What Illinois tax-appeal, manufacturing-exemption, filing, and video-gaming guidance did IDOR give in response to a 2016 annual survey?

Plain-English summary

A publisher sent IDOR its annual multistate tax questionnaire. The Department could not answer in the requested survey format but supplied guidance on four subjects.

The Independent Tax Tribunal provided an independent venue for disputes reflected in specified Department notices. Its jurisdiction generally required more than $15,000 at issue, excluding penalties and interest; penalty-or-interest-only cases required a combined amount above $15,000. Final Tribunal decisions could be appealed to the Illinois Appellate Court.

For manufacturing, machinery and equipment used primarily in manufacturing or assembling property for sale or lease could qualify. IDOR specifically described integrated production inspection and testing, movement between production stations, integrated packaging, manufacture or repair of exempt machinery, CAD/CAM computers, and essential tools, dies, jigs, fixtures, patterns, molds, parts, and components.

IDOR also pointed to its common-sales-tax-filing-mistakes webpage. It said the Department did not administer taxes associated with electronic entertainment equipment and referred the requester to the Video Gaming Act.

What this means for you

This letter is a high-level survey response, not a ruling on particular facts. Taxpayers should use the cited manufacturing rule and current Tribunal procedures rather than treat the survey summary as a complete eligibility or appeal guide.

Common questions

Where did a final Tax Tribunal appeal go? The Illinois Appellate Court.

Did every material-handling or inspection machine qualify? No. The response tied exemption to specified integrated manufacturing uses.

Did IDOR administer electronic-entertainment taxes? No.

Citations and references

• 86 Ill. Adm. Code 130.330.
• 230 ILCS 40.

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-16-0037-gil.pdf

Original ruling text

ST 16-0037-GIL 08/18/2016

MISCELLANEOUS

This letter responds to an annual survey. (This is a GIL.)

August 18, 2016

Dear Xxxxx:
This letter is in response to your letter dated June 10, 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:
The COMPANY 1, in conjunction with COMPANY 2, annually undertakes a major
information collection effort with respect to the application of the tax laws of the states.
COMPANY 1's goal in gathering this information is to assemble and publish the
PUBLICATION. As the market has shown, such a publication is a useful reference
source for departments of revenue, attorneys, corporate tax departments, and public
accounting firms.
COMPANY 1 is in the process of updating the PUBLICATION for its 2017 annual
edition. Accordingly, we ask for your state's assistance in preparing this important
publication. I have attached two Microsoft Word files—one for income tax and one for
sales tax—to serve as this year's questionnaire. The questionnaire follows the same
format as in past years. (If you do not have a copy of your 2015 response, and it would
be helpful to you in completing the 2016 questionnaire, please let me know and I will
email you a copy.)
This year, the numbering scheme and the sequence of the questions remains
essentially the same. Also, please note that the new questions are highlighted in bold,
red font. Therefore, you should be able to easily follow the changes from last year to
this year. Because of anticipated time constraints for respondents, again this year we
are asking that you only respond to the questions for which your answers require a
change and the new questions. All unanswered questions will be considered the same
as last year's answer unless otherwise noted.

Please complete the 2016 questionnaire and return it by July 22, 2016, via email
to: [email protected]. The enclosed questionnaire should be answered in
accordance with laws in effect as of July 1, 2016. If there is legislation pending or
recently enacted that would alter your answers, please explain any such changes that
you are aware of at the time the questionnaire is completed.
Beginning in the fall 20XX, COMPANY 1 began a tuition assistance program for state
department of revenue employees in appreciation for their assistance in publishing the
PUBLICATION. A limited amount of tuition assistance is available for courses in
COMPANY 1's Online Graduate Certificate in State and Local Taxation. This Certificate
program is the first of its kind in the nation to be offered totally online. To receive the
Certificate, students must complete the four-course curriculum. For further information
about the program or available tuition assistance contact YYYY at COMPANY 1
[email protected] or ####.
If you have any questions about the questionnaire or a specific question, please contact
me at [email protected] (email) and I will promptly return your call. Thank you
for your continued cooperation and support. Your contributions are extremely valuable
in maintaining the quality of this outstanding reference work. A complimentary copy of
the PUBLICATION will be sent to you when it is published next year.
Note: It would be very helpful to me if you could email me back, confirming your
receipt of the questionnaire and that you will be the respondent for your state.
A. COMPLIANCE AND ADMINISTRATION

