarily a lessor incurs a Use Tax liability on all items that are rented before they are sold.

 

2)         If the gross receipts from Illinois locations are primarily from sales, including sales of items coming off lease and sales of items encumbered by leases, the combination lessor/retailer who does not maintain separate inventories is primarily a retailer.  This combination lessor/retailer can purchase his entire inventory tax-free by providing certificates of resale to his suppliers.  He may use items for rental purposes without incurring a Use Tax liability if the items are used in demonstrations to potential buyers or are put to some other interim use.  (See 86 Ill. Adm. Code 150.306.)

 

d)         Persons Who Have Not Paid Tax on Tangible Personal Property that They Have Purchased for Rental Purposes – Paying Taxes Owed

            Persons who have not paid Use Tax on items of tangible personal property that they have used for rental purposes must check their records to find out when they made the purchases on which they still owe Use Tax.  If, for example, items that were purchased tax-free under the percentage certificate of resale described in subsection (c)(1) were rented before they were resold, tax is due on those items.  A return for each liability period for which taxes are owed must be completed and filed with the Department.  If a return was filed for a period for which additional tax is due, then an amended return for that period must be completed and filed with the Department.  Returns must include taxable amounts that were not reported for the periods in question and must include applicable penalty and interest.

 

e)         Sales of Items Coming Off Lease That Are No Longer Needed in a Rental Inventory

            The question of whether a lessor's sale of tangible personal property coming off lease that is no longer needed for the lessor's rental inventory is subject to Retailers' Occupation Tax liability depends on whether the seller is strictly a lessor, or whether the seller is otherwise engaged in the business of selling like-kind property.

 

1)         A person who is strictly a lessor and whose only sales are of items no longer needed for his rental inventory does not incur Retailers' Occupation Tax liability on those sales.

 

            For example, a lessor of computer equipment who does not maintain a sales inventory of computer equipment and who does not otherwise hold himself out as being in the business of selling like-kind property, incurs no Retailers' Occupation Tax liability on sales of computer equipment that he no longer wants in his rental inventory.  This would be true even though the lessor advertised such sales and was required to make a considerable number of such sales over time.  As long as all of the sales are of equipment no longer needed for the lessor's rental inventory, they constitute non-taxable isolated or occasional sales.  (See Section 130.110 of this Part.)

 

2)         However, the rule is different if the lessor is otherwise engaged in the business of selling like-kind property at retail.  A lessor of tangible personal property who sells like-kind property apart from his sale of items no longer needed for his rental inventory incurs Retailers' Occupation Tax liability on all retail sales of that property, including sales of items no longer needed for his rental inventory.  This is true because a person who is engaged in the business of selling tangible personal property cannot make an isolated or occasional sale of like-kind tangible personal property.

 

A)        For example, a lessor of computer equipment who also maintains a sales inventory of computer equipment incurs Retailers' Occupation Tax liability whenever he makes retail sales of computer equipment, including sales of computer equipment no longer needed in his rental inventory.  The result would be the same even if the lessor/seller did not maintain a separate sales inventory, as such, but offered computer equipment for sale apart from items coming off lease that are no longer needed for his rental inventory.  This would be the case where the lessor advertised or otherwise held himself out as a supplier of computer equipment apart from the items coming off lease and no longer needed for his rental inventory.  In this situation, the lessor/seller would incur a Retailers' Occupation Tax liability on all his sales of computer equipment for use or consumption and must collect the complementary Use Tax from his customers.

 

3)         The rule is also different with respect to the sale of used motor vehicles by leasing and rental companies.  A person who is engaged in the business of leasing or renting motor vehicles to others and who sells a motor vehicle that is no longer needed in his rental inventory to a user or consumer incurs a Retailers' Occupation Tax liability on that sale.  See Section 130.111 of this Part.  In this context, a "motor vehicle" means a passenger car defined in Section 1-157 of the Illinois Vehicle Code as a motor vehicle of the First Division including a multipurpose passenger vehicle that is designed for carrying not more than 10 persons.  [625 ILCS 5/1-157]  Vehicles not considered "passenger vehicles" as defined in Section 1-157 of the Illinois Vehicle Code (for example, trucks) are subject to the provisions of subsections (e)(1)-(2) of this Section.

 

f)         Transfers of Tangible Personal Property from a Sales Inventory to a Rental Inventory and Vice Versa by Persons Who Both Rent and Sell that Tangible Personal Property to Others

 

1)         If an item is moved from a sales inventory to a rental inventory, Use Tax is due based on the cost price of that item.  In this situation, the Use Tax must be self-assessed and paid on a return filed for the month in which the item was moved to the rental inventory.

 

2)         If an item is moved from a rental inventory to a sales inventory, Retailers' Occupation Tax is due on the gross receipts from sale when the item is sold to a user or consumer.  In this situation, the lessor/seller would collect the complementary Use Tax from the purchaser. However, a credit, as provided in subsection (h), may be available for Use Tax and local Retailers' Occupation Tax reimbursements paid to an Illinois supplier when the item was purchased for the rental inventory.

 

g)         Receipts from the Rental of Tangible Personal Property

            Receipts from the rental of tangible personal property under a true lease are not subject to Retailers' Occupation Tax liability.  (See Section 130.2010.) However, receipts from the rental of automobiles under lease terms of one year or less are subject to automobile renting occupation tax liability.  (See 86 Ill. Adm. Code 180.)

 

h)         Persons Who Sell Tangible Personal Property After Using It for Rental Purposes

 

1)         As is set out in subsection (e)(1):

 

A)        A lessor whose only sales are sales of items coming off lease that are no longer needed for his rental inventory incurs no Retailers' Occupation Tax liability on those sales.

 

B)        Lessors who are otherwise engaged in the business of selling like-kind property incur Retailers' Occupation Tax liability on all their sales, including sales of items coming off lease that are no longer needed for their rental inventories.

 

C)        Lessors and rentors of automobiles incur Retailers' Occupation Tax liability when they make retail sales of passenger cars coming off lease that are no longer needed for their rental inventories.

 

2)         A lessor who incurs a Retailers' Occupation Tax liability on the sale of an item can take a credit against that liability for any Use Tax and any local Retailers' Occupation Tax reimbursements that he paid to a supplier registered to collect Illinois tax when he purchased that particular item. However, this credit cannot exceed the amount of Retailers' Occupation Tax incurred by the lessor/retailer when he sells the item.

 

3)         If a lessor filed a return and paid the tax directly to the Department, the lessor must file a claim to recover it.  (See Subpart O.)  However, this claim cannot exceed the amount of Retailers' Occupation Tax incurred by the lessor/retailer when he sells the item.

 

4)         The credit is available to all lessors who are required to pay Retailers' Occupation Tax when selling an item after having used that item for rental purposes, including lessors of motor vehicles.  The credit is available to all lessors (and rentors) of motor vehicles who incur Retailers' Occupation Tax liability on sales so long as Use Tax was paid to an Illinois retailer when the lessor (or rentor) purchased the particular motor vehicle being sold.  If the lessor (or rentor) did not pay Use Tax to an Illinois dealer when he purchased the motor vehicle being sold but, instead, filed a return and paid the tax directly to the Department, the credit is not available and it must not be taken.  (If the lessor filed a return and paid the tax directly to the Department, the lessor must file a claim to recover it.  See Subpart O.)

 

5)         There is no credit available for taxes paid by a rentor under the Automobile Renting Occupation and Use Tax Act [35 ILCS 155].

 

i)          Documentation to Support the Credit

            When the credit described at subsection (h) is claimed, the lessor/seller must retain documentation demonstrating that Use Tax was paid to a supplier registered to collect Illinois tax when he purchased the item being sold and in what amount.  A paid receipt from the supplier for the item on which the credit is being claimed showing the amount of Use Tax paid as a separate item is sufficient to document the credit for all items other than motor vehicles.

 

            For motor vehicles, the credit is to be documented by a copy of the transaction reporting return filed by the Illinois dealer from whom the lessor purchased the motor vehicle.  That transaction reporting return will show the amount of Use Tax that the lessor paid to the Illinois dealer. If the lessor paid Use Tax to the Department by filing a Use Tax transaction return when the vehicle was purchased, the credit is not available and must not be taken.  (In this situation, the lessor would have to file a Claim for Credit to recover the Use Tax.  See Subpart O of this Part.)

 

            AGENCY NOTE:  Nothing in this Section may be construed to abrogate or modify any requirements otherwise imposed upon sellers of motor vehicles by Illinois law.  For example, motor vehicle leasing and rental companies that sell motor vehicles must comply with all applicable requirements of the Illinois Vehicle Code [625 ILCS 5], including the dealer licensing provisions set forth in Chapter 5 of that Act.  Motor vehicle leasing and rental companies must comply with Section 4(f) of the Illinois Vehicle Franchise Act [815 ILCS 710/4(f)]. Also, motor vehicle leasing and rental companies must abide by the advertising requirements of the Consumer Fraud and Deceptive Business Practices Act [815 ILCS 505], as well as the Illinois Motor Vehicle Advertising rules (14 Ill. Adm. Code 475).

 

(Source:  Added at 26 Ill. Reg. 1303, effective January 17, 2002)

 

Section 130.2015  Persons Who Repair or Otherwise Service Tangible Personal Property

 

a)         Persons Who Service or Repair Tangible Personal Property – When Liable For Retailers' Occupation Tax

 

1)         When persons who service or repair tangible personal property sell tangible personal property to purchasers for use or consumption apart from their rendering of service, they incur Retailers' Occupation Tax liability.  This is the case, for example:

 

A)        Where a repairman sells repair parts "over-the-counter" to a purchaser for use or consumption without any obligation on the part of the repairman to install such parts for the purchaser;

 

B)        where a repairman repairs, rebuilds or reconditions property which belongs to himself and then sells such property to a purchaser for use or consumption apart from his rendering of service as a repairman;

 

C)        where a repairman sells accessories (with or without installation), to purchasers for use or consumption;

 

D)        where a repairman or other person engaged in a service occupation sells, "over-the-counter", to purchasers for use or consumption, apart from the rendering of service, such items as lubricants, grease, paint, wax, polish, lacquer, solder, materials for patching or repairing tires, and other tangible personal property; and

 

E)        where a repairman manufactures and sells retread tires, whether or not the tire casing is provided by the purchaser.  (But, see subsection (d)(2) of this Section regarding the patching of tires.  Also see Section 130.330(d)(3)(G) of this Part for information regarding the Manufacturing Machinery and Equipment Exemption on retreading machinery and equipment.)

 

2)         These principles apply to persons who repair or otherwise service every type of tangible personal property.

 

b)         Examples of Accessories

 

1)         In the case of automobiles, the term "accessories" includes, but is not limited to, the sale of such items of tangible personal property as gasoline, motor oil, alcohol and other antifreeze solutions, ash trays, batteries, cigar or cigarette lighters, clocks, heaters, radios, seat covers, seat cushions, tires, inner tubes and the like. (But, see subsection (d)(1) regarding repairs to, and servicing of, automobiles.)

 

2)         In the case of furniture, slip covers are considered to be accessories, rather than repair parts or repair materials.  For further information concerning slip covers, see Section 130.2140 of this Part.

 

c)         Persons Who Service or Repair Tangible Personal Property – When Not Liable For Retailers' Occupation Tax

 

1)         Persons who engage in the business of repairing tangible personal property belonging to others (including, but not limited to, automobile repairmen, farm implement repairmen, furniture upholsterers and repairmen, garment repairmen, machinery repairmen, radio repairmen, refrigerator repairmen, shoe repairmen, tire and tube repairmen, and watch, clock and jewelry repairmen) are engaged in a service occupation.  To the extent to which they engage in such service occupation, they are not engaged in the business of selling tangible personal property to purchasers for use or consumption.  Consequently, they are not required to remit Retailers' Occupation Tax measured by any of their receipts from engaging in such service occupation, including receipts from both labor and tangible personal property.

 

2)         In addition to persons who repair tangible personal property belonging to others, this exemption also applies to persons who perform upon tangible personal property, which belongs to their customers, such services as cleaning, dyeing, greasing, laundering, painting, polishing, waxing, welding and other services.

 

d)         Examples of Repair Work

 

1)         The repairing of automobiles includes, but is not limited to, the replacement of parts, such as brake fluids, brake linings, carburetors, fan belts, fans, fenders, lights, gaskets, points, spark plugs, valves, windshield wipers and the like.  This includes services such as changing oil and replacing antifreeze.  (But, see subsection (b)(1) regarding the sale of automobile accessories.)

 

2)         The repairing of tires or inner tubes includes services such as patching or plugging.  (But, see subsection (a)(1)(E) regarding retread tires.)

 

3)         The repairing of shoes includes, but is not limited to, the replacement of such parts as heels, soles and the like by repairmen as a part of the repair work.

 

4)         The repairing of watches and clocks includes, but is not limited to, the replacement of such parts as hands, springs and the like by repairmen as a part of the repair work.

 

5)         The repairing of jewelry includes, but is not limited to, the sizing of rings and the soldering together of broken pieces of jewelry.

 

6)         The repairing of radios includes, but is not limited to, the replacement of such parts as condensers, dials, radio tubes, volume controls and the like by repairmen as a part of the repair work.

 

7)         The repairing of refrigerators includes, but is not limited to, the replacement of such parts as electric motors, refrigerator doors and the like by repairmen as a part of the repair work.

 

8)         The repairing or upholstering of furniture includes, but is not limited to, the transfer of such items as glue, nails, paint, tacks, upholstering materials, varnish, wax and the like by furniture upholsterers and repairmen as a part of the repair work.

 

9)         The repairing of garments includes, but is not limited to, the transfer of such items as buttons, collars, cuffs, fabrics, fur pieces, linings, thread and the like by repairmen as a part of the repair work.

 

e)         Cross Reference to Service Occupation Tax Regulations

            Personal property repairmen and other servicemen referred to in this Section, though not liable for Retailers' Occupation Tax on their repair receipts, are liable under the Service Occupation Tax Act when they transfer tangible personal property, incident to sales of service (see Subpart A of the Service Occupation Tax Regulations, 86 Ill. Adm. Code 140).

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.2020  Physicians and Surgeons

 

a)         When Liable for Tax

When physicians or surgeons sell items of tangible personal property such as medical bracelets, crutches, wheelchairs, first-aid kits, and the like, to purchasers for use or consumption apart from their rendering of service as physicians or surgeons, they incur retailers' occupation tax liability.  For information about whether these items qualify as medical appliances, see 86 Ill. Adm. Code 130.311.

 

b)         When Not Liable for Tax

Physicians and surgeons are engaged in professions and primarily render service.  To the extent they engage in such professions, they are not engaged in the business of selling tangible personal property to purchasers for use or consumption within the meaning of the Retailers' Occupation Tax Act. Consequently, they are not required to remit retailers' occupation tax measured by their receipts from engaging in such professions, including receipts from both services and tangible personal property transferred incident to those services.  However, to the extent tangible personal property is transferred incident to service, physicians and surgeons may be liable for service occupation tax.

 

c)         Liability Under the Service Occupation Tax Act

For information concerning the application of the service occupation tax to sales by physicians and surgeons of tangible personal property that they transfer as an incident to rendering service, see 86 Ill. Adm. Code 140.

 

(Source:  Amended at 48 Ill. Reg. 10646, effective July 2, 2024)

 

Section 130.2025  Picture-Framers

 

a)         When Liable For Tax

            Picture-framers incur Retailers' Occupation Tax liability when they sell frames at retail, even though they make such picture frames only upon receipt of orders therefor.  This is true even though the picture-framer installs, in such frame, a picture belonging to his customer.

 

b)         When Not Liable For Tax

            A picture-framer does not incur liability for tax with respect to his gross receipts from his service of installing a picture owned by a customer in a frame owned by that customer.

 

(Source:  Amended and effective May 21, 1962)

 

Section 130.2030  Public Amusement Places

 

a)         When Liable For Tax

If, auxiliary to the operation of places of public amusement, persons sell refreshments, beverages or other tangible personal property to purchasers for use or consumption, they are, to this extent, engaged in the business of selling tangible personal property to purchasers for use or consumption within the meaning of the Retailers' Occupation Tax Act and are required to remit Retailers' Occupation Tax to the Department on their gross receipts from such sales.

b)         When Not Liable For Tax

 

1)         Persons engaged in the business of operating such public amusement places as motion picture theaters, operas, baseball parks, golf courses, tennis courts, swimming pools, billiard and pool parlors, bowling alleys, dance halls, amusement parks, miniature golf courses, circuses, carnivals, Chautauqua, lectures and all other places of public entertainment or amusement are engaged primarily in a service occupation within the meaning of the Act.

 

2)         To the extent to which they engage in such service occupation, they are not engaged in the business of selling tangible personal property to purchasers for use or consumption within the meaning of the Act.  Consequently, they are not required to remit Retailers' Occupation Tax measured by any of their receipts from engaging in such service occupation, including those receipts which represent the price of tangible personal property, such as tickets and programs, which they transfer to others as a necessary incident to their rendering of service.

 

(Source:  Amended and effective May 21, 1962)

 

Section 130.2035  Registered Pharmacists and Druggists

 

a)         When Liable For Tax

When registered pharmacists or druggists sell drugs or medicines "over-the-counter" to purchasers for use or consumption apart from their filling of the prescription of a licensed physician or other person qualified to issue prescriptions, or when registered pharmacists or druggists sell other tangible personal property to purchasers for use or consumption, such registered pharmacists or druggists incur retailers' occupation tax liability.

