What does Illinois Private Letter Ruling ST 20-0005-PLR conclude about the manufacturing machinery and equipment exemption for a cold-storage food processing facility?

Plain-English summary

This Private Letter Ruling was requested by a large cold-storage and food-processing company that manages more than 288 million cubic feet of temperature-controlled space across 45 U.S. facilities, serving the frozen and refrigerated food industry (meats, seafood, fruits, vegetables, dairy, and raw food materials). The company was planning to expand and renovate one of its existing facilities, adding about 121,000 square feet of new space, and asked the Department to confirm in advance that a long list of machinery, equipment, and related property it planned to purchase would qualify for Illinois' manufacturing machinery and equipment ("MM&E") exemption from Retailers' Occupation Tax and Use Tax.

Illinois' MM&E exemption, found at 35 ILCS 120/2-5(14) and 35 ILCS 105/3-5(18), excuses purchasers from sales/use tax on machinery and equipment used primarily (over 50% of the time) in manufacturing or assembling tangible personal property for sale. Effective July 1, 2019, the legislature expanded this exemption to also cover "production related tangible personal property" -- items that don't necessarily meet the traditional definition of "machinery and equipment" but are still used or consumed in a production-related process at a manufacturing facility. This expansion absorbed what used to be covered by the now-expired Manufacturer's Purchase Credit (MPC).

The company's planned purchases fell into five broad categories: (1) a refrigeration system (air compressors, evaporators, pumps, heat exchangers, condensers, electrical/control wiring, and refrigerant); (2) an integrated Automated Storage and Retrieval System or "AS/RS" (racking equipment, automated cranes, conveyors, a layer picker, a warehouse control system with PLCs and motor control centers, product and system pallets, handheld RF readers, forklifts, an automated wrap machine, and freezer-grade labels/wrap); (3) a "thermal envelope" for the temperature-controlled areas (specialty insulated cold-storage doors, insulated exterior dock doors and seals, composite insulated wall panels, additional roofing insulation, and thermal blocking for steel columns); (4) hand tools used to maintain and repair the above; and (5) replacement parts for the above. Notably, the company was careful to exclude from its request anything that requires government titling/registration, anything used for non-production functions like sales or HR, anything in non-temperature-controlled spaces like break rooms, and anything that is part of the building's foundation or general structural shell.

The Department walked through its own regulation, 86 Ill. Adm. Code 130.330, and a series of its own prior letter rulings involving cold storage and food processing (PLR ST 88-0136, PLR ST-09-0003, GIL ST-99-0139, GIL ST-01-0192, GIL ST-11-0069, PLR ST 14-0002, and PLR 16-0004), all of which supported treating refrigeration and racking equipment used to maintain food-safe temperatures as exempt manufacturing equipment. Applying that framework, the Department agreed with the taxpayer's position on every item presented: everything described in the request qualifies for the MM&E exemption, either as conventional "machinery and equipment" used primarily in the food manufacturing/processing operation, or -- for any component that might not squarely fit that conventional definition -- as "production related tangible personal property" under the exemption as expanded in 2019 (for example, as property incorporated into real estate for a production-related process, as consumables/supplies used in manufacturing, or as property used for pre-/post-production material handling, quality control, and packing for shipment).

The Department explicitly did not rule on (and the taxpayer did not ask about) any property that must be titled/registered with a government agency, property used for non-production company functions, property in general (non-temperature-controlled) areas of the facility, property that is part of the building's foundation or supporting structure, or property used for general (non-production-specific) ventilation, heating, cooling, climate control, or lighting.

What this means for you

Cold-storage, warehousing, and food-processing companies

If your business processes, packages, or stores perishable food in temperature-controlled space, this ruling is a useful roadmap: refrigeration systems, automated racking/crane/conveyor systems, layer pickers, warehouse control systems, pallets, RF scanners, forklifts, wrap machines, and even the specialized insulated doors, wall panels, and roofing that create the "thermal envelope" around a freezer or cooler can all qualify for the MM&E exemption -- as long as they are integrated into the temperature-controlled production/processing operation and not used for unrelated purposes like offices, sales, or general building maintenance. Hand tools and replacement parts tied to that equipment can qualify too.

Manufacturers evaluating the 2019 exemption expansion

This ruling illustrates how the Department applies the post-July-1-2019 "production related tangible personal property" category -- the broadened MM&E exemption that absorbed the old Manufacturer's Purchase Credit. Even where an item (like an insulated wall panel or a wrap-machine label) might not fit the traditional definition of "machinery" or "equipment," it can still be exempt if it is incorporated into real estate for a production-related process, is a supply/consumable used in production, or supports pre-/post-production material handling, quality control, inventory control, or packing for shipment.

Accountants and tax professionals advising on capital expansions

Note the careful line-drawing in this ruling: the taxpayer expressly excluded (and the Department expressly declined to rule on) items requiring government title/registration, items used for non-production functions (sales, HR, accounting), items in non-temperature-controlled general areas (break rooms, offices, restrooms), items that are part of the building's foundation/structural shell, and general (not production-specific) HVAC or lighting. When advising a client on a similar facility expansion, plan your purchase documentation and cost allocation around these same boundaries, since a PLR only binds the Department for the specific taxpayer and facts presented.

Common questions

Q: Does this ruling mean all cold-storage equipment is automatically tax-exempt in Illinois?
A: No. This is a Private Letter Ruling that binds the Department only as to this one taxpayer and only to the extent the facts as described were correct and complete. It shows how the Department reasons about cold-storage/food-processing equipment under the MM&E exemption, but every business's facts need to be evaluated on their own.

