Could a replacement septic system at an Illinois manufacturing plant qualify for the enterprise-zone building-materials exemption?

Plain-English summary

A manufacturing facility located in an enterprise zone needed to replace its septic system and asked whether the project qualified for the building-materials exemption.

IDOR said a septic system may qualify if it is permanently affixed to real estate in an enterprise zone, but the Department could not decide without more facts. The exemption applied to materials physically incorporated through construction, remodeling, or rehabilitation into qualifying real estate.

For purchases on or after July 1, 2013, the purchaser had to hold an active Department-issued Exemption Certificate at the time of purchase. The retailer had to obtain the certificate number and the required certification, which could be supplied with a completed and signed Form EZ-1.

What this means for you

The facility's enterprise-zone location alone did not settle the result. The septic system had to become a permanent part of the real estate, and the purchasing and documentation requirements had to be satisfied when materials were bought.

Common questions

Did IDOR conclusively exempt this replacement system? No.

Could it qualify? Yes, if permanently affixed to enterprise-zone real estate and properly documented.

Citations and references

• 35 ILCS 120/5k.
• 86 Ill. Adm. Code 130.1951(d) and (e).
• Form EZ-1.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2016.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2016/st-16-0026-gil.pdf

Original ruling text

ST 16-0026-GIL-06/20/2016 ENTERPRISE ZONES:
The enterprise zone building materials exemption is explained in Section 130.1951 of the
Department’s regulations. See 86 Ill. Adm. Code 130.1951. (This is a GIL.)

June 20, 2016
Dear XXXXX:
This letter is in response to your letter dated May 18, 2016, 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:
Our Facility is located in CITY Illinois and is currently within the Enterprise Zone entitled
“ENTERPRISE ZONE NAME”.
We have been working with the Greater CITY Economic Development Council over the
past few years on multiple site expansions. The council had suggested I approach you
regarding a situation we currently face.
We need to replace the septic system at our facility.
I am reaching out to you to request a ruling or determination if a replacement septic
system to service a manufacturing plant qualifies for the Enterprise Zone building
materials sales tax exemption.
DEPARTMENT’S RESPONSE:
A deduction from Illinois Retailers’ Occupation Tax liability is allowed for gross receipts from
retail sales of building materials that will be incorporated, by remodeling, rehabilitation or new
construction, into real estate located in an enterprise zone established by a county or municipality
under the Illinois Enterprise Zone Act. 35 ILCS 120/5k.

The Department recently updated its Enterprise Zone rule regarding the building materials exemption.
See subsection (d) of 86 Ill. Adm. Code 130.1951 Sales of Building Materials Incorporated into Real
Estate within Enterprise Zones. On and after July 1, 2013, to document the exemption, 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) of the rule. The
retailer may comply with this certification requirement by securing from the purchaser a completed
and signed Form EZ-1. A construction contractor or other entity may not make tax-free purchases
unless it has an active Exemption Certificate issued by the Department at the time of purchase.
In order to qualify for the building materials 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 common building materials such as lumber, bricks, cement,
windows, doors, insulation, roofing materials and sheet metal; plumbing systems and components
thereof; heating systems and components thereof; electrical systems and components thereof;
central air conditioning systems; built-in cabinets and appliances; and floor coverings such as tile,
linoleum and carpeting that are glued or otherwise permanently affixed to the real estate can qualify
for the exemption. 86 Ill. Adm. Code 1951(e).
Without more information we cannot advise if the septic system you plan on installing would
qualify for the exemption. However, a septic system may qualify for the exemption if it is permanently
affixed to real estate in an enterprise zone.
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