Is machinery and equipment used primarily to harvest hay for sale exempt from Illinois Retailers' Occupation Tax and Use Tax as farm machinery and equipment?

Plain-English summary

A taxpayer wrote to the Illinois Department of Revenue asking whether their business could use Equipment Exemption Certificate ST-587 to buy a piece of equipment tax-free. The equipment in question had a rough-cut deck and, according to the taxpayer, was "100% essential to harvest organic hay" that the business sells for profit, capable of harvesting hay at speed without getting damaged or stuck in swampy terrain.

The Department responded with a General Information Letter (GIL) rather than a binding Private Letter Ruling, because GILs are used to point taxpayers to the relevant regulations rather than rule on a specific set of facts. The Department explained that, in general, Illinois Retailers' Occupation Tax applies to the gross receipts retailers collect from selling tangible personal property to Illinois end users, and retailers must collect and remit that tax unless a specific exemption applies (86 Ill. Adm. Code 130.101).

One such exemption covers tangible personal property used in "production agriculture." The Illinois Retailers' Occupation Tax Act defines production agriculture broadly to include raising or propagating livestock, growing crops for human or livestock consumption, producing seed stock for feed grains, husbandry of animals (including blood stock) for food products, and related activities such as animal husbandry, floriculture, aquaculture, horticulture, and viticulture (35 ILCS 120/2-35).

Under 86 Ill. Adm. Code 130.305, "Farm Machinery and Equipment," Illinois sales tax does not apply to machinery and equipment (new or used, including custom-manufactured equipment) that is used or leased primarily in production agriculture or in State or Federal agricultural programs, and this also covers individual replacement parts for that machinery. To claim the exemption, the purchaser must certify that the equipment is used primarily in production agriculture, as provided in Section 130.305(a).

What this means for you

If you buy or lease farm equipment

If you purchase or lease machinery or equipment that will be used primarily in production agriculture — such as harvesting hay, crops, or other agricultural products for sale — that purchase can be exempt from Illinois Retailers' Occupation Tax and Use Tax. The letter identifies tractors, combines, balers, irrigation equipment, and cattle and poultry feeders as examples of qualifying "machinery," defined as major mechanical machines or machine components contributing to the production agriculture process.

What is not covered

The exemption is for machinery and equipment, not real estate improvements. The letter specifically states that improvements to real estate — such as fences, barns, roads, grain bins, silos, and confinement buildings — are not considered exempt farm machinery, even on a working farm.

Certifying the exemption

To use the exemption, the purchaser must certify to the seller that the equipment is used primarily in production agriculture. This is the certification process associated with forms like Equipment Exemption Certificate ST-587, which the taxpayer in this letter asked about.

Common questions

Does equipment used to harvest hay for sale qualify for the farm machinery exemption?
Based on the definitions discussed in this letter, harvesting hay for sale falls within "production agriculture" (raising crops for consumption), and machinery used primarily for that purpose can qualify for the exemption under 86 Ill. Adm. Code 130.305, provided the purchaser properly certifies primary agricultural use.

Does this letter grant the taxpayer a binding exemption approval?
No. This is a General Information Letter (GIL), not a Private Letter Ruling (PLR). A GIL only directs the taxpayer to the relevant regulations and is not a statement of Department policy and not binding on the Department. The Department did not issue an "approval ruling" as the taxpayer requested.

Are replacement parts for exempt farm machinery also exempt?
Yes. The letter states that the sale of individual replacement parts for exempt machinery and equipment is also exempt under 86 Ill. Adm. Code 130.305.

Are farm buildings or fences exempt as farm equipment?
No. The letter specifically lists fences, barns, roads, grain bins, silos, and confinement buildings as real estate improvements that are not considered exempt farm machinery.

Citations and references

• 35 ILCS 120/2-5(2) — Retailers' Occupation Tax Act exemption provision cited in the letter's summary
• 35 ILCS 120/2-35 — Retailers' Occupation Tax Act definition of "production agriculture"
• 86 Ill. Adm. Code 130.101 — general imposition of Retailers' Occupation Tax on gross receipts from sales of tangible personal property
• 86 Ill. Adm. Code 130.305 — "Farm Machinery and Equipment" exemption regulation, including the replacement-parts exemption
• 86 Ill. Adm. Code 130.305(a) — purchaser certification requirement for the exemption
• 2 Ill. Adm. Code 1200.110 — procedures for requesting a binding Private Letter Ruling (PLR)
• 2 Ill. Adm. Code 1200.120 — General Information Letter (GIL) procedures; GILs are non-binding

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2017.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2017/st-17-0021-gil.pdf

Original ruling text

ST 17-0021-GIL 06/15/2017 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) and 86 Ill. Adm. Code
130.305. (This is a GIL.)

June 15, 2017

Dear Xxxxx:
This letter is in response to your letter dated May 3, 2017, in which you requested 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:
I am writing to request a letter ruling that will determine if my company is entitled to use
Equipment Exemption Certificate ST-587.
The EQUIPMENT MODEL with a rough-cut deck is 100% essential to harvest organic
hay that we sell for our profit. (It will harvest hay at XX mph without getting damaged or
stuck in swampy terrain.)
Please send the approval ruling letter ASAP to email address EMAIL.COM.

DEPARTMENT’S RESPONSE:
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

ST 17-0021-GIL
Page 2

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.
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
DB:bkl