Q: What is the "MM&E exemption"?
A: It's Illinois' manufacturing and assembling machinery and equipment exemption from Retailers' Occupation Tax and Use Tax (35 ILCS 120/2-5(14); 35 ILCS 105/3-5(18); 86 Ill. Adm. Code 130.330), which excuses purchases of machinery and equipment used primarily (over 50% of the time) in manufacturing or assembling tangible personal property for sale. Effective July 1, 2019, it was expanded to also cover "production related tangible personal property" that doesn't necessarily fit the traditional definition of machinery or equipment.

Q: Why would items like insulated doors and wall panels count as "machinery and equipment"?
A: The Department treated the "thermal envelope" components (insulated cold-storage doors, dock doors and seals, composite wall panels, roofing insulation, and thermal blocking) as qualifying either as machinery/equipment or, alternatively, as production-related tangible personal property purchased for incorporation into real estate within a manufacturing facility for use in a production-related process -- a category the Department's regulations specifically recognize at 86 Ill. Adm. Code 130.330(h)(2)(A). The taxpayer was careful to note these items are separate from the structural foundation, walls, and roofing of the facility itself, and it did not claim the exemption for the structural steel columns.

Q: Did the Department rule on absolutely everything the company purchases for the facility?
A: No. At the company's own request, the Department made no determination about property that must be titled/registered with a government agency, property used for non-production functions like sales or HR, property in general (non-temperature-controlled) areas like break rooms and offices, property that is part of the building's foundation/structural shell, or property used for general (not production-specific) ventilation, heating, cooling, climate control, or lighting.

Q: How does this ruling relate to the Manufacturer's Purchase Credit (MPC)?
A: The MPC used to give a separate tax credit for certain production-related purchases that didn't qualify as conventional machinery and equipment. P.A. 101-9 permanently expanded the MM&E exemption, effective July 1, 2019, to fold that same category of "production related tangible personal property" directly into the sales/use tax exemption itself, rather than leaving it as a separate credit.

Q: Is this the only Illinois ruling on cold-storage food equipment?
A: No. The Department's response cites and relies on several of its own earlier rulings covering similar territory, including PLR ST 88-0136, PLR ST-09-0003, GIL ST-99-0139, GIL ST-01-0192, GIL ST-11-0069, PLR ST 14-0002, and PLR 16-0004 -- all of which found that refrigeration, cooling, and racking equipment used to maintain food-safe temperatures can qualify for the MM&E exemption.

(This ruling covers a very long, itemized list of specific equipment. Readers with questions about a particular piece of equipment not summarized above should review the full original text linked below.)

Citations and references

• 35 ILCS 120/2-5(14) (Retailers' Occupation Tax manufacturing machinery and equipment exemption)
• 35 ILCS 105/3-5(18) (Use Tax manufacturing machinery and equipment exemption)
• 35 ILCS 120/2-45 (definitions of "machinery," "equipment," and "production related tangible personal property" for ROT)
• 35 ILCS 105/3-50 (parallel Use Tax definitions)
• 35 ILCS 120/2 (imposition of Retailers' Occupation Tax)
• 35 ILCS 105/1a (Use Tax imposition provisions)
• 86 Ill. Adm. Code 130.330 (manufacturing and assembling machinery and equipment exemption regulation), including subsections (a), (b)(1)-(3), (c)(1)-(4), (d), (e), and (h)
• 86 Ill. Adm. Code 130.331 (Manufacturer's Purchase Credit)
• 86 Ill. Adm. Code 150.910 and 86 Ill. Adm. Code 150.101 (Use Tax provisions)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposition)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedures)
• P.A. 101-9 (2019 legislation expanding the MM&E exemption to production related tangible personal property)
• Prior Department rulings discussed: PLR ST 88-0136; PLR ST-09-0003; GIL ST-99-0139; GIL ST-98-0193; GIL ST-01-0192; GIL ST-93-0121; GIL ST-11-0069; PLR ST 14-0002; PLR 16-0004

Subject

Machinery And Equipment

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2020.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2020/st20-0005-plr.pdf

Original ruling text

ST 20-0005-PLR 09/03/2020 MACHINERY AND EQUIPMENT
This letter discusses the machinery and equipment exemption. 35 ILCS 120/2-5(14); 86 Ill.
Adm. Code 130.330(a). (This is a PLR.)

September 3, 2020

RE: COMPANY
Request for Private Letter Ruling

Dear Xxxx:
This letter is in response to your letter dated April 24, 2020, 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.
Review of your request disclosed that all the information described in paragraphs 1 through 8
of Section 1200.110 appears to be contained in your request. This Private Letter Ruling will bind the
Department only with respect to COMPANY, for the issue or issues presented in this ruling, and is
subject to the provisions of subsection (e) of Section 1200.110 governing expiration of Private Letter
Rulings. Issuance of this ruling is conditioned upon the understanding that neither COMPANY, nor a
related taxpayer is currently under audit or involved in litigation concerning the issues that are the
subject of this ruling request. In your letter you have stated and made inquiry as follows:
We respectfully request a private letter ruling (“PLR”), pursuant to Illinois Administrative
Code §1200.110, as to whether our client, COMPANY (the “Company”), qualifies for
exemption from the Illinois Retailers’ Occupation Tax and Use Tax (collectively,
“ROT/UT)” with respect to the facts set forth in this letter.
General Information Relating to PLR Request

1. Enclosed in an executed Form IL-2848, Power of Attorney, authorizing the
   designated individuals at our firm to submit this request on behalf of the Company
   and represent the Company before the Department.