WEB HOSTING NEXUS
▪ Is nexus created for a taxpayer if the taxpayer:
▪ Leases space from a service provider on a server located in your state?  Yes
No
▪ Stores information on a server located in your state that is accessed remotely
from within your state by unrelated parties?
 Yes
No
▪ Stores information on a server located in your state that is accessed remotely
from outside your state by unrelated parties?
 Yes
No
▪ Does the use of a Web hosting provider with a server in your state create nexus
for the taxpayer who contracts with the service provider?
 Yes
No

[31] ADMINISTRATIVE APPEALS OUTSIDE THE DEPARTMENT OF REVENUE
▪ Does your state have a tax appeals court or similar tax appeals body outside the
department of revenue
and before entering the court system?  Yes  No








▪ If YES, what is the name of this body?
▪ If YES, may appeals be made directly to this tax appeals body without first appealing
to an appeals office
within the department of revenue?
▪ If YES, where are appeals filed if a taxpayer does not agree with the determination of
the tax appeals body?
 Circuit Court  Court of Appeals  Other, explain:
▪ What body within the department of revenue hears the appeal of tax cases?
MANUFACTURING APPLICATIONS. If your state provides a manufacturing machinery
and equipment exemption, which of the following items would qualify for the exemption
(check all that apply)?
 Receiving inspection equipment that is used to test incoming materials prior to
placing them into
inventory storage
 Material handling equipment that is used only to move product through
manufacturing process
 Material handling equipment that is used only on the shipping and receiving dock to
load and unload trucks
 Machinery and equipment used to manufacture other manufacturing equipment for
use in the
manufacturing process (sometimes referred to as a use-on-use exemption)
 Shrink-wrap machine used to shrink-wrap end pallets in the shipping department
prior to loading them on a
truck for shipment
 Shrink-wrap machine used to shrink-wrap every pallet of product prior to placing it in
finished goods storage
 Quality control equipment used to test sample product for performance
characteristics, i.e., test every Nth item to
determine if it meets expected standards
 Quality control equipment used to test every item produced as part of a required
manufacturing step to make sure
it functions properly and as expected
 Cleaning-in-place equipment used to flush interior of manufacturing equipment or
bottling equipment to maintain
cleanliness and/or product integrity
 Computers used to create product operating software
[68] COMMON MISTAKES CORPORATIONS MAKE IN FILING RETURNS AND
REMITTING TAXES
▪ What are the most common mistakes that corporations make in filing sales and use tax
returns and remitting sales and use taxes? For ease of presentation in a chart, please
organize your response as a bullet point list, as follows:
1.

_____
2.

3.

and so on
[69] ELECTRONIC ENTERTAINMENT EQUIPMENT. Are the gross proceeds from
the use of the
following equipment in bars, restaurants, and places of amusement subject to
sales tax or taxed
under an admissions or amusement tax in your state?
YES NO
 
▪ Video poker or other gambling machines
 
▪ Video amusement games
 
▪ Digital jukeboxes that play music
▪ If YES, is the licensing fee on the digital music paid by the jukebox “lessee”
 
to the jukebox owner
subject to sales tax?
▪ If NO, are the fees non-taxable because they constitute a sale for resale of
 
the digital music by the
“lessee” of the jukebox?

