What does Illinois General Information Letter ST 18-0011-GIL conclude about Coal Mining Equipment?

Plain-English summary

This Illinois General Information Letter addresses a dispute between a city-owned utility office and one of its industrial customers over whether sales of gypsum are exempt from Retailers' Occupation (sales) Tax. The utility generates electricity and, as a byproduct of its scrubber process, produces a loose, granular synthetic gypsum. It sold this gypsum to a company, which used it to form a protective coating/lining in its coal wash debris ponds. The company gave the utility a completed Form ST-587 Equipment Exemption Certificate, claiming the gypsum purchase was exempt equipment used for coal-related purposes. The utility disagreed, believing the sale was fully taxable, and asked the Department to resolve the dispute.

The Department explained that Form ST-587 is meant for purchases of equipment used primarily in (1) graphic arts production, (2) manufacturing or assembling tangible personal property for wholesale or retail sale or lease, (3) production agriculture, or (4) coal and aggregate exploration and related mining, off-highway hauling, processing, maintenance, and reclamation (excluding registered motor vehicles). The specific exemption at issue, 86 Ill. Adm. Code 130.350, exempts machinery or equipment used primarily in coal exploration, mining, off-highway hauling, processing, maintenance, and reclamation -- but it specifically excludes "supplies" from the exemption.

Based on the limited facts provided, the Department concluded that the gypsum "appears" to be neither machinery nor equipment, but rather a consumable supply, and therefore does not appear to qualify for the coal exemption. The Department reminded the utility that a retailer is not required to accept an ST-587 certificate for items that don't qualify for the exemption -- a retailer may refuse the certificate and charge tax, at its own discretion.

Because this is a GIL rather than a Private Letter Ruling, the Department's conclusion is phrased cautiously ("appears... does not qualify") and is explicitly not binding on the Department. It directs the parties to the governing regulation rather than issuing a definitive, fact-bound determination the way a PLR would.

What this means for you

Utilities and other sellers of byproduct materials

If you sell a byproduct material (like scrubber gypsum) to an industrial customer who presents an exemption certificate, this letter is a reminder that you are not obligated to accept the certificate at face value. You may independently evaluate whether the item being purchased is actually exempt "equipment" or "machinery," as opposed to a consumable "supply," and you may charge tax if you believe the exemption doesn't apply. Accepting an invalid certificate does not protect you if the Department later determines the exemption did not apply.

Coal industry purchasers using Form ST-587

The coal and aggregate exemption under 86 Ill. Adm. Code 130.350 is narrower than it might first appear: it covers machinery and equipment used primarily in coal exploration, mining, off-highway hauling, processing, maintenance, and reclamation (plus replacement parts for that equipment), but it does not extend to consumable supplies used in connection with those activities -- even if the supply serves a function related to coal operations, like lining a debris pond.

Accountants and tax professionals

This GIL illustrates the equipment-vs-supply line-drawing that recurs across Illinois manufacturing- and mining-related exemptions. When advising clients who use ST-587 certificates for coal/aggregate purchases, confirm the item is actually machinery or equipment "used primarily" in an exempt activity, rather than a material that gets consumed or incorporated into a process (like a pond coating). Because this is only a GIL, it doesn't bind the Department in a future audit of these specific parties or anyone else -- treat it as informal guidance pointing to the regulation, not a guaranteed outcome.

Common questions

Q: Is gypsum exempt from Illinois sales tax when used in coal operations?
A: Not based on this letter. The Department found that the gypsum described here -- used to coat/line coal wash debris ponds -- appears to be a consumable supply rather than exempt machinery or equipment, so it does not appear to qualify for the coal and aggregate exemption in 86 Ill. Adm. Code 130.350.

Q: What does the coal mining equipment exemption actually cover?
A: Under 86 Ill. Adm. Code 130.350, the Retailers' Occupation Tax Act does not apply to sales of coal exploration, mining, off-highway hauling, processing, maintenance, and reclamation equipment, including individual replacement parts for that equipment. It does not cover supplies.

Q: Can a retailer refuse to accept a Form ST-587 exemption certificate?
A: Yes. The Department states that whether a retailer accepts an ST-587 certificate is the retailer's own decision -- a retailer may refuse the certificate and charge tax on items it believes do not qualify for the exemption.