ST 20-0005-PLR
Page 2

2. This request for a PLR is not for hypothetical or alternative proposed transactions,
   but rather to determine whether actual purchases of machinery, equipment and
   other tangible person property to be made by the Company qualify for an exemption
   to ROT/UT.
3. This ruling is sought for all tax periods during which the purchases of machinery,
   equipment and tangible personal property will occur.
4. No issue in the request is being examined as part of a Department audit, or is
   pending in litigation involving the Company or a related taxpayer in which the
   Department is named as a plaintiff or defendant.
5. To the best of the knowledge of both the Company and our firm, the Department has
   not previously ruled on the same or a similar issue for the Company or a
   predecessor. Neither the Company nor any of its representatives previously
   submitted a request on the same or a similar issue to the Department and withdrew
   it before the Department issued a ruling.
6. If the Department decides to issue a PLR, the Company requests certain information
   be deleted from the PLR prior to public dissemination. The Company requests that
   its name, address, description of the facility and names of its representatives be
   redacted or referred to in a non-identifying manner.
   The Company provides temperature controlled facilities for the processing, packaging
   and storage of perishable food products and temperature-sensitive items to the frozen
   and refrigerated food industries. The Company manages more than 288 million cubic
   feet of temperature controlled space in 45 facilities located across the U.S. Its facilities
   handle a broad range of foods such as meats, seafood, fruits, vegetables, dairy
   products and raw food materials. The Company is one of the largest providers of
   refrigerated and frozen food processing, packaging and storage facilities in the U.S. and
   has more than XXXX employees.
   The Company is considering an expansion and renovation of its existing food
   processing facility located ADDRESS. The existing building is approximately XXX,XXX
   square feet. The expansion space will be approximately an additional 121,000 square
   feet. The newly expanded and renovated facility will provide efficient and cost-effective
   processing of perishable food products for the Company’s customers.
   The Company will purchase the following items of machinery, equipment and other
   tangible personal property for use in the facility. Each of the following items is part of
   the Company’s integrated food processing operation. Each component is necessary to
   facilitate quick processing of food products, prevent bacteria growth, spoilage and
   contamination, minimize the risk of food recalls, and to ensure that food products
   processed at the facility are fit for sale and human consumption.
7. Refrigeration System. The refrigeration system will be comprised of various
   components including air compressors, evaporators, pumps, heat exchangers,
   condensers, and associated electrical and mechanical components. The system is
   powered through electrical power wiring which is necessary to power the

ST 20-0005-PLR
Page 3
refrigeration equipment. The system is controlled through control wiring which is
necessary to facilitate control of the system and associated components. The
refrigeration system also includes consumables, such as refrigerant, that are
necessary to its operation.

2. Automated Storage and Retrieval System (AS/RS). The new facility will be highly
   automated through the use of an integrated and automated storage and retrieval
   system (“AS/RS”). The AS/RS is an integrated management and processing system
   for handling food products throughout the temperature controlled areas at the facility.
   The AS/RS is particularly important in cold food processing operations, as it
   facilitates quick and accurate processing and avoids the need for manual handling,
   reducing the risk of contamination and spoilage, and mitigates the possibility of food
   recall resulting from improper temperature control. The AS/RS includes the
   following integrated components:
   a. Racking Equipment. These are specially designed racks and spacers to store
   and process pallets of food products. The racking equipment is essential to
   the reduction and maintenance of food product temperatures by creating
   space around the sides of the food product. This protects the stacked food
   product from destruction, and facilitates the organization of the food products
   in a manner that provides proper air flow around and between the stored food
   products. Without the racking equipment, airflow between the products would
   be restricted, and the reduced temperature created by the refrigeration
   system would not be conducted in a uniform, timely and balanced manner,
   resulting in spoilage and contamination.
   b. Cranes. The racking equipment is served by automated cranes, which
   operate on a floor mounted mono-rail with guide rail affixed to the top of the
   pallet racking, and use guidance systems that ensure precise placement of
   the pallets in racking locations to facilitate consistent airflow. The use of the
   cranes ensures that food products will be quickly conveyed to their intended
   location in lower temperature areas of the facility. The crane is then tasked
   with logically storing, rearranging and retrieving pallets to fulfill customer
   orders as part of the integrated process. Once the pallets are needed for
   picking, the crane delivers the pallets to the layer picking area or back to the
   conveyor as a final product per a customer order.
   c. Conveyors. The integrated AS/RS includes conveyors that move food
   products within the temperature controlled areas. For this facility, the
   conveyors will be electro-mechanical with some including hydraulic and
   pneumatic assist (fluid pressure and air pressure). The conveyors eliminate
   excessive product dwell time in the warmer (but still temperature controlled)
   dock area. Once a pallet is received onto the conveyor system, it is quickly
   transported into a lower temperature area in the facility. This swift transport
   mitigates opportunity for food spoilage and bacterial growth that can cause
   contamination and lead to food borne illness upon human consumption. The
   conveyors transport pallets from the dock area in a logical manner to the
   cranes for storage. The conveyors also transport product pallets to the layer

