When did Illinois exempt farm machinery and equipment, and how were farm real-estate improvements taxed?

Plain-English summary

Illinois gave no project-specific answer because the request did not explain whether it concerned farming operations or improvements to farm land. It instead described two different rule sets.

New or used machinery and equipment used primarily in production agriculture, including special-order machinery and individual replacement parts, could be exempt from Retailers' Occupation and Use Tax. The purchaser had to certify the primary agricultural use. Tractors, combines, balers, irrigation equipment, and cattle and poultry feeders were examples of machinery.

Fences, barns, roads, grain bins, silos, confinement buildings, and ordinary building materials permanently attached to real estate were not exempt farm machinery. Some equipment could still qualify even when installed as a realty improvement, including farrowing crates, gestation stalls, poultry cages, portable confinement panels, and flooring used with waste-disposal machinery. Cattle chutes and crowding tubs could qualify when portable and not sold for permanent affixation.

Construction contractors permanently affixing materials to real estate owed Use Tax on their cost. They did not owe Retailers' Occupation Tax on the permanent-affixation transaction or sales tax on construction-contract receipts for labor or materials.

What this means for you

Classify each item by primary agricultural use and by whether it is machinery, independent equipment, or an ordinary real-estate improvement. Keep the purchaser's use certification and the installation facts.

Common questions

Q: Are barns and grain bins exempt farm machinery?
A: No. The GIL listed them as real-estate improvements rather than exempt machinery.

Q: Can equipment qualify even if installed in a structure?
A: Sometimes. The GIL listed specific production equipment that could qualify despite installation as a realty improvement.

Q: Who owes tax on permanently affixed construction materials?
A: The construction contractor owes Use Tax on cost.

Citations and references

• 35 ILCS 120/2-5(2)
• 35 ILCS 120/2-35
• 86 Ill. Adm. Code 130.305(a)
• 86 Ill. Adm. Code 130.1940 and 130.2075
• 86 Ill. Adm. Code 130.101
• 2 Ill. Adm. Code 1200.110 and 1200.120

Subject

Farm Machinery & Equipment

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2010.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2010/st-10-0058.pdf

Original ruling text

ST 10-0058-GIL 07/30/2010 FARM MACHINERY & EQUIPMENT
The sale of certain types of tangible personal property used in production agriculture is not
subject to Illinois Retailers’ Occupation Tax and Use Tax. See 35 ILCS 120/2-5(2). (This is a
GIL.)

July 30, 2010

Dear Xxxxx:
This letter is in response to your letter we received June 28, 2010, in which you request
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
We are looking for someone to talk to about Sale [sic] Tax on farm improvement. We
have tried calling all of your number [sic] and have tried talking to an agent but no one
can help us or we can’t get thru. Can you please have someone call us so we can have
our questions answered.

DEPARTMENT’S RESPONSE:
Based upon the limited amount of information provided in your letter, we were unable to
determine whether you were asking about farming operations or improvements to farm land.
However, although we cannot give you a specific answer in the form of a General Information Letter,
we hope you find the following helpful.
Farm Machinery & Equipment
In general, the Illinois Retailers’ Occupation Tax is imposed upon the total gross receipts
received by retailers who make sales of tangible personal property to Illinois end users. Unless the
sales are specifically exempted, such retailers must collect and remit the sales tax. See 86 Ill. Adm.
Code 130.101.

In certain cases, the sale of tangible personal property used in production agriculture is not
subject to Illinois Retailers’ Occupation Tax and Use Tax. Production agriculture is defined under the
Retailers’ Occupation Tax Act as “the raising of or 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, and viticulture.” See 35 ILCS
120/2-35.
Under 86 Ill. Adm. Code 130.305 “Farm Machinery and Equipment”, Illinois sales tax does not
apply to the sale of machinery and equipment, both new and used and including that manufactured
on special order, used or leased for use primarily in production agriculture or for use in State or
Federal agricultural programs. The sale of individual replacement parts for such machinery and
equipment is also exempt. In order to obtain the exemption, the purchaser must certify to the use
primarily in production agriculture of the equipment or machinery. See Section 130.305(a).
Machinery means major mechanical machines or machine components thereof contributing to
the production agriculture process or used primarily in State or Federal agricultural programs.
Machinery would include such things as tractors, combines, balers, irrigation equipment and cattle
and poultry feeders. Improvements to real estate such as fences, barns, roads, grain bins, silos and
confinement buildings are not considered exempt farm machinery.
Equipment means any independent device or apparatus separate from any machinery, but
essential to production agriculture. Although equipment does not include ordinary building materials
affixed permanently to real estate, 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. In addition, note that other items
such as cattle chutes and crowding tubs may be exempt sales so long as these items are portable
and not sold to be affixed to real estate, inside or outside of farm structures.
Construction Contractors
Construction contractors, as defined in 86 Ill. Adm. Code 130.1940, that make improvements
to real estate by taking materials off the market and permanently affixing them to real estate owe Use
Tax on the cost price of those materials. See 86 Ill. Adm. Code 130.2075. Those construction
contractors do not incur Retailers' Occupation Tax liability when they permanently affix tangible
personal property to real estate. In addition, construction contractors incur no sales tax liability on
their receipts from labor or materials furnished in the performance of construction contracts. See
130.1940(c). Note, you may want to review some of the letters found on the Department’s website,
which is listed below, such as ST 10-0033-GIL.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,

Debra M. Boggess
Associate Counsel
DMB:msk