Q: Is this letter binding on the Department?
A: No. This is a General Information Letter (GIL), issued under 2 Ill. Adm. Code 1200.120, which directs taxpayers to relevant regulations but is not a statement of Department policy and is not binding on the Department. A binding, fact-specific determination would instead require a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Citations and references

Statutes and regulations:

• 86 Ill. Adm. Code 130.350 (exemption for coal and aggregate exploration, mining, off-highway hauling, processing, maintenance, and reclamation equipment, excluding supplies)
• Illinois Retailers' Occupation Tax Act (general imposition of sales tax)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2018.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2018/st-18-0011-gil.pdf

Original ruling text

ST 18-0011-GIL 04/03/2018 COAL MINING EQUIPMENT
The Retailers' Occupation Tax Act does not apply to sales of coal exploration, mining, off
highway hauling, processing, maintenance and reclamation equipment. The exemption also
applies to individual replacement parts for such equipment. See 86 Ill. Adm. Code 130.350.
(This is a GIL.)

April 3, 2018

Re:

Request for Determination of Applicability of Retailers Occupation Tax (Sales Tax) to sales of
gypsum, by CITY, OFFICE OF UTILITIES, to COMPANY and/or applicability of exemption
claim from such taxation under Title 86, Chapter 1, Part 130, Subpart C, Section 130.350

Dear Xxxxx:
This letter is in response to your letter dated December 14, 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:
To whom it concerns:

1. Request for Determination: The CITY, OFFICE OF UTILITIES, requests an
   interpretation of Title 86, Chapter 1, Part 130, Subpart C, Section 130.350 c)1) and
   d)1) or other relevant sections etc. regarding the retail sales of gypsum by OFFICE
   OF UTILITES to COMPANY.
2. Type of Items Purchased: COMPANY (a STATE Corporation, doing business at
   ADDRESS, purchases from the CITY, OFFICE OF UTILITIES, a loose granular
   course powder like form of synthetic gypsum. The gypsum purchased is a byproduct of the scrubber process in the generation of electricity by OFFICE OF
   UTILITIES.
3. Exemption and Use of Purchased Material: COMPANY has forwarded Illinois
   Department of Revenue form ST-587 Equipment Exemption Certificate to OFFICE
   OF UTILITIES, indicating COMPANY considers these purchases of gypsum as
   equipment which is exempt from sales tax. COMPANY uses the gypsum material to

ST 18-0011-GIL
Page 2

form a coating for a lining in its coal wash debris ponds. Enclosed is a copy of the
form ST-587 submitted by COMPANY for your review. In addition, COMPANY does
not claim that it resells the gypsum purchased from OFFICE OF UTILITIES.
In contrast to the above, OFFICE OF UTILITIES believes these sales of gypsum are
fully taxable for sales tax purposes and that the usage by COMPANY do not meet the
test for the coal and aggregate exemption.
Please provide a written response/determination at your earliest convenience.
In the event that additional information is required I may be contacted.
DEPARTMENT’S RESPONSE:
Generally, Form ST-587, entitled “Equipment Exemption Certificate” is given to a retailer by a
purchaser when the purchaser is purchasing equipment that will be used primarily (1) in graphic arts
production; (2) in the manufacturing or assembling of tangible personal property for wholesale or
retail sale or lease; (3) in production agriculture; or (4) for coal and aggregate exploration and related
mining, off-highway hauling, processing, maintenance, and reclamation, but excluding motor vehicles
required to be registered under the Illinois Vehicle Code.
The Department's regulation that explains the exemption from Retailers' Occupation Tax
afforded coal mining, exploration, off highway hauling, processing, maintenance and reclamation
equipment can be found at 86 Ill. Adm. Code 130.350. In order for items to qualify for this exemption,
they must be either machinery or equipment used primarily in coal exploration, mining, off highway
hauling, processing, maintenance and reclamation. The regulation specifically excludes supplies
from the exemption. Based on the limited amount of information in your letter, it appears that the
gypsum is neither machinery nor equipment but, rather, appears to be a consumable supply which
does not qualify for the coal exemption.
Retailers should not accept the ST-587 in place of tax on items that do not qualify for the
exemption. Whether or not a retailer chooses to accept an exemption certificate is the retailer’s
decision. A retailer may refuse to accept the certificate and charge the purchaser tax.
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

DMB:bkl