ST 20-0005-PLR
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pick area facilitating the re-assembly and combination of product per
customer order requirements.
d. Layer Picker. The layer picker, which is also integrated with the AS/RS
system, is a machine that utilizes an overhead style crane, or gantry system.
It is responsible for accepting whole pallets and disassembling them one layer
of cases at a time. It is capable of removing entire layers of boxes from
multiple “parent pallets” and combining them onto new “child pallets”. These
child pallets can have layers from multiple parent pallets. The end-product is
a newly assembled final product ready for shipment per customer order. All
of this is accomplished swiftly and accurately in the temperature controlled
environment. The use of the layer picker eliminates human contact with the
food product and the opportunity for contamination by human handling.
e. Control System. The “brain” of the AS/RS system is the warehouse control
system (WCS).
The WCS is an integrated system comprised of
programmable logic controllers (PLCs), motor control centers (MCCs) and
control panels. PLCs intelligently manage the operation of the conveyor and
crane components to work in unison. MCCs can house dozens of PLCs that
are responsible for the orderly processing of product pallets. The racking
equipment and associated cranes, conveyors and other components cannot
function without direction from the WCS.
f. Product Pallets and System Pallets. Product pallets are the structures on
which the food products are secured from transportation, processing and
storage. System pallets provide support for product pallets as they traverse
all parts of the AS/RS system. As a product pallet enters the facility, it is
placed on top of the system pallet and remains there during processing in the
refrigerated areas. The system pallets are critical to ensuring a clean
operating environment throughout the facility, by ensuring that sawdust and
debris do not contaminate product pallets. System pallets also protect the
conveyor, rack, and crane equipment from potential damage.
g. RF Readers. These are hand-held radio frequency (RF) computers that are
integrated into the AS/RS, and used to convey information to Company
personnel regarding pallets, such as inventory paths and expiration dates,
and to log product information for inventory control and tracking. The RF
readers serve as an interface between Company personnel and the WCS.
h. Forklifts. Forklifts are used to handle and transport food product pallets in the
temperature controlled areas of the facility. Specially designed forklifts are
also used to “case pick” when fulfilling highly customized customer orders of
less than layer case pick quantities. Case pick involves separating a pallet
into its base cases and then combining different product cases into one pallet
thus building a new pallet that is completely customized. The AS/RS system
returns completed case pick pallets of finished goods for secure storage until
outbound shipment, and replenishes the case pick area as needed. The case
pick forklifts are specially made for this so that the Company can reduce the

ST 20-0005-PLR
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“runs” necessary to build a customized pallet, thus adding efficiency to the
process and reducing the risk of contamination and spoilage.
i. Automated Wrap Machine. This is an automated machine that plastic-wraps
pallets in the temperature controlled areas. The wrap machine is integrated
into the AS/RS and controlled through the WCS, and is specially designed to
perform in -20 degree temperatures in the freezer environment. Utilizing an
automated machine results in quick and efficient wrapping, and limits human
handling of food product that could cause contamination and spoilage.
j. Freezer Grade Labels and Wrap. The Company utilizes freezer grade product
plastic wrap and labels for processing food products. Each must be capable of
application in temperatures down to -20 degrees F. The wrap is applied by the
automated wrap machines and prevents contamination of food product. As a
system pallet enters the AS/RS system, two labels with matching custom bar
codes are affixed to each side which enables it to interface with the WCS for
inventory control and processing as it moves through the AS/RS system.

3. Temperature Controlled Area Thermal Envelope. As part of the renovation and
   expansion of the facility, several components will be purchased and added that
   compromise a “thermal envelope” for the temperature controlled areas. The thermal
   envelope is necessary to maintain proper temperature for the food products. Each
   item included below is specialty rated and is separate from the structural foundation,
   walls and roofing of the facility. Without these components, the system will not be
   able to maintain temperature or prevent thermal and moisture transmission, which
   would result in food spoilage and contamination.
   a. Specialty Insulated Interior Cold Storage Doors. These are large (18 feet or
   higher) doors that go from the dock area to the freezer space. These are bi-part
   doors with insulated cores and 24 gauge, heavy duty galvanized steel skins. The
   freezer doors prevent thermal and moisture transfer or intrusion between the
   freezer and refrigerated environment. These doors have full perimeter gaskets
   that contain heat cables which are switch or thermostat controlled to keep the
   doors operational in the freezer environment and prevent ice and frost buildup
   that can cause damage and contaminate food product passing through the
   doorway. Freezer rated controls and power wiring are necessary to operate the
   doors.
   b. Specialty Insulated Exterior Dock Doors and Seals. The dock area of the facility
   is where products are received for processing in the facility and where customer
   orders are moved by the AS/RS for fulfillment. The dock area will be
   temperature controlled and typically maintained around 35 degrees F. Thermal
   and moisture mitigation is critical in the dock area during transfer of food
   products from delivery trucks into the facility. The dock doors will be insulated
   and will be airtight when closed. The dock doors are also surrounded by dock
   seals, which are projection shelters, constructed of 40 oz. high density vinyl with
   Durathon pleats and C-4 head curtains, and have corner “draft pads” and dual
   bumper “filler pads” to ensure a tight perimeter seal for liftgate and standard
   trailers. The dock seals enable an airtight seal to be maintained between a

ST 20-0005-PLR
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delivery truck and the dock doors even when the dock doors are open for
unloading and loading products. Freezer rated controls and power wiring are
necessary to operate the dock doors and seals.
c. Composite Wall Panels/Insulated Metal Panels. These panels meet ASHRAE
90.1-2007 energy standards and are comprised of a core of continuous
polyurethane foam that is factory foamed-in-place between two (2) sheets of
twenty-six (26) gauge roll formed metal sheets of a specified thickness. The
panels do not provide structural support for the facility. Foam cores are fully
expanded into and bonded to the panel skin profile, free of foaming voids. All
panels will be tongue and groove type that use specialty caulk to retard vapor.
The interlocking system and accessory components, including vapor flashing,
foam in place installation, sealants, and trim, provide a system with positive
thermal/vapor barrier integrity.
d. Additional Roofing Insulation. Additional insulation will be installed into the roof
of the facility in staggered layers with a minimum sheet size of 48”x96” with a
minimum R-value of 5 ft2hºF/Btu per inch. The insulation is made up of
isocyanate or polyisocyanurate, composed or 2-3 layers, with a minimum
thickness of 8 inches, compressive strength of 20 psi or greater, and a long-term
thermal resistance value of 50 or higher. The insulation meets ASHRAE 90.12007 energy standards and is tested in accordance with CAN/ULC S770.
e. Thermal Blocking. The building columns at the facility will be made of steel.
Steel is a good conductor of thermal energy and therefore building columns must
incorporate a “thermal break” to maintain temperature in the refrigerated area.
This thermal blocking consists of a non-conductive thermal item placed under the
steel columns. The Company is not claiming the MM&E exemption as to any
steel columns or other aspects of the structural shell of the facility that may be
added or modified as part of the renovation and expansion.

