Does Illinois Retailers' Occupation (sales) Tax apply to farm machinery and equipment bought for use in production agriculture or federal/state agricultural programs?

Plain-English summary

The Illinois Department of Revenue confirmed that the state's Retailers' Occupation Tax does not apply to farm machinery and equipment that is used or leased for use primarily (over 50% of the time) in production agriculture, or for use in state or federal agricultural programs. This is the long-standing exemption found at 86 Ill. Adm. Code 130.305.

The taxpayer who wrote in had bought a piece of farm equipment, told the seller it would be used solely for production agriculture in connection with a federal agricultural conservation program, and provided a USDA letter and an ST-587 exemption certificate form. The seller still collected tax and refused to refund it without a formal ruling, even after the taxpayer got informal email confirmation of exemption from the Department.

The Department's response walked through the mechanics of claiming the exemption rather than resolving the refund directly (that's typical for a GIL): the exemption depends on how the item will actually be used, consumable supplies generally don't qualify, and the purchaser must give the seller a proper exemption certification (the Department doesn't require a specific form — Form ST-587 works, or any certificate with the required information). The letter also flags that activities like clearing land, mowing fence rows, or building ponds or drainage facilities are not "production agriculture," so equipment like bulldozers doesn't automatically qualify even if used on a farm.

What this means for you

Farmers and agricultural business owners

If you buy or lease machinery or equipment that you will use more than 50% of the time in production agriculture, or in a state or federal agricultural program (such as a USDA conservation program), that purchase is exempt from Illinois Retailers' Occupation Tax. To get the exemption at the point of sale, you need to give the seller a proper exemption certificate — Form ST-587 is one accepted option, though the Department will accept any certificate containing the required information (seller's name/address, purchaser's name/address, and a statement of qualifying use). Keep in mind that consumable supplies and equipment used for things like land clearing, mowing fence rows, or building ponds/drainage facilities generally don't qualify, even on a working farm.

Equipment dealers and sellers

If a purchaser gives you a properly completed exemption certificate (or blanket certificate) claiming the farm machinery and equipment exemption, you can accept it in good faith and are not required to collect tax. You must keep the certificate as part of your books and records. Importantly, if you reasonably and in good faith accept a certificate but the purchaser doesn't actually use the equipment in qualifying production agriculture or an agricultural program, the tax liability shifts to the purchaser, not to you.

Accountants and tax professionals

This GIL is a useful reminder that a GIL is not binding and does not itself order a refund — it only directs the inquirer to the controlling regulation, 86 Ill. Adm. Code 130.305, and explains how the certification process should work. If a client already paid tax that should have been exempt, the path forward is generally to work with the seller on the certificate and any resulting refund process, since a GIL does not adjudicate a specific transaction the way a binding Private Letter Ruling (PLR) can.

Common questions

Q: What qualifies as "primarily" for the farm machinery and equipment exemption?
A: The regulation requires primary use — meaning more than 50% of the time — in production agriculture, or use in a state or federal agricultural program. The Department noted that whether a specific item qualifies also depends on how the purchaser actually uses it.

Q: I already paid sales tax on equipment I believe qualifies for the exemption — will this letter get me a refund?
A: Not directly. A GIL only directs the taxpayer to the relevant regulations; it doesn't order a refund on a specific transaction the way a binding Private Letter Ruling can. The Department's response here pointed the requester to the certification process in 86 Ill. Adm. Code 130.305 rather than resolving the refund itself.

Q: Do I need to use a specific form to claim the exemption?
A: No particular form is mandated. The Department will accept Form ST-587 or any certificate that includes the seller's name and address, the purchaser's name and address, and a statement that the property will be used primarily in production agriculture or in a state or federal agricultural program.

Q: Does land clearing or building a pond on my farm qualify for the exemption?
A: No. The regulation specifically excludes activities such as clearing land, mowing fence rows, and creating ponds or drainage facilities from the definition of "production agriculture." Equipment like bulldozers used for those purposes does not automatically qualify.

