Does a large membrane (fabric/steel-truss) structure built onto a factory in an Illinois enterprise zone qualify for the Enterprise Zone building materials exemption from Retailers' Occupation Tax?

Plain-English summary

The Illinois Department of Revenue ruled that a large "membrane structure" -- a fabric-clad, steel-truss building erected as an expansion of a manufacturing plant located in an enterprise zone -- qualifies for the Enterprise Zone building materials exemption from Retailers' Occupation Tax.

Under 35 ILCS 120/5k and 86 Ill. Adm. Code 130.1951, gross receipts from retail sales of building materials are exempt from Retailers' Occupation Tax if the materials will be incorporated into real estate located in an enterprise zone (by remodeling, rehabilitation, or new construction) as part of a project that has an active Exemption Certificate. The key dispute here was whether the structure -- often colloquially called a "tent" -- was truly a permanent building rather than a temporary one.

The Department applied its long-standing three-factor "intention test" (from ST 00-0156): whether the item is affixed to the realty, whether it serves the purpose of the realty, and the intent of the person affixing it. The taxpayer showed the structure's steel trusses were anchored into a reinforced poured concrete foundation, it was attached to the existing plant, it was built to 2015 International Building Code permanent-structure standards (not the temporary-structure/tent provisions), and it was fully equipped with fire suppression and detection, a medium-voltage electrical room, restrooms, and utility connections (power, water, natural gas, compressed air) just like the rest of the production facility. Based on those facts, the Department concluded the structure -- and its integrated fire/electrical/utility systems, if permanently affixed -- qualifies for the building materials exemption, provided purchases are made under an active Exemption Certificate as required by 86 Ill. Adm. Code 130.1951(c).

What this means for you

Manufacturers and businesses expanding facilities in enterprise zones

If you are adding a building or structure -- even an unconventional one like a fabric/membrane structure -- to a plant located in an Illinois enterprise zone, the exemption turns on whether the structure is genuinely permanent: anchored to a foundation, attached to existing facilities, built to permanent (not temporary) building code standards, and outfitted with the same life-safety and utility systems as a conventional building. A structure that is easily disassembled and relocated is not automatically disqualified, but you should be prepared to document permanence the way this taxpayer did.

Construction contractors working in enterprise zones

You cannot purchase building materials tax-free for an enterprise zone project without an active Exemption Certificate issued by the zone's administrator at the time of purchase. 35 ILCS 120/5k(a); 86 Ill. Adm. Code 130.1951(c). Fire suppression systems, electrical rooms, and utility infrastructure that are permanently affixed to the walls, roof, or structural steel of a qualifying building can also fall within the exemption.

Accountants and tax professionals

This ruling applies the same three-factor intention test the Department has used since ST 00-0156 and reaffirms its reasoning from ST-21-0007-PLR (Sept. 13, 2021): the fundamental concept of the building materials exemption is that materials must be physically and permanently incorporated into real estate, regardless of whether the building uses conventional materials. Watch for the Exemption Certificate requirement, which is a separate condition from the permanence analysis.

Common questions

Q: What is the Enterprise Zone building materials exemption?
A: Under 35 ILCS 120/5k and 86 Ill. Adm. Code 130.1951(a), gross receipts from qualified retail sales of building materials are exempt from Illinois Retailers' Occupation Tax if the materials are incorporated into real estate located in an enterprise zone (established by a county or municipality under the Illinois Enterprise Zone Act) through remodeling, rehabilitation, or new construction, as part of a project covered by an Exemption Certificate.

Q: Why was there any doubt about whether this structure qualified?
A: Because it was a "membrane structure" -- a steel-truss building with a fabric exterior, often called a "tent" -- that some assumed would be treated as a temporary structure. The taxpayer showed it was designed and built as a permanent structure under the 2015 International Building Code's permanent (not temporary-structure) provisions, anchored to a concrete foundation, and attached to the existing plant.

Q: What test does the Department use to decide if something is "permanently affixed" to real estate?
A: The three-factor intention test from ST 00-0156: (1) whether the item is physically affixed to the realty, (2) whether it is applied to the use or purpose of the realty, and (3) the intent of the person affixing it -- with an additional factor being whether the item is essential to the use of the real estate.

Q: Do the fire suppression, electrical, and utility systems inside the structure also qualify?
A: Yes, according to the Department, if they are permanently affixed to the walls, roof, or the building's structural steel, they qualify for the same building materials exemption as the structure itself.

Q: Can another taxpayer rely on this ruling for their own building project?
A: No. This is a Private Letter Ruling, binding on the Department only as to the taxpayer who requested it and only to the extent the facts provided were complete and accurate. Other taxpayers with similar facts should request their own ruling or consult a licensed Illinois tax professional.

Citations and references

• 35 ILCS 120/5k (Retailers' Occupation Tax Act -- Enterprise Zone building materials exemption)
• 86 Ill. Adm. Code 130.1951(a) (qualified sale of building materials incorporated into real estate in an enterprise zone)
• 86 Ill. Adm. Code 130.1951(e) (examples of qualifying building materials physically incorporated into real estate)
• 86 Ill. Adm. Code 130.1951(c) (Exemption Certificate required at time of purchase)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• ST-21-0007-PLR (Sept. 13, 2021) (prior PLR on permanent affixation of building materials)
• ST 08-0003-PLR (April 1, 2008) (catalog of letters applying the intention test)
• ST 00-0156 (three-factor intention test for permanent affixation to real estate)

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-plr.pdf

Original ruling text

ST-22-0003 04/12/2022 ENTERPRISE ZONES
Under the Enterprise Zone building materials exemption, a deduction from Illinois
Retailers’ Occupation Tax liability exists for gross receipts from retail sales of
materials that will be incorporated, by remodeling, rehabilitation, or new
construction, into real estate located in an enterprise zone established by a
county or municipality under the Illinois Enterprise Zone Act. (See 35 ILCS
120/5k and 86 Ill. Adm. Code 130.1951(e).) (This is a PLR.)
April 12, 2022
Dear NAME:
This letter is in response to your letter dated February 15, 2022, 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 PLANT 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:
To whom it may concern,
I am writing to you today regarding the tax-exempt status of a large
fabric structure at the north end of the PLANT factory in CITY STATE.
The Economic Development Council of CITY-CITY1 has indicated that
per the code, the project must [be a] permanent fixture to be
considered tax exempt. The Tax Revenue department has directed us
to submit a written request to their Legal Department to receive a
determination. COMPANY believes that the STRUCTURE is by
building code, a permanent structure and should be allowed to receive
the same tax-exempt status as it's other projects. Please consider the
following:

1.
2.

3.

4.

5.
6.
7.

Per the CITY’S requirements, this expansion is being constructed
as to conform with the 2015 International Building Code (2015
IBC)
The expansion at the Northwest of the plant is to be constructed
as a membrane structure. Per Section 3103 Temporary Structures
of the 2015 IBC, "Tents and other membrane structures erected for
a period of less than 180 days shall comply with the International
Fire Code. Those erected for a longer period of time shall comply
with the applicable sections of this code"
The Membrane structure is forecasted to be in place until the
end of 2024, in which at that time it will be removed and
relocated. Per building code this dictates that it does not qualify
as a temporary structure for it is to be erected greater than 180
days. It will be constructed as a permanent structure.
The membrane structure is steel frame truss with a membrane
fabric exterior finish, insulation, and vapor barrier interior finish.
The steel truss is anchored into a reinforced poured concrete
ballast foundation wall. (attached pdf of drawings of structure
from COMPANY1)
It will be outfitted with heating, cooling, lighting, fire alarms, fire
sprinklers, and all other life safety elements that the rest of the
plant employs.
The expansion will be attached to the plant.
The expansion is being constructed by COMPANY2, following
the plans that were submitted and approved for a building permit.
The actual membrane structure was erected on the ballast wall
foundation by COMPANY1.

We respectfully ask that the Illinois Department of Revenue Legal
Services team consider allowing this project to receive the same tax
exempt as other onsite projects.
By email dated DATE, COMPANY provided additional information regarding
the project.
COMPANY has requested a tax certification for a structure being built in
the enterprise zone at ADDRESS. Unfortunately, there was a delay in
receiving the tax certificate due to understanding that the structure is
temporary, however, the structure is in fact designed to be a permanent
structure. I believe the misunderstanding comes from the fact that it is
often called a “tent” when the correct terminology is membrane structure.
The building is 660’ long by 100’ wide and is 34’ tall at the center and is
constructed of steel arches, R40 insulation, and a rubber membrane
similar to a rubberized membrane on a typical roof and the entire structure
is placed on a permanent concrete foundation. The building is/will be fully

equipped with a fire suppression and detection system, a medium voltage
electrical room, restrooms, break areas, and utilities such as power, water,
electrical, natural gas, and compressed air.
The infrastructure is
distributed throughout the structure the same as you would find throughout
the rest of our production facility, it just happens to be made from an
alternative materials.
The intent of the structure is to remain as a permanent structure and the
CITY has permitted this structure as a permanent building and has
required all building and life safety items are installed as such, but the
confusion is that the structure can be disassemble and relocated
elsewhere on the property if needed.
Building, installation, and
infrastructure for this project is nearing a total of $$$$$ USD which has
been a significant capital expense, and not one thar COMPANY plans to
remove or discard. In the event the business case is made that the
building does need to be relocated on the property, it would be done so,
only to make way for a larger expansion of the plant in that area as the
membrane structure does have limitations as to the overall size that can
be accommodated.
DEPARTMENT’S RESPONSE:
An exemption from Illinois Retailers' Occupation Tax liability exists for gross
receipts from qualified sales of building materials that will be incorporated into real
estate located in an enterprise zone established by a county or municipality under the
Illinois Enterprise Zone Act by remodeling, rehabilitation or new construction. 35 ILCS
120/5k; 86 Ill. Adm. Code 130.1951(a). Qualified sale" means a sale of building
materials that will be incorporated into real estate as part of a building project for which
a Certificate of Eligibility for Sales Tax Exemption (Exemption Certificate) has been
issued by the administrator of the enterprise zone in which the building project is
located. In order to qualify for the building materials exemption under this Section, the
materials being purchased must be building materials. That is, they must be purchased
for physical incorporation into real estate. See 86 Ill. Adm. Code 130.1951(e).
The Department has provided guidance on the requirement that the building
materials be incorporated into real estate. In ST-21-0007-PLR (Sept. 13, 2021), the
Department stated:
The Department’s regulation at 86 Ill. Adm. Code 130.1951(e) provides
examples of qualifying building materials. The enterprise zone exemption
includes component parts of building materials that are permanently
affixed to realty. While the examples in the Department’s regulation reflect
more conventional buildings, the fundamental concept of the building
materials exemption is that, to qualify, provided that the other

requirements of the regulation are met, the materials at issue must also be
physically incorporated into real estate.
The Department has invoked the intention test in the context of letter
rulings concerning construction contractors. ST 08-0003-PLR (April 1,
2008) identifies a number of letters invoking the test. ST 00-0156 sets
forth the intention test as follows:
“In determining whether an item is permanently affixed to
real estate, a very fact-specific inquiry must be made
regarding whether the item is intended to remain with the
realty. In order to make a finding that the item is permanently
affixed, at least three factors must generally be examined.
First, the item must be affixed to the realty. The item must
also be applied to the use or purpose to which the realty is
put. Finally, the intent of the person affixing the item must be
examined. Another factor often examined is whether the item
is essential to the use to which the real estate has been put.”
COMPANY has stated that the structure is intended to be, and will be
constructed as, a permanent structure. The steel trusses will be affixed to the real
estate by anchoring them into a “reinforced poured concrete ballast foundation wall.”
The STRUCTURE will be attached to the production facility, or plant. “The building
is/will be fully equipped with a fire suppression and detection system, a medium voltage
electrical room, restrooms, break areas, and utilities such as power, water, electrical,
natural gas, and compressed air.
In ST-21-0007-PLR, the Department concluded:
The Department has reviewed each of the items identified in the request
and more fully described in Exhibit A. Exhibit A states that each of the
items will be permanently affixed to concrete foundations via anchor bolts,
to walls, the roof, or the building’s structural steel. Many of the items will
have natural gas connections, compressed air connections, intake air
ducts, exhaust air ducts, and 480-volt electrical connections. The
Department has reviewed its regulations at 86 Ill. Adm. Code 130.1951,
the factors contained in the intention test, and its prior letters issued within
the last 10 years.
Based on its review, it is the Department’s
determination that the items would qualify for the building materials
exemption in Section 5k of the Retailers’ Occupation Tax Act.
The Department believes the membrane structure is permanently affixed to the
real estate and qualifies for the building materials exemption in Section 5k of the
Retailers’ Occupation Tax Act. The fire suppression and detection system, the medium
voltage electrical room, restrooms, break areas, and utilities such as power, water,

electrical, natural gas, and compressed air also will qualify for the exemption if
permanently affixed to the walls, roof, or the buildings structural steel.
A construction contractor or other entity cannot make tax-free purchases unless it
has an active Exemption Certificate issued by the Department at the time of purchase.
35 ILCS 120/5k(a); 86 Ill. Adm. Code 130.1951(c).
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
Chairman, Private Letter Ruling Committee
SJM:RSW:rkn