4. Hand Tools. This includes various hand tools, some of which are highly specialized
   for automated cold storage operations, for use in the facility as needed for
   maintenance and repairs of various components of the refrigeration system, the
   AS/RS system and the thermal envelope.
5. Replacement Parts. These are replacement parts that make up the various
   components of the refrigeration system, the AS/RS system and the thermal
   envelope. If there is a failure of any component, it is essential to have replacement
   parts available to facilitate uninterrupted processing.
   Statement of Law and Authorities
   Illinois Retailers’ Occupation Tax and Use Tax are generally assessed on the purchase
   or use by Illinois residents of tangible personal property in the state. 35 ILCS 120/2; 35
   ILCS 105/1a. Prior to July 1, 2019, the ROT and UT statutes provided an exemption
   from ROT/UT for conventional machinery and equipment that will be used by the
   purchaser primarily (over 50% of the time) in the process manufacturing or assembling

ST 20-0005-PLR
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tangible personal property. 35 ILCS 120/2-5(14); 35 ILCS 105/3-5(18). See also 86 Ill.
Adm. Code 130.330; 86 Ill Adm. Code 150.910.
Effective July 1, 2019, this exemption was expanded beyond conventional “machinery
and equipment” to include “production” related tangible personal property” (as
expanded, the “MM&E exemption”). As amended, the ROT and UT statutes define
“production related tangible personal property” as all tangible personal property used or
consumed in a production related process in a manufacturing facility. 35 ILCS 120/245; 35 ILCS 105/3-50. This broadens the MM&E exemption to include items previously
qualified for the tax credit under the Illinois Manufacturer’s Purchase Credit (“MPC”),
which previously expired.
Because of the significance of legislation expanding the MM&E exemption, and to
encourage manufacturing investment and expansion in Illinois, the Department
amended the regulations on the MM&E exemption to incorporate production related
tangible personal property into the MM&E exemption. 86 Ill. Admin. Code § 133.330,
effective March 16, 2020 (the “Regulations”).
In the Regulations, the Department has clarified that: 1) tangible personal property that
is production related will quality for the exemption even if it does not meet the definition
of conventional “machinery and equipment”; and 2) all references to “machinery and
equipment” in the regulations include qualifying tangible personal property. See 86 Ill
Admin. Code § 130.330(a).
The expanded MM&E exemption applies to qualifying items purchased for use in an
existing manufacturing facility, as well as items purchased for use in an expanded or
new manufacturing facility 35 ILCS 120/2-45. 86 Ill Adm. Code §130.330(a).
Subsection (c) of the Regulations address [sic] “conventional” machinery and equipment
that qualify for the MM&E exemption. “Machinery” means major mechanical machines
or major components of such machines contributing to a manufacturing or assembling
process. 35 ILCS 120/2-45(3); 35 ILCS 105/3-50(3). “Equipment” includes an
independent device or tool separate from machinery but essential to an integrated
manufacturing or assembly process. 35 ILCS 120/2-45(4); 35 ILCS 105/3-50(4).
Equipment also includes any parts that require periodic replacement in the normal
course of operation. Id.
To provide guidance to taxpayers, the Regulations include examples of machinery and
equipment used primarily in the following activities will generally be considered exempt
for purposes of the MM&E exemption, including:
-

machinery and equipment used to effect a direct and immediate physical
change upon the tangible personal property to be sold;

-

machinery and equipment used to inspect, test or measure the tangible
personal property to be sold, when the function is an integral part of the
production flow;

ST 20-0005-PLR
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-

machinery and equipment used to convey, handle or transport the tangible
personal property within production stations or between the production
stations within a facility; and

-

machinery and equipment used in the production or processing of food.

86 Ill. Adm. Code § 130.330(c)(3)(A), (C), (D) and (F).
Machinery and equipment used in the following activities will generally not be
considered to be exempt:
-

machinery and equipment used to transport work in process, or semifinished
goods, between plants;

-

machinery or equipment used in managerial, sales or other nonproduction or,
nonoperational activities (e.g., accounting, sales, marketing, or personnel
recruitment, selection or training;

-

machinery and equipment used in the preparation of food and beverages by a
retailer for retail sale, i.e., restaurants, vending machines, food service
establishments;

-

machinery and equipment used in the last step of the retail sale.

86 Ill. Adm. Code § 130.330(c)(4)(A)-(D)
The Regulations also include examples of items that the Department considers to be
production related. By way of illustration and not limitation, the following uses of
tangible personal property by manufacturers will be considered production related and
thus qualify for the expanded MM&E exemption:
-

Property purchased for incorporation into real estate within a manufacturing
facility for use in a production related process; or property purchased by a
construction contractor for incorporation into real estate within a
manufacturing facility for use in a production related process;

-

Supplies and consumables primarily used in a manufacturing process,
including fuels, coolants, solvents, oils, lubricants and adhesives;

-

Hand tools, protective apparel, and fire and safety equipment used or
consumed within a manufacturing facility; and

-

Property used or consumed in a manufacturing facility for purposes of preproduction and post-production material handling, receiving, quality control,
inventory control, storage, staging, and packing for shipping or transportation.

