Does an Illinois retailer still owe Retailers' Occupation Tax on petroleum product sales to a purchaser that is exempt from use tax under federal law?

Plain-English summary

This General Information Letter answers a narrow but practical question: when a company that sells petroleum products (motor fuels) to a particular purchaser -- referred to throughout only as "COMPANY" -- keeps that customer's long-standing sales tax exemption after Illinois amended the underlying statute. The Department confirmed the exemption survives.

Before a 2019 amendment, Section 2-5(16) of the Retailers' Occupation Tax Act exempted receipts from selling petroleum products where the seller was prohibited by federal law from charging tax to the purchaser. The Department's own regulation, 86 Ill. Adm. Code 130.120(s)(1), implemented that exemption, and the Department had previously recognized that COMPANY qualified because it is exempt from use tax by operation of federal law under 49 U.S.C. Sec. 24301 (the federal provision governing Amtrak, the National Railroad Passenger Corporation). Public Act 100-1171, effective January 4, 2019, broadened and renumbered that exemption: Section 2-5(16) now exempts tangible personal property sold to any purchaser who is exempt from use tax by operation of federal law, not just petroleum products sold to purchasers a seller couldn't legally tax.

The Department's response makes clear that this statutory rewording did not disturb COMPANY's exemption -- receipts from petroleum product sales to COMPANY remain exempt from Retailers' Occupation Tax after P.A. 100-1171. The letter also notes the exemption extends to local Retailers' Occupation Taxes imposed by municipalities, counties, the Regional Transportation Authority, and the relevant transit district, and that this local-tax exemption predates Section 2-70 and will not sunset. The Department added that it intends to amend 86 Ill. Adm. Code 130.120(s) to catch up with the statutory changes, and reminded the retailer to maintain books and records documenting these sales.

As a GIL, this letter simply directs the requester to the applicable statute and regulations and explains how the Department reads them; it does not create a binding ruling specific to any taxpayer's exact facts the way a Private Letter Ruling would.

What this means for you

Retailers selling fuel or other goods to federally tax-exempt purchasers

If you sell tangible personal property -- not just petroleum products -- to a purchaser who is exempt from use tax under federal law, your receipts from those sales can be exempt from Illinois Retailers' Occupation Tax under 35 ILCS 120/2-5(16), including the local components of that tax (municipal, county, RTA, and transit district). Keep thorough books and records documenting the sales, since the exemption belongs to the transaction based on the purchaser's federal exemption, not automatically to every sale you make.

Businesses that relied on the pre-2019 petroleum-specific exemption

If your exemption was originally recognized under the old, narrower version of Section 2-5(16) or under 86 Ill. Adm. Code 130.120(s)(1) (which addressed only petroleum products where the seller was barred from charging tax), this letter confirms that P.A. 100-1171 did not eliminate that exemption -- it broadened the statute's scope. However, the regulation itself had not yet been formally updated to reflect the amendment as of this letter, so retailers should watch for the Department's promised amendment to Section 130.120(s).

Accountants and tax professionals

This GIL illustrates how the Department reconciles a statutory amendment with a previously granted exemption determination: it looked at whether the purchaser (COMPANY) still met the current statutory test (exempt from use tax by operation of federal law) rather than requiring a fresh administrative determination. Note that a GIL is not binding on the Department the way a PLR is -- it merely points to relevant authority.

Common questions

Q: What changed when the General Assembly amended Section 2-5(16)?
A: Before amendment, the exemption applied specifically to petroleum product sales where the seller was legally barred from charging tax to the purchaser. Public Act 100-1171 (effective January 4, 2019) replaced that with a broader exemption for tangible personal property sold to any purchaser exempt from use tax by operation of federal law.

Q: Does the retailer still owe tax on these sales after the amendment?
A: No. The Department's response states that receipts from the sale of petroleum products to COMPANY "remain exempt from Retailers' Occupation Tax after the enactment of P.A. 100-1171," because COMPANY continues to be exempt from use tax by operation of federal law under 49 U.S.C. Sec. 24301.

Q: Does this exemption cover local taxes too, like county or RTA taxes?
A: According to the requester's letter (which the Department's response addresses), yes -- the nontaxable transaction also applies to local Retailers' Occupation Taxes imposed by municipalities, counties, the Regional Transportation Authority, and the relevant transit district, and that treatment predates Section 2-70 and does not sunset.

