Are fuel trailers sold for farm use exempt from Illinois sales tax, and does sales tax apply to a GPS subscription on leased farm equipment?

Plain-English summary

The Illinois Department of Revenue issued this General Information Letter (GIL) in response to a taxpayer's questions about two different products: fuel trailers sold for farm use, and GPS subscriptions offered on leased equipment. Because a GIL is not a statement of Department policy and is not binding on the Department, this letter simply points the taxpayer to the relevant rules rather than issuing a binding ruling.

On the fuel trailers, the Department explained that Illinois's Retailers' Occupation Tax and Use Tax do not apply to machinery and equipment used or leased primarily in production agriculture, under 35 ILCS 120/2-5(2) and 86 Ill. Adm. Code 130.305. The regulation's definition of "machinery" covers things like tractors, combines, balers, irrigation equipment, and cattle and poultry feeders, and 130.305(h) extends the exemption to certain registered vehicles other than motor vehicles -- including trailers and nurse tanks used primarily to supply spreaders in the fields -- as long as they're used primarily in production agriculture rather than transportation. The Department told the taxpayer it didn't have enough information about how the specific fuel trailers would actually be used: if used primarily in production agriculture, they'd qualify for the exemption; if used mainly for transportation or other nonexempt purposes, they would not.

On the GPS subscriptions, the Department gave a more definite answer. Illinois sales and use tax apply only to the retail sale of tangible personal property. If a GPS subscription -- even one bundled with a leased machine that tracks location, monitors performance, and logs maintenance and fuel consumption -- involves no transfer of tangible personal property, then it is not subject to Retailers' Occupation Tax or Use Tax at all, regardless of whether the customer is an agricultural user or not.

What this means for you

Sellers of trailers and other farm-adjacent equipment

Whether a trailer, nurse tank, or similar registered vehicle qualifies for the farm machinery exemption turns entirely on how it's actually used, not on how it's marketed or who buys it. A fuel trailer sold to a farm customer isn't automatically exempt just because it ends up on a farm -- it has to be used primarily in production agriculture (for example, supplying fuel to equipment operating in the field) rather than primarily for hauling or general transportation. Under 86 Ill. Adm. Code 130.305(a), the purchaser must certify that the equipment is used primarily in production agriculture to obtain the exemption, so sellers should be prepared to collect that certification and keep it on file.

Equipment dealers offering GPS or telematics subscriptions

If you sell or lease equipment bundled with a GPS or telematics subscription, the tax treatment depends on whether the subscription itself transfers any tangible personal property. Per this letter, a subscription that only provides tracking, performance monitoring, maintenance logging, and fuel-consumption data -- with no accompanying transfer of tangible personal property -- falls outside Retailers' Occupation Tax and Use Tax entirely. That answer didn't depend on whether the customer was an agricultural user or a commercial/non-agricultural ("CE") customer; the key fact is the absence of a taxable transfer of property, not the customer's identity.

Farmers and agricultural buyers

If you're buying machinery or equipment for your farm operation, remember that the farm machinery exemption is about primary use, not just ownership or general farm ties. Improvements to real estate -- fences, barns, roads, grain bins, silos, and confinement buildings -- are specifically excluded from the exemption even though they're common on farms. For machinery and qualifying registered vehicles used primarily in production agriculture, you'll typically need to certify that use to your seller to get the exemption applied at the point of sale.

Common questions

Q: Are fuel trailers automatically exempt from Illinois sales tax when sold to a farm business?
A: No. The exemption depends on how the trailer is actually used. If it's used primarily in production agriculture (such as supplying fuel to equipment in the field), it can qualify as exempt farm machinery/equipment under 86 Ill. Adm. Code 130.305. If it's used primarily for transportation or other nonexempt purposes, it does not qualify.

Q: Does a GPS subscription on leased farm equipment get taxed like the equipment itself?
A: Not necessarily. Illinois sales and use tax apply only to transfers of tangible personal property. If the GPS subscription itself doesn't involve any such transfer, it isn't subject to Retailers' Occupation Tax or Use Tax at all -- separate from whatever tax treatment applies to the leased machine.

Q: Does it matter whether the GPS subscription customer is an agricultural user versus a non-agricultural ("CE") customer?
A: Based on this letter, no. The Department's answer on GPS subscriptions turned on whether tangible personal property was transferred, not on the type of customer purchasing the subscription.

Q: What counts as "machinery" for the farm exemption?
A: The regulation describes machinery as major mechanical machines or machine components contributing to the production agriculture process, giving tractors, combines, balers, irrigation equipment, and cattle and poultry feeders as examples. Improvements to real estate like fences, barns, roads, grain bins, silos, and confinement buildings are explicitly not exempt farm machinery.

Q: Can I rely on this letter for my own business?
A: No. This is a General Information Letter, which the Department issues to point taxpayers to relevant regulations and sources of information. It is not a statement of Department policy and is not binding on the Department -- unlike a Private Letter Ruling, it doesn't even bind the Department as to the requesting taxpayer. Businesses with a specific, particular fact pattern should consider requesting a Private Letter Ruling or consulting a tax professional.

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-18-0041-gil.pdf

Original ruling text

ST 18-0041-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 November 1, 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 inquiring about the sales tax on fuel trailers used for farm. We are going to be sell [sic]
PRODUCT and was wondering what the rules for sales tax are for them. I was looking into the ref
130.305 but it is not clear on fuel trailers.
I also have a question about GPS subscriptions, I know for Ag it is exempt but what about for a
CE customer? We have someone who can purchase a 5 year subscription, on a lease unit that will
track the machine is and how it is running and log maintenance and error codes along with fuel
consumption and other features.
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.

ST 18-0041-GIL
Page 2
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 that the
equipment or machinery is used primarily in production agriculture. 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.
Please review the Department’s regulation at 86 Ill. Adm. Code 130.305(h). It provides that
the exemption includes implements of husbandry defined in Section 1-130 of the Illinois Vehicle
Code. Further, it states that while it excludes motor vehicles required to be registered under the
Illinois Vehicle Code, “[r]egistered vehicles other than motor vehicles may qualify for the exemption if
they are used primarily in production agriculture rather than in transportation or other nonexempt
activities. Examples of this include implements of husbandry used primarily to supply and apply farm
chemicals; trailers and nurse tanks used primarily to supply spreaders in the fields….”
We do not have enough information about how the fuel trailers you asked about in your letter
are going to be used. If they are going to be used primarily in production agriculture, they would
qualify for the exemption. If, however, the trailers are going to be used in transportation or other
nonexempt activities, they would not qualify for the exemption.
With respect to your second question regarding GPS subscriptions, the Illinois Retailers'
Occupation Tax and Use Tax are conditioned upon the retail sale of tangible personal property. If the
GPS subscriptions involve no transfer of tangible personal property, the subscriptions are not subject
to Retailers' Occupation Tax/Use Tax liabilities.
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