 

b)         When Not Liable For Tax

 

1)         When registered pharmacists and druggists, who, themselves, are engaged in the practice of a licensed profession, sell medicines or drugs on the prescription of a licensed physician or other person qualified to issue prescriptions, such registered pharmacists and druggists are engaged primarily in a service occupation or profession and are not required to remit retailers' occupation tax measured by their receipts from such transactions, including receipts from both labor and tangible personal property. These transactions are governed by the Service Occupation Tax Act.  For information concerning the Service Occupation Tax, see 86 Ill. Adm. Code 140.  For information on Sales of Drugs and Related Items, to or by Pharmacists, see 86 Ill. Adm. Code 140.135.

 

2)         For information concerning newspapers, magazines, books, sheet music, and phonograph records, see Section 130.2105 of this Part.

 

3)         For information concerning photofinishing, see Section 130.2000 of this Part.

 

4)         For information concerning sales of medicines, see Section 130.311 of this Part.

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.2040  Retailers of Clothing

 

a)         When Liable For Tax

            Persons who engage in the business of selling clothing to purchasers for use or consumption and not for resale incur Retailers' Occupation Tax liability when making such sales whether such clothing is sold as a stock or standard item or whether it is produced on special order for the purchaser.  Suits, hats and other forms of clothing, when made on special order, serve substantially the same function as stock or standard clothing items that are sold at retail.

 

b)         Production Labor Cost Not Deductible

            In computing Retailers' Occupation Tax liability on the retail sale of custom-made clothing, no deduction may be taken for the cost of labor involved in producing the finished item for sale.  This is true whether such production labor is included in a lump sum price with the tangible personal property or whether such production labor is priced separately from the tangible personal property.  The thing that is being sold is the finished item of clothing, and the cost of labor involved in making such item is no more deductible than is the cost of labor that is involved in producing a stock or standard item for sale.

 

(Source:  Amended at 15 Ill. Reg. 6621, effective April 17, 1991)

 

Section 130.2045  Retailers on Premises of the Illinois State Fair, County Fairs, Art Shows, Flea Markets and the Like

 

a)         When Liable For Tax

            Every person (including nonprofit service organizations as well as other persons) engaging in the sale of any tangible personal property for use or consumption as a concessionaire at the Illinois State Fair, County Fairs, art shows, flea markets and the like, may be required to make a daily report of the amount of such sales to the Department and to make a daily payment of the full amount of tax due.  Upon receiving such payment, the Department will issue to the concessionaire an official receipt.  The Department shall impose this requirement when it finds that there is a significant risk of loss of revenue to the State at such an exhibition or event.  Such finding shall be based on evidence that a substantial number of concessionaires or other sellers who are not residents of Illinois will be engaging in the business of selling tangible personal property at retail at the exhibition or event, or other evidence of a significant risk of loss of revenue to the State. (Section 3 of the Act)

 

b)         Contract With Illinois State Fair Management

            It is a condition of the contract between each concessionaire who is subject to the Retailers' Occupation Tax Act and the Illinois State Fair Management that the concessionaire shall pay Retailers' Occupation Tax "upon demand" by the Department.  Any concessionaire who violates this provision of his contract or who fails to make the daily report and payment of tax required by this Regulation, will be certified by the Department to the Superintendent of Concessions of the Illinois State Fair as not being in good standing, together with the request that action be taken immediately to cancel all privileges granted to such concessionaire under his concession.

 

c)         Notification by Department

            Concessionaires will be contacted by the Department during the course of County Fairs, art shows, flea markets and the like, and informed that Retailers' Occupation Tax shall be paid "upon demand" to the Department. In the absence of notification by the Department, concessionaires shall file their returns as otherwise provided in Subpart E of this Part entitled "Returns".

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.2050  Sales and Gifts By Employers to Employees

 

a)         When Liable For Retailers' Occupation Tax

 

1)         Where a manufacturer or other employer, who is engaged in a commercial enterprise, sells tangible personal property to its employees for use or consumption, such manufacturer or other employer is engaged in the business of selling tangible personal property at retail and incurs Retailers' Occupation Tax liability with respect to its gross receipts from such sales.  It is immaterial that the receipts from such sales constitute only a small fraction of the manufacturer's or other employer's total receipts from its business, or that sales ordinarily are made at retail only to the employees of the manufacturer or other employer and not to the general public.

 

2)         For example, where a manufacturer operates a restaurant or cafeteria at which it sells meals exclusively to its own employees, such manufacturer must remit to the Department the Retailers' Occupation Tax measured by its gross receipts from these sales; or where a clock and watch manufacturer makes sales of clocks and watches to its employees for their use or consumption, such manufacturer must remit to the Department the Retailers' Occupation Tax measured by its gross receipts from these sales.

 

b)         When Not Liable For Retailers' Occupation Tax

 

1)         Employers do not incur Retailers' Occupation Tax liability when they furnish tangible personal property to employees free of any charge whatsoever.  For example, if employees of a restaurant, hotel or other place of business are granted the right to eat their meals free at such place of employment and are not charged anything for such meals, and are entitled to no additional compensation if they fail to eat their meals at such place of business, the furnishing of such free meals does not constitute a sale under the Retailers' Occupation Tax Act.

 

2)         The mere fact that an employer shows on its books, for Social Security or other similar purposes, an amount which is construed under the Federal laws as "additional compensation" to employees, and which is then charged off the employer's books for meals or other tangible personal property transferred to such employees, is not sufficient, in and of itself, to establish that such transactions constitute sales within the meaning of the Retailers' Occupation Tax Act.

 

c)         Liability For Use Tax on Gifts to Employees

If the employer gives away instead of selling the tangible personal property to the employee, such employer must pay Use Tax at the rate that would have been imposed at the time the employer acquired it from a supplier on its cost price of the tangible personal property.  Where hotels, restaurants or other food vendors furnish free meals, as defined more fully in subsection (b) of this Section, to their employees, it will be presumed, in the absence of evidence establishing a lower figure, that the average cost of such meals to such food vendor is 75 cents per meal through December 31, 2021 and, beginning January 1, 2022, $3.50 per meal, so this would be the tax base on which such food vendor should compute its Use Tax liability with respect to such meals.

 

(Source:  Amended at 45 Ill. Reg. 16058, effective December 3, 2021)

 

Section 130.2055  Sales by Governmental Bodies

 

a)         Sales by the State of Illinois and by Local Governments in Illinois

Effective August 1, 1961, the State of Illinois or any local governments in Illinois, or any agency or instrumentality of any such governmental body, incurs Retailers' Occupation Tax liability when it engages in the selling of tangible personal property at retail to the public other than in the performance of a governmental function.  This includes the selling of fuel to users by airport authorities or other governmental bodies, except that, until June 30, 2013, it does not include the proceeds from the sale of fuel and petroleum products sold to or used by an air common carrier, certified by the carrier to be used for consumption, shipment or storage, in the conduct of its business or as an air common carrier, for a flight destined for or returning from a location or locations outside the United States without regard to previous or subsequent domestic stopovers. Beginning July 1, 2013, it does not include fuel and petroleum products sold to or used by an air carrier, certified by the carrier to be used for consumption, shipment or storage in the conduct of its business as an air common carrier, for a flight that is engaged in foreign trade or is engaged in trade between the United States and any of its possessions and that transports at least one individual or package for hire from the city of origination to the city of final destination on the same aircraft, without regard to a change in the flight number of that aircraft (see 86 Ill. Adm. Code 130.321). [35 ILCS 120/2-5(22)]  Also included is the operation of public stands by park districts or other governmental bodies, etc., but does not include the furnishing of utility services to the public, and does not include sales that may be made by such a governmental body to the public involving the performance of a governmental function (such as the sale of motor vehicle license plates by the State of Illinois).

 

b)         Sales by the United States Government and by Foreign Governments

Since a state may not place the legal incidence of its taxes directly on the United States Government or on a foreign government, sales by the United States Government and foreign governments, or any agency or instrumentality of any such government, are not subject to the Retailers' Occupation Tax even though such sales may be made in Illinois.  For example, sales by the United States Postal Service are not subject to Retailers' Occupation Tax.

 

(Source:  Amended at 39 Ill. Reg. 12597, effective August 26, 2015)

 

Section 130.2060  Sales of Alcoholic Beverages, Motor Fuel and Tobacco Products

 

a)         Retailers' Occupation Tax on Retail Sales of Alcoholic Beverages

Persons engaged in the business of selling alcoholic beverages to purchasers for use or consumption are required to remit retailers' occupation tax to the Department upon their gross receipts from such sales, notwithstanding the fact that manufacturers and importing distributors of alcoholic beverages are required to pay certain taxes under the Liquor Control Act of 1934 [235 ILCS 5].  It is immaterial whether such alcoholic beverages are consumed on or off the premises where such alcoholic beverages are sold.  In computing retailers' occupation tax liability, no amount may be deducted from gross receipts from retail sales of alcoholic beverages to cover the taxes which have been paid by manufacturers or importing distributors of alcoholic beverages under the Liquor Control Act of 1934.  Since the legal incidence of the Cook County Liquor Gallonage Tax is on the consumer, with the seller acting merely as a collector of the tax for the county, amounts collected because of the Cook County Liquor Tax are not considered to be a part of the liquor retailer's receipts that are subject to retailers' occupation tax.

 

b)         Retail Sales of Motor Fuel

Persons engaged in the business of selling motor fuel to purchasers for use or consumption are also required to remit retailers' occupation tax to the Department upon their taxable receipts from such sales.  In computing their retailers' occupation tax liability, persons who sell motor fuel for use or consumption may deduct, from their gross receipts from such sales, the Illinois Motor Fuel Tax collected with respect to such sales, because the Illinois Motor Fuel Tax is on the consumer and is not considered to be a part of the "selling price" of the motor fuel.  (Also, see 86 Ill. Adm. Code 130.435 and 500.200.)

 

c)         In addition, the Cook County Motor Fuel Tax is imposed upon the consumer and is therefore also deductible from gross receipts.  However, county motor fuel taxes imposed under the County Motor Fuel Tax Law are includable in gross receipts subject to retailers' occupation tax because such taxes are imposed upon retailers of motor fuel and not upon consumers.  (See Section 130.435.)

 

d)         Retailers' Occupation Tax on Retail Sales of Cigarettes and Other Tobacco Products

 

1)         Persons engaged in the business of selling cigarettes, cigars and other tobacco products incur retailers' occupation tax liability when selling such products to purchasers for use or consumption.  In the case of cigarettes, the amount of the retail selling price represented by the State Cigarette Tax or Cigarette Use Tax should be included in the total selling price in arriving at the net taxable selling price.

 

2)         If a home rule jurisdiction, such as Chicago, imposes a cigarette tax, the amount of such local cigarette tax is subject to retailers' occupation tax.  If any local government, pursuant to authorization from the Illinois General Assembly to do so, should impose a cigarette tax in the nature of an occupation tax, the amount collected by retailers because of that kind of local cigarette tax is also subject to retailers' occupation tax.

 

e)         Improper Collection of Tax

The retailer should not collect tax on amounts as to which the retailer is acting merely as a tax collector, such as the Cook County Liquor Gallonage Tax and the Illinois Motor Fuel Tax.  If the retailer does erroneously collect tax on any such amounts, the retailer must refund the erroneously collected tax to the purchaser or else remit such erroneously collected tax to the Department.  The retailer may not retain it.  Also, if the retailer knowingly collects tax from customers on receipts which are not subject to retailers' occupation tax, the retailer can be subject to prosecution for a criminal violation.

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.2065  Sales of Automobiles for Use In Demonstration (Repealed)

 

(Source:  Repealed at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.2070  Sales of Containers, Wrapping and Packing Materials and Related Products

 

a)         Definition

            When used in this Section, the term "containers" includes all containers, wrapping and packing materials, bags, twines, container handles, wrapping papers, gummed tapes, cellophane, boxes, bottles, drums, cartons, sacks or other packing, packaging, containing and wrapping materials in which tangible personal property may be contained.

 

b)         Sales for Resale

 

1)         Sellers of containers to purchasers who sell tangible personal property contained in such containers to others are deemed to make sales of such containers to purchasers for purposes of resale, the receipts from which sales are not subject to the Retailers' Occupation Tax, if the purchasers of such containers transfer the ownership of the containers to their customers together with the ownership of the tangible personal property contained in such containers.

 

2)         For example, a sale of fruit boxes to a packer who fills the boxes with fruit and sells the fruit in such boxes is a sale of the boxes to the packer for resale by him.  If the packer places the boxes upon pallets that are then transferred to purchasers and the ownership of the pallets also passes to the purchasers, then the packer who purchases the pallets would be making a purchase for resale.  There is no difference between a returnable container whose ownership is transferred with a deposit being taken and a nonreturnable container.  This means that if the seller charges purchasers a deposit for pallets, or other containers, and there is an understanding that the pallet or other container can be returned by purchasers for refund or credit of the deposit amount, then the purchase of the pallets or other containers by sellers are nontaxable purchases for resale.  Although sales of containers to purchasers who retransfer such containers to others as an incident to engaging in a service occupation are not subject to the Retailers' Occupation Tax, such transactions are governed by the Service Occupation Tax Act (see Subpart A of Service Occupation Tax, 86 Ill. Adm. Code 140).

 

3)         Effective August 1, 1997, nonreusable tangible personal property sold to food and beverage vendors, including persons engaged in the business of operating restaurants, cafeterias or drive-ins, is a sale for resale when it is transferred to customers in the ordinary course of business as part of the sale of food or beverages and is used to deliver, package, or consume food or beverages, regardless of where consumption of the food or beverage occurs.  Examples of such items include, but are not limited to, paper and plastic cups, plates, baskets, boxes, sleeves, buckets or other containers, utensils, straws, placemats, napkins, doggie bags and wrapping or packaging materials that cannot be reused by the food or beverage vendor and which are transferred to customers as part of the sale of food or beverages.  Such items do not include items which are used by the food vendor in conducting his business and which are not transferred to the customer, including, but not limited to, paper products, serving trays, serving dishes, utensils or condiment bottles.

 

c)         Sales For Use or Consumption

 

1)         Sellers of containers to purchasers who do not transfer the ownership thereof to others, but who intend such containers merely to provide a means of containing tangible personal property while in the process of being delivered to their customers, retaining and reusing or discarding the containers after such delivery is completed, and sellers of containers to purchasers who use such containers as a means of storing tangible personal property, are making sales for use or consumption, and their receipts from such sales are subject to the Retailers' Occupation Tax.

 

2)         Also, paper towels and toilet tissues are deemed to be sold for use or consumption when sold to a purchaser for use in connection with the conduct of his business and not for resale as such.

 

3)         Sales of paper napkins, drinking straws, paper cups and paper plates to operators of office buildings, hotels and the like for the use of their employees, tenants or guests are taxable retail sales.

 

4)         Through July 31, 1997, sales of paper napkins, drinking straws, paper cups and paper plates to restaurants (including drive-in restaurants) and other vendors of food or beverages for use on the premises as serving equipment in lieu of more durable kinds of serving equipment (such as linen napkins, metal drinking straws, glass or porcelain cups and plates) are taxable retail sales.  Sales of paper napkins, drinking straws, paper cups and paper plates to food or beverage vendors are nontaxable sales for resale if the items are resold for a direct and specific charge, or if the items are employed as containers for food or beverages contained therein and are transferred with the food or beverages to the purchaser thereof either by being delivered by the food or beverage vendor away from his premises to his customers or by being delivered on the premises of the food or beverage vendor to customers who take the packaged food or beverages away from such premises with them for consumption elsewhere (i.e., the so-called "carry-out trade").  In general, it may be assumed that paper sacks, boxes, cartons and paper cups with lids, when sold to a food or beverage vendor, are for resale within the meaning of this paragraph.  The same is true of paper cups which are used in serving beverages or other tangible personal property from a vending machine.

 

5)         When nonreusable paper products such as napkins, drinking straws, cups or plates are sold to a food or beverage vendor who uses some of these products on his premises in conducting his business, but who resells some of these products as hereinabove provided, and it is impracticable, at the time of the sale to such food or beverage vendor, to determine exactly how much of the purchase is for use and how much is for resale, the purchaser may determine, from his experience, approximately what percentage of his purchases of such paper products is for resale and may give the supplier a blanket Certificate of Resale certifying that that percentage of his purchases of such products in the future will be for resale.  If the Department goes behind such a Certificate of Resale to check its accuracy, the Department will not disallow the Certificate of Resale if the percentage stated is reasonably close to what the facts actually are.  Such a purchaser should redetermine and recertify such percentage to suppliers of such paper products at least every 12 months.  If the purchaser uses some of the paper products which he has certified are for resale so that he does not pay tax to his suppliers on his purchases of such products, the purchaser is liable to pay the Use Tax directly to the Department on his cost price of such paper products.

 

6)         When containers are sold to a purchaser for use or consumption, it is not material that the purchaser, after such containers have been used by him until they no longer have utility to him, sells such containers in order to recover as much as he can of the amount which he has invested in such containers.

 

7)         Pallets are taxable upon purchase by sellers and do not qualify for the resale exemption where after sale and delivery of the products contained on the pallets the seller retains and reuses the pallets or discards them.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.2075  Sales To Construction Contractors, Real Estate Developers and Speculative Builders

 

a)         Sales to Construction Contractors, Real Estate Developers and Speculative Builders – When Taxable and When Not Taxable

 

1)         Persons who engage in selling tools, equipment, fuel, supplies and other tangible personal property to construction contractors, real estate developers or speculative builders for use or consumption incur Retailers' Occupation Tax liability when making such sales.  Also, persons who (apart from acting as construction contractors themselves) engage in selling building materials, fixtures, plants and other tangible personal property to construction contractors, speculative builders or real estate developers, who convert such items into real estate so as to take such items off the market as tangible personal property, incur Retailers' Occupation Tax liability when making such sales.