Q: What records does the retailer need to keep?
A: The Department states that "the retailer must maintain books and records to document sales of tangible personal property to COMPANY."

Q: Is this letter legally binding on the Department?
A: No. This is a General Information Letter, not a Private Letter Ruling. A GIL directs taxpayers to relevant regulations and statutes but is not a statement of Department policy and is not binding on the Department. Only a PLR, obtained under the procedures in 2 Ill. Adm. Code 1200.110, would bind the Department as to a specific taxpayer's facts.

Citations and references

• 35 ILCS 120/2-5(16) (Retailers' Occupation Tax Act exemption for sales to purchasers exempt from use tax by operation of federal law)
• 86 Ill. Adm. Code 130.120(s)(1) (Department regulation on nontaxable transactions involving petroleum products)
• 2 Ill. Adm. Code 1200.110 (procedures for requesting Private Letter Rulings)
• 2 Ill. Adm. Code 1200.120 (General Information Letters)
• P.A. 100-1171 (amendment to Section 2-5(16), effective January 4, 2019)
• 49 U.S.C. Sec. 24301 (federal statute under which the purchaser is exempt from use tax)

Subject

Retailers’ Occupation Tax:

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/st20-0019-gil.pdf

Original ruling text

ST 20-0019-GIL 10/2/2020 RETAILERS’ OCCUPATION TAX:
This letter discusses purchases of tangible personal property by the federal government that
are exempt from use tax pursuant to federal law. 35 ILCS 120/2-5(16). (This is a GIL.)

October 2, 2020

Dear Xxxx:
This letter is in response to your e-mail dated March 9, 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.
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:
COMPANY is exempt from the Illinois Retailer' s Occupation Tax on the sale of
motor fuels in accordance with Illinois Department of Revenue Regulations, Title 86,
Chapter 1, Part 130, Section 130.120(s), which states:
Nontaxable Transactions - The tax does not apply to receipts from sales:
... (s) of any petroleum product, if the seller is prohibited by federal law from
charging tax to the purchaser.
1)

For example, federal law prohibits sellers from charging tax to
COMPANY when it purchases petroleum products. However, federal
law does not relieve the seller of Retailers' Occupation Tax liability in
these transactions. For that reason, the exemption set out in this
subsection is necessary to relieve the seller of Retailers' Occupation
tax liability when making sales of petroleum products to COMPANY.

2)

The nontaxable transaction set out above is also applicable to local
Retailers ' Occupation Taxes imposed by municipalities, counties, the
Regional Transportation Authority and TRANSIT DISTRICT. This
exemption exited prior to the enactment of Section 2-70 and will not
sunset:

ST 20-0019
Page 2

Attached is a copy of the Illinois statute for your reference, which will allow you to
process the exemption for taxes on purchases of petroleum products by COMPANY. It
is not clear administratively how Illinois intends this exemption to work, but it clearly
exempts the retailer that is selling the petroleum product to COMPANY.
If you have any questions or want to discuss further, you can call me, or you can send
me an e-mail. Thanks for your help on this matter.
DEPARTMENT’S RESPONSE:
Prior to recent amendments to Section 2-5(16) of the Retailers’ Occupation Tax Act, Section 25(16) stated that receipts from sales of any petroleum product were exempt from tax if the seller was
prohibited by federal law from charging tax to the purchaser. 35 ILCS 120/2-5(16). Based on the
exemption, the Department’s rules stated that retailers were relieved from Retailers’ Occupation Tax
liability on the sales of petroleum products to COMPANY. 86 Ill. Adm. Code 130.120(s)(1).
The General Assembly recently amended Section 2-5(16) of the Retailers’ Occupation Tax Act
to address purchases of tangible personal property by the federal government that are exempt from
use tax pursuant to federal law. P.A. 100-1171, effective January 4, 2019. Section 2-5(16) now
states that Retailers’ Occupation Tax does not apply to tangible personal property sold to a purchaser
if the purchaser is exempt from use tax by operation of federal law.
The Department in the past has recognized that COMPANY is exempt from use tax by
operation of federal law. 49 USC Sec. 24301. Receipts received from the sale of petroleum products
to COMPANY remain exempt from Retailers’ Occupation Tax after the enactment of P.A. 100-1171.
The retailer must maintain books and records to document sales of tangible personal property to
COMPANY.
The Department intends to amend Section 130.120(s) to reflect the changes made by P.A.
100-1171.
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,

Richard S. Wolters
Associate Counsel
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