Does selling corn oil as an off-road-use-only performance fuel for tractor pulls require a Motor Fuel Tax license, and is it subject to motor fuel tax?

Plain-English summary

A taxpayer who buys corn oil locally and wants to resell it to farmers as an "off-road-use-only" performance fuel for tractor pulls at county and state fairs (under 2,000 gallons a year) asked the Illinois Department of Revenue whether any motor fuel licenses or taxes apply. The Department explained that the answer turns on whether the corn oil is blended with an actual fuel.

Illinois Motor Fuel Tax is imposed on operating motor vehicles on public highways (including toll roads) and recreational watercraft on state waters. "Motor fuel" covers volatile, inflammable liquids suitable for propelling motor vehicles, including "special fuel" such as diesel fuel. Buying and reselling corn oil by itself — something not suitable or practicable for propelling a motor vehicle — is not a sale of motor fuel. But if the corn oil is blended or combined with diesel fuel or another fuel and the resulting product is suitable for propelling motor vehicles, that blended product becomes "motor fuel" and falls under the Motor Fuel Tax Law.

Anyone who acts as a distributor of motor fuel, supplier of special fuel, or receiver of fuel in Illinois must first obtain a license from the Department; doing so without a license is a Class 3 felony, with each day of unlicensed activity a separate offense. A person who blends fuel must also hold both a distributor's license and a blender's permit — acting as a blender without complying is a Class 4 felony. Separately, regardless of the Motor Fuel Tax analysis, anyone selling tangible personal property in Illinois (such as corn oil sold on its own) is also subject to the Retailers' Occupation Tax Act's registration, reporting, and tax-payment requirements.

What this means for you

Small sellers of alternative or blended fuels

If you resell an additive or oil (like corn oil) without mixing it into a fuel, you are not selling "motor fuel" under this Law — but you likely still owe Retailers' Occupation (sales) Tax registration and reporting as a seller of tangible personal property. The moment you blend that product with diesel or another fuel to make something usable to propel a vehicle, you cross into Motor Fuel Tax territory and need the appropriate license(s) first, no matter how small your volume (even under 2,000 gallons/year).

Farmers, tractor-pull competitors, and fair vendors

Buying an unblended additive marketed for "off-road use only" performance does not by itself trigger Motor Fuel Tax obligations for the seller. But claiming "off-road use only" doesn't change the analysis — what matters is whether the product itself, as sold, is suitable or practicable for propelling a motor vehicle (blended) or not (unblended).

Business owners and accountants

Before starting even a small side business selling fuel-adjacent products, check both (1) whether your product is blended into something that functions as motor fuel, which requires a Motor Fuel Tax Law license and possibly a blender's permit, and (2) whether you independently need to register under the Retailers' Occupation Tax Act simply because you're selling tangible personal property. These are separate licensing regimes that can both apply.

Common questions

Q: Do I need a license to resell corn oil as-is to farmers for use in diesel tractors? A: If you are simply reselling corn oil without blending it into diesel or another fuel, it is not "motor fuel" under the Motor Fuel Tax Law, so no Motor Fuel Tax distributor/supplier/receiver license is required for that product. You may still need to register under the Retailers' Occupation Tax Act as a seller of tangible personal property.

Q: What if I mix the corn oil with diesel before selling it? A: Then the resulting blended product is "motor fuel" (through the definition of "blending" and "special fuel" under 86 Ill. Adm. Code 500.100), and you must obtain a distributor's license from the Department, plus a blender's permit under 35 ILCS 505/3, before selling it.

Q: Does selling less than 2,000 gallons a year exempt me from licensing? A: No. The ruling does not mention any small-volume exception — the licensing requirement in 86 Ill. Adm. Code 500.201 applies to anyone acting as a distributor, supplier, or receiver of motor fuel, regardless of volume.

Q: What happens if I sell blended motor fuel without a license? A: Knowingly acting as a distributor of motor fuel, supplier of special fuel, or receiver of fuel without a license is a Class 3 felony under 35 ILCS 505/15(1), with each day of unlicensed activity a separate offense. Acting as a blender without the required distributor license and blender's permit is a Class 4 felony under 35 ILCS 505/3.

Q: Is this letter binding on the Department?
A: No. It is a General Information Letter (GIL), which only directs the taxpayer to relevant regulations and sources of information. It is not a statement of Department policy and is not binding, unlike a Private Letter Ruling (PLR).

Citations and references

• 86 Ill. Adm. Code 500.200(a) (Motor Fuel Tax imposed on operating motor vehicles on public highways and recreational watercraft)
• 86 Ill. Adm. Code 500.100 (definitions of "motor fuel," "special fuel," "diesel fuel," and "blending")
• 86 Ill. Adm. Code 500.201 (license required to act as distributor, supplier, or receiver)
• 35 ILCS 505/15(1) (Class 3 felony for unlicensed distributor/supplier/receiver activity; each day a separate offense)
• 35 ILCS 505/3 (blender must hold distributor's license and blender's permit; Class 4 felony for violation)
• 86 Ill. Adm. Code 130.101 et seq. (Retailers' Occupation Tax Act registration, reporting, and payment requirements)
• 2 Ill. Adm. Code 1200.120 (GIL is not binding on the Department)
• 2 Ill. Adm. Code 1200.110 (procedures for requesting a binding Private Letter Ruling)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2022.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2022/st22-0003-gil.pdf

Original ruling text

ST-22-0003 02/08/2022 MOTOR FUEL
No person shall act as a distributor of motor fuel, supplier of special fuel, or receiver of fuel in Illinois without first applying for and obtaining a license from the Department. See 86 Ill. Adm. Code 500.201. (This is a GIL.) February 8, 2022 Dear NAME: This letter is in response to your letter 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 received this address from NAME from the Illinois department of revenue motor fuel division and she told me you could answer a question I have about selling corn oil as an off road use only motor fuel. I have found through some testing I have done that corn oil improves the performance of diesel powered farm tractors. I would like to know if there are any permits or licenses that I would need to obtain from the state of Illinois to sell to farmers to compete in competition at tractor pulls at county and state fairs. I can buy the corn oil locally from a fuel dealer in my area and resell it as an off road use only performance fuel. I won't be selling a large volume, probably less than 2000 gallon

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annually. Also would I be required to collect any type of motor fuel tax from the farmers, I would be selling it as an off road use only product. Thank you for your help DEPARTMENT’S RESPONSE: Motor Fuel Tax is imposed “on the privilege of operating motor vehicles upon the public highways, including toll roads, and recreational-type watercraft upon the waters of this State.” 86 Ill. Adm. Code 500.200(a). “Motor fuel” means all volatile and inflammable liquids produced, blended or compounded for the purpose of, or which are suitable or practicable for, the propulsion of motor vehicles. Among other things, “motor fuel” includes “special fuel.” “Special fuel” means all volatile and inflammable liquids capable of being used for the generation of power in an internal combustion engine except that it does not include gasoline as defined in Section 5(A) of the Law, or combustible gases as defined in Section 5(B) of the Law. Special fuel includes diesel fuel. See, 86 Ill. Adm. Code 500.100. “Diesel fuel” means any product intended for use or offered for sale as a fuel for engines in which the fuel is injected into the combustion chamber and ignited by pressure without electric spark. See, 86 Ill. Adm. Code 500.100. Finally, “blending” means, in relevant part, the mixing together by any process whatsoever, of any one or more products with other products, and regardless of the original character of the products so blended, provided the resultant product so obtained is suitable or practicable for use as a motor fuel. See, 86 Ill. Adm. Code 500.100. The purchase and resale of an item, such as corn oil, that is not suitable or practicable for the propulsion of motor vehicles is not the purchase or resale of motor fuel. If, however, corn oil or any other product is blended or otherwise combined with diesel fuel or any other fuel and the resulting product is suitable or practicable for the propulsion of motor vehicles, then that product is motor fuel and is subject to the provisions of the Motor Fuel Tax Law. No person shall act as a distributor [of motor fuel], supplier [of special fuel], or receiver [of fuel] in Illinois without first applying for and obtaining a license from the Department. See 86 Ill. Adm. Code 500.201. Any person who knowingly acts as a distributor of motor fuel or supplier of special fuel, or receiver of fuel without having a license so to do . . . shall be guilty of a Class 3 felony. Each day any person knowingly acts as a distributor of motor fuel, supplier of special fuel, or receiver of fuel without having a license so to do or after such a license has been revoked, constitutes a separate offense. See 35 ILCS 505/15(1). In addition, please note that under Section 3 of the Motor Fuel Tax Law, a motor fuel blender must obtain a license as a motor fuel distributor as well as a blender’s permit. 35 ILCS 505/3. Any person who acts as a blender in violation of Section 3 of this Act [. . . ] is guilty of a Class 4 felony. Please note that, in addition to any considerations under the Motor Fuel Tax law, persons engaged in the business of selling tangible personal property in Illinois are

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subject to the registration, reporting, and tax payment requirements of the Retailers’ Occupation Tax Act. See 86 Ill. Adm. Code 130.101 et seq. 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,

Samuel J. Moore
Associate Counsel
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