 

2)         When the purchasing construction contractor (whether he is the prime contractor or the subcontractor) buys the item that he will convert into real estate in finished form, the tax base is what such construction contractor pays for the item.  When the construction contractor-installer (whether he is the prime contractor or a subcontractor) is also the manufacturer of the finished item that he will incorporate into real estate for his customer, the tax base is what such construction contractor pays for the materials that he incorporates into such finished item, plus whatever such construction contractor may pay for nails, screws or other items of tangible personal property that he buys and incorporates into real estate for his customer in the course of making the installation of the finished item.

 

3)         For information as to who qualifies as a construction contractor, see Section 130.1940(a) and (c) of this Part.

 

4)         Sales of tangible personal property to construction contractors, real estate developers or speculative builders who resell such property in the form of tangible personal property would not be taxable sales, but the construction contractor, real estate developer or speculative builder would be making taxable resales in this situation (see Section 130.1940(b) and (c) of this Part).

 

b)         When and How Purchasing Contractor May Certify that He Will Assume Accountability for the Tax-Effect of Such Certification

 

1)         When the purchaser of tangible personal property may use such property by converting it into real estate, but may resell such property "over-the-counter" apart from acting as a construction contractor, and where it is impracticable, at the time of purchasing such tangible personal property, for such purchaser to determine in which way he will dispose of the property, such purchaser may certify to his vendor that he is buying all of such tangible personal property for resale and thereafter account to the Department for the tax on disposing of such property.

 

2)         The purchaser may not give such certification to his supplier unless the purchaser, if he will convert the tangible personal property into real estate in this State, agrees to, and does, assume the liability for reporting and paying the tax to the Department in the same form (Illinois Retailers' Occupation Tax, and local Retailers' Occupation Tax if applicable) in which the supplier would have reported and paid such tax if the supplier had accounted for the tax to the Department.  This means that if the purchaser uses the tangible personal property by converting it into real estate in this State in any manner, he must include the cost price of such tangible personal property in his reported taxable receipts in his return form to the Department and must pay the State Retailers' Occupation Tax along with any other applicable Retailers' Occupation Taxes (not the Use Tax, but the Retailers' Occupation Tax) thereon to the Department, and must pay the Home Rule Municipal or County Retailers' Occupation Tax thereon, if applicable.

 

3)         The local Retailers' Occupation Tax to be paid by the contractor or builder in this situation shall be paid for the benefit of the entity in which the place of business at or from which the contractor or builder handles the transaction is located, if such entity has adopted the local Retailers' Occupation Tax at the time when the contractor or builder converts the tangible personal property in question into real estate. For example, a contractor who is registered at a location in Springfield, Illinois, and who also sells "over-the-counter" gives the certification described in subsection (b)(2) of this Section when he buys dry wall from a supplier located in Champaign, Illinois.  Subsequent to the purchase, the contractor incorporates some of the dry wall into real estate on a job.  The contractor must account for the tax by paying the State Retailers' Occupation Tax and the Springfield Home Rule Municipal Retailers' Occupation Tax on his return by including the cost price of the dry wall converted to real estate in his taxable receipts.

 

4)         Such purchaser, who assumes the responsibility for accounting for the tax, must pay State Retailers' Occupation Tax (plus local Retailers' Occupation Tax, if applicable) on the full selling price of the tangible personal property if he resells the property "over-the-counter" to a user (including a construction contractor) apart from acting as a construction contractor himself.

 

5)         A purchaser of this type would have to be registered with this Department under the Retailers' Occupation Tax Act since he would be incurring some Retailers' Occupation Tax liability, so he would be required to furnish his vendor with his Retailers' Occupation Tax registration number in the certification referred to in subsection (b)(1) of this Section.

 

6)         The tax involved in this Section is State Retailers' Occupation Tax and Use Tax and local Retailers' Occupation Tax, but not State or local Service Occupation Tax or Service Use Tax.

 

7)         Purchasing contractors may not give this certification to make purchases from out-of-enterprise zone (see Section 130.1951 of this Part) retailers with resale certificates and then claim they are retailers entitled to claim the enterprise zone exemption to avoid the tax on sales of building materials.

 

c)         Use Tax on Out-of-State Purchases

            Tangible personal property bought outside this State either by Illinois or out-of-State construction contractors or builders in such a way that the seller does not incur Retailers' Occupation Tax liability and used in this State for building purposes is subject to the Use Tax.  If the purchaser buys such tangible personal property from an out-of-State seller who is registered with the Department as a Use Tax collector, the purchaser should pay the Use Tax to such seller unless the purchaser is also a retailer and elects to assume responsibility for accounting for all the tax on such materials.  If the purchaser buys such materials outside Illinois from an unregistered seller, the purchaser should pay the Use Tax directly to this Department. No local Retailers' Occupation Tax is applicable in this situation.

 

d)         Sales of Materials to Construction Contractors Acting for Exclusively Charitable, Religious or Educational Organizations or Institutions, or for Governmental Bodies

 

1)         Sales of materials to construction contractors for incorporation into real estate owned by exclusively charitable, religious or educational institutions or organizations, or any not-for-profit corporation, society, association, foundation, institution or organization which has no compensated officers or employees and which is organized and operated primarily for the recreation of persons 55 years of age or older, or for incorporation into real estate owned by governmental bodies, are exempt from Retailers' Occupation Tax and Use Tax.  The intent of the Legislature was to relieve the above-designated kinds of purchasers from the burden of tax on their purchases whether the purchases are made directly or indirectly by these organizations.  Therefore, the exemption applies to their indirect purchase of building materials.

 

2)         However, effective March 17, 1965, this exemption does not extend to sales of materials to construction contractors for incorporation into real estate owned by a national bank, a State-chartered bank or a Federally or State-chartered savings and loan association (see Section 130.2085 of this Part).  Sales of materials to, and purchases of materials by, such construction contractors are taxable sales and purchases.

 

3)         Also, sales of tools, fuel, lumber for forms and other end use or consumption items to construction contractors who do not incorporate these items into real estate are taxable sales regardless of who the contractor's customer may be, and this has been true since the beginning of the Act.

 

4)         A supplier claiming exemption hereunder shall have among his records a certification from the purchasing contractor stating that his purchases are for conversion into real estate under a contract with a church, charity, school or governmental body, identifying the church, charity, school or governmental body that is involved by name and address and stating on what date his contract was entered into.  The supplier shall also have among his records the active exemption number issued by the Department to the organization for which the purchasing contractor is acting.

 

e)         Sales of Materials to Construction Contractors for Incorporation into Public Improvements Which Are Required to be Transferred to a Unit of Local Government Upon Completion

            For the same reason stated in subsection (d) of this Section, sales to construction contractors of materials which will be physically incorporated into public improvements, the ownership of which is required to be conveyed to a unit of local government pursuant to a pre-development transfer requirement are exempt from Retailers' Occupation Tax and Use Tax.  The supplier shall have among his records the active registration number issued by the Department to the governmental unit to which the public improvements will be transferred upon completion.  The pre-development transfer requirement may take the following forms:

 

1)         Where language in the local governmental unit's subdivision ordinance explicitly requires that title to public improvements be transferred to the local governmental unit upon completion, the pre-development transfer requirement is satisfied as to all public improvements (such as roads and streets, sidewalks, sanitary sewer systems and storm water drainage systems) actually required to be transferred under the terms of that ordinance;

 

2)         Where language in a pre-development agreement between the local governmental unit and a developer explicitly requires that title to public improvements be transferred to the local governmental unit upon completion, the pre-development transfer requirement is satisfied as to all public improvements actually required to be transferred under the terms of that pre-development agreement;

 

3)         Where a plat of subdivision, formally approved by a municipality, has been recorded with the County Recorder of Deeds and where that recorded plat contains a public dedication of improvements, the pre-development transfer requirement is satisfied as to roads and streets located within the corporate limits of the approving municipality and any other improvements located within the corporate limits which are dedicated on the plat to the public use and for no other purpose;

 

4)         Where a plat of subdivision, formally approved by a county with fewer than 500,000 inhabitants which has established regulations regarding location, width and course of roads and streets, has been recorded with the County Recorder of Deeds and where that recorded plat contains a public dedication of roads and streets located in the unincorporated area of the approving county, the pre-development transfer requirement is satisfied as to those public roads and streets.  In this context, only grading and surface materials which actually become part of the roadbed and materials incorporated into curbs and gutters qualify for the exemption.  Other items such as catchbasins, drainage pipe or materials incorporated into sidewalks do not qualify for the exemption.

 

(Source:  Amended at 25 Ill. Reg. 10917, effective August 13, 2001)

 

Section 130.2076  Sales to Purchasers Performing Contracts with Governmental Bodies

 

a)         Generally, a government contractor who purchases items to fulfill his obligations under a contract with a governmental unit purchases those items for use.  See, U.S. v. New Mexico, 455 U.S. 720, 102 S.Ct. 1373 (1982).  However, if the contract with the governmental unit explicitly requires the contractor to sell those items to the governmental unit, the purchase of those items by the contractor can be structured as purchases for the purpose of resale to the governmental unit.  Sales of tangible personal property to the contractor in this situation are exempt from Retailers' Occupation Tax as sales for resale if the following conditions are met:

 

1)         There is a contract between the purchaser and the governmental body that requires the purchaser to provide tangible personal property to the governmental body.

 

2)         The contract is specific in documenting a sale of tangible personal property from the purchaser to the governmental body.  The contract must specify that the tangible personal property is transferred to the governmental body.  However, the contract does not have to be item specific.  For example, a statement that title to all of the tangible personal property that is purchased shall pass to the governmental body is sufficient.  The transfer may be immediate or subsequent to the completion of the contract.

 

b)         The exemption in subsection (a) above applies to tangible personal property that is used or consumed in the performance of a contract with a governmental body and to which title passes to the governmental body under the terms of the contract.  For example, the exemption applies to consumable supplies, such as fuel, that a purchaser uses to fulfill the contract with the governmental body so long as the conditions set forth in subsection (a) are met.

 

c)         A supplier claiming exemption shall have among his records a Certificate of Resale from the purchasing government contractor that conforms to the requirements set forth in Section 130.1405.

 

(Source:  Added at 25 Ill. Reg. 10917, effective August 13, 2001)

 

Section 130.2080  Sales to Governmental Bodies, Foreign Diplomats and Consular Personnel

 

a)         Exemption Identification Number.  On and after January 1, 2015, except as provided in subsections (b) and (c), sales of tangible personal property made to a governmental body (federal, State, local or foreign) are exempt from the Retailers' Occupation Tax only if the governmental body has an active exemption identification number ("E-number") issued by the Department and it provides this active E-number to the retailer, who records that number instead of collecting the tax.  In addition, only sales of tangible personal property invoiced directly to and paid by governmental bodies that possess active E-numbers are exempt.  If an individual government employee provides a credit card to the retailer containing the name of the employee along with the name of the governmental body, tax will be due even if the employee provides an active E-number. However, until December 31, 2014, retailers may accept U.S. Government Bank Cards in sales to the U.S. Government and its agencies without requiring an Illinois active exemption identification number.

 

1)         For the foregoing purposes, the date of sale is considered to be the date of delivery to the purchaser.

 

2)         The purchase of meals, fuel and other tangible personal property by corporations in Illinois are taxable sales at retail, unless otherwise exempt, notwithstanding the fact that the stock of such corporations may be owned exclusively or in part by foreign governments.

 

b)         Diplomatic Tax Exemption Cards.  The U.S. State Department, Office of Foreign Missions ("OFM"), issues Diplomatic Tax Exemption Cards to accredited foreign diplomatic and consular officials. Under the authority of the federal Foreign Missions Act (22 USC 4301 through 4316), various tax exemptions are granted to foreign diplomatic and consular officials on their purchases.  When making a purchase, the holder must present the card to the retailer, who records the card number instead of collecting the tax.  The validity of the Diplomatic Tax Exemption Card can be confirmed electronically using the Department of State's Diplomatic Tax Exemption Card Verification system, which is available at https://ofmapps.state.gov/tecv/.

 

1)         Illustration A.  Illustration A depicts examples of the four types of Diplomatic Tax Exemption Cards currently being issued.  The exemptions identified on the card to which the cardholder is entitled are unique to the cardholder.  The determination of eligibility for an exemption is made on a case-by-case basis.  It is important to look at the card carefully to determine whether a specific purchase qualifies for an exemption.

 

2)         Some cardholders are issued a card labeled "Mission Tax Exemption – Official Purchases Only" that permits the cardholder to make official purchases only.  All mission purchases made with this type of Diplomatic Tax Exemption Card must be paid only by check or credit card bearing the name of the associated diplomatic or consular mission.

 

3)         Some cardholders are issued a card labeled "Personal Tax Exemption".  This card does not restrict the form of payment associated with its use (e.g., the cardholder could pay by cash, personal check or credit card).

 

4)         Diplomatic Tax Exemption Cards, alone, do not provide an exemption from Illinois occupation or use taxes on vehicles.  OFM administers the exemption when a foreign mission or official buys a vehicle from a retailer.  The purchaser must first present a Diplomatic Tax Exemption Card to the retailer.  The retailer must retain a copy of this card and contact OFM at (202) 895-3500.  OFM will determine the tax-exempt status of the purchaser.  If the purchaser qualifies for an exemption, OFM will provide a letter to the retailer that states that the purchaser is eligible for a tax exemption on the sale of the vehicle.  Only authorization letters provided directly from OFM to the retailer, along with a copy of the Tax Exemption Card, will be accepted by the Department as documentation for the exemption.

 

c)         Taipei Economic and Cultural Representative Office Cards.  The American Institute in Taiwan/Washington (AIT/W), pursuant to the provisions of 22 USC 3301 et seq., the Taiwan Relations Act (P.L. 96-8), and Executive Order 13014, with the authority of the Secretary of State, U.S. Department of State, issues Mission Tax Exemption Cards and Personal Tax Exemption Cards to officials of the Taipei Economic and Cultural Representative Office (TECRO).  Under the authority of the Taiwan Relations Act, various tax exemptions are granted to officials on their purchases.  When making a purchase, the cardholder must present it to the retailer, who records the card number instead of collecting the tax. 

 

1)         Illustration A.  Illustration A depicts examples of the types of tax exemption cards currently being issued.  The exemptions identified on the card to which the cardholder is entitled are unique to the cardholder.  The determination of eligibility for an exemption is made on a case-by-case basis.  It is important to look at the card carefully to determine whether a specific purchase qualifies for an exemption.

 

2)         Tax Exemption Cards, alone, do not provide an exemption from Illinois occupation or use taxes on vehicles.  AIT/W administers the exemption when an official buys a vehicle from a retailer.  The purchaser must first present a Tax Exemption Card to the retailer.  The retailer must retain a copy of this card and contact AIT/W at (703) 525-8474.  AIT/W will determine the tax-exempt status of the purchaser.  If the purchaser qualifies for an exemption, AIT/W will provide a letter to the retailer that states that the purchaser is eligible for a tax exemption on the purchase of the vehicle.  Only authorization letters provided directly from AIT/W to the retailer, along with a copy of the Tax Exemption Card, will be accepted by the Department as documentation for the exemption.  AIT/W requires that dealers do all title work for the sale of a vehicle.

 

(Source:  Amended at 39 Ill. Reg. 1793, effective January 12, 2015)

 

Section 130.2081  Tax-Free Purchases By Exempt Entities, Their Employees and Representatives, and Documenting Sales to Exempt Entities, Their Employees and Representatives

 

a)         Gross receipts from proceeds from the sale of the following tangible personal property are exempt from the tax imposed by this Retailers' Occupation Tax Act:  

 

1)         Personal property sold to a governmental body, to a corporation, society, association, foundation, or institution organized and operated exclusively for charitable, religious, or educational purposes, or to a not-for-profit corporation, society, association, foundation, institution, or organization that has no compensated officers or employees and that is organized and operated primarily for the recreation of persons 55 years of age or older. A limited liability company may qualify for the exemption under this subsection only if the limited liability company is organized and operated exclusively for educational purposes. On and after July 1, 1987, however, no entity otherwise eligible for this exemption shall make tax-free purchases unless it has an active identification number issued by the Department [35 ILCS 120/2-5(11)].  See 86 Ill. Adm. Code 130.120(h) and 86 Ill. Adm. Code 130.2007.

 

2)         Computers and communications equipment utilized for any hospital purpose and equipment used in the diagnosis, analysis, or treatment of hospital patients sold to a lessor who leases the equipment, under a lease of one year or longer executed or in effect at the time of the purchase, to a hospital that has been issued an active tax exemption identification number by the Department [35 ILCS 120/2-5(36)].  See 86 Ill. Adm. Code 130.120(mm) and 86 Ill. Adm. Code 130.2011.

 

3)         Personal property sold to a lessor who leases the property, under a lease of one year or longer executed or in effect at the time of the purchase, to a governmental body that has been issued an active tax exemption identification number by the Department [35 ILCS 120/2-5(29)].  See 86 Ill. Adm. Code 130.120(nn) and 86 Ill. Adm. Code 130.2012.