DEPARTMENT’S RESPONSE:
We are unable to respond to your survey in the format provided. However, we hope you find
the following information helpful.
Administrative Appeals outside the Department of Revenue
The Independent Tax Tribunal exists to provide an independent and impartial venue for
disputes between taxpayers and the Illinois Department of Revenue. The Tribunal shall have original
jurisdiction over all determinations of the Department reflected on a Notice of Deficiency, Notice of
Tax Liability, Notice of Claim Denial, or Notice of Penalty Liability issued under the Illinois Income Tax
Act, the Use Tax Act, the Service Use Tax Act, the Service Occupation Tax Act, the Retailers'
Occupation Tax Act, the Cigarette Tax Act, the Cigarette Use Tax Act, the Tobacco Products Tax Act
of 1995, the Hotel Operators' Occupation Tax Act, the Motor Fuel Tax Law, the Automobile Renting
Occupation and Use Tax Act, the Coin-Operated Amusement Device and Redemption Machine Tax
Act, the Gas Revenue Tax Act, the Water Company Invested Capital Tax Act, the
Telecommunications Excise Tax Act, the Telecommunications Infrastructure Maintenance Fee Act,
the Public Utilities Revenue Act, the Electricity Excise Tax Law, the Aircraft Use Tax Law, the

Watercraft Use Tax Law, the Gas Use Tax Law, or the Uniform Penalty and Interest Act. Jurisdiction
of the Tax Tribunal is limited to Notices of Tax Liability, Notices of Deficiency, Notices of Claim
Denial, and Notices of Penalty Liability where the amount at issue in a notice, or the aggregate
amount at issue in multiple notices issued for the same tax year or audit period, exceeds $15,000,
exclusive of penalties and interest. In notices solely asserting either an interest or penalty
assessment, or both, the Tax Tribunal shall have jurisdiction over cases where the combined total of
all penalties or interest assessed exceeds $15,000. A final decision issued by the Independent Tax
Tribunal may be appealed to the Illinois Appellate Court.
Manufacturing Applications
Retailers' Occupation Tax does not apply to sales of machinery and equipment used primarily
in the manufacturing or assembling of tangible personal property for wholesale or retail sale or lease.
See 86 Ill. Adm. Code 130.330. The manufacturing process is the production of articles of tangible
personal property or assembling different articles of tangible personal property by procedures
commonly regarded as manufacturing, processing, fabricating, or refining which 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. See Section 130.330(b)(2).
Machinery means major mechanical machines or major components of such machines
contributing to a manufacturing or assembling process, including machinery and equipment used in
the general maintenance or repair of such exempt machinery and equipment or for in-house
manufacture of exempt machinery and equipment. See Section 130.330(c)(2).
Though the exempt status of machinery and equipment depends on how the item is used,
generally, the use of machinery or equipment to inspect, test or measure the tangible personal
property to be sold where the function is an integral part of the production flow, will qualify for the
exemption. See 86 Ill. Adm. Code 130.330(d)(3)(D). In addition, 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 is generally considered an exempt use. The use of machinery or 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 or equipment is used as a part of an integrated manufacturing
process is also generally considered an exempt use of manufacturing machinery and equipment.
See 86 Ill. Adm. Code 130.330(d)(3)(E-F).
Manufacturing machinery and equipment also includes any independent device or tool
separate from any machinery but essential to an integrated manufacturing or assembling process:
including computers used primarily in operating exempt machinery and equipment in a computerassisted design, computer-assisted manufacturing (CAD/CAM) system; or 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 which require periodic
replacement in the course of normal operation. Beginning August 23, 2001, equipment includes
computers used primarily in a manufacturer's computer-assisted design, computer-assisted
manufacturing (CAD/CAM) system.
Common Filing Mistakes
The Department has prepared a document that identifies common sales tax filing mistakes. It
is located on the Department’s website at:

http://tax.illinois.gov/Businesses/AvoidCommonSalesTaxFilingMistakes.htm
Electronic Entertainment Equipment
The Department of Revenue does not administer the taxes associated with electronic
entertainment equipment. For information regarding such taxes, please see the Video Gaming Act,
230 ILCS 40.

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,

Cara Bishop
Associate Counsel
CB:bkl