Did Illinois' River Edge Redevelopment Zone building-materials exemption cover mixed-use projects with multifamily rental housing?

Plain-English summary

An economic-development organization asked why building materials for multifamily rental units in a River Edge Redevelopment Zone did not receive the same exemption as materials for commercial portions of mixed-use warehouse redevelopments.

IDOR said the statute expressly limited a "qualified sale" to building materials incorporated into real estate as part of an industrial or commercial project for which the municipality issued a Certificate of Eligibility. Residential-project materials were outside that wording.

For a mixed-use development containing both residential units and commercial space, the retailer could take the exemption for materials incorporated into the commercial portion, but not the residential portion.

What this means for you

Allocate mixed-use construction materials by the part of the project where they will be incorporated. A project's overall commercial character does not extend the River Edge exemption to its residential units.

Common questions

Did multifamily rental materials qualify? Not when incorporated into the residential portion.

Could any mixed-use materials qualify? Yes, those incorporated into the commercial portion.

Was a municipal certificate required? Yes.

Citations and references

• 35 ILCS 120/2-54.
• 35 ILCS 120/5k and 120/5l.
• 86 Ill. Adm. Code 130.1954(b)(3).

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2015.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2015/st-15-0071-gil.pdf

Original ruling text

ST 15-0071 (GIL) October 15, 2015 MISCELLANEOUS
The River Edge Redevelopment Zone building materials exemption is limited to building
materials that will be incorporated into real estate as part of an industrial or commercial
project. See 35 ILCS 120/2-54 and 86 Ill. Adm. Code 130.1954. (This is a GIL.)

October 15, 2015

Dear Xxxxx:
This letter is in response to your letter dated September 16, 2015, 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:
The ABC CORPORATION was established to promote economic development
within city's downtown, including the District. The District includes XYZ River
Edge Redevelopment Zone (RERZ). We currently have X developers who are
interested in redeveloping historic warehouse buildings into mixed use, multifamily residential rental units and commercial/retail use.
These developers have inquired as to why the RERZ administrative rules exclude
multi-family residential rental properties from the definition of qualified sale of
building materials to be incorporated into real estate within a RERZ? The
question stems from the apparent inconsistency in treating multi-family
residential rental properties as commercial property in other applications of the
tax code, yet classifying them as residential for sales tax exemption under RERZ.
Our request is that IDOR-Legal Services review these rules and inform us if the
interpretation we have been given is accurate, i.e. that mixed use property that

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includes multi-family residential rental units does not qualify for the sales tax
exemption?
If the interpretation we have been given is accurate, how can proceed to change
this interpretation of Title 86? Can we seek an administrative change from the
Department Head or Governor or do we need to seek legislative changes?
I appreciate your consideration of this request and look forward to your response.
Thank you,
DEPARTMENT’S RESPONSE:
Section 2-54 of the Retailers’ Occupation Tax Act provides an exemption from tax for
retailers making qualified sales 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. 35 ILCS 120/2-54. For purposes of Section
2-54, "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.
The exemption explicitly states that only building materials that will be incorporated into
real estate as part of an industrial or commercial project qualify for the exemption. The
exemption does not include building materials that will be incorporated into real estate as part of
a residential project. Other sections of the Retailers’ Occupation Tax Act that provide
exemptions for building materials incorporated into real estate do not contain any limitation on
the type of projects that the building materials may be incorporated to qualify for the exemption.
See 35 ILCS 120/5k & 5l. The Department reviewed the existing building materials exemptions
in the Act, the language in Section 2-54 and promulgated rules that the Department believes
reflect the legislative intent of Section 2-54 of the Act. The rules were adopted with no objection
by the Joint Committee on Administrative Rules. 86 Ill. Adm. Code 130.1954.
Section 130.1954(b)(3) allows the retailer to take the exemption for the building
materials incorporated into the commercial portion of a multi-use development project that also
includes residential units.
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,

Richard S. Wolters
Associate Counsel
RSW:bkl