Does the sales-and-use-tax exemption for tangible personal property used in building or running a data center cover solar-array components (racking, panels, inverters, combiners, switchgear) installed as a secondary use on data-center property?

Plain-English summary

A company that operates a data center in Illinois wrote to the Illinois Department of Revenue seeking a letter ruling on whether certain items qualify for the state's "Building Materials Exemption Certification." The items at issue were solar-array components -- racking (a permanent metal structure set on piers into the ground), panels (bolted to the racking as a permanent fixture), inverters (mounted on piers, used to convert the electricity), combiners (mounted to the racking, connecting DC power to the inverters), and switchgear (the electrical grid-tie component needed for the data center to have electricity). The company described the solar array as a secondary use of the property, considered a "mechanical" of the primary data-center use, and asked the Department's Legal Services Office to confirm these items were tax-exempt.

The Department explained that Illinois has two types of letter rulings: a binding Private Letter Ruling (PLR), issued only when the taxpayer follows the specific procedures in 2 Ill. Adm. Code 1200.110, and a General Information Letter (GIL), which merely points the taxpayer to the relevant regulations without resolving the taxpayer's particular facts. Because the taxpayer's submission didn't meet the PLR requirements, the Department responded with a GIL.

In its response, the Department laid out the data-center exemption framework: effective January 1, 2020, qualified tangible personal property used in constructing or operating a data center that has been granted a certificate of exemption by the Illinois Department of Commerce and Economic Opportunity (DCEO) is exempt from sales and use tax, whether purchased by the data center's owner, operator, or tenant, or by a contractor or subcontractor of any of them (35 ILCS 130/2-5(44); 86 Ill. Adm. Code 130.1957). Data centers that would have qualified for a certificate before January 1, 2020, had Public Act 101-0031 already been in effect, may also apply for an exemption on later purchases used to upgrade, supplement, or replace equipment from the original qualifying investment.

The Department quoted the regulatory definition of "qualified tangible personal property" at length: it covers a long list of data-center infrastructure (electrical systems, climate control and chilling equipment, mechanical systems, monitoring and security systems, emergency generators, hardware, computers, servers, data storage devices, network connectivity equipment, racks, cabinets, cabling, raised floor systems, software, and more), plus "component parts of any of the foregoing, including installation, maintenance, repair, refurbishment, and replacement," including equipment "to generate, transform, transmit, distribute, or manage electricity necessary to operate qualified tangible personal property," and building materials physically incorporated into the qualifying data center. To actually claim the exemption, the data center must first obtain a certificate of exemption from DCEO under 20 ILCS 605/605-1025, and each purchaser (owner, operator, tenant, contractor, or subcontractor) must have an active certificate before making tax-exempt purchases (86 Ill. Adm. Code 130.1957(c)).

Critically, the Department did not apply this framework to the taxpayer's specific solar-array components. It stated plainly: "The Department is unable to provide a binding letter ruling based on the information you have provided," and invited the taxpayer to resubmit a request that meets the PLR requirements of 2 Ill. Adm. Code 1200.110. The Department did add one observation to help guide that resubmission -- that "qualified tangible personal property" includes data infrastructure and systems, including installation of tangible personal property "to generate, transform, transmit, distribute, or manage electricity necessary to operate qualified tangible personal property" -- but it stopped short of saying the taxpayer's racking, panels, inverters, combiners, or switchgear actually fit that description.

What this means for you

Data center owners, operators, and tenants

If you're building or expanding a data center in Illinois, the sales/use tax exemption for "qualified tangible personal property" can be substantial, but it isn't automatic: you (or your landlord/tenant counterpart) must first obtain a certificate of exemption from DCEO under 20 ILCS 605/605-1025, and whoever is actually making the purchase (owner, operator, tenant, contractor, or subcontractor) needs an active certificate before buying tax-exempt. The regulatory definition of qualifying property is broad -- covering not just servers and racks but electrical, mechanical, cooling, and monitoring systems, plus components needed to generate, transform, transmit, distribute, or manage electricity for the data center -- but this GIL shows the Department will not confirm in a non-binding letter that any particular piece of equipment (like solar-array hardware) qualifies.

Contractors and subcontractors supplying data center equipment

Because the exemption can flow to purchases made by a contractor or subcontractor of the owner, operator, or tenant, you may be able to sell qualifying equipment tax-exempt -- but you should confirm your customer holds (or is covered by) an active DCEO certificate of exemption before treating a sale as exempt.

Anyone considering solar, backup power, or ancillary electrical installations at a data center

This GIL flags that electricity-related infrastructure "to generate, transform, transmit, distribute, or manage electricity necessary to operate qualified tangible personal property" is potentially within the exemption's scope, which is a meaningful hint for solar arrays, generators, or similar systems installed to power a data center. But the Department expressly declined to resolve whether solar racking, panels, inverters, combiners, or switchgear qualify on the facts presented here. If you need a definitive, binding answer for your own equipment, you must submit a request that satisfies the Private Letter Ruling requirements in 2 Ill. Adm. Code 1200.110 -- this GIL cannot be relied on as authority that solar-array components are (or are not) exempt.

Accountants and tax professionals

Note that the Department's refusal to rule wasn't about the substance of the exemption -- it was because the taxpayer's original submission didn't satisfy the PLR procedural requirements. Clients seeking certainty on novel equipment categories (like solar installations at data centers) should be advised to follow the 2 Ill. Adm. Code 1200.110 process precisely, including providing the level of factual detail a PLR requires, rather than submitting an informal letter that will only generate a GIL.

Common questions

Q: Does this GIL confirm that solar-array components (racking, panels, inverters, combiners, switchgear) at a data center are exempt from Illinois sales and use tax?
A: No. The Department explained the general data-center exemption framework but explicitly stated it could not provide a binding ruling on the facts submitted and told the taxpayer to resubmit under the PLR procedure in 2 Ill. Adm. Code 1200.110.

Q: What is exempt under the Illinois data-center exemption?
A: Effective January 1, 2020, qualified tangible personal property used in the construction or operation of a data center that has a DCEO certificate of exemption is exempt from sales and use tax, regardless of whether it's purchased by the owner, operator, tenant, or a contractor/subcontractor of any of them. 35 ILCS 130/2-5(44); 86 Ill. Adm. Code 130.1957.

Q: What counts as "qualified tangible personal property"?
A: A broad regulatory list including electrical systems, climate control/chilling equipment, mechanical systems, monitoring and security systems, emergency generators, hardware, computers, servers, data storage devices, network connectivity equipment, racks, cabinets, cabling, raised floor systems, software, and component parts and installation/maintenance/repair/replacement of the foregoing -- including equipment to generate, transform, transmit, distribute, or manage electricity necessary to operate qualified property, and building materials physically incorporated into the data center.

Q: How do you actually get the exemption?
A: The data center must first obtain a certificate of exemption from the Department of Commerce and Economic Opportunity under 20 ILCS 605/605-1025. Each owner, operator, tenant, contractor, or subcontractor must have an active certificate of exemption before making tax-exempt purchases of qualifying property. 86 Ill. Adm. Code 130.1957(c).

Q: Why didn't the Department just answer the taxpayer's specific question?
A: The taxpayer asked for a binding letter ruling, but the Department said it couldn't provide one based on the information supplied. A binding Private Letter Ruling requires following the specific procedures in 2 Ill. Adm. Code 1200.110; because that wasn't done, the Department issued a non-binding GIL instead, which only restates the general legal framework.

Q: Can this taxpayer (or anyone else) rely on this GIL to treat solar-array equipment as exempt?
A: No. A GIL is not a statement of Department policy and is not binding on the Department. Anyone wanting a definitive answer on specific equipment needs to submit a request that meets the PLR requirements of 2 Ill. Adm. Code 1200.110.

Citations and references

Statutes:

• 35 ILCS 130/2-5(44) (definition of "data center")
• 20 ILCS 605/605-1025 (DCEO certificate of exemption)

Regulations:

• 86 Ill. Adm. Code 130.1957 (Tangible Personal Property Used in the Construction or Operation of Data Centers, including subsection (c) on certificates of exemption and subsection (d) on pre-2020-qualifying data centers)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Other guidance referenced:

• FY 2020-04-A (Sept. 2019) (Department information bulletin on the data center exemption)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2023.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2023/st23-0034-gil.pdf

Original ruling text

ST-23-0034-GIL 11/07/2023 RETAILERS’ OCCUPATION TAX
Effective January 1, 2020, qualified tangible personal property used in the
construction or operation of a data center that has been granted a
certificate of exemption by the Department of Commerce and Economic
Opportunity, whether that tangible personal property is purchased by the
owner, operator, or tenant of the data center or by a contractor or
subcontractor of the owner, operator, or tenant is exempt from sales and
use taxes. 35 ILCS 130/2-5(44); 86 Ill. Adm. Code 130.1957 (This is a
GIL.)
November 7, 2023
NAME
COMPANY
ADDRESS
Dear NAME:
This letter is in response to your letter dated October 31, 2023, 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:
To Whom It May Concern,
I am writing on behalf of COMPANY, a Company located at, ADDRESS, to
seek clarification and guidance regarding the eligibility of specific items for
tax purposes. As advised by the Illinois Department of Revenue (IDOR), I
am formally requesting a letter ruling to address our concerns.
Our inquiry pertains to materials we believe qualify for Building Materials
Exemption Certification. We would like to ascertain whether these items
qualify for certain tax benefits or exemptions. To provide the most
comprehensive and accurate information, we have included a detailed
explanation of each item, along with how they are incorporated into our
business operations and structures. The solar array is a secondary use to

COMPANY/NAME
Page 2
November 7, 2023
the data center on the property and considered a mechanical of the
primary use.
•
•
•

•
•

•

Racking - The racking is the metal structure that is set with piers
into the ground and is a permanent fixture of the property.
Panels - The panels will bolt to the racking and will be a
permanent fixture.
Inverters - The inversters [sic] are required to use the electricity
and will be mounted to piers that are embedded in the ground in a
permanent manner.
Combiners - The combiners are mounted to the permanent
racking and used to connect the DC power to the inverters.
Switchgears - The switchgear is a part of the data center, this is
the electrical grid tie component required for the data centers to
have electricity.
Miscellaneous

In accordance with the guidance provided by IDOR, we understand that
there are no specific forms for this request. Therefore, we have submitted
this written letter to your Legal Services Office for consideration.
We kindly request that the IDOR legal team review our submission and
provide a formal letter ruling on the eligibility of the aforementioned items.
We acknowledge that the legal team will make an effort to respond within

days, and we are prepared to engage in any further communication or

provide additional information as necessary to facilitate a prompt and
informed resolution.
It is crucial for our business to have a clear understanding of the tax
implication of these items, as this information directly impacts our
financial planning and compliance with state tax laws.
Please feel free to contact me at PHONE or E-MAIL if there is a
need for further clarification, additional documentation, or if you
require any additional information to proceed with our request.
We appreciate your attention to this matter and look forward to a
timely response from the IDOR Legal Services Office. Your guidance
and clarification are essential for us to ensure full compliance with
state tax regulations.
Thank you for your prompt assistance.
DEPARTMENT RESPONSE:

COMPANY/NAME
Page 3
November 7, 2023
Effective January 1, 2020, qualified tangible personal property used in the
construction or operation of a data center that has been granted a certificate of
exemption by the Department of Commerce and Economic Opportunity, whether that
tangible personal property is purchased by the owner, operator, or tenant of the data
center or by a contractor or subcontractor of the owner, operator, or tenant, is exempt
from sales and use taxes. 86 Ill. Adm. Code 130.1957. Data centers that would have
qualified for a certificate of exemption prior to January 1, 2020, had Public Act 101-0031
been in effect, may apply for and obtain an exemption for subsequent purchases of
computer equipment or enabling software purchased or leased to upgrade, supplement,
or replace computer equipment or enabling software purchased or leased in the original
investment that would have qualified. 86 Ill. Adm. Code 1957(d).
“Data center” means a building or a series of buildings rehabilitated or
constructed to house working servers in one physical location or multiple sites within the
State of Illinois. 35 ILCS 130/2-5(44). See FY 2020-04-A (Sept. 2019); 86 Ill. Adm.
Code 130.1957 Tangible Personal Property Used in the Construction or Operation of
Data Centers.
“Qualified tangible personal property” means:
electrical systems and equipment; climate control and chilling equipment
and systems; mechanical systems and equipment; monitoring and secure
systems; emergency generators; hardware; computers; servers; data
storage devices; network connectivity equipment; racks; cabinets;
telecommunications cabling infrastructure; raised floor systems; peripheral
components or systems; software; mechanical, electrical, or plumbing
systems; battery systems; cooling systems and towers; temperature
control systems; other cabling; and other data center infrastructure
equipment and systems necessary to operate qualified tangible personal
property, including fixtures; and component parts of any of the foregoing,
including installation, maintenance, repair, refurbishment, and
replacement of qualified tangible personal property to generate, transform,
transmit, distribute, or manage electricity necessary to operate qualified
tangible personal property; and all other tangible personal property that is
essential to the operations of a computer data center. The term “qualified
tangible personal property” also includes building materials physically
incorporated into the qualifying data center.
To receive the exemption, the data center must obtain a certificate of exemption
from the Department of Commerce and Economic Opportunity. See 20 ILCS 605/6051025. Each owner, operator, or tenant of a data center, or a contractor or subcontractor
of the owner, operator or tenant, must provide an active certificate of exemption before
it can make tax exempt purchases of qualified tangible personal property. 86 Ill. Adm.
Code 130.1957(c).

COMPANY/NAME
Page 4
November 7, 2023
The Department is unable to provide a binding letter ruling based on the
information you have provided. You may resubmit a new request that meets the
requirements of 2 Ill. Adm. Code 1200.110. However, I would note that “qualified
tangible personal property” includes data infrastructure and systems including
installation of tangible personal property “to generate, transform, transmit, distribute, or
manage electricity necessary to operate qualified tangible personal property”.
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.
Yours truly,
Richard S. Wolters
Associate Counsel
RSW