 

4)         Sales of materials to construction contractors for incorporation into real estate owned by exclusively charitable, religious or educational institutions or organizations, or any not-for-profit corporation, society, association, foundation, institution or organization that has no compensated officers or employees and that is organized and operated primarily for the recreation of persons 55 years of age or older, or for incorporation into real estate owned by governmental bodies.  See 86 Ill. Adm. Code 130.2075.

 

b)         Exempt Entities.  Entities must have an active exemption identification number (E-number) in order to make tax-free purchases.  See 86 Ill. Adm. Code 130.2007.

 

1)         If an entity does not have an active E-number at the time of purchase, then its purchases are subject to tax.  Entities that have applied to the Department but have not yet received an E-number from the Department cannot make purchases tax free.  An exempt entity cannot provide a retailer an active E-number for purchases that were made before the Department issued the E-number. 

 

EXAMPLE:  The local boys and girls club applied to the Department for an E-number. The club purchased tumbling equipment for its members before it received its E-number.  When the club received the E-number, it went back to the retailer, presented the retailer with a copy of the letter from the Department and requested a refund of the taxes it paid on the purchase of the tumbling equipment.  The club is not entitled to a refund because a purchaser cannot provide a retailer an active E-number for purchases that it made before the Department issued it an E-number.

 

2)         E-numbers must be renewed every 5 years.  Exempt entities are advised to request a renewal of their E-numbers in a timely manner to avoid the expiration of their E-numbers.

 

3)         E-numbers can only be used to make purchases in furtherance of an exempt entity's organizational purpose. 

 

EXAMPLE 1:  The vice president of an exempt organization invites a group of friends to his house to watch the football playoffs.  Unbeknownst to the other board members of the organization, he takes a check from the organization's checkbook.  He goes to a local retailer to purchase a flat screen television to watch the game.  He presents the organization's letter from the Department containing its E-number to the retailer and pays for the television with the organization's check.  It is improper for the vice president to purchase the television tax exempt because the purchase is for his personal use and not in furtherance of the organizational purpose, and the purchase was made without the exempt organization's knowledge and consent.  The vice president would be liable for all taxes and civil penalties and may be subject to criminal penalties in connection with that purchase.

 

EXAMPLE 2:  An assistant golf coach, without authorization, purchases a set of golf clubs as a retirement gift for the long-time head golf coach, uses the high school's E-number and pays by a check drawn on an account in the name of the high school.  The retailer does not charge tax because the assistant golf coach presented the high school's E-number and paid for the clubs using a check in the name of the high school.  Because the school did not knowingly or willingly allow the assistant coach to use its E-number and its check to purchase the clubs, the assistant golf coach would be liable for all taxes and civil penalties and subject to criminal penalties in connection with the improper use of the high school's E-number.  If, however, the high school discovered the purchase and agreed to the use of the E-number for the purchase that was not in furtherance of its organizational purpose, then the high school would be subject to revocation of its E-number and liable for all taxes and civil penalties and subject to criminal penalties in connection with the purchase of the clubs. 

 

4)         In order for a purchase by an exempt entity to be tax exempt, the purchase must be made by an exempt entity.  The only way to ensure that a purchase is made by an exempt entity is to require that the payment for a purchase be made using an instrument that contains the name of an exempt entity or by use of a purchase order from an exempt entity that is billed to an exempt entity. For purchases by employees and representatives of exempt entities using their own funds (i.e., cash, personal check, personal credit card, or personal debit card) see subsection (d) of this Section.

 

5)         In order for a purchase by an exempt entity to be tax exempt, an exempt entity must pay for its purchase by one of the three following methods:

 

A)        by use of a credit card that is directly billed to an exempt entity and is either in an exempt entity's name only or in an exempt entity's name and the name of a person authorized to use it.

 

EXAMPLE 1: A minister of a church with an E-number purchases some furniture for the parsonage.  The minister gives the furniture retailer a copy of the letter from the Department that contains the church's E-number and pays for the furniture by a credit card issued in the church's name.  The retailer notes the method of payment on the bill of sale.  This purchase is tax exempt because the minister gave the retailer a copy of the Department's letter, which the retailer retained in its books and records.  The purchase was in furtherance of the church's organizational purpose and was paid for by a credit card in the church's name. 

 

EXAMPLE 2:  A school administrator purchases computers for the school's computer lab, gives the retailer a copy of the school's letter containing the school's E-number and pays using a credit card that was issued in the school's name and the administrator's name and is directly billed to the school.  The purchase was in furtherance of the school's educational purpose and is tax exempt. 

 

B)        by a check drawn on an account belonging only to an exempt entity.

 

EXAMPLE:  The football coach of a high school goes to a sporting goods store to purchase additional footballs for the upcoming game.  The coach gives a copy of the letter from the Department that contains the E-number issued to the high school and pays for the footballs with a check from the high school.  The retailer retains the letter in its books and records and notes the method of payment on the invoice.  This purchase is tax exempt because the coach gave a copy of the Department's letter to the retailer; the purchase was in furtherance of the high school's organizational purpose and was paid for with a check drawn on an account belonging only to the high school. 

 

C)        by use of a purchase order from an exempt entity and that is billed to the exempt entity.

 

6)         Tangible personal property required to be titled and registered with an agency of this State purchased by an exempt entity for an exempt entity's organizational purpose must be titled and registered in an exempt entity's name only.

 

EXAMPLE: A pastor of a church purchases a passenger van to transport its youth group to its various outings, gives the dealership a copy of the letter containing the church's E-number and pays for the purchase using a check drawn on an account belonging only to the church.  The retailer notes the form of payment on the bill of sale.  The pastor titled and registered the car in both the church's name and his name.  The purchase is not tax-exempt because the van is titled and registered in both the church's name and the pastor's name.  If, however, the van was titled and registered in the church's name only, that purchase would be tax exempt.

 

7)         An exempt entity that knowingly or willingly allows the improper use of its E-number (e.g., for purchases not in furtherance of an exempt entity's organizational purpose) shall be subject to revocation of its E-number.

 

EXAMPLE: A local cultural organization and a local community art group plan to hold an event in a conference room at a local hotel.  The cultural organization's part of the event will be in the morning and the art group's part of the event will be in the afternoon.  The cultural organization applied for and obtained an E-number from the Department.  The art group applied for but has not yet obtained an E-number from the Department.  Each group is having its portion of the event catered by the hotel.  Because the art group has yet to receive its E-number from the Department, it asks to use the cultural organization's E-number to present to the hotel in order to purchase the catered items tax exempt.  If the cultural organization lets them use its number, it would be subject to revocation of its E-number and liable for all taxes and civil penalties and subject to criminal penalties in connection with the art group's purchase of the catered items because the cultural organization knowingly and willingly allowed the improper use of its E-number by the art group.

 

8)         An exempt entity that knowingly or willingly allows the improper use of its E-number shall also be liable for all taxes and civil penalties and subject to criminal penalties.  See Section 14 of the Use Tax Act [35 ILCS 105/14].

 

9)         If a person uses an exempt entity's E-number for the person's own use (e.g., not in furtherance of an exempt entity's organizational purpose), that person shall be liable for all taxes and civil penalties and subject to criminal penalties.  See Section 14 of the Use Tax Act [35 ILCS 105/14].

 

c)         Retailers.  Requirements for properly documenting tax-exempt purchases by an exempt entity with an active E-number.

 

1)         To support deductions from gross receipts for sales made to an exempt entity holding an active E-number, retailers must obtain and retain in their books and records the following information, whether in electronic format or otherwise:

 

A)        A copy of the letter from the Department issuing the E-number to an exempt entity.  In addition, retailers must check the expiration date in the letter to ensure that the number is active.  If the E-number that an exempt entity provides to retailers has expired, the Department will not consider any sales made to that exempt entity to be tax exempt, and retailers must include the receipts from those sales in their gross receipts. 

 

B)        For subsequent sales to an exempt entity, retailers must record the active E-number at the time of sale (e.g., on the bill of sale, purchase order, or other indicia of the tax free sale) and keep a copy of the bill of sale or purchase order in their books and records.

 

2)         Except for purchases made by employees or representatives pursuant to subsection (d), for sales to an exempt entity to be tax exempt,  the sale must be billed directly to an exempt entity, paid for by credit card either in an exempt entity's name only or in an exempt entity's name and the name of a person authorized to use the credit card, or paid for by check drawn on an account belonging only to an exempt entity.  Retailers shall note the form of payment on the bill of sale or the purchase order.

 

3)         If a retailer fails to obtain and document the information as outlined in subsection (c) and fails to bill or accept payment as outlined in subsection (c) for a sale to an exempt entity, the retailer cannot claim the exemption.

 

4)         If a retailer obtains and documents the information as outlined in subsection (c) for a sale to an exempt entity, the Department will accept such information as prima facie proof that the sale to that exempt entity was tax exempt.

 

d)         Employees and Representatives of Exempt Entities. Requirements for properly documenting tax exempt purchases by employees and representatives of exempt entities using their own funds.

 

1)         This subsection provides a limited exemption for purchases by persons employed by or representing an exempt entity that possesses an active identification number made in furtherance of the exempt entity's organizational purposes.  This limited exemption allows these persons to make tax exempt purchases using their own funds and paying by cash, personal check, and personal credit or debit cards.  To receive the exemption the following conditions must be met:

 

A)        Annually, the employee or representative provides each retailer from whom the employee or representative will make exempt purchases of tangible personal property a signed certification that includes the following:

 

i)          the name and address of the employee or representative;

 

ii)         the name and address of the retailer;

 

iii)        the name and address of the exempt entity;

 

iv)        the active identification number of the exempt entity; and

 

v)         a statement under penalty of perjury that the tangible personal property will be used in furtherance of the exempt entity's organizational purpose.

 

B)        The retailer possesses a copy of the active identification number letter issued by the Department to the exempt entity;

 

C)        No single transaction exceeds $400;

 

D)        At the time of sale, the employee or representative shows to the retailer a copy of the certification required by subsection (d)(1)(A), and the retailer verifies the identity of the purchaser by reviewing the employee's or representative's government issued identification or any identification that the exempt entity issues to employees or representatives of the exempt entity.

 

E)        The retailer must maintain the documentation provided under subsections (A) and (B) for the period required by Section 7 of the Retailers' Occupation Tax Act.

 

2)         Retailers making exempt sales pursuant to this subsection (d) must obtain the documentation and information required by subsections (d)(1)(A) and (B).

 

3)         If a retailer fails to obtain the documentation and information in subsections (d)(1)(A) and (B) for a sale to an employee or representative of an exempt entity, it will lack sufficient information to support a deduction from gross receipts for that sale made to that employee or representative of the exempt entity.

 

4)         If a retailer obtains the documentation and information as outlined in subsections (d)(1)(A) and (B) for a sale to an employee or representative of an exempt entity, the Department will accept such documentation and information as prima facie proof that the sale to that employee or representative was tax exempt.

 

(Source:  Added at 45 Ill. Reg. 7248, effective June 3, 2021)

 

Section 130.2085  Sales to or by Banks, Savings and Loan Associations and Credit Unions

 

a)         Sales to Banks, Etc.

 

1)         Retail sales to national banks, State-chartered banks, Federally-chartered savings and loan associations, and other privately-owned financial institutions are subject to the Retailers' Occupation Tax.  This conclusion also applies to sales of building materials and fixtures to construction contractors for incorporation into real estate owned by banks and savings and loan associations even if such real estate is used for bank or savings and loan association purposes. For the foregoing purposes, the date of sale is considered to be the date of delivery to the purchaser.  Beginning January 4, 2019, sales of tangible personal property are exempt from the Retailers' Occupation Tax if the purchaser is exempt from use tax by operation of federal law.  [35 ILCS 120/2-5(16)]

 

2)         Federally-chartered credit unions, the Federal National Mortgage Association (Fannie Mae), Farm Credit Banks, and Federal Home Loan Banks do not incur Use Tax liability when making purchases of tangible personal property for use or consumption. (See respectively 12 U.S.C. 1768, 12 U.S.C. 1723(a)(C)(2), 12 U.S.C. 2023 and 12 U.S.C. 1433.) Retailers making sales of tangible personal property to Federal credit unions, the Federal National Mortgage Association (Fannie Mae), Farm Credit Banks, and Federal Home Loan Banks are not able to reimburse themselves for the retailers' occupation tax they incur as a result of making such sales by collecting the reimbursing use tax.  Nonetheless, retailers making sales of tangible personal property to Federal credit unions, the Federal National Mortgage Association (Fannie Mae), Farm Credit Banks, and Federal Home Loan Banks do incur retailers' occupation tax liability on their gross receipts from such sales.  Beginning January 4, 2019, purchases of tangible personal property are exempt from the Use Tax if the purchaser is exempt by operation of federal law.  [35 ILCS 120/2-5(16)]

 

b)         Sales by Banks, Etc.

State-chartered banks and both Federally- and State-chartered savings and loan associations, which engage in selling tangible personal property at retail, are liable for retailers' occupation tax on their receipts from such sales commencing March 17, 1965.  Effective February 1, 1970, national banks that engage in selling tangible personal property at retail also are liable for retailers' occupation tax on their receipts from such sales.

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.2090  Sales to Railroad Companies

 

When persons who are engaged in the business of selling equipment, supplies or other tangible personal property sell any such tangible personal property to railroad companies for use or consumption, such persons are required to remit Retailers' Occupation Tax to the Department on their gross receipts from such sales except when the sale qualifies for the rolling stock exemption described in Section 130.340 of this Part and in Section 150.310(a)(2) of the Use Tax Regulations; or the sale is the tangible personal property to a common carrier by rail which receives the physical possession of such property in Illinois, and which transports such property, or shares with another common carrier in the transportation of such property, out of Illinois on a standard uniform bill of lading showing the seller of the property as the shipper or consignor of such property to a destination outside Illinois for use outside Illinois.

 

(Source:  Amended at 15 Ill. Reg. 6621, effective April 17, 1991)

 

Section 130.2095  Sellers of Gasohol, Coal, Coke, Fuel Oil and Other Combustibles

 

a)         All persons who are engaged in the business of selling, or selling and delivering, coal, coke, fuel oil, briquettes, wood or other combustibles, whether in carload lots or in smaller quantities, to purchasers for use or consumption, are required to remit Retailers' Occupation Tax to the Department on their gross receipts from such sales.

 

b)         This Section includes operators of mines, dealers, haulers and all other persons who engage in the business of selling combustibles to purchasers for use or consumption.

 

c)         Persons who are merely employed by a seller or by a purchaser to haul or deliver combustibles to the purchaser, but who do not purchase and then sell the combustibles which they so haul or deliver, are engaged in rendering a service and not in the business of selling tangible personal property to purchasers for use or consumption.  Consequently, such persons are not required to remit Retailers' Occupation Tax measured by their receipts from their rendering of such service, the tax being payable by the person who actually makes the sale for use or consumption. (For information concerning the deductibility or nondeductibility of transportation or delivery charges, see Section 130.415 of this Part.)

 

d)         For information on fuel sold for use in vessels on rivers bordering Illinois, see Section 130.315 of this Part.

 

e)         For information on sales of gasohol, see Section 130.320 of this Part.

 

(Source:  Amended at 5 Ill. Reg. 12807, effective November 2, 1981)

 

Section 130.2100  Sellers of Feed and Breeding Livestock

 

a)         Sellers of Feed – When Liable for Tax

The sale of feed to purchasers for feeding livestock or poultry that will be used or consumed by the purchaser or where the products of such livestock or poultry are to be used or consumed for purposes other than for resale or sale at retail, constitutes a "sale at retail" within the meaning of the Retailers' Occupation Tax Act [35 ILCS 120].  See also 86 Ill. Adm. Code 130.210.  In such case, gross receipts of the seller from this source must be included in computing retailers' occupation tax liability.  For purposes of this Section, "feed" means and includes salt, grains, tankage, oyster shells, mineral supplements, vitamins, limestone, and other generally recognized animal feeds.  The sale of straw or other materials used for bedding or other non-feed purposes, is subject to tax as a consumable supply. 

 

b)         Sellers of Feed – When Not Liable for Tax

The sale of feed to purchasers for feeding livestock or poultry that will be sold for resale or at retail or the products of such livestock or poultry will be sold for resale or at retail, is not a sale for use or consumption.  Such sales of feed are deemed to be sales for purposes of resale, "as an ingredient or constituent, goes into and forms a part of tangible personal property subsequently the subject of a 'sale at retail'".  86 Ill. Adm. Code 130.210(b).

 

c)         Sellers of Breeding Livestock – When Not Liable for Tax

Farmers or producers of breeding livestock are not liable for retailers' occupation tax with respect to gross receipts realized from the sale of bulls, stallions, or other animals for breeding purposes.  In addition, sellers of semen used for artificial insemination of livestock for direct agricultural production are not liable for retailers' occupation tax with respect to gross receipts realized from such sales.

 

(Source:  Amended at 49 Ill. Reg. 2107, effective February 5, 2025)

 

Section 130.2101  Sellers of Floor Coverings

 

a)         Sellers who make sales of floor coverings to users in retail sale situations incur Retailers' Occupation Tax liability on their gross receipts from such sales.  In retail sale situations, the seller should provide certificates of resale to suppliers and pay Retailers' Occupation Tax on his gross receipts from sales.

 

b)         Sellers who make sales of floor coverings to users in construction contract situations incur tax liability on the cost price of the floor coverings.  In construction contract situations, the seller should pay tax in accordance with the rules set forth in subsection (d) of this Section.

 

c)         Retail sale situations.  The contractual relationship between the seller and his customer determines whether the floor covering  has been sold in a retail sale situation or whether it has been transferred in a construction contract situation.

