Is a supplier's sale of equipment to a contractor exempt from Illinois sales tax when the contractor resells it to a government agency under a construction contract, even without a CRT-61 at the time of shipment?

Plain-English summary

A supplier (COMPANY1) sold equipment to a contractor (COMPANY2) under a purchase order. The contractor then transferred that equipment to a government agency under a "Prime Contract." Normally a reseller gives the supplier a CRT-61 resale certificate, but no CRT-61 was provided at the time of shipment, so COMPANY1 charged sales tax on the order. The contractor later sent a letter of explanation (including its FEIN and a note that the equipment was resold to the agency, which holds a Sales Tax Exemption Certificate) and asked COMPANY1 to remove the tax based on that "alternate CRT-61."

The Department explained the actual rule: sales of materials to construction contractors are exempt from Retailers' Occupation Tax and Use Tax only when the materials are incorporated into real estate owned by a governmental body — the exemption exists so government bodies aren't taxed indirectly on their own construction projects. To support that exemption, the supplier must keep in its records (1) a certification from the contractor stating the purchases are for conversion into real estate under a contract with a named, specific governmental body, including the contract date, and (2) the government body's active Department-issued exemption number.

Tools, fuel, lumber for forms, and other items the contractor consumes rather than incorporates into real estate remain taxable regardless of who the contractor's customer is.

Because the letter of explanation didn't clearly state that all of the equipment was purchased for incorporation into real estate under a government contract — a requirement under 86 Ill. Adm. Code 130.2075(d)(4) — the Department said it could not determine whether the sale qualified as fully exempt.

What this means for you

Suppliers selling to construction contractors

If your customer is a contractor working on a government project, you can't just accept a bare assertion that the sale is tax-exempt. Keep in your records a contractor certification naming the specific governmental body, the contract date, and confirmation that the property is being incorporated into real estate — plus the government body's active exemption number. Without those specifics, you cannot safely remove sales tax already charged.

Construction contractors on government contracts

A CRT-61 isn't the only way to document an exempt purchase; a substitute written certification can work, but it needs to say more than "this was resold to a tax-exempt agency." It must affirmatively state the property is being converted into real estate under a contract with that governmental body. If some of what you bought (like tools or consumables) isn't incorporated into the real estate, that portion stays taxable no matter who your customer is.

Accountants and tax professionals

This GIL is a good illustration of the difference between a resale exemption and the governmental-body construction-materials exemption under 130.2075(d) — they're not interchangeable, and a "CRT-61 substitute" letter must track the specific certification elements the regulation requires (named government body, contract date, and incorporation into real estate) rather than just proving downstream resale.

Common questions

Q: Does reselling equipment to a tax-exempt government agency automatically make the original sale to the contractor tax-exempt?
A: No. The exemption under 86 Ill. Adm. Code 130.2075(d) turns on whether the property is incorporated into real estate owned by the governmental body, not simply on whether the ultimate purchaser holds a government exemption certificate.

Q: Can a supplier accept something other than a CRT-61 to support the exemption?
A: The ruling doesn't foreclose it, but whatever documentation is used must include the elements the regulation requires: the contractor's certification naming the governmental body and contract date and confirming incorporation into real estate, plus the government body's active exemption number.

Q: Are all purchases by a contractor on a government job exempt?
A: No. Only materials actually incorporated into real estate owned by the governmental body qualify. Tools, fuel, lumber used for forms, and other consumed items remain taxable under 86 Ill. Adm. Code 130.2076 regardless of who the contractor's customer is.

Q: Why couldn't the Department just confirm the exemption applied here?
A: Because the letter of explanation provided by the contractor did not state that all of the equipment was being purchased for conversion into real estate under a contract with a governmental body, as 86 Ill. Adm. Code 130.2075(d)(4) requires.

Citations and references

Regulations:

• 86 Ill. Adm. Code 130.2075(d) (governmental-body construction-materials exemption)
• 86 Ill. Adm. Code 130.2075(d)(4) (required contractor certification)
• 86 Ill. Adm. Code 130.2076 (taxable tools, fuel, and consumable items)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedures)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2021.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2021/st21-0023-gil.pdf

Original ruling text

ST-21-0023 07/08/2021 GOVERNMENTAL BODIES
This letter discusses tax exempt sales to contractors that has entered into a
construction contracts with a governmental body. See 86 Ill. Adm. Code
130.2075(d). (This is a GIL.)
July 8, 2021

Dear NAME:
This letter is in response to your letter dated June 4, 2021, 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:
COMPANY1 has sold tangible personal property (i.e. PRODUCT
equipment) to a contractor, COMPANY2, under Purchase Order #######, which is enclosed with this letter. The equipment was
subsequently transferred to the AGENCY under a Prime Contract.
In lieu of a CRT-61, COMPANY2 provided a letter of explanation (a
copy of which is enclosed) including their FEIN and the fact that the
equipment was resold to the AGENCY, who holds Sales Tax
Exemption Certificate# #####.
Because no CRT-61 was provided at the time of shipment,
COMPANY1 has in fact applied sales tax to the order. However,
COMPANY2 would like COMPANY1 to remove the sales tax pursuant
to their "alternate CRT-61" provided.
I would like to verify that COMPANY1 has fulfilled its due diligence to
report this as a tax exempt sale and therefore will be allowed to
remove the sales tax from this order.
Please contact me directly if any additional information is needed: ####, or
E-MAIL
DEPARTMENT’S RESPONSE:

COMPANY1
Page 2
July 8, 2021
Sales of materials to construction contractors for incorporation into real estate
owned by governmental bodies are exempt from Retailers' Occupation Tax and Use
Tax. The intent of the Legislature was to relieve governmental bodies from the burden
of tax on their purchases whether the purchases are made directly or indirectly by
them. Therefore, the exemption applies to their indirect purchase of building materials.
86 Ill Adm. Code 130.2075(d).
Except as otherwise provided in 86 Ill. Adm. Code 130.2076, sales of tools, fuel,
lumber for forms and other end use or consumption items to construction contractors
who do not incorporate these items into real estate are taxable sales regardless who the
contractor's customer may be.
A supplier claiming exemption shall have among his records a certification from
the purchasing contractor stating that his or her purchases are for conversion into real
estate under a contract with a governmental body that is involved by name and address
and stating the contract date. The supplier shall also have among his records the active
exemption number issued by the Department to the governmental body for which the
purchasing contractor is acting.
The tangible personal property must be incorporated into real estate owned by
the governmental body to be exempt from Retailers' Occupation Tax and Use Tax. It is
unclear from your letter that all the tangible personal property purchased was
incorporated into real estate owned by the governmental body. Therefore, the
Department cannot determine whether all the purchases are tax exempt. I would also
note that the letter of explanation provided by the contractor does not state that all of the
tangible personal property is being purchased for conversion into real estate under a
contract with a governmental body as required by Section 130.2075(d)(4).
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,

RSW:rkn

Richard S. Wolters
Associate Counsel