86 Ill. Adm. Code § 130.330(h)(2)(A)-(D)

ST 20-0005-PLR
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The Regulations also provide examples of uses of tangible personal property by
manufacturers that will not be considered production related, including:
-

The use of trucks, trailers and motor vehicles that are required to be titled or
registered pursuant to the Illinois Motor Vehicle Code;

-

the use of office supplies, computers, desks, copiers and equipment for sales,
purchasing, accounting, fiscal management, marketing, and personnel
recruitment or selection activities, even if the use takes place within a
manufacturing facility; and

-

The use or consumption of tangible personal property for aesthetic or
decorative purposes, including landscaping and artwork.

86 Ill. Adm. Code § 130.330(h)(3).
The production or processing of food is generally considered to constitute an exempt
use for purposes of the MM&E exemption. 86 Ill. Adm. Code §130.330(c)(3)(F). The
Department has also issued a series of private letter rulings and general information
letters regarding the application of the MM&E exemption to cold food storage and
processing which are relevant to this request.
-

In Private Letter Ruling ST 88-0136, the Department established its position
that machinery and equipment used in food processing qualifies for the
MM&E exemption.

-

In Private Letter Ruling ST-09-0003, the Department established its position
that machines which serve a quality control function in food processing qualify
for the MM&E exemption.

-

In General Information Letter ST-99-0139, the Department determined that
although pre-production and post-production storage facilities generally do
not qualify for the MM&E exemption, refrigeration and freezer facilities
maintained at a specific temperature that is required to preserve a postproduction food product will qualify for the MM&E exemption.
The
Department extended the regulation and determined that the MM&E
exemption will apply due to the requirements of the industry in preventing
contamination and spoilage of food products. See also GIL ST-98-0193; GIL
ST-01-0192; GIL ST-93-0121.

-

In General Information Letter ST-01-0192, the Department provided a similar
ruling as in ST-99-0139-GIL, adding that “[I]independent devices, separate
from machinery but essential to the manufacturing or assemble process can
qualify [for the MM&E exemption], including parts which require periodic
replacement in the normal course of operation.”

-

In General Information Letter ST-11-0069, the Department specifically noted
that machinery or equipment that is required for meat processing, such as
cooling equipment that maintains a precise temperature as part of the

ST 20-0005-PLR
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processing, could qualify for the exemption if used primarily for that purpose.
In GIL ST-11-0069, the taxpayer requested a ruling that certain components
of a meat processing facility are exempt from ROT/UT, including: 1) stainless
steel insulated walls, 2) interior insulated doors located within the production
processing areas, 3) exterior insulated doors located within the production
processing areas, and 4) silicone-coated ceiling, among other items such as
the sprinkler system, lighting system, employee locker room, employee
lunchroom and restrooms.
-

In ST-11-0069-GIL, the Department indicated that even if an item of personal
property included in the taxpayer’s request (e.g., insulated walls and doors)
did not qualify for the MM&E exemption, those components could be
purchased using the MPC (in effect at the time of the GIL) if the components
qualify as “production related tangible personal property.” As noted above,
the MM&E exemption has now been expanded to include “production related
to tangible personal property” that was previously covered by the MPC, in
addition to conventional machinery and equipment.

-

In Private Letter Ruling ST 14-0002, the Department determined that certain
machinery and equipment in a cold storage facility, including a refrigeration
system and associated cooling equipment that maintains a temperature in
order to preserve food product and (ii) racking equipment that facilitates
adequate fair flow to maintain a temperature, each contributed to and were
essential to the manufacturing process, and thus qualified for the MM&E
exemption.

-

In Private Letter Ruling 16-0004, the Department provided a similar ruling as
in PLR ST 14-0002. The Department determined that freezer machinery and
equipment used to reduce and maintain temperatures in the cold food storage
areas of the facility qualify for the MM&E exemption if used primarily for that
purpose. Similarly, racking equipment also qualified for the exemption
because without it, the products would not receive proper air flow and the
system would not effectively cool the products and heat from biological
processes would spoil and contaminate the products. As such, the racking
equipment was considered essential to an integrated food manufacturing
process.
Analysis and the Company’s Position

The Company’s position is that all of the items listed in the Statement of Facts above
qualify for the MM&E exemption. The Company provides cold storage and food
processing services for food manufacturers. The Company is not a retailer such as a
restaurant and does not prepare food as the last step of the retail sale.

1. The refrigeration system constitutes qualifying conventional machinery or
   equipment used primarily in the manufacturing process. 35 ILCS 120/245(3)-(4); 35 ILCS 105/3-50(3)-(4). Consumables, including ammonia and
   other substances or chemicals used as refrigerant, specifically qualify as

ST 20-0005-PLR
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production related tangible personal property under the expanded MM&E
exemption. 86 Ill. Adm. Code § 130-330(h)(2)(B).

