Did diesel used by lock-and-dam construction vessels or a boat repairer's tow vessels qualify for Illinois bordering-river fuel exemptions?

Plain-English summary

Illinois exempted qualifying diesel from both Motor Fuel Tax and the Environmental Impact Fee when it was used by a vessel primarily transporting property in interstate commerce for hire on a bordering river and delivered by a licensed receiver directly to the vessel while afloat.

IDOR applied that rule to two scenarios:

• A lock-and-dam contractor used vessels to move its own construction materials. The exemption did not apply because the contractor was transporting property on its own behalf to fulfill its construction obligation, not transporting property for hire.
• A boat-and-barge repair company towed vessels to and from repair. The exemption could apply if the towing was separately contracted as a transportation service. It did not apply when towing was merely part of fulfilling one repair-service contract.

All other statutory conditions still had to be satisfied.

What this means for you

Using a vessel to move property is not enough. The vessel must perform interstate transportation for hire, and mixed repair or construction arrangements should separately document any qualifying transportation service.

Common questions

Did moving the contractor's own building materials qualify? No.

Could repair-site towing qualify? Yes, potentially, when separately contracted from repair and all other conditions were met.

Citations and references

• 35 ILCS 505/2a.
• 415 ILCS 125/310.
• 2 Ill. Adm. Code 1200.110 and 1200.120.

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-16-0064-gil.pdf

Original ruling text

ST 16-0064-GIL 11/23/2016 MISCELLANEOUS
Diesel fuel consumed or used in the operation of ships, barges, or
vessels, that are used primarily in or for the transportation of property in
interstate commerce for hire on rivers bordering on this State and
delivered by a licensed receiver to the purchaser’s barge, ship, or vessel
while it is afloat upon that bordering river is exempt from the
Environmental Impact Fee and the Motor Fuel Tax. See 415 ILCS
125/310 and 35 ILCS 505/2a. (This is a GIL.)

November 23, 2016

RE:

Request for Private Letter Ruling

Dear Xxxxx:
This letter is in response to your letter dated July 13, 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:
We respectfully request a private letter ruling with respect to exemptions related
to the Illinois Underground Storage Tank Tax and the Illinois Environmental
Impact Fee.
35 ILCS section 505/2a and 415 ILCS section 125/310 each provide an identical
exemption from the Illinois Underground Storage Tank Tax and the Illinois
Environmental Impact Fee, respectively, for
Diesel fuel consumed or used in the operation of ships, barges, or
vessels, that are used primarily in or for the transportation of
property in interstate commerce for hire on rivers bordering on this
State, if the diesel fuel is delivered by a licensed receiver to the
purchaser’s barge, ship, or vessel while it is afloat upon that
bordering river.

ST 16-0064-GIL
The operations of two customers of COMPANY (the Company) appear to meet
the requirements of the above exemptions but the Company would prefer to have
a private letter ruling clarifying the Departments interpretation.
COMPANY 1 (“COMPANY 1”) contracts with third parties to build locks and
dams on the Inland Waterways. COMPANY 1 operates vessels that are used
primarily to transport the property needed to build the locks and dams in
interstate commerce; but for COMPANY 1’s transportation of the building
materials, it could not perform its hired services. Therefore, COMPANY 1’s
transportation services involve the transportation of property, the services are for
hire, its vessels operate on a river that borders Illinois (the Mississippi River), and
the diesel fuel is delivered by COMPANY 2, a licensed receiver, to COMPANY
1’s vessels, midstream, while they are afloat on the Mississippi River.
COMPANY 3 (“COMPANY 3”) repairs boats and barges. COMPANY 3 primarily
uses its vessels to travel to a tow and remove a vessel (property) for the purpose
of transporting and delivering the vessel for repair; to transport a repaired vessel
from a repair facility to a tow (a group of barges moving in interstate transport);
and, to move vessels to/from various fleeting sites before and after the repairs
are performed. Therefore, COMPANY 3’s tow services involve the transportation
of property, the services are for hire, it operates the towboats on a river that
borders Illinois (the Mississippi River), and the diesel fuel is delivered by
COMPANY 2, a licensed receiver, to COMPANY 3’s vessels, midstream, while
they are afloat on the Mississippi River.
Although these companies are hired to work on property (i.e. COMPANY 1 builds
locks and dams and COMPANY 3 repairs vessels), the exemptions provided in
35 ILCS section 505/2a and 415 ILCS section 125/310 do not state that the end
user’s primary business must be the transportation of property in interstate
commerce for hire; instead, these exemptions state that the vessel that
consumes the purchased fuel be used primarily in or for the transportation
of property in interstate commerce for hire. COMPANY 1 and COMPANY 3
both primarily use their vessels in the transportation of property in interstate
commerce for hire, and without this transportation of property in interstate
commerce, they could not perform the services they are hired to perform. If
COMPANY 1 did not transport the building materials itself, or if COMPANY 3 did
not transport the barges for repair, each company would be required to hire a
third-party in the business of providing transportation of property, if that were the
case, such third party would qualify for the exemptions from the Illinois
Underground Storage Tank Tax and the Environmental Impact Fee. The
relevant statutes do not require that the receiver be primarily in the business of
moving property; it requires that the vessels be primarily used to transport
property in interstate commerce.
Accordingly, we respectfully request an informal and confidential private letter
ruling on our customers’ eligibility for the exemptions provided by 35 ILCS
section 505/2a and 415 ILCS section 125/310.
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ST 16-0064-GIL

