Do livestock shade systems (permanent or mobile) qualify for Illinois's farm machinery and equipment sales-tax exemption?

Plain-English summary

The Illinois Department of Revenue told a manufacturer of livestock shade systems that its products do not qualify for the state's farm machinery and equipment sales-tax exemption -- even though the shade systems are used directly to keep livestock cool and are marketed to farmers. This is a General Information Letter (GIL), which is not a statement of Department policy and is not binding on the Department; it simply points the requester to the relevant rules.

The manufacturer made two products: a permanent livestock shade system and a mobile (portable) version, both intended to help livestock stay cool in summer. It asked whether either product could be sold tax-free under Illinois's exemption for property used in "production agriculture."

Illinois does exempt machinery and equipment used primarily in production agriculture from Retailers' Occupation Tax and Use Tax, under 35 ILCS 120/2-5(2) and 86 Ill. Adm. Code 130.305. But the Department drew a line between "machinery" (major mechanical machines or components of the production-agriculture process, like tractors, combines, balers, irrigation equipment, and cattle/poultry feeders) and improvements to real estate, which are not exempt -- explicitly listing "livestock shade systems, fences, barns, roads, grain bins, silos and confinement buildings" as examples of non-exempt real estate improvements.

The Department found that both shade systems -- even the mobile one, which is capable of being moved -- are made of ordinary building materials and are "very similar to real estate improvements." So neither the permanent nor the portable version qualifies for the exemption; their sale remains subject to Illinois sales tax.

What this means for you

Manufacturers and sellers of livestock structures

If you make or sell shade structures, shelters, or similar buildings for livestock, don't assume the farm machinery exemption applies just because the product is used in raising livestock and marketed to farmers. The Department looks at what the item actually is -- a mechanical machine that does agricultural work, or a building-type structure made of ordinary construction materials. Portability alone doesn't save a structure from being classified as a real estate improvement; the Department said so explicitly about the mobile shade unit here.

Farmers and livestock producers buying farm equipment

When you buy equipment for your operation, the exemption under 86 Ill. Adm. Code 130.305 covers machinery like tractors, combines, balers, irrigation equipment, and cattle/poultry feeders used primarily in production agriculture -- and you must certify that primary use to the seller to get the exemption. But structures such as shade systems, fences, barns, roads, grain bins, silos, and confinement buildings are treated as real estate improvements, not exempt machinery, so expect to pay sales tax on those purchases regardless of their agricultural purpose.

Accountants and tax professionals

The key distinction in this GIL is functional, not just physical: exempt "machinery" means major mechanical machines or components contributing to the production agriculture process (or used in state/federal agricultural programs), while structures resembling real estate improvements -- even mobile ones built from ordinary building materials -- fall outside the exemption. When advising clients on farm equipment purchases, look past the marketing label ("livestock equipment") to whether the item is mechanical equipment or a building-type structure.

Common questions

Q: Are livestock shade systems exempt from Illinois sales tax as farm equipment?
A: No. The Department concluded that both a permanent and a mobile livestock shade system are treated as improvements to real estate, not as exempt farm machinery and equipment under 86 Ill. Adm. Code 130.305.

Q: Does it matter that one of the shade systems could be moved?
A: Not much. The Department noted that although the mobile unit is capable of being moved, it is still made of ordinary building materials and is very similar to a real estate improvement, so it doesn't qualify for the exemption either.

Q: What kinds of equipment DO qualify for the farm machinery exemption?
A: Under 86 Ill. Adm. Code 130.305, exempt "machinery" means major mechanical machines or machine components contributing to production agriculture or used primarily in state or federal agricultural programs -- examples given include tractors, combines, balers, irrigation equipment, and cattle and poultry feeders.

Q: What other structures are treated the same way as livestock shade systems?
A: The Department listed fences, barns, roads, grain bins, silos, and confinement buildings alongside livestock shade systems as examples of real estate improvements that don't qualify as exempt farm machinery.

Q: Can this manufacturer or other companies rely on this letter as binding?
A: No. This is a General Information Letter (GIL), issued under 2 Ill. Adm. Code 1200.120. A GIL merely directs a taxpayer to relevant regulations; it is not a statement of Department policy and is not binding on the Department, unlike a Private Letter Ruling (PLR).

Subject

Farm Machinery & Equipment

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-18-0040-gil.pdf

Original ruling text

ST 18-0040-GIL 12/06/2018 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.)
December 6, 2018
Dear Xxx
This letter is in response to your letter received October 10, 2018, 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 an opinion on the manufactured items below and whether they
would qualify for the agricultural tax exemption from sales tax.
Company Information:
COMPANY
Federal ID:XX-XXXXXXX
Illinois Tax Identification Number:XXXX-XXXX
We are a manufacture[sic] in CITY, STATE and I am inquiring about whether two of our
products, that we produce and sell, qualify for the agriculture exemption for farmers.
The items we are selling are a Livestock shade system. One system is a permanent
shade system and the other shade system is a mobile unit. If you look at our web site
link you can see the details of each product. I have also included our product flyers to
refer to.
Both products are used for livestock to help keep them cool in the hot days of summer. I
do not see any clear clarification for this type of product to determine whether I can
accept the agriculture exemption for these products which is directly used in the raising
and care of livestock.
Thank you for your time.

ST 18-0040-GIL
Page 2
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
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 livestock shade systems, fences, barns,
roads, grain bins, silos and confinement buildings are not considered exempt farm machinery.
Although one of the the livestock shade systems is capable of being moved, both are very similar to
real estate improvements, in that they are made of ordinary building materials. Structures of this type
(both the portable and the permanent) do not qualify for the exemption.
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