2. All components of the AS/RS system, including, racking equipment, cranes,
   conveyors, layer picker, warehouse control system, product pallets and
   system pallets, RF readers, forklifts and automated wrap machines constitute
   qualifying conventional machinery or equipment used primarily in the
   manufacturing process. 35 ILCS 120/2-45(3)-(4); 35 ILCS 105/3-50(3)-(4).
   Even if an individual component of the AS/RS system were to not be
   considered as conventional machinery and equipment, the component would
   qualify under the expanded MM&E exemption as production related tangible
   personal property used for purposes of pre-production or post-production
   material handling, receiving, quality control, inventory control and packing for
   shipping or transportation. 86 Ill. Adm. Code §130.330(h)(2)(D). Freezer
   grade wrap and labels also qualify under the expanded exemption under the
   foregoing section or as consumables used in the production process. Id., 86
   Ill. Adm. Code §130.330(h)(2)(B).
3. The components that will comprise the “thermal envelope” for the temperature
   controlled areas also qualify under the expanded MM&E exemption, either as
   machinery and equipment or as tangible personal property purchased for
   incorporation into real estate for use food processing. 86 Ill. Adm. Code
   §130.330(h)(2)(A). This includes the specialty insulated exterior cold storage
   doors, specialty insulated exterior dock doors and seals, composite wall
   panels / insulated metal panels, additional roofing insulation and thermal
   blocking.
4. Hand tools used in the facility as needed for maintenance and repairs of
   various components of the refrigeration system, the AS/RS system and the
   thermal envelope, are considered production related and qualify for the
   expanded MM&E exemption 86 Ill. Adm. Code §130.330(h)(2)(c).
5. Replacement parts for the various components of the refrigeration system,
   the AS/RS system and the thermal envelope that require periodic
   replacement in the normal course of operation, qualify under the expanded
   MM&E exemption. 35 ILCS 120/2-45(4); 35 ILCS 105/3-50(4).
   Each of the foregoing items will be used 100% of the time in the Company’s
   manufacturing process. Each is as essential part of the Company’s overall integrated
   manufacturing process for the processing, storage and packaging of food products in a
   refrigerated or frozen state from the time the product arrives at the facility through the
   time the product leaves the facility. Each item is necessary to facilitate quick processing
   of food products, prevent bacteria growth, spoilage and contamination, and to ensure
   the food products are fit for sale and human consumption.
   The Company is not requesting a ruling, and will not claim the MM&E exemption, for
   any machinery, equipment or tangible personal property that:
   -

requires a title or registration with a government agency;

ST 20-0005-PLR
Page 12

-

is used for Company functions other than temperature-controlled food
processing (e.g., sales, accounting, marketing or HR);

-

is used in a general area of the facility that is not required to be temperaturecontrolled, such as employee break rooms, offices and restrooms;

-

is part of the foundation or supporting structure of the facility as renovated
and expanded; or

-

is used for general ventilation, heating, cooling, climate control or lighting of
the facility that is not specifically required for temperature-controlled food
processing.

Ruling Requested
We respectfully request that the Department issue a private letter ruling confirming that
the machinery, equipment and other items of tangible personal property to be used in
the Company’s cold storage food processing facility qualify for the MM&E exemption.
We look forward to the Department’s response. If you have any questions, please feel
free to contact ATTORNEY at XXX-XXX-XXXX or EMAIL. On behalf of the Company,
thank you for your consideration.
DEPARTMENT’S RESPONSE:
The Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in the
business of selling tangible personal property at retail to purchasers for use or consumption. See 86
Ill. Adm. Code 130.101. Use Tax is imposed on the privilege of using, in this State, any kind of
tangible personal property that is purchased anywhere at retail from a retailer. See 86 Ill. Adm. Code
150.101. These taxes comprise what is commonly known as “sales tax” in Illinois.
Notwithstanding the fact that the sales may be at retail, the Retailers' Occupation Tax does not
apply to sales of machinery and equipment that will be used by the purchaser, or a lessee of the
purchaser, primarily in the process of manufacturing or assembling tangible personal property for
wholesale or retail sale or lease, whether the sale or lease is made directly by the manufacturer or by
some other person. 35 ILCS 120/2-5(14); 86 Ill. Adm. Code 130.330(a). The manufacturing and
assembly machinery and equipment exemption includes machinery and equipment that replaces
machinery and equipment in an existing manufacturing facility, as well as machinery and equipment
that are for use in an expanded or new manufacturing facility. 86 Ill. Adm. Code 130.330(a). There
may be instances however in which items of tangible personal property that do not meet the definition
of conventional "machinery and equipment" will meet the definition of "production related tangible
personal property" and qualify for the exemption.
The manufacturing process is the production of any article of tangible personal property,
whether the article is a finished product or an article for use in the process of manufacturing or
assembling a different article of tangible personal property, by procedures commonly regarded as
manufacturing, processing, fabricating or refining that changes some existing material or materials

ST 20-0005-PLR
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into a material with a different form, use or name. These changes must result from the process in
question and be substantial and significant. 86 Ill. Adm. Code 130.330(b)(1). The assembling
process is the production of an article of tangible personal property, whether the article is a finished
product or an article for use in the process of manufacturing or assembling a different article of
tangible personal property, by the combination of existing materials in a manner commonly regarded
as assembling that results in an article or material of a different form, use or name. 86 Ill. Adm. Code
130.330(b)(2). The process or activity must be commonly regarded as manufacturing. To be so
regarded, it must be thought of as manufacturing by the general public. Generally, the scale, scope
and character of a process or operation will be considered to determine if the process or operation is
commonly regarded as manufacturing. Manufacturing includes such activities as processing,
fabricating and refining. 86 Ill. Adm. Code 130330(b)(3).
The exemption applies to machinery and equipment that will be used by the purchaser, or a
lessee of the purchaser, primarily in the process of manufacturing or assembling tangible personal
property for wholesale or retail sale or lease. The manufacturing and assembly machinery and
equipment exemption also includes machinery and equipment that replaces machinery and
equipment in an existing manufacturing facility as well as machinery and equipment that are for use in
an expanded or new manufacturing facility. The machinery and equipment exemption also includes
machinery and equipment used in the general maintenance or repair of exempt machinery and
equipment or for in-house manufacture of exempt machinery and equipment. 86 Ill. Adm. Code
130.330(c)(1).
Equipment includes an independent device or tool separate from any machinery but essential
to an integrated manufacturing or assembly process, including computers used primarily in a
manufacturer's computer assisted design, computer assisted manufacturing (CAD/CAM) system; any
subunit or assembly comprising a component of any machinery or auxiliary, adjunct, or attachment
parts of machinery, such as tools, dies, jigs, fixtures, patterns, and molds; and any parts that require
periodic replacement in the course of normal operation. 86 Ill. Adm. Code 130.330(c)(2).
Machinery and equipment used primarily in the following activities will generally be considered
exempt:
A)

