Illinois Administrative Code › Title 86 - REVENUE › Part 130 - RETAILERS' OCCUPATION TAX › Subpart C - CERTAIN STATUTORY EXEMPTIONS › Section 130.330 - Manufacturing Machinery and Equipment

Current through Register Vol. 48, No. 28, July 12, 2024
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 does not apply to 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
. (Section
				  2-5(14) of the Act)
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.
(Section 2-45 of the Act) 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 machinery and equipment exemption is not subject to the sunset
				provisions contained in Section 2-45 of the Retailers' Occupation Tax
				Act.
(Section 2-45 of the Act)
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 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.