Q: What happens if a seller accepts my exemption certificate in good faith but I don't actually use the equipment for qualifying agricultural purposes?
A: The regulation shifts liability to the purchaser in that situation — the seller who accepted the certificate in good faith is not liable for the tax; the purchaser is.

Citations and references

Statutes and rules:

• 86 Ill. Adm. Code 130.305 (farm machinery and equipment exemption from Retailers' Occupation Tax)
• 86 Ill. Adm. Code 130.305(k) (consumable supplies generally do not qualify)
• 86 Ill. Adm. Code 130.305(m) (exemption certification requirements)
• 86 Ill. Adm. Code 130.305(f) (activities that are not production agriculture)
• 2 Ill. Adm. Code 1200.120 (GILs are non-binding)
• 2 Ill. Adm. Code 1200.110 (PLR request 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/st21-0028-gil.pdf

Original ruling text

ST-21-0028 07/29/2021 FARM MACHINERY & EQUIPMENT
The Retailers’ Occupation Tax does not apply to farm machinery and equipment
that is used or leased for use primarily (over 50% of the time) in production
agriculture or for use in State or federal agricultural programs. See 86 Ill. Adm.
Code 130.305. (This is a GIL).

Dear NAME:

July 29, 2021

This letter is in response to your letter dated June 25, 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:
On DATE, I purchased a BRAND EQUIPMENT in the state
of STATE. I will use this piece of equipment solely for
production agriculture in conjunction with Federal
agriculture conservation programs.
The seller; COMPANY2, ADDRESS, CITY, STATE collected
the tax.
I have received approval for tax exemption via e-mail from
the Illinois Department of Revenue. However, the seller is
still refusing to refund the tax until I write a formal request
for a ruling.
Attached is the e-mail correspondence with the Illinois
Department of Revenue, a letter from the USDA, and the
ST-587 form.
Please provide a ruling on this matter and directions for
obtaining a refund of the tax.

COMPANY1/NAME
Page 2
July 29, 2021
Thank you
DEPARTMENT’S RESPONSE:
We direct your attention to 86 Ill. Adm. Code 130.305, the Department’s
regulation concerning Farm Machinery and Equipment which can be accessed on the
Department’s website. The Retailers’ Occupation Tax does not apply to farm machinery
and equipment that is used or leased for use primarily in production agriculture or for
use in State or Federal agricultural programs. Whether a specific item qualifies for the
exemption depends also on how the item will be used by the purchaser. Consumable
supplies generally do not qualify for the exemption. See subsection (k) of 86 Ill. Adm.
Code 130.305.
Purchasers that claim the farm machinery and equipment exemption are required
to provide the certification or blanket certification described in Section 130.305.
Subsection (m) of 86 Ill. Adm. Code 130.305 states, in part, as follows:
“Exemption certifications must be executed by the purchaser. The
certificate must include the seller's name and address, the purchaser's
name and address and a statement that the property purchased will be
used primarily in production agriculture or in State or Federal agricultural
programs. Retailers may accept blanket certificates but have the
responsibility to obtain and must maintain the certificates as a part of their
books and records. Retailers are required to exercise good faith in
accepting exemption certificates. If, however, a retailer reasonably
believes that the purchaser will use farm machinery or equipment in
production agriculture or in State or Federal agricultural programs and
accepts the certificate in good faith and the purchaser does not, in fact,
use the machinery or equipment in production agriculture or in State or
Federal agricultural programs, the purchaser (not the retailer) will be liable
to the Department for the tax.”
The Department does not mandate a form that purchasers are required to use in
order to claim the exemption. If the certification contains the information required by the
regulations, it is acceptable to the Department. The purchaser may provide the seller
with a ST-587 rather than creating its own certificate.
Please note that activities such as the clearing of land, mowing of fence rows,
and creation of ponds or drainage facilities are not production agriculture. 86 Ill. Adm.
Code 130.305(f). Therefore, bull dozers do not necessarily 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.

COMPANY1/NAME
Page 3
July 29, 2021

Very truly yours,
Richard S. Wolters
Associate Counsel
RSW:rkn