To affect a direct and immediate physical change upon the tangible personal property
to be sold;

B)

To guide or measure a direct and immediate physical change upon the tangible
personal property to be sold, provided this function is an integral and essential part of
tuning, verifying or aligning the component parts of that property;

C)

To inspect, test or measure the tangible personal property to be sold, when the function
is an integral part of the production flow;

D)

To convey, handle or transport the tangible personal property to be sold within
production stations on the production line or directly between the production stations or
buildings within the same plant;

E)

To place the tangible personal property to be sold into the container, package or
wrapping in which this property is normally sold, when the machinery and equipment is
used as a part of an integrated manufacturing process;

ST 20-0005-PLR
Page 14

F)

The production or processing of food, including the use of baking equipment such as
ovens to bake bread or other bakery items, whether that baking is performed by a
central bakery or a retail grocery store;

G)

The use of machinery and equipment such as buffers, builders or vulcanizing
equipment to retread tires, whether or not the tire casing is provided by the purchaser.

The exemption includes chemicals or chemicals acting as catalysts but only if the chemicals
or chemicals acting as catalysts effect a direct and immediate change upon a product being
manufactured or assembled for sale or lease. The exemption includes computer software used to
operate exempt machinery and equipment used in the process of manufacturing or assembling
tangible personal property for wholesale or retail sale or lease. 86 Ill. Adm. Code 130.330(d) & (e).
P.A. 101-9 permanently expanded the MM&E exemption to allow items that had previously
been eligible for the expired Manufacturer’s Purchase Credit (“MPC”) (i.e., “production related
tangible personal property”) to be eligible for the MM&E exemption. (86 Ill. Adm Code 130.331,
Manufacturer’s Purchase Credit). Beginning on July 1, 2019, the manufacturing and assembling
machinery and equipment exemption includes production related tangible personal property.
Production related tangible personal property means all tangible personal property used or consumed
in a production related process by a manufacturer in a manufacturing facility in which a manufacturing
process takes place or by a graphic arts producer in graphic arts production. Production related
tangible personal property also means all tangible personal property that is used or consumed in
research and development regardless of use within or without a manufacturing or graphic arts
production facility. 86 Ill. Adm. Code 130.330(h)
For example, the following uses of tangible personal property by manufacturers, including
graphic arts producers, will be considered production related:
A)

Tangible personal property purchased by a manufacturer for incorporation into real
estate within a manufacturing facility for use in a production related process, or tangible
personal property purchased by a construction contractor for incorporation into real
estate within a manufacturing facility for use in a production related process.

B)

Supplies and consumables used in a manufacturing process in a manufacturing facility,
including fuels, coolants, solvents, oils, lubricants and adhesives.

C)

Hand tools, protective apparel, and fire and safety equipment used or consumed within
a manufacturing facility.

D)

Tangible personal property used or consumed in a manufacturing facility for purposes
of pre-production and post-production material handling, receiving, quality control,
inventory control, storage, staging and packing for shipping or transportation.

E)

Fuel used in a ready-mix cement truck to rotate the mixing drum in order to
manufacture concrete or cement. However, only the amount of fuel used to rotate the
drum will qualify. The amount of fuel used or consumed in transportation of the truck will
not qualify as production related tangible personal property. The amount of fuel used in

ST 20-0005-PLR
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a qualifying manner to rotate the drum may be stated as a percentage of the entire
amount of fuel used or consumed by the ready-mix truck.
The Department has reviewed each of the items described in your letter and has determined
all of the items you have requested a ruling qualify for the machinery and equipment exemption,
either because the tangible personal property qualifies as machinery and equipment used by the
Company primarily in the process of manufacturing or assembling of tangible personal property for
wholesale or retail sale or lease, or because it qualifies as production related tangible personal
property. The Department, at the Company’s request, makes no determination regarding tangible
personal property that is titled and registered; tangible personal property that is used for Company
functions other than temperature-controlled food processing (e.g., sales, accounting, marketing or
HR); tangible personal property that is used in a general area of the facility that is not required to be
temperature-controlled, such as employee break rooms, offices and restrooms; tangible personal
property that is part of the foundation or supporting structure of the facility as renovated and
expanded; or tangible personal property that is used for general ventilation, heating, cooling, climate
control or lighting of the facility that is not specifically required for temperature-controlled food
processing.
The factual representations upon which this ruling is based are subject to review by the
Department during the course of any audit, investigation, or hearing and this ruling shall bind the
Department only if the factual representations recited in this ruling are correct and complete. This
Private Letter Ruling is revoked and will cease to bind the Department 10 years after the date of this
letter under the provisions of 2 Ill. Adm. Code 1200.110(e) or earlier if there is a pertinent change in
statutory law, case law, rules or in the factual representations recited in this ruling.
I hope this information is helpful. If you have further questions concerning this Private Letter
Ruling, you may contact me at (217) 782-2844. 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
Chairman, Private Letter Ruling Committee
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