If you have any questions or need any additional information, I can be reached
by email at [email protected] or by phone at ###.
DEPARTMENT’S RESPONSE:
The Department’s regulation “Public Information, Rulemaking and Organization”
provides that “[w]hether to issue a private letter ruling in response to a letter ruling request is
within the discretion of the Department. The Department will respond to all requests for private
letter rulings either by issuance of a ruling or by a letter explaining that the request for ruling
will not be honored.” 2 Ill. Adm. Code 1200.110(a)(4). The Department recently met and
determined that it would decline to issue a Private Letter Ruling in response to your request.
We hope however, the following General Information Letter will be helpful in addressing your
questions.
The Motor Fuel Tax Law imposes a tax upon the privilege of being a receiver in this
State of fuel for sale or use. The tax is paid by a receiver in this State who first sells or uses
fuel. The tax must be stated as a separate item on the invoice. 35 ILCS 505/2a. Section 2a
also states:
“[N]o tax shall be imposed upon diesel fuel consumed or used in the operation of
ships, barges, or vessels, that are used primarily in or for the transportation of
property in interstate commerce for hire on rivers bordering on this State, if the
diesel fuel is delivered by a licensed receiver to the purchaser's barge, ship, or
vessel while it is afloat upon that bordering river. A specific notation thereof shall
be made on the invoices or sales slips covering each sale.”
The Environmental Impact Fee Law subjects all receivers of fuel to an environmental
impact fee on fuel that is sold or used in Illinois. The fee is paid by a receiver in this
State who first sells or uses the fuel. 415 ILCS 125/310. Section 310 of the
Environmental Impact Fee Law contains the same exemption as the Motor Fuel Tax
Law quoted above.
The exemption contains several conditions: 1) the fuel must be used or
consumed in the operation of ships, barges, or vessels that are used primarily in or for
the transportation of property in interstate commerce for hire on rivers bordering on this
State; and 2) diesel fuel is delivered by a licensed receiver to the purchaser's barge,
ship, or vessel while it is afloat upon that bordering river. It is not sufficient that the fuel
is used or consumed by the ships, barges, or vessels transporting property on rivers
bordering the State. The ships, barges, or vessels must be used in or for the
transportation of property in interstate commerce “for hire”.
We have reviewed the scenarios provided in your letter. We do not believe the
exemption applies to the first scenario. It does not appear the contractor is using the
ships, barges, or vessels for the transportation of property in interstate commerce for
hire. The vessels are being operated by the contractor on its own behalf to transport
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ST 16-0064-GIL
property to fulfill the contractor’s obligation to build the locks or dams for the thirdparties.
In the second scenario, the exemption may apply if the tow service provided by
the company is contracted for separately from the repair service. If a customer
contracts with the company for the repair of a vessel and the company must tow the
vessel to fulfill the service, the exemption will not apply. If the company contracts with
the customer to repair a vessel and contracts with the customer to transport the vehicle
to and from the repair site, the exemption may apply if all other requirements of the
exemption are met.
I hope this information is helpful. If you have further questions related to the Illinois
sales tax laws, 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

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