Do gates permanently set in concrete at a construction site inside an Illinois enterprise zone qualify for the enterprise zone building materials sales tax exemption?

Plain-English summary

A taxpayer (referred to here as ENTITY) emailed the Illinois Department of Revenue's Legal Team asking about tax-exempt certificates for two properties. The taxpayer explained that gates affixed to the real property at these locations are not detachable -- they are securely poured into the ground with concrete and set as posts -- and asked for a letter ruling confirming the properties' exemption from tax. In a follow-up email, the taxpayer added that the gates were anticipated to remain in place for about two years, serving both city-code compliance and site security during construction, and that once construction progressed (roof, windows, concrete sidewalks, and garage completed), the plan was to replace the gates with new iron fencing. The taxpayer asked whether the properties fell within the eligibility criteria of "the state's program" so that a designated third party (NAME3) could proceed with securing tax-exempt certificates.

The Department treated this as a request that should have been for a Private Letter Ruling (PLR) but, because it required more specific facts to be resolved as a PLR, responded with a GIL instead. The Department's response walks through how the Retailers' Occupation Tax (Illinois's sales tax on retailers) and the Use Tax (a companion tax on purchasers) work together to form what's commonly called Illinois "sales tax," then explains the enterprise zone building materials exemption at 35 ILCS 120/5k(a): a retailer that makes a "qualified sale" of building materials to be incorporated into real estate in an enterprise zone -- through remodeling, rehabilitation, or new construction -- may deduct those receipts when calculating its Retailers' Occupation Tax liability. A "qualified sale" requires that the purchaser hold an active Enterprise Zone Building Materials Exemption Certificate issued by the Department at the time of purchase; without one, a construction contractor or other entity cannot buy building materials tax-free. The Department's regulation at 86 Ill. Adm. Code 130.1951(e) gives examples of qualifying building materials, and the exemption extends to component parts of building materials permanently affixed to realty -- but even though the regulation's examples reflect more conventional buildings, the core requirement is still that the materials be physically incorporated into real estate.

To decide whether something is "permanently affixed," the Department applies an "intention test" it has used in earlier letter rulings involving construction contractors (citing ST 08-0003-PLR and General Information Letter ST 00-0156). That test looks at, at minimum: (1) whether the item is affixed to the realty; (2) whether the item is applied to the use or purpose the realty is put to; and (3) the intent of the person affixing the item -- with an additional factor often being whether the item is essential to the real estate's use. The Department also cites its holding in ST-00-0034-PLR that items becoming permanently incorporated into realty during sitework development -- such as asphalt or fencing materials that become permanently installed as part of roadway paving or site security fencing -- qualify as building materials. Applying this framework, the Department told the taxpayer that the gates "may qualify" for the exemption "if they are permanently affixed to the real estate," but stated plainly that it "cannot make a binding ruling in a General Information Letter."

What this means for you

Construction contractors and developers building in enterprise zones

If you're supplying or installing building materials -- including items like gates, fencing, or similar site-security or sitework materials -- as part of a construction project in a designated Illinois enterprise zone, the Retailers' Occupation Tax exemption under 35 ILCS 120/5k(a) is only available if the purchaser holds an active Enterprise Zone Building Materials Exemption Certificate from the Department at the time of purchase. Whether a specific item (like a gate set in concrete) counts as exempt "building materials" turns on whether it is permanently affixed to the realty, evaluated item-by-item under the Department's fact-specific "intention test": is it affixed to the realty, is it applied to the realty's use or purpose, and what was the installer's intent (plus, often, whether it's essential to the property's use)?

Temporary vs. permanent installations

This GIL is a useful caution for site-security items with a planned lifespan, like the taxpayer's gates that were expected to be replaced by permanent iron fencing after roughly two years once construction milestones were reached. A temporary intention to later replace an item doesn't automatically disqualify it -- the Department still said the gates "may qualify" -- but the planned replacement and limited duration are exactly the kind of facts the intention test examines, so document your reasons for how an item is affixed and your intent regarding its permanence.

Accountants and tax professionals

Because this is a GIL, not a PLR, the Department expressly declined to make a binding determination on these specific gates -- it only laid out the legal framework (the qualified-sale requirement, the exemption certificate requirement, and the intention test) and said the facts "may" support qualification. A client who needs a binding, taxpayer-specific answer on whether particular site materials qualify for the enterprise zone exemption should pursue a PLR under 2 Ill. Adm. Code 1200.110, providing complete facts about how the materials are affixed and the installer's intent.

Common questions

Q: Does this GIL conclusively decide whether the taxpayer's gates qualify for the enterprise zone exemption?
A: No. The Department said the gates "may qualify... if they are permanