Is selling corn oil and other non-petroleum fuel additives for use in farm tractors during off-road tractor pulls taxable under Illinois's Motor Fuel Tax Law, and does the seller need to register under that law?

Plain-English summary

An LLC (referred to here as COMPANY) that maintains and repairs farm-type tractors, including tractors modified for "tractor pulls" (a competition where tractors pull heavy weights across set distances, generally held at fairs or agricultural events and never on public highways), asked the Illinois Department of Revenue for a Private Letter Ruling. COMPANY explained that it sometimes enhances a tractor's performance for these pulls using corn oil or other non-petroleum additives, and that it sells corn oil and additives to its customers as part of its service (already collecting Retailers' Occupation Tax or the appropriate service tax on that tangible personal property). COMPANY does not maintain a bulk fuel storage facility, does not blend, refine, or otherwise process fuels, sells no fuel for on-road use, and keeps only a small, properly placarded tank of dyed diesel on hand for servicing tractors. Citing 35 ILCS 505/2 (Motor Fuel Tax applies only to fuel used on public highways or state waters) and the Motor Fuel Tax Law's definitions of "motor fuel" and "motor vehicle" (35 ILCS 505/1.1, 1.3), which COMPANY said do not include farm tractors, COMPANY asked the Department to rule that (1) selling corn oil with additives for off-road use in farm tractors is not taxable under the Motor Fuel Tax Law, and (2) COMPANY is not subject to Motor Fuel Tax Law registration for its corn oil sales.

The Department declined to issue a binding Private Letter Ruling, explaining (per 2 Ill. Adm. Code 1200.110(a)(3)(D) and (a)(4)) that it will decline a ruling request where existing regulations are dispositive of the subject, and instead issued this GIL. The Department's response walked through the regulatory definitions: Motor Fuel Tax is imposed "on the privilege of operating motor vehicles upon the public highways ... and recreational-type watercraft upon the waters of this State" (86 Ill. Adm. Code 500.200(a)). "Motor fuel" means volatile and inflammable liquids produced, blended, or compounded for -- or suitable or practicable for -- propelling motor vehicles, and includes "special fuel" such as diesel fuel (86 Ill. Adm. Code 500.100). "Blending" means combining products together, regardless of their original character, if the resulting product is suitable or practicable for use as motor fuel.

Applying those definitions, the Department explained that the purchase and resale of items like pure corn oil or non-petroleum additives does not generally fall within the definition of "motor fuel" unless sold as a motor fuel -- but if corn oil or non-petroleum additives are sold for the propulsion of motor vehicles (alone or blended into diesel or another fuel), the resulting product IS "motor fuel" and becomes subject to the Motor Fuel Tax Law. The Department also flagged several related licensing rules: only distributors of motor fuel or suppliers of special fuel who are licensed in Illinois may sell dyed diesel fuel for non-highway purposes (86 Ill. Adm. Code 500.210(g)); no one may act as a distributor of motor fuel, supplier of special fuel, or receiver of fuel in Illinois without first obtaining a Department license (86 Ill. Adm. Code 500.201), and knowingly doing so unlicensed is a Class 3 felony, with each additional day a separate offense (35 ILCS 505/15(1)); and a motor fuel blender must obtain both a distributor's license and a blender's permit under Section 3 of the Motor Fuel Tax Law (35 ILCS 505/3), with unlicensed blending a Class 4 felony. Finally, the Department noted that -- regardless of how the Motor Fuel Tax Law question comes out -- anyone engaged in the business of selling tangible personal property in Illinois is separately subject to the registration, reporting, and tax payment requirements of the Retailers' Occupation Tax Act (86 Ill. Adm. Code 130.101 et seq.).

The Department did not resolve, in a legally binding way, whether COMPANY's specific corn-oil-and-additives sales for tractor-pull use are or are not "motor fuel" -- it declined to issue the PLR that would have done that, and instead laid out the governing definitions and licensing rules for COMPANY (and any similarly situated taxpayer) to apply to its own facts.

What this means for you

Sellers of corn oil, fuel additives, or similar products used in off-road equipment

Whether your product is "motor fuel" under Illinois law does not turn on what the product is chemically -- it turns on how it is marketed and sold. Selling pure corn oil or a non-petroleum additive as a general product is not automatically "motor fuel," but if you sell it (or blend it into diesel or another fuel) specifically for the propulsion of a motor vehicle, the Department treats the resulting product as "motor fuel" subject to the Motor Fuel Tax Law's licensing and tax rules. Selling for use in equipment that is never operated on public highways (like a tractor used only for fairground pulls) may support an argument that the Motor Fuel Tax Law doesn't apply, but this GIL does not itself decide that question for any specific taxpayer.

Businesses that blend, distribute, or supply fuel or fuel additives

If your business blends corn oil or additives into diesel or another fuel for propulsion use, remember you may need both a distributor's license and a blender's permit under 35 ILCS 505/3, and that a license is required before acting as a distributor of motor fuel, a supplier of special fuel, or a receiver of fuel at all (86 Ill. Adm. Code 500.201) -- operating unlicensed is a felony, not just a civil penalty matter. Separately, only licensed distributors or suppliers may sell dyed diesel fuel for non-highway purposes (86 Ill. Adm. Code 500.210(g)).

Anyone selling tangible personal property alongside fuel-adjacent products

Don't lose sight of the Retailers' Occupation Tax Act: the Department specifically noted that sellers of tangible personal property in Illinois are subject to ROT registration, reporting, and payment obligations (86 Ill. Adm. Code 130.101 et seq.) independent of whatever conclusion applies under the Motor Fuel Tax Law. A "no Motor Fuel Tax" answer does not mean "no Illinois sales tax."

Accountants and tax professionals

This is a GIL, not the Private Letter Ruling the taxpayer requested -- the Department declined the PLR under 2 Ill. Adm. Code 1200.110(a)(3)(D) because it viewed existing regulations as dispositive. That means the Department's discussion here is informative but not binding, even as to the requesting taxpayer. A client who needs a binding answer on whether its specific product/use combination is "motor fuel" should pursue its own PLR request.

Common questions

Q: Is corn oil automatically "motor fuel" under the Illinois Motor Fuel Tax Law just because it can be used to enhance engine performance?
A: No. The Department said the purchase and resale of items like pure corn oil or non-petroleum additives does not generally fit within the definition of "motor fuel" unless sold as a motor fuel. It only becomes "motor fuel" -- subject to the Motor Fuel Tax Law -- if it (or a blend containing it) is sold for the propulsion of motor vehicles.

Q: Does mixing corn oil with diesel change the answer?
A: Yes, potentially. The Department explained that if corn oil or other non-petroleum additives are blended or combined with diesel fuel or any other fuel and the resulting product is sold for the propulsion of motor vehicles, that product is motor fuel and is subject to the Motor Fuel Tax Law, per the "blending" definition in 86 Ill. Adm. Code 500.100.

Q: Did the Department decide whether COMPANY's farm-tractor-pull sales specifically are or aren't subject to the Motor Fuel Tax Law?
A: Not as a binding matter. COMPANY asked for a Private Letter Ruling on exactly that question, but the Department declined to issue one (citing dispositive existing regulations under 2 Ill. Adm. Code 1200.110(a)(3)(D)) and issued this non-binding GIL instead, which lays out the applicable definitions without expressly applying them to COMPANY's facts.

Q: What license does someone need before acting as a distributor of motor fuel, supplier of special fuel, or receiver of fuel in Illinois?
A: A license from the Department is required before engaging in any of those roles, per 86 Ill. Adm. Code 500.201. Acting as one of these without a license is a Class 3 felony under 35 ILCS 505/15(1), with each day of unlicensed activity a separate offense; a motor fuel blender operating without both a distributor's license and a blender's permit under 35 ILCS 505/3 is guilty of a Class 4 felony.

Q: If a seller's product isn't taxable "motor fuel," is the sale tax-free in Illinois?
A: Not necessarily. The Department noted that, separate from any Motor Fuel Tax Law analysis, persons engaged in the business of selling tangible personal property in Illinois are subject to the registration, reporting, and tax payment requirements of the Retailers' Occupation Tax Act, per 86 Ill. Adm. Code 130.101 et seq.

Citations and references

Statutes:

• 35 ILCS 505/2 (Motor Fuel Tax applies only to fuel used on public highways or waters of the state)
• 35 ILCS 505/1.1 (definition of "motor fuel," referenced by the taxpayer)
• 35 ILCS 505/1.3 (definition of "motor vehicle," referenced by the taxpayer)
• 35 ILCS 505/3 (motor fuel blender must obtain a distributor's license and a blender's permit; Class 4 felony for unlicensed blending)
• 35 ILCS 505/15 (unlicensed distributor/supplier/receiver activity is a Class 3 felony; each day a separate offense)

Regulations:

• 86 Ill. Adm. Code 500.100 (definitions of "motor fuel," "special fuel," "diesel fuel," and "blending")
• 86 Ill. Adm. Code 500.200(a) (Motor Fuel Tax imposed on operating motor vehicles on public highways and recreational watercraft on state waters)
• 86 Ill. Adm. Code 500.201 (license required before acting as distributor, supplier, or receiver of fuel)
• 86 Ill. Adm. Code 500.210(g) (only licensed distributors/suppliers of special fuel may sell dyed diesel fuel for non-highway purposes)
• 86 Ill. Adm. Code 130.101 et seq. (Retailers' Occupation Tax Act registration, reporting, and tax payment requirements)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure, including the Department's discretion under (a)(3)(D) and (a)(4) to decline a ruling request)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2024.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2024/ST24-0001-GIL.pdf

Original ruling text

ST-24-0001-GIL 01/04/2024 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. Only those who are licensed in
Illinois as a distributor of motor fuel or a supplier of special fuel may sell dyed
diesel fuel for non-highway purposes. 86 Ill. Adm. Code 500.210(g). (This is a
GIL.)
January 4, 2024
NAME
ADDRESS
Dear NAME:
This letter is in response to your letter dated June 8, 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 Department’s regulation “Public Information, Rulemaking and Organization”
provides that “[w]hether to issue a private letter ruling in response to a letter ruling
request is within the discretion of the Department. The Department will respond to all
requests for private letter rulings either by issuance of a ruling or by a letter explaining
that the request for ruling will not be honored.” 2 Ill. Adm. Code 1200.110(a)(4).
Further, the Department’s regulations regarding Private Letter Rulings provide that “[i]f
there is case law or there are regulations dispositive of the subject of the request, the
Department will decline to issue a letter ruling on the subject." 86 Ill. Adm. Code
1200.110(a)(3)(D). The Department recently met and determined that it would decline
to issue a Private Letter Ruling in response to your request. We hope, however, the
following General Information Letter will be helpful in addressing your questions. In your
letter you have stated and made inquiry as follows:

COMPANY
Page 2
January 4, 2024
NAME, on behalf of COMPANY (“Company” or “taxpayer”), requests a
Private Letter Ruling regarding the sale of corn oil and other fuel additives.
Please find attached an executed Form IL-2848 Power of Attorney.
DISCLOSURES
In accordance with 2 Ill. Adm. Code Section 1200.110(b)(3), the subject of
this request is not currently being examined as part of an audit by the
Illinois Department of Revenue (“Department”).
TAX YEAR
The ruling is requested for all tax periods after January 1, 2022.
TAXPAYER
COMPANY is an LLC involved in the maintenance and repair of farm type
tractors. As part of its operations, COMPANY performs work on or
modifies tractors for use in what are known as “tractor pulls.” Tractor pulls
are a competition or exhibition in which tractors attempt to pull varying
weights over designated distances during specified periods. Tractor pulls
are generally held in agricultural or fair settings and are never part of use
of the tractor on public highways or roads. On occasion, the tractor’s
performance will be enhanced by the use of corn oil or other nonpetroleum additives. The additives are not fuel. COMPANY, as part of its
service to customers will sell corn oil and additives to the customers.
COMPANY collects and remits retailers’ occupation taxes on its sales of
property to its customers or pays the appropriate service taxes on tangible
personal property transferred as part of its services.
COMPANY does not maintain a bulk storage facility. COMPANY does
have a small amount of dyed diesel on hand to use in the tractors during
servicing. The tank for the dyed diesel has an appropriate placard.
COMPANY does not blend, refine or otherwise process fuels. COMPANY
sells no fuels for on road use.
Under 35 ILCS 505/2 only fuels used upon public highways or the waters
of the State are subject to motor fuel tax. Under 35 ILCS 505/1.l and 1.3,
the definitions of motor fuel and motor vehicles used throughout the Motor
Fuel Tax Law do not include farm tractors. COMPANY is not aware of any
authority to the contrary.
COMPANY requests a Private Letter Ruling that the sale of corn oil with
additives for use in farm tractors for off-road use is not taxable under the
Motor Fuel Tax Law. COMPANY also requests a ruling that it is not
subject to registration under the Motor Fuel Tax Law with regard to corn oil
sales.

COMPANY
Page 3
January 4, 2024
If COMPANY can supply any further information, please contact me.
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 items, such as pure corn oil or non-petroleum
additives, does not generally fit within the definition of motor fuel unless sold as a motor
fuel. If, however, corn oil or non-petroleum additives are sold for the propulsion of
motor vehicles, then that product is motor fuel and is subject to the provisions of the
Motor Fuel Tax Law. 86 Ill. Adm. Code 500.100. If corn oil or other non-petroleum
additives are blended or otherwise combined with diesel fuel or any other fuel and the
resulting product is sold for the propulsion of motor vehicles, then that product is motor
fuel and is subject to the provisions of the Motor Fuel Tax Law. 86 Ill. Adm. Code
500.100. We note that only those who are licensed in Illinois as a distributor of motor
fuel or a supplier of special fuel may sell dyed diesel fuel for non-highway purposes. 86
Ill. Adm. Code 500.210(g). See also, Department Publication PIO-71, Dyed Diesel Fuel
Enforcement Program.
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

COMPANY
Page 4
January 4, 2024
blender in violation of Section 3 of [the Motor Fuel Tax Law . . . ] 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
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