 

1)         In general, a sales contract that does not require the seller (or the seller's representative) to permanently affix the floor covering to real estate constitutes a "sale at retail".

 

2)         However, where the seller (or the seller's representative) will permanently affix the floor covering to real estate, the transaction remains a retail transaction if the following Safe Harbor Rule is satisfied.

 

A)        Safe Harbor Rule.  A contract or similar document that provides that the seller (or the seller's representative) will install the floor covering by permanently affixing it to real estate evidences a "sale at retail" where the contract or similar document demonstrates that the seller and the customer agreed to the installation charge separately from the selling price of the floor covering.  The evidence required to be maintained by the seller to demonstrate that the seller and the customer agreed to the installation charge separately from the selling price of the floor covering is a contract or similar document that is signed by the customer and that sets out the following items:

 

            selling price of floor covering

 

                           (plus) sales tax

 

                                   subtotal

 

                (plus) installation charges

 

                                      total

 

                                              (customer's signature)

 

B)        Where the Safe Harbor Rule of subsection (c)(2)(A) cannot be met only because the customer's signature does not appear on the face of a contract containing the items set out in subsection (c)(2)(A), the Department shall use its best judgment and information to determine whether the selling price of the floor covering was agreed to separately from the charge for installation. Relevant information includes, but is not limited to, situations where a written quote for installed floor covering that contains the items set out in subsection (c)(2)(A) becomes a signed purchase order.  In that case, the signature on the purchase order will satisfy the signature requirement of this Section.

 

C)        A contract or similar document containing the items set out in subsection (c)(2)(A) will also establish that the installation charges are not subject to Retailers' Occupation Tax liability.  See 86 Ill. Adm. Code 130.450(b) of this Part.

 

D)        Taxation of delivery charges will be determined in accordance with the provisions of Section 130.415 of this Part.

 

d)         Construction contract situations.  Construction contractors who permanently affix floor coverings to real estate under the terms of construction contracts incur tax liability based on their cost price of the floor covering and materials that they affix to real estate.  In a construction contract situation, the construction contractor does not incur Retailers' Occupation Tax liability on his gross receipts from sale. Rather, the construction contractor incurs tax based on his cost price of the floor covering and materials transferred to his customer under the terms of the construction contract.

 

1)         Safe Harbor Rule.  A contract or similar document that provides that the seller (or the seller's representative) will install the floor covering by permanently affixing it to real estate evidences a "construction contract" where the contract or similar document demonstrates that the seller and the customer did not agree to the installation charge separately from the selling price of the floor covering.  The evidence required to be maintained by the seller to demonstrate that the seller and the customer did not agree to the installation charge separately from the selling price of the floor covering is a contract or similar document that sets out the following items:

 

            selling price of floor covering,

 

                     including installation

 

                                      total

 

                                  (presence or absence of customer's

 

                                            signature is immaterial)

 

2)         Generally, if the construction contractor purchases the floor covering and materials from an Illinois registered supplier, the construction contractor pays Use Tax and applicable local occupation tax reimbursement obligations to that supplier.

 

3)         If the construction contractor purchases the floor covering and materials from an out-of-state supplier not registered to collect Illinois tax, then the construction contractor must pay Use Tax directly to the Department.

 

4)         If the construction contractor is a combination contractor/retailer and did not pay tax when purchasing the floor coverings and materials from an Illinois supplier by giving a certificate of resale to that supplier, the construction contractor incurs Retailers' Occupation Tax based on his cost price of the floor coverings and materials.  See 86 Ill. Adm. Code 130.2075(b) of this Part.

 

(Source:  Added at 26 Ill. Reg. 5946, effective April 15, 2002)

 

Section 130.2105  Sellers of Newspapers, Magazines, Books, Sheet Music and Musical Recordings, and Their Suppliers; Transfers of Data Downloaded Electronically

 

a)         Sellers of Newspapers, Magazines, Books, Sheet Music and Musical Recordings

 

1)         Sellers of books, sheet music and musical recordings, including phonograph records, incur Retailers' Occupation Tax liability when they sell any of these items to purchasers for use or consumption and not for resale.

 

2)         Sales of newspapers and magazines are not subject to the tax because of the newsprint and ink exemption (see Section 1 of the Act).  In determining whether a publication qualifies as a magazine for the purpose of the newsprint and ink exemption, there is one test that must be met and several other factors to be considered.  The test that must be met for a publication to qualify as a magazine is that it must be published periodically in the form of newsprint and ink.  Periodically means at least two times per year.  The other factors to be considered are whether a member of the public can subscribe to the publication, whether the publication is one that has the basic format of a magazine, including soft covers, individual pages and indexed articles, whether it contains articles and items that have value to the general public, and whether it contains general advertising.  A publication that has one or more of these characteristics would be considered to be a magazine, assuming the initial test of periodic publication is met. Tangible personal property that conveys news by media other than newsprint and ink does not qualify for the exemption because Section 1 of the Retailers' Occupation Tax Act limits the exemption to news and information conveyed only by means of newsprint and ink.  For example, the exemption does not extend to the transfer of news by film, microfilm or CD-Rom discs.

 

3)         Information or data that is downloaded electronically, such as downloaded books, musical recordings, newspapers or magazines, does not constitute the transfer of tangible personal property.  These types of transactions represent the transfer of intangibles and are thus not subject to Retailers' Occupation and Use Tax.  However, downloads of canned software, as defined more fully in Section 130.1935 of this Part, are subject to Retailers' Occupation and Use Tax.

 

4)         Sales by exclusively religious, charitable or educational organizations of books or other items containing such organizations' own individualized literature which cannot be bought from persons who are engaged in business are not subject to the Retailers' Occupation Tax even if such sales are made to the public because such sales are not competitive with retailers.

 

5)         Sales of school books by schools to their students are not considered to be sales that are made "primarily for the purpose" of the school and so are subject to the Retailers' Occupation Tax.

 

b)         Suppliers of Persons Who Sell Newspapers, Magazines, Books, Sheet Music and Musical Recordings

 

1)         Use or Consumption

            Persons who engage in selling equipment and supplies and other tangible personal property, to purchasers who sell newspapers, magazines, books, sheet music or musical recordings, including phonograph records, and who retain and use or consume such equipment and supplies, are engaged in the business of selling tangible personal property to purchasers for use or consumption and incur Retailers' Occupation Tax liability when making such sales. However, the proceeds from the sale of graphic arts machinery and equipment, including repair and replacement parts therefor, both new and used, including that manufactured on special order or purchased for lease, certified by the purchaser to be used primarily for graphic arts production, are not subject to the tax.

 

2)         Resale

 

A)        However, suppliers of persons who sell newspapers, magazines, books, sheet music or musical recordings, including phonograph records, do not incur Retailers' Occupation Tax liability when selling tangible personal property to such persons for resale.

 

B)        This latter class of sales includes sales of paper stock, ink, glue, brads, binding tape, staples, phonograph record blanks and other tangible personal property, where such tangible personal property is purchased by persons who sell newspapers, magazines, books, sheet music or musical recordings, including phonograph records, and is incorporated physically by them, as ingredients or constituents, into newspapers, magazines, books, sheet music or musical recordings, including phonograph records which they sell to others.

 

(Source:  Amended at 25 Ill. Reg. 6713, effective May 9, 2001)

 

Section 130.2110  Sellers of Seeds and Fertilizer

 

a)         Sellers of Seeds – When Liable for Tax

Persons engaged in the business of selling seeds to purchasers who use the seeds in raising lawn grass, vegetables, crops, or other plants that they will use or consume and not resell, are engaged in the business of selling tangible personal property to purchasers for use or consumption and are required to remit retailers' occupation tax to the Department on their gross receipts from such sales.

 

b)         Sellers of Seeds – When Not Liable for Tax

Persons selling seeds to purchasers who employ such seeds in raising vegetables, crops, or other plants for sale are selling seeds to purchasers for purposes of resale and are not required to remit retailers' occupation tax to the Department on their gross receipts from such sales.

 

c)         Sellers of Fertilizer – When Liable for Tax

Persons engaged in the business of selling fertilizer to purchasers who use such fertilizer on lawns, home or private gardens, parks, boulevards, and the like are engaged in the business of selling tangible personal property to purchasers for use or consumption and are required to remit retailers' occupation tax to the Department on their gross receipts from such sales.  For purposes of this Section, "fertilizer" means a commodity that contains one or more substances to increase the available plant food content of the soil and becomes a part of the products grown.

 

d)         Sellers of Fertilizer – When Not Liable for Tax

Persons selling fertilizer to purchasers who are regularly engaged in the business of producing agricultural products for sale are considered to be making sales for purposes of resale because, in such cases, the fertilizer becomes a part of products that are subsequently sold.  Such sellers of fertilizer, therefore, are not required to remit retailers' occupation tax measured by their gross receipts from such sales.

 

(Source:  Amended at 49 Ill. Reg. 2107, effective February 5, 2025)

 

Section 130.2115  Sellers of Machinery, Tools and Special Order Items

 

a)         When Liable For Retailers' Occupation Tax

 

1)         Sellers of machinery, tools, dies, jigs, patterns, gauges, models, exhibits, and the like to users or consumers incur Retailers' Occupation Tax liability except as specified in subsection (b) of this Section, and except to the extent that the item sold is exempted by the provisions of the Act.  This is true whether the seller installs the tangible personal property for the purchaser or not.  (For information concerning the taxability of receipts from installation charges, see Section 130.450 of this Part.)

 

2)         The fact that it is not a stock item and is only produced after an order is received, or is an alteration of a standard item, is not sufficient to exempt it from Retailers' Occupation Tax unless it meets all the exemption tests of subsection (b).

 

3)         Even if the sale would otherwise qualify for exemption under subsection (b) of this Section, the sale is taxable if the designing of the property that is to be sold is done by the purchaser, or by someone other than the seller hired by the purchaser, but the sale is not taxable if the seller is responsible for furnishing the service of designing the property or for contributing substantially to the designing of the property.

 

4)         However, a single order from a purchaser for 50 or more of the same item or simultaneous orders from a purchaser for 50 or more in the aggregate of the same item that would otherwise qualify for exemption under subsection (b) of this Section will be deemed to be volume production and will be subject to Retailers' Occupation Tax on the total amount received by the seller from any such volume production order or orders.  For purposes of this subsection (a)(4), "simultaneous orders" consist of any orders placed on the same day by the same purchaser.  Also, even if an item qualifies for Retailers' Occupation Tax exemption under subsection (b) of this Section, subsequent sales by the seller of the same item without material change to any purchaser for use (so-called repeat orders) are subject to the Retailers' Occupation Tax because the skill that is involved after the first item is made is production skill and not specialized engineering and design skill.  For purposes of this subsection (a)(4), a "repeat order" is an order for the same item without material change that is placed by the same purchaser on a date after the date that the original order for that item was placed or an order for the same item without material change that is placed by another purchaser at any time after the original order for that item.

 

EXAMPLES:

 

A)        Single orders. For example, on May 1, a building contractor special orders 75 identical roof trusses in a single order that are to be engineered and fabricated by the seller and would otherwise qualify for exemption under subsection (b) of this Section.  Even though the seller may use his or her skill to design and build the 75 identical roof trusses, the seller will be deemed to be engaged in volume production and will incur Retailers' Occupation Tax liability on those sales.

 

B)        Simultaneous Orders

 

i)          Simultaneous orders of 50 or more.  For example, on May 1, a purchaser special orders a single order of 40 electrical turbines that are to be engineered and fabricated by the seller and would otherwise qualify for exemption under subsection (b) of this Section.  On that same day, the same purchaser places another order for 25 electrical turbines that are identical to the 40 other electrical turbines ordered earlier that day.  Even though the seller may use his or her skill to design and build the 65 identical electrical turbines, the seller will be deemed to be engaged in volume production and will incur Retailers' Occupation Tax liability on those sales.

 

ii)         Simultaneous multiple orders of fewer than 50.  For example, on May 1, a purchaser special orders a single order of 20 identical rain gutter components that are to be engineered and fabricated by the seller and would otherwise qualify for exemption under subsection (b) of this Section.  On that same day, the same purchaser places another order for 25 rain gutter components that are identical to the 20 other rain gutter components ordered earlier that day.  Since that purchaser has ordered fewer than 50 identical rain gutter components on that date, the seller will not be deemed to be engaged in volume production with these orders and would be exempt from Retailers' Occupation Tax liability on those sales. However, the seller will incur either Service Occupation Tax liability or Use Tax liability, depending upon the seller's activities in relation to the sale of those 45 rain gutter components.  See the Department's Service Occupation Tax rules, 86 Ill. Adm. Code 140.

 

C)        Repeat order by same purchaser.  For example, on June 1, a purchaser orders 20 identical window cladding materials that are to be engineered and fabricated by the seller and would otherwise qualify for exemption under subsection (b) of this Section.  The seller will incur Service Occupation Tax liability or Use Tax liability depending upon the seller's activities, rather than Retailers' Occupation Tax liability, in relation to those sales.  See the Department's Service Occupation Tax rules, 86 Ill. Adm. Code 140.  If, however, on June 2, the same purchaser orders another 10 window cladding materials that are identical to the first 20 window cladding materials ordered by that purchaser, then the seller will incur Retailers' Occupation Tax liability on the sales of those 10 additional window cladding materials because those transactions are considered subsequent sales by the seller of the same item without material change (repeat orders).  In this example, the seller's skill that is involved after the first order is made is considered production skill and not specialized engineering and design skill.

 

D)        Repeat order by different purchaser.  For example, on June 1, a purchaser orders 20 identical roof trusses that are to be engineered and fabricated by the seller and would otherwise qualify for exemption under subsection (b) of this Section.  The seller will incur Service Occupation Tax liability or Use Tax liability, depending upon the seller's activities, rather than Retailers' Occupation Tax liability, in relation to those sales.  See the Department's Service Occupation Tax rules, 86 Ill. Adm. Code 140.  Later that day on June 1, a different purchaser orders 10 roof trusses that are identical to the first 20 roof trusses ordered earlier that day by the previous purchaser.  The seller will incur Retailers' Occupation Tax liability on the sales of those 10 roof trusses because those transactions are considered subsequent sales by the seller of the same item without material change (repeat orders).  On June 2 another purchaser orders 30 roof trusses that are identical to the roof trusses ordered on June 1 by previous purchasers.  The seller will incur Retailers' Occupation Tax liability on the sales of those 30 roof trusses because those transactions are considered subsequent sales by the seller of the same item without material change (repeat orders).  In this example, the seller's skill that is involved after the first order is made is considered production skill and not specialized engineering and design skill.

 

5)         In the case of special assemblies, such as switchboards, where the completed product is made almost entirely of standard parts and materials that can be interchanged in other like products and sold to other users, the sale is taxable.

 

b)         When Not Liable For Retailers' Occupation Tax

 

1)         The seller of a special machine, tool, die, jig, pattern, gauge or other similar item is engaged primarily in a service occupation, rather than in the business of selling tangible personal property, and so does not incur Retailers' Occupation Tax liability with respect to the sale, if the following tests for exemption are all met in the transaction:

 

A)        The purchaser employs the seller primarily for his engineering or other scientific skill to design and produce the property on special order for the purchaser and to meet the particular needs of the purchaser;

 

B)        the property has use or value only for the specific purpose for which it is produced; and

 

C)        the property has use or value only to the purchaser.

 

2)         On the requirement of design by the seller, it is sufficient if the seller is responsible for making a substantial contribution to the designing of the property that is to be produced on special order and sold.

 

3)         If the item qualifies for Retailers' Occupation Tax exemption under this Section, the exemption is not lost merely because the seller subcontracts the service work to someone else as long as the seller is contractually responsible to see that the necessary service work is provided.

 

4)         On the question of "use or value only to the purchaser", this test for exemption is met if the property is not standard enough to be stocked or to be ordered from a catalog or other type of sales literature, but has to be produced in accordance with special requirements that are peculiar to the purchaser and not common to someone else whose conditions for possible use of the property can be shown by the Department to be reasonably comparable to those of the purchaser.

 

5)         In the case of special assemblies such as special conveyors, the sale does not become taxable (if it would otherwise be exempt under this subsection (b)) merely because a fairly substantial portion of the completed product is made of standard parts or of raw material (such as steel) that can be stocked for sale.

 

6)         The seller has the burden of establishing that the sale qualifies for exemption under the provisions of this subsection (b), and unless the seller overcomes that burden, the sale is taxable under the Retailers' Occupation Tax Act.

 

c)         Cross Reference to Service Occupation Tax Regulations

When a seller is exempt from the Retailers' Occupation Tax under subsection (b) of this Section because of being engaged primarily in a service occupation, the transaction is governed by the Service Occupation Tax (see Subpart A of the Service Occupation Tax rules, 86 Ill. Adm. Code 140).

 

(Source:  Amended at 32 Ill. Reg. 17519, effective October 24, 2008)

 

Section 130.2120  Suppliers of Persons Engaged in Service Occupations and Professions

 

a)         When Liable For Retailers' Occupation Tax

            Suppliers of persons engaged in service occupations and professions incur Retailers' Occupation Tax liability when, apart from engaging in a service occupation or profession themselves, they sell tangible personal property, such as tools, office equipment, fixtures, supplies, soap and other tangible personal property to such persons, who retain and use or consume such tangible personal property, or who give such property away apart from their sale of other tangible personal property or service.

 

b)         When Not Liable For Retailers' Occupation Tax

 

1)         Persons who sell tangible personal property to purchasers who resell the property to others, either as an incident to engaging in a service occupation  or profession, or apart from engaging in any such activity, are selling tangible personal property to purchasers for purposes of resale and do not incur Retailers' Occupation Tax liability when making such sales.

 

2)         However, suppliers are required to collect the Service Occupation Tax from servicemen when selling them tangible personal property which they will retransfer as an incident to rendering services for users (see Subpart A of the Service Occupation Tax Regulations).

 

(Source:  Amended and effective April 19, 1968)

 

Section 130.2125  Discount Coupons, Gift Situations, Trading Stamps, Automobile Rebates and Dealer Incentives

 

a)         Application of Tax

 

1)         Application of Retailers' Occupation Tax

A retailer incurs Retailers' Occupation Tax on its gross receipts from sales, which is defined as the total selling price of a sale.  Under Section 1 of the Retailers' Occupation Tax, selling price means the consideration for a sale valued in money, whether received in money or otherwise, including cash, credits, property, other than as provided in the statutory definition, and services. [35 ILCS 120/1]  The source of the consideration received by a retailer is immaterial in determining the gross receipts subject to tax.  (See Ogden Chrysler Plymouth, Inc. v. Bower, 348 Ill.App.3d 944 (2004).)  In holding that the payments made by DaimlerChrysler Motor Corporation to an auto dealer as part of a purchase of an automobile by an employee under an employee vehicle purchase program were includable in gross receipts, the court stated that the definitions of gross receipts and selling price "do not limit gross receipts or consideration to that received only from the purchaser".  See also Keystone Chevrolet Co. v. Kirk, 69 Ill.2d 483 (1978).  Consequently, if a retailer allows a purchaser a discount from the selling price on the basis of a discount coupon, the retailer's gross receipts subject to tax depends upon whether the retailer receives any reimbursement for the amount of the discount.  (See subsection (b).)

 

2)         Application of Complementary Use Tax

Use Tax is generally imposed on the selling price of tangible personal property purchased at retail.  Since the Retailers' Occupation Tax Act and the Use Tax work together in a complementary manner (see 86 Ill. Adm. Code 150.130), Section 2 of the Use Tax Act contains the same definition of "selling price" as that found in Section 1 of the Retailers' Occupation Tax Act (i.e., selling price means the consideration for a sale valued in money, whether received in money or otherwise, including cash, credits, property, other than as provided in Section 2 of the Use Tax Act, and services  [35 ILCS 105/2]).  Whether discount coupons utilized by a purchaser for the purchase of tangible personal property constitute consideration for a sale depends upon whether the retailer receives any reimbursement for the amount of the discount.  (See subsection (b).)  If the retailer receives full or partial reimbursement for the amount of the discount, as explained in subsection (b), the amount of the discount that is reimbursed is considered to be part of the selling price of the sale.  The purchaser incurs tax on the entire selling price, including the amount of the discount paid to the retailer by the issuer of the coupon.

 

b)         Discount Coupons

 

1)         Where the retailer receives no coupon reimbursement:

If a retailer allows a purchaser a discount from the selling price on the basis of a discount coupon for which the retailer receives no reimbursement from any source, the amount of the discount is not subject to Retailers' Occupation Tax liability.  Only the receipts actually received by the retailer from the purchaser, other than the value of the coupon, are subject to the tax.  For example, if a retailer sells an item for $10 and the purchaser provides the retailer with a $1 in-store coupon for which the retailer receives no reimbursement from the manufacturer of the item or any other source, the retailer's gross receipts of $9 are subject to Retailer's Occupation Tax.

 

2)         Where the retailer receives full or partial coupon reimbursement:

 

A)        If a retailer allows a purchaser a discount from the selling price on the basis of a discount coupon for which the retailer will receive full or partial reimbursement (from a manufacturer, distributor or other source), the retailer incurs Retailers' Occupation Tax liability on the receipts received from the purchaser and the amount of any coupon reimbursement.  For example, if a retailer sells an item for $15 and the purchaser provides the retailer with a $5 manufacturer's coupon for which the retailer receives full reimbursement from the manufacturer of the item, the retailer's gross receipts of $15 are subject to Retailers' Occupation Tax.  The purchaser incurs tax on the $15 selling price of the item, which includes the $10 paid by the purchaser and the $5 reimbursement paid to the retailer by the manufacturer of the item.

 

B)        However, payments received by the retailer (from a manufacturer, distributor or other source) for handling charges or administrative expenses in processing coupons are not subject to the tax if those payments are clearly distinguished from coupon value reimbursement.  In addition, if the retailer receives a discount from a manufacturer, distributor or other source when purchasing tangible personal property for resale, and, pursuant to a contract with that manufacturer, distributor or other source, the retailer issues discount coupons applicable to the sale of property, the coupons shall not be deemed to be reimbursed by the manufacturer, distributor or other source.

 

c)         Gift Situations

 

1)         Where a retailer, manufacturer, distributor, or other person, issues a coupon that entitles the bearer to obtain an item of tangible personal property free of any charge whatever and not conditioned on the purchase of other property, the furnishing of the tangible personal property does not constitute a sale under the Retailers' Occupation Tax Act and the retailer does not incur Retailers' Occupation Tax liability with respect to the transfer.  However, the retailer, manufacturer or distributor, or other person, issuing a coupon, as donor, incurs Use Tax liability on his cost price of all tangible personal property actually transferred as a result of the coupon.  (See Subpart C of the Use Tax Regulations (86 Ill. Adm. Code 150).)

 

2)         If a bearer (customer) presents a retailer with a coupon issued by the retailer that entitles the bearer to a free item and the coupon is not conditioned on a purchase, the retailer incurs Use Tax based upon its cost price of the item given away.  However, if a bearer (customer) presents a retailer with a coupon issued by the manufacturer that entitles the bearer to a free item and the coupon is not conditioned on a purchase by the customer, the manufacturer incurs Use Tax based upon its cost price of the item given away. However, in many cases, the manufacturer incorporates language into the coupon that requires the bearer (customer) to assume this Use Tax liability.

 

d)         Trading Stamps

Persons who engage in the business of transferring tangible personal property upon the redemption of trading stamps shall be deemed to be engaged in the business of selling tangible personal property at retail and shall be liable for and shall pay the tax imposed by the Retailers' Occupation Tax Act on the basis of the retail value of the property transferred upon redemption of stamps.  When merchandise is paid for partly in cash and partly by surrendering a trading stamp valued at a specific amount, the total amount (including the value of the surrendered trading stamp) is subject to Retailers' Occupation Tax.

 

e)         Automobile Rebates

 

1)         If an automobile dealer accepts a manufacturer's rebate provided by a customer as part of the payment for the retail sale of an automobile or other type of vehicle, the amount of the reimbursement or payment paid by the manufacturer to the dealer is part of the taxable gross receipts received by the dealer for the sale of that automobile or other type of vehicle.

 

2)         Automobile Rebate Examples:

 

EXAMPLE 1 (taxable – customer applies rebate amount to purchase price):  An automobile manufacturer offers a $1,000 rebate to purchasers of certain automobiles at or near the end of a model year.  The dealer sells one of the qualifying vehicles to a customer for $30,000.  The customer has the option of receiving the payment from the manufacturer for the rebate or assigning the rebate to the purchase price of the vehicle.  The customer chooses to apply the $1,000 rebate amount to the purchase price of the vehicle.  Since the dealer will receive a payment from the manufacturer of $1,000 and $29,000 from the customer, the taxable gross receipts received by the dealer for this sale are $30,000.

 

EXAMPLE 2 (not taxable – customer does not apply rebate amount to purchase price):  An automobile manufacturer offers a $1,000 rebate to purchasers of certain automobiles at or near the end of a model year.  The dealer sells one of the qualifying vehicles to a customer for $30,000.  The customer has the option of receiving the payment from the manufacturer for the rebate or assigning the rebate to the purchase price of the vehicle.  The customer does not choose to apply the $1,000 rebate amount to the purchase price of the vehicle and instead chooses to keep the amount of the rebate.  Since the dealer will receive $30,000 from the customer and no payment from the manufacturer, the taxable gross receipts received by the dealer for this sale are $30,000.

 

f)         Automobile Dealer Incentives

 

1)         This subsection (f) is effective for sales made on and after July 1, 2008.  The taxation of automobile dealer incentives will depend upon whether the dealer receives a payment from a source other than the purchaser that is conditioned upon the retail sale of an automobile.  If an automobile dealer receives a payment as an incentive for the retail sale of an automobile, the amount of that reimbursement or payment is part of the taxable gross receipts received by the dealer for the sale of that automobile.  If a dealer receives payment in exchange for the purchase of an automobile from a supplier or manufacturer, and that payment is not conditioned upon the sale of that automobile to a retail consumer, the amount of that payment is not part of the taxable gross receipts received by the dealer for the retail sale of that automobile.  The determination of taxability under the provisions of this subsection (f)(1) is not dependent on whether the retailer is required to lower the selling price of the vehicle as a condition for receiving the incentive payment.  Notwithstanding the provisions of this subsection (f)(1), the payment is not part of the taxable gross receipts from a retail sale if, at the time of the retail sale, the payment is contingent on the dealer making or having made any additional retail sales.  In addition, a dealer incentive or bonus contingent on the dealer meeting certain manufacturer required marketing standards, facility standards, or sales and service department satisfaction goals is not part of the taxable gross receipts from a retail sale of vehicles sold by that dealer, even if the incentive or bonus is calculated using the gross receipts, Manufacturer's Suggested Retail Price (MSRP), or a flat amount per vehicle.

 

2)         Automobile Dealer Incentive Examples:

 

EXAMPLE 1 (taxable incentive payments − payment conditioned on the retail sale):  An automobile manufacturer offers a dealer incentive (sometimes referred to as "dealer cash") of $1,000 for each of a specific type of automobile sold to a retail customer during the month of March.  An automobile dealer sells that type of a vehicle to a retail customer for $38,000 during the month of March.  The retail sale of that vehicle qualifies the dealer for the manufacturer's dealer incentive payment of $1,000 for the retail sale of that vehicle.  The purchaser pays the dealer $38,000 and the dealer receives $1,000 from the manufacturer.  Since the $1,000 payment is conditioned only upon the sale of that vehicle and is not conditioned upon the sale of any other vehicle or vehicles, the taxable gross receipts received by the dealer for this sale are $39,000.

 

EXAMPLE 2 (nontaxable incentive payments − payment conditioned on the retail sale, but only after a certain number of sales have been made):  An automobile manufacturer offers a dealer incentive payment (sometimes referred to as "dealer cash") of $1,000 for each of a specific type of automobile sold to a retail customer in the month of March, but only if the dealer sells at least 15 of that type of vehicle during that month.  An automobile dealer sells that type of vehicle to a retail customer for $38,000 on March 25.  The dealer had sold 14 of that type of vehicle earlier that month and the sale on March 25 qualified the dealer for the $1,000 manufacturer payment on that sale and each of the 14 previous sales.  The gross receipts from the sale on March 25 are $38,000 and the $1,000 manufacturer's payment is not part of the dealer's gross receipts from that sale.  In addition, the $14,000 payment to the dealer for the sales of the previous 14 vehicles was contingent upon the sale of other vehicles and is not part of the gross receipts from the sales of those vehicles.  If the dealer sold a vehicle on March 26 and qualified for another $1,000 manufacturer payment for that sale, the $1,000 manufacturer payment would not be part of the dealer's gross receipts from that sale.

 

EXAMPLE 3 (non-taxable dealer hold-backs − payment not conditioned on the retail sale):  A manufacturer provides dealer hold-back payments to its automobile dealers of 3% of the invoice price of each vehicle purchased from that manufacturer.  The dealer hold-back payments are paid to the dealer on a quarterly basis regardless of whether that dealer has sold at retail one or more of the vehicles it had purchased that quarter.  The dealer purchases a vehicle from the manufacturer at the beginning of the month for an invoice price of $39,000 and then sells that vehicle 10 days later at retail for $40,000.  The manufacturer of that vehicle pays an amount to the dealer of $1,170 (3% of the invoice price of $39,000) at the end of the quarter as a dealer hold-back for that vehicle.  Since the $1,170 hold-back payment to the dealer from the manufacturer is conditioned only on the purchase of the vehicle from the manufacturer (not on the subsequent retail sale of the vehicle), the taxable gross receipts received by the dealer for this sale are only $40,000.

 

EXAMPLE 4 (non-taxable − payment not conditioned on the retail sale):  An automobile dealer normally offers a specific type of vehicle for retail sale for $40,000.  The manufacturer of that vehicle agreed to pay an incentive to the dealer of $3,000 for each of that type of vehicle that the dealer purchased for resale from the manufacturer during a specified promotional period.  After purchasing the vehicle during the qualifying period, the dealer offered the vehicle for sale at a reduced or discounted price of $37,000.  A retail purchaser agrees to purchase the vehicle for $37,000.  Since the $3,000 incentive provided to the dealer from the manufacturer is conditioned only on the dealer's purchase of the vehicle from the manufacturer (not on the subsequent retail sale of the vehicle), the taxable gross receipts received by the dealer for this sale are $37,000.

 

EXAMPLE 5  (non-taxable performance bonus payments):  An automobile manufacturer establishes a performance bonus program for automobile dealers who obtain a certain customer service index (CSI) score that demonstrates a substantial degree of satisfaction from their sales and service customers.  Upon meeting the requirement, the automobile dealer will receive an incentive payment from the manufacturer calculated as 2% of the MSRP of the vehicles sold by that dealer during the incentive period.  Because the bonus is contingent on the dealer meeting certain customer satisfaction goals as indicated by the CSI score, the manufacturer's performance bonus would not be part of the gross receipts received by that dealer for the sales of those vehicles.

 

EXAMPLE 6 (non-taxable marketing or facility incentive payments):  An automobile manufacturer creates an incentive program for automobile dealers who meet certain marketing standards or facility standards designed to increase sales and brand loyalty.  Upon meeting the standards, the automobile dealer will receive an incentive payment from the manufacturer calculated as a flat amount of $500 per vehicle sold by the dealer during the incentive period.  Because the incentive is contingent on the dealer meeting certain marketing or facility standards set by the manufacturer, the $500 incentive payments would not be part of the gross receipts received by that dealer for the sales of those vehicles.

 

(Source:  Amended at 39 Ill. Reg. 12597, effective August 26, 2015)

 

Section 130.2130  Undertakers and Funeral Directors

 

a)         Funeral Directors – When Liable For Tax

 

1)         A funeral director is engaged in the business of selling tangible personal property to purchasers for use or consumption when he sells such items of tangible personal property as caskets, grave vaults, grave clothing and flowers to purchasers for use or consumption, and he is required to remit Retailers' Occupation Tax to the Department on his gross receipts from such sales.  This is true even though he makes such sales as a part of a funeral.

 

2)         In the absence of invoices and other books and records disclosing a different retail price, the Department will presume that the funeral director's retail selling price of a casket is not less than double the price at which the casket was purchased by such funeral director.

 

3)         In the absence of invoices and other books and records disclosing a different retail price, the Department will presume that a funeral director's retail selling price of grave clothing, vaults, flowers and other tangible personal property is not less than the retail price of similar property when it is sold "over-the-counter" apart from the rendering of undertaking services.

 

b)         Funeral Directors – When Not Liable For Tax

            A funeral director or undertaker is engaged also in a service occupation or profession within the meaning of Section 1 of the Retailers' Occupation Tax Act when he performs such functions as embalming bodies or when he provides livery service and other equipment in the conducting of funerals. To the extent to which he engages in such service occupation or profession, he is not engaged in the business of selling tangible personal property to purchasers for use or consumption and is not required to remit Retailers' Occupation Tax measured by any of his receipts from engaging in such service occupation or profession, including those receipts which represent the price of tangible personal property, such as embalming fluids and the like, which he transfers to others as a necessary incident to his engaging in a service occupation as a funeral director.

 

c)         Funeral Directors – Liability Under Service Occupation Tax

            For information concerning the application of the Service Occupation Tax to the funeral director's purchase of embalming fluid or other tangible personal property which he retransfers as an incident to rendering service, see the Service Occupation Tax Regulations.

 

d)         "Pre-need" Contracts

            When a "pre-need" contract is entered into allowing customers to pre-select cemetery or other funeral services and merchandise where the customer agrees to pay for cemetery or other funeral merchandise in installments over a period of time and the payments received are placed in trust and not paid to the seller until a certified death certificate, a death maturity form and a certificate of performance is given to the trustee, a sale at retail does not occur until the delivery of the tangible personal property. A retail sale only occurs when there is a transfer of tangible personal property.  (See Section 130.201 of this Part.)  If multiple items of tangible personal property are subject to the contract, delivery of one item does not trigger the taxability of all items.  Only the item delivered is subject to taxation.  The tax rate in effect on the date of delivery is the rate that will be applied.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.2135  Vending Machines

 

a)         Vending Machine Sales – To Whom Taxable

Except as provided in subsection (e) of this Section, where tangible personal property is sold to users or consumers by means of vending machines, the person owning the property contained in such vending machines makes final sales of such property for use or consumption and becomes liable for Retailers' Occupation Tax.

 

b)         When Owner of Establishment is Taxable

When vending machines are placed in an establishment, the person operating such establishment sometimes owns the articles sold through the vending machines and makes collection of the coins deposited in the machines in payment for articles so sold.  Under such conditions, such person must report and pay the tax measured by his gross receipts from sales made through such vending machines.

 

c)         When Owner of Establishment is Not Taxable

However, if the person operating such establishment has no control over or right of access to the articles in vending machines located on his premises, and if he has no access to the gross receipts in such machines and no right to remove such receipts without the consent of the owner of such machines, he will not be considered to be the owner of the articles sold through such vending machines and so will not be the person who incurs Retailers' Occupation Tax liability with respect to such vending machine sales.

 

d)         When Person Other Than Owner of Establishment is Taxable

When someone other than the owner of the establishment owns the property that is sold through the vending machines, such owner of such property is liable for tax measured by his gross receipts from such sales, without deducting from such receipts any amounts paid as commission.

 

e)         Exemption for Bulk Sales of Merchandise From Vending Machine

Effective July 27, 1971 through December 31, 2001, the sale of merchandise from a bulk vending machine for 1 is exempt from the Retailers' Occupation Tax.  On and after January 1, 2002, the sale of merchandise from a bulk vending machine for 50¢ or less is exempt from the Retailers' Occupation Tax.  Prior to January 1, 2002, "bulk vending machine" means a nonelectrically operated vending machine, containing unsorted confections, nuts or other merchandise which, when a coin of a denomination not larger than 1 is inserted, are dispensed in equal portions, at random and without selection by the customer.  On and after January 1, 2002, "bulk vending machine" means a vending machine, containing unsorted confections, nuts, toys, or other items designed primarily to be used or played with by children which, when a coin or coins of a denomination not larger than $0.50 are inserted, are dispensed in equal portions, at random and without selection by the customer.  (Section 1 of the Act)

 

(Source:  Amended at 26 Ill. Reg. 5369, effective April 1, 2002)

 

Section 130.2140  Vendors of Curtains, Slip Covers and Other Similar Items Made to Order

 

a)         When Liable For Tax

 

1)         Persons who engage in the business of selling portieres, drapes, curtains, marquee curtains, slip covers, tents, tarpaulins and other similar items incur Retailers' Occupation Tax liability when selling the items (with or without installation by the seller) to purchasers for use or consumption and not for resale whether the items are sold as stock or standard items or whether the seller produces the items on special order for the purchaser.

 

2)         The same is true when custom-made Venetian blinds, window shades, awnings, screen doors, window screens, storm doors and storm windows are sold at retail "over-the-counter" without installation by the seller as a construction contractor under Section 130.1940(c) of this Part.  This is true because the items, when produced on special order, serve substantially the same function as stock or standard items of tangible personal property that is sold at retail.

 

3)         When sellers permanently affix tangible personal property to real estate, they act as construction contractors and incur Use Tax rather than Retailers’ Occupation Tax.  (For further information regarding the sales tax liabilities of construction contractors, see the Department’s regulations on Construction Contractors and Real Estate Developers at 86 Ill. Adm. Code 130.1940 and Sales to Construction Contractors, Real Estate Developers and Speculative Builders at 86 Ill. Adm. Code 130.2075.)

 

b)         Labor Charges

 

1)         In computing Retailers' Occupation Tax liability on the retail sale of custom-made items, no deduction may be taken for the cost of labor involved in producing the finished item for sale.  This is true whether the production labor is included in a lump sum price with the tangible personal property or whether the production labor is priced separately from the tangible personal property.  The thing that is being sold is the finished item (e.g., drapes), and the cost of labor involved in making the item is no more deductible than is the cost of labor that is involved in producing a stock or standard item for sale.

 

2)         However, receipts from installation charges are deductible from total receipts in computing Retailers' Occupation Tax liability if the charges are contracted for by the seller and the purchaser separately from the selling price of the finished tangible personal property, but even receipts from installation charges are taxable if the installation charge is included in a lump sum price with the tangible personal property (see Section 130.450 of this Part).

 

(Source:  Amended at 27 Ill. Reg. 17216, effective November 3, 2003)

 

Section 130.2145  Vendors of Meals

 

a)         Vendors of Meals − When Liable for Tax

 

1)         Persons engaged in the business of selling meals to purchasers for use or consumption incur retailers' occupation tax liability on their receipts from those sales.  It is immaterial that no profit is realized from the operation of this type of business if the seller is engaged in a commercial enterprise, or if the seller engages in activities that make it taxable under the terms of Section 130.2005 of this Part.  It is also immaterial that the class of purchasers may be a limited one, such as the employees of a particular employer who operates a cafeteria or other dining facilities for the benefit of its employees.

 

2)         Subsection (a)(1) includes, but is not limited to, the following types of vendors:

 

A)        hotels;

 

B)        restaurants;

 

C)        caterers;

 

D)        boarding houses;

 

E)        concessionaires;

 

F)         nonprofit service organizations and institutions to the extent indicated in Section 130.2005(a), (b), and (d) of this Part, and similar enterprises when conducted with a view to profit to the extent indicated in Section 130.2005(p) of this Part;

 

G)        employers who operate dining facilities for the benefit of their employees, except to the extent noted in Section 130.2005(b) of this Part; and

 

H)        sellers of food and beverages, delivered in Illinois to airlines, for use in serving passengers on aircraft without a separate charge for the food or beverages being made by the airline, regardless of whether the airline may serve the food and beverages in Illinois or outside Illinois; sales of meals to airlines for use on their aircraft in serving crews, where the cost is deducted from a food allowance, are nontaxable sales for resale, but if the meals are delivered to the airline in Illinois, the airline incurs retailers' occupation tax liability on its receipts (consideration in the form of compensation for service rendered) from reselling the meals to crews, regardless of whether the aircraft is in Illinois or outside Illinois when it serves the meals to its crew.

 

b)         Vendors of Meals to Organizations or Their Members

 

1)         Effective August 1, 1961, when members of an organization meet at a hotel, restaurant, or other place of business where food or drinks are sold and pay for those items, the hotel, or other vendor of meals, is considered to be selling such tangible personal property directly to members as users or consumers, and the sales shall be considered to be taxable.  This is true even if the organization collects from the members and makes payment to the vendor, and even if the organization is permitted to retain a portion of what it collects for its own purposes.

 

2)         In this situation, the organization is deemed to be acting for the accommodation of all concerned and is not deemed to be standing in the role of a purchaser and reseller.

 

3)         The measure of the tax is the amount received by the hotel, etc., for the tangible personal property that it furnishes.

 

4)         The principles stated in this Section apply also when the tangible personal property that is being sold is something other than food and drinks, but this Section is concerned primarily with vendors of food and drinks.

 

c)         Cover Charges and Minimum Charges

 

1)         Cover Charges

 

A)        Cover charges are not included in the taxable receipts of persons operating restaurants, hotels and other places of business that come within the Retailers' Occupation Tax Act ("Act"), when cover charges are made exclusively for the privilege of occupying space within the eating place, and when the payment of a cover charge by a patron does not entitle the patron to use or consume any food or beverage or other tangible personal property.

 

B)        In such an instance, the cover charge is a receipt on account of a service rendered, whether the service be entertainment or otherwise, and does not accrue on account of the sale of tangible personal property at retail.

 

2)         Minimum Charges

 

A)        The provisions regarding cover charges do not apply to so-called "minimum charges" that are made by night clubs, public eating places, private clubs or other retailers of food or beverages or both, and that entitle the persons paying the charge to use or consume some tangible personal property, such as food or beverages, without additional payment.  The retailer's receipts from these charges are subject to retailers' occupation tax.

 

B)        Similarly, when a single charge is made for both entertainment and food and the charge for food is not separately stated on the customer's bill, the entire charge is subject to tax.  For example, when a dinner theater charges $50 for a show and includes food and beverages, the entire $50 is subject to tax unless a separate charge is made for the food and beverages.

 

C)        However, minimum charges imposed by country clubs that must be paid regardless of whether the member purchases food or beverages are subject to tax only to the extent they are incurred for actual food or beverage purchases.  (See Aurora Country Club, Inc. v. Department of Revenue, 50 Ill.App.3d 756, 365 N.E.2d 229 (2d Dist. 1977).)

 

d)         Mandatory Service Charges

Mandatory gratuities are not included in the taxable receipts of persons operating restaurants, hotels and other places of business that come under the Act, if the mandatory gratuity is added to banquet or dinner checks in the form of a percentage of the total bill, or as a flat rate, to the extent that the proceeds of the service charge are in fact turned over as tips or as a substitute for tips to the employees who participate directly in preparing, serving, hosting or cleaning up the food or beverage function with respect to which the service charge is imposed. [35 ILCS 120/2-5(15)] If any part of the service charges are used to fund or pay wages, labor costs, employee benefits or employer costs of doing business, that part of the service charge is includable in gross receipts.

 

e)         Rentals of Banquet, Meeting and Conference Rooms − True-object Test

The taxation of charges for the rental of a banquet, meeting, conference, or similar room in conjunction with the providing of food or beverages will depend upon the nature of the transaction.  The Department uses a "true-object" test to characterize the nature of these transactions.

 

1)         If the true object of the transaction is the rental of the room and if food or beverages are provided incidentally to the rental of the room, no tax is incurred on the charges for the rental of the room.  If no separate charge is made under the contract for the incidental amount of food or beverages provided, the rentor is considered the user of the food or beverages and incurs use tax on its cost price of the food or beverages transferred incidentally to the rental of the room.  If a separate charge is made for any food and beverages transferred incidentally to the rental of the room, the rentor incurs retailers' occupation tax on the selling price of the food or beverages.  See Section 130.310 of this Part regarding the appropriate tax rate for sales of food.

 

2)         If the true object of the transaction is the sale of food or beverages, any room rental charges are part of the seller's costs of doing business and are includable in the seller's taxable gross receipts even if the charges for the room rental are separately stated on the agreement or bill between the seller and its customers.  See Section 130.410 of this Part.  The rental of the room is considered an inseparable link in the sale of the food and beverages to the customer and is not merely incidental to the seller's business of selling food or beverages.

 

3)         If the rental contract requires that alcoholic beverages or food and other beverages be provided or sold by a specific third party or from a choice of providers specified by the rentor, the rentor shall be deemed to be the provider of the alcoholic beverages, food, and other beverages for purposes of determining the taxation of the room rental charge. 

 

4)         This subsection (e) is applicable to rentals of rooms in situations in which those rentals are not subject to tax under the Hotel Operators' Occupation Tax Act.

 

f)         True Object – Rental of Room

The Department deems an incidental provision of food or beverages to include the providing of non-alcoholic beverages, such as coffee, tea, and soft drinks, and the providing of snacks, such as cookies, popcorn, candy, doughnuts, fruits, and raw vegetables.

 

EXAMPLE 1:  A person contracts for the rental of a meeting room at a hotel for a business meeting.  As part of the contract, the hotel agrees to provide coffee, tea, soft drinks, and cookies at no extra charge to the participants of the meeting.  The true object of this transaction is deemed to be the rental of the room and any food and beverages provided are incidental to the renting of the room.  The hotel does not incur retailers' occupation tax on the charges for the rental of the room and the incidental providing of food and beverages.  The hotel does incur Use Tax on its cost price of the coffee, tea, soft drinks, and cookies provided incidental to the rental of the room.

 

EXAMPLE 2:  A person contracts for the rental of a meeting room at a hotel for a business meeting.  The hotel agrees to provide coffee, tea, soft drinks, and cookies at the meeting for a separately stated charge as part of the contract.  The true object of this transaction is deemed to be the rental of the room and any food and beverages provided are incidental to the renting of the room.  In this transaction, the hotel incurs retailers' occupation tax on the charge for sale of the coffee, tea, soft drinks, and cookies.  The gross receipts subject to retailers' occupation tax do not include the separate charge for the rental of the room.

 

EXAMPLE 3:  A person rents a room for a wedding reception from a hotel, but that person separately contracts for the food and beverages with a caterer instead of the hotel.  The contract between the hotel and the customer did not specify any particular caterers.  The true object of the transaction is deemed to be the rental of the room since the caterer and not the hotel provides the food and beverages.  No retailers' occupation tax is incurred on the hotel's rental charges in this instance.

 

g)         True Object – Sale of Food and Beverages

The Department deems the providing of any food other than snacks to be the true object of the transaction and not the rental of the room.  If alcoholic beverages are either provided or sold by the rentor to the persons attending the event for which the room is rented, the true object of the transaction will always be deemed the sale of food or beverages and not the rental of the room.  If the rental contract requires that the alcoholic beverages or the food and other beverages be provided or sold by a specific third party or from a choice of providers specified by the rentor, the rentor shall be deemed to be the provider of those alcoholic beverages, food, and other beverages for purposes of determining the taxation of the room rental charge. 

 

EXAMPLE 1:  A person contracts for the rental of a meeting room at a hotel for a business luncheon.  As part of the contract, the hotel agrees to provide coffee, tea, soda, soup, sandwiches, and various desserts to the participants of the luncheon meeting for no extra charge.  The true object of this transaction is deemed to be the sale of food and beverages and not the rental of the room.  The hotel incurs retailers' occupation tax on its gross receipts from the sale of the food and beverages, including the charges for the rental of the room.

 

EXAMPLE 2:  A person contracts for the rental of a meeting room at a hotel for a business after hours gathering with a speaker from a local business group.  The hotel provides snacks and non-alcoholic beverages for a separately stated charge as part of the contract.  The hotel provides for a bartender and agrees to sell alcoholic beverages to the participants at the gathering.  The true object of this transaction is deemed to be the sale of food and beverages and not the rental of the room.  The hotel incurs retailers' occupation tax on its gross receipts from the sale of the food and beverages, including the charges for the rental of the room. 

 

EXAMPLE 3:  A person contracts with a hotel for the rental of a banquet room for a wedding reception.  As part of the contract, the hotel charges that person a specific amount for each individual who attends the reception in exchange for providing beverages and a buffet meal to those individuals.  The true object of this transaction is deemed to be the sale of food and beverages and not the rental of the room.  The hotel incurs retailers' occupation tax on its gross receipts from the sale of the food and beverages, which includes the specific charge for each individual who attends the reception, along with any charges for the rental of the room. 

 

EXAMPLE 4:  A person contracts with a hotel for a room for a cocktail reception.  The hotel's rental contract requires that all alcoholic beverages and food be provided by a restaurant located on the hotel premises.  The restaurant is a separate legal entity from the hotel.  Because the hotel's rental contract requires this specific restaurant to provide the food and beverages, the hotel is considered to be the provider of the food and beverages, for purposes of determining taxation of the room charge.  The true object of the transaction is the provision of food and beverages, because alcoholic beverages and food are provided.  As a result, the hotel's charge for the room rental is subject to retailers' occupation tax.  The restaurant is subject to retailers' occupation tax on the sale of the alcoholic beverages and food.  If the hotel's rental contract had not required a specific third party to provide food and beverages, the charges for the room rental would not be subject to tax.

 

h)         Other Charges

Charges that are related to the provision of food or beverages are always part of the gross receipts from the sale of the food or beverages.  The reason the charges are part of the gross receipts subject to tax is because those charges are part of a seller's costs of doing business and are not deductible from a seller's gross receipts.  See Section 130.410 of this Part.  Examples of charges that are related to the provision of food and beverages include, but are not limited to, fees for food serving or carving and corkage, and charges for linens, chairs, tables, dishes, glassware, flowers, and centerpieces.  Examples of charges that are not related to the provision of food or beverages include, but are not limited to, charges for security, valet, coat check, entertainment, audiovisual and telecommunications services, and cancellation fees.

 

(Source:  Amended at 48 Ill. Reg. 10646, effective July 2, 2024)

 

Section 130.2150  Vendors of Memorial Stones and Monuments

 

a)         When Liable For Tax

 

1)         Persons who engage in the business of selling monuments, grave markers and the like to purchasers for use or consumption and not for resale incur Retailers' Occupation Tax liability on their receipts from such sales whether such items are sold as stock or standard items, or whether such items are produced on special order by the seller for the purchaser.  Such items, when produced on special order, serve substantially the same function as stock or standard items that are sold at retail.

 

2)         For information concerning the taxability or exemption of the seller's receipts from additional special service charges, such as lettering or installing the item for the purchaser, see Section 130.450 of this Part.

 

3)         Vendors of memorial stones and monuments also incur Retailers' Occupation Tax liability when they sell wreaths, flowers, floral or other grave blankets or other tangible personal property at retail.  This is true even though such vendors make such things as wreaths, bouquets, floral and other grave blankets on special order because such items have commercial value.

 

(Source:  Amended at 15 Ill. Reg. 6621, effective April 17, 1991)

 

Section 130.2155  Tax Liability of Sign Vendors

 

a)         Persons who sell signs may incur a Retailers' Occupation Tax, Service Occupation Tax or Use Tax liability, depending upon the circumstances of the sale.

 

b)         When Liable for Retailers' Occupation Tax

 

1)         Persons who engage in selling signs at retail incur Retailers' Occupation Tax liability notwithstanding the fact that the signs have use or value (other than salvage value) only to the purchaser, if such signs are not produced on special order for the purchaser.  Persons who engage in selling, at retail, signs which have commercial value (i.e., value to persons other than the purchasers thereof) incur Retailers' Occupation Tax liability when making such sales, even if such signs are produced on special order for the purchaser.

 

2)         Examples

 

A)        Signs that spell out "parking", "conference room", "real estate", and the like, but do not spell out the name of the purchaser nor the brand name of the purchaser's product and that are not otherwise similarly individualized have commercial value within the meaning of this Section.  Signs that spell out "conference room" that also have the room number specific to a particular building do not have commercial value within the meaning of this Section.

 

B)        Computerized signs that can be programmed to spell out anything that the purchaser inputs have commercial value unless the casing of the sign has been individualized with the name of the purchaser, the brand name of the purchaser's product, or otherwise individualized in a similar manner.  For example, computerized banner signs that can be programmed to spell out messages and that also permanently spell out a store's name on the casing surrounding the computerized portion of the sign have no commercial value.

 

c)         When Not Liable for Retailers' Occupation Tax But Liable for Service Occupation Tax

 

1)         A sign vendor does not incur Retailers' Occupation Tax liability, even though selling the sign at retail, if he produces such sign on the special order of a particular purchaser and if the sign has use or value (other than salvage value) only to such purchaser.  Sign vendors who produce special order signs that have value only to the purchaser of such sign incur a Service Occupation Tax liability.  For information concerning the application of the Service Occupation Tax to the purchases of materials by sign makers for incorporation into signs that they sell to users as an incident to engaging in a service occupation so as to be exempt from the Retailers' Occupation Tax, see the Service Occupation Tax Regulations at 86 Ill. Adm. Code 140.

 

2)         An example of the kind of sign contemplated by this subsection is a sign that is produced on special order for the purchaser and that spells out the name of the purchaser or the brand name of the purchaser's product, with or without other material.  This exemption from the tax extends to persons who act for customers in obtaining specially produced, personalized signs from sign vendors.

 

d)         When Not Liable for Retailers' Occupation Tax But Liable for Use Tax

 

1)         The analysis of tax liability in subsections (a) and (b) of this Section is based upon the assumption that the signs remain tangible personal property after installation.  If the signs are permanently affixed to real estate, then the tax consequences attributable to construction contractors apply.  Construction contractors are the end users of tangible personal property they affix to realty. As the end user, the construction contractor incurs Illinois Use and local Retailers' Occupation Tax reimbursement liabilities when the tangible personal property that will be converted to real estate is purchased.  For information concerning construction contractor situations, see Sections 130.1940 and 130.2075 of this Part.

 

2)         Examples

 

A)        A sign is permanently affixed to real estate when it is bolted or otherwise permanently affixed to the building or is hardwired into the building's general wiring system.

 

B)        A sign is permanently affixed to real estate when a permanent concrete foundation is made for the sign and the sign is affixed to its foundation or hardwired into an electrical system.

 

C)        A sign is permanently affixed to real estate when it is affixed to a pole that is placed in the ground.

 

(Source:  Amended at 26 Ill. Reg. 9885, effective June 24, 2002)

 

Section 130.2156  Vendors of Steam

 

a)         When Liable for Retailers' Occupation Tax

Persons who engage in the business of selling steam to purchasers for use or consumption and not for resale, incur Retailers' Occupation Tax liability on their receipts from such sales.  For example, when steam heat energy is transferred to the purchaser and the condensate, which results when the steam loses its heat, is not returned to the seller of the steam heat energy, then Retailers' Occupation Tax liability is incurred.

 

b)         When Not Liable for Retailers' Occupation Tax

Persons who are engaged in the business of transferring heat energy to purchasers using steam as the vehicle for that transfer, do not incur Retailers' Occupation Tax liability so long as no tangible personal property is transferred to the purchaser.  This would be the case, for example, where the condensate, which results when the steam loses its heat, is returned to the seller.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.2160  Vendors of Tangible Personal Property Employed for Premiums, Advertising, Prizes, Etc.

 

a)         When Liable For Retailers' Occupation Tax

 

1)         Persons engaged in the business of selling tangible personal property to purchasers who give such property away for premiums, advertising, prizes or for any other reason, apart from their sale of other tangible personal property or service, are engaged in the business of selling tangible personal property at retail and are liable for Retailers' Occupation Tax when making such sales.

 

2)         For example, the sale of blotters or calendars to a dealer who gives such items to others as part of a general goodwill, sales promotion or advertising campaign, apart from his sale of other tangible personal property or service, is a sale of the blotters or calendars at retail to such dealer. Other examples include posters, coffee mugs, pens, bumper stickers, and pins.

 

b)         When Not Liable for Retailers' Occupation Tax

 

1)         Persons who sell tangible personal property to purchasers who transfer such property to others along with other tangible personal property or service for which a charge is made are selling tangible personal property to purchasers for purposes of resale and are not liable for Retailers' Occupation Tax when making such sales.

 

2)         For example, the sale of match books to a dealer, who transfers such match books to customers along with cigarettes or cigars sold by the dealer to such customers, is a sale of the match books to the dealer for purposes of resale.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)

 

Section 130.2165  Veterinarians

 

a)         Veterinarians as Servicemen

Veterinarians are engaged primarily in rendering service to their clients and so are considered to be servicemen.  As medical professionals regulated under the Veterinary Medicine and Surgery Practice Act of 2004 (the Act) [225 ILCS 115], they typically provide services to persons with whom they have established a veterinarian-client-patient relationship (VCPR) as defined in Section 3 of the Act.  Under the Act, in order to maintain a valid VCPR, a veterinarian must maintain sufficient knowledge of the animal to initiate treatment and be readily available for follow-up.  In addition, a veterinarian must maintain adequate medical records, as provided in 68 Ill. Adm. Code 1500.50(k), and must comply with certification, licensure, professional conduct and disciplinary requirements, including continuing education mandates, as provided by the Act and 68 Ill. Adm. Code 1500.  Services provided by veterinarians are predicated upon compliance with these requirements.

 

b)         Tax Liabilities of Veterinarians

In conducting a veterinary practice, veterinarians may incur different types of tax, depending upon the nature of their activities.  When licensed veterinarians transfer tangible personal property to their clients as a result of the practice of veterinary medicine, a service transaction occurs that results in liability under the Service Occupation Tax Act.  Veterinarians also sometimes sell items of tangible personal property to clients or even to the general public outside the scope of a service transaction.  In such cases, they are considered to be retailers engaged in the business of selling tangible personal property at retail and incur retailers' occupation tax liability.  In addition, veterinarians incur use tax on items of tangible personal property that are not transferred to their clients and instead are consumed by them in the course of performing veterinary services.  Subsections (c) through (e) describe the requirements for a service transaction and define the tax liability that results from these transactions.  Also described are the circumstances under which retailers' occupation tax and use tax liability are incurred by veterinarians.

 

c)         Service Transactions – Requirements – Taxation

 

1)         In order for a transaction to be considered a service transaction for purposes of taxation, several requirements must first be met.  Specifically:

 

A)        A licensed veterinarian must have first established a valid VCPR with the service client, as defined in Section 3 of the Act;

 

B)        A licensed veterinarian must have physically examined the animal;

 

C)        A veterinary practice must maintain medical records demonstrating that the animal for whom tangible personal property was transferred was physically examined by a licensed veterinarian in that veterinary practice no more than 1 year prior to the date on which tangible personal property was transferred;

 

D)        The requirements of this subsection (c)(1) are not intended in any way to affect the requirements of the Act concerning the establishment or maintenance of a valid VCPR, but are intended only to establish the type of tax liability that will be incurred by a veterinary practice.

 

2)         When veterinarians engage in service transactions, they incur liability under the Service Occupation Tax Act.  See 86 Ill. Adm. Code 140 for a detailed explanation of these liabilities.  Assuming a valid VCPR has first been established, a service transaction occurs under the following circumstances:

 

A)        A service transaction occurs when medicines, drugs and other products are directly applied or administered by a licensed veterinarian during a veterinary examination.  Tangible personal property transferred may include, but is not limited to, vaccines, flea and tick products, shampoos, bandages, ointments, splints, and sutures.

 

B)        A service transaction occurs when a licensed veterinarian sells medicines, drugs and other products having a medicinal purpose, as defined in subsection (c)(2)(C), as part of a continuing plan for the health and well-being of an animal under the veterinarian's care.  These drugs, medicines and other medicinal products may be products that federal law restricts to use only by prescription from a licensed veterinarian, or may be products that are recommended by the veterinarian under a continuing plan for the health and well-being of the animal.  These transactions include refills of such drugs, medicines, and other medicinal products that are made over-the-counter without a physical examination of the animal on the date of the refill.  In order to document that qualifying items are transferred as part of a continuing plan for the health and well-being of the animal, the following requirements must be met:

 

i)          the licensed veterinarian transferring items to the service client (or the veterinarian's designee) must enter a notation in the animal's medical records that the medicine, drug or medicinal product was recommended or prescribed as a result of an examination or after consultation with the service client; and

 

ii)         the licensed veterinarian transferring items to the service customer (or the veterinarian's designee) must sign and contemporaneously date the notation in the animal's medical records; and

 

iii)        the animal's medical records must demonstrate that a licensed veterinarian in the veterinary practice that transferred the items to the animal examined the animal no more than 1 year prior to the date on which the items were transferred.

 

C)        For purposes of this subsection (c), a medicine, drug, or other product having a medicinal purpose means items that are ingested by or applied to an animal and that cure or treat disease, illness, injury, or pain or mitigate the symptoms of such disease, illness, injury, or pain.  Such items may include, but are not limited to, items that are required to be prescribed by a veterinarian; nonprescription medicines; vitamins, herbal remedies and dietary and nutritional supplements (e.g., glucosamine and chondroitin); medicated shampoos; topical flea and tick products applied directly on an animal for the control of fleas and ticks; and flea and tick collars.  Such items also include dental products such as toothpaste, toothbrushes, and chews that are specifically designed to promote dental health in animals; insecticides and insect growth regulators that are applied by broadcast treatment (e.g., hand pump sprayers or pressurized aerosols) or with total release aerosols or foggers; products used to treat urinary behavior issues; collars worn by an animal after surgery to prevent the removal of sutures; and splints and braces.  Animal food is considered to have a medicinal purpose only if its manufacturer restricts its sale to licensed veterinarians.  In order to document the requirement that the manufacturer restrict the sale of animal food to licensed veterinarians, a veterinarian shall annually obtain a letter from the manufacturer representing that the animal food is sold only to licensed veterinarians.  Provided that a veterinarian maintains this letter in the veterinarian's books and records, the Department shall consider the animal food to have a "medicinal purpose" for the period of one year following the date of issuance of the letter.  The following items are not considered to have medicinal purposes:  combs; brushes; shears; nail clippers; name tags; nonmedicated shampoo; leashes; collars; toys; clothing; odor eliminators; and waste handling products.  Prescriptions for animals are subject to the high rate of tax.  See 86 Ill. Adm. Code 130.311.

 

i)          EXAMPLE 1:  During a veterinary examination of a dog, a veterinarian breaks open a 6 dose package of flea and tick product and applies one packet to the dog.  The veterinarian recommends that the service client continue use of the flea and tick product and offers the remaining 5 packets for sale.  If the customer purchases all 5 packets of the flea and tick product at the time of the service transaction, the veterinarian will incur liability under the Service Occupation Tax on the 6 pack of flea and tick product (one applied to the animal incident to service, the other 5 transferred to the service customer as part of the service transaction).  If the service customer returns 6 months later and purchases 2 additional flea and tick packets without examination of the dog, the veterinarian will incur liability under the Service Occupation Tax provided that the veterinarian maintains the proper documentation in the veterinarian's books and records as required in subsection (c)(2)(B). 

 

ii)         EXAMPLE 2:  A service client's dog has fleas, so the client takes it to the veterinarian for treatment.  The veterinarian uses a lice comb to examine for fleas and then applies a nonprescription flea and tick bath to treat the infestation.  The veterinarian recommends that the service client purchase additional bottles of the product to ensure that treatment is complete.  The service client returns 2 weeks later to purchase an additional bottle of product.  The veterinarian will incur liability under the Service Occupation Tax on the flea and tick product transferred when treating the dog, as well as on the subsequent sale of the same flea and tick product (provided that the required documentation is maintained).  The veterinarian will incur Use Tax on the flea and tick comb used in practice (as well as other items used or consumed in the grooming and bathing of the dog, such as towels, dryers, or disposable pads).

 

3)         Application of Service Tax to Example

 

A)        In both Examples 1 and 2 of subsection (c)(2)(C), the veterinarian can remit service occupation tax based on the selling price of the tangible personal property transferred incident to service, as more fully explained in subsection (c)(3)(B).  However, if the annual aggregate cost price of all items transferred incident to service transactions is less than 35% of annual aggregate gross receipts from service, the veterinarian may elect instead to handle liability by being treated as a "de minimis" serviceman.  See 86 Ill. Adm. Code 140.106 for an explanation of the 35% threshold.  As a de minimis serviceman, the veterinarian may pay tax as follows:

 

i)          If the veterinarian does not make over-the-counter sales subject to retailers' occupation tax (e.g., sales of leashes, clippers, or combs), the veterinarian may elect to remit use tax to suppliers on the cost price of tangible personal property transferred incident to service (if suppliers are not registered to collect the use tax, the veterinarian must register for the limited purpose of self-assessing and remitting use tax on these purchases).  See 86 Ill. Adm. Code 140.108 for further information.  The veterinarian cannot provide Certificates of Resale to suppliers if electing this option.

 

ii)         If the veterinarian makes over-the-counter sales subject to retailers' occupation tax, the veterinarian may remit service occupation tax to the Department on the veterinarian's cost price of the tangible personal property transferred incident to service.  See 86 Ill. Adm. Code 140.109 for further information.  In this case, the veterinarian should provide Certificates of Resale to suppliers.  The veterinarian must register and file returns with payment of tax to the Department.

 

B)        If the veterinarian's annual aggregate cost price of all items transferred incident to service transactions is 35% or more of annual aggregate gross receipts from service, the veterinarian cannot elect to be treated as a de minimis serviceman.  The veterinarian must pay service occupation tax on the selling price of the tangible personal property transferred incident to service.  See 86 Ill. Adm. Code 140.106.  The veterinarian must register and remit returns with tax to the Department.  The veterinarian should provide Certificates of Resale to suppliers and may calculate selling price as follows:

 

i)          Separately stated selling price.  If the serviceman separately states the selling price of the tangible personal property transferred incident to service on billings to service customers, then service occupation tax liability is based on that separately stated selling price.  In no event, however, can the service occupation tax liability be based on an amount less than the serviceman's cost price of the tangible personal property being transferred.

 

ii)         Fifty percent base.  If the serviceman's bill to the service customer does not separately state the selling price of the tangible personal property transferred, the serviceman's service occupation tax liability is based on 50% of the entire customer bill.  However, in no event can the service occupation tax be based on an amount less than the serviceman's cost price of the tangible personal property being transferred.

 

d)         Retail Transactions – Defined – Taxation.  Retailers' occupation tax liability will be incurred by veterinarians in the following circumstances:

 

1)         Retailers' occupation tax liability will be incurred on the sale of any tangible personal property to persons with whom the veterinarian has not established a valid VCPR in accordance with the Act.  Such items may be medicinal (e.g., a flea and tick product for application on an animal) or non-medicinal (e.g., nonmedicated shampoos, combs, leashes, or collars).

 

2)         Retailers' occupation tax liability will be incurred on the sale of any tangible personal property to persons with whom a veterinarian has established a valid VCPR if those items are sold outside the scope of the service transactions described in subsection (c).  The following items are considered to be transferred outside of the scope of a service transaction, regardless of whether a VCPR has been established: combs, brushes, shears, nail clippers, name tags, nonmedicated shampoos, leashes, collars, toys, clothing, odor eliminators and waste handling products.

 

e)         Use Tax Incurred by Veterinarians

A veterinarian will incur use tax on tangible personal property that is used or consumed in the veterinary practice and is not transferred to a service customer.  In Example 2 of subsection (c)(2)(C), these items would include the disposable pads, dryers, combs and towels.  Other items might include, but are not limited to, cleaning supplies, tables or chairs, thermometers and hand soap.  Certificates of Resale cannot be used for the purchase of these items.  Instead, use tax must either be paid to suppliers or, if suppliers are not registered to collect tax, then the veterinarian must self-assess and remit use tax to the Department.

 

(Source:  Amended at 47 Ill. Reg. 19349, effective December 12, 2023)

 

Section 130.2170  Warehousemen

 

a)         When Liable For Tax

            In cases in which warehousemen hold themselves out to the public as being engaged in the business of selling, to purchasers for use or consumption, secondhand furniture or other tangible personal property to which they have acquired title, such warehousemen, when they sell any such tangible personal property to purchasers for use or consumption, incur Retailers' Occupation Tax liability.

 

b)         When Not Liable For Tax

 

1)         Warehousemen are engaged primarily in the business of moving, storing, packing and shipping tangible personal property belonging to other persons, and such activities constitute engaging in a service occupation.  To the extent to which warehousemen engage in such service occupation, they are not engaged in the business of selling tangible personal property to purchasers for use or consumption within the meaning of the Act and are not required to remit Retailers' Occupation Tax measured by any of their receipts from such activities.

 

2)         When warehousemen, in order to satisfy warehousemen's liens for claims on account of moving, storage, or other service charges which have accrued, sell at auction tangible personal property belonging to other persons who are known or disclosed to the purchaser, such warehousemen are acting merely as agents for the owners of such property and are not themselves making sales within the meaning of the Act.

 

3)         In case any person whose property is being sold by a warehouseman to a purchaser for use or consumption in order to satisfy a warehouseman's lien as described in subsection (b)(2) of this Section is engaged in the business of selling that type of tangible personal property to purchasers for use or consumption, the tax must be paid by the person whose property is thus sold.

 

4)         For the status, under the Act, of agents who act for unknown or undisclosed principals, see Section 130.1915 of this Part.

 

(Source:  Amended at 24 Ill. Reg. 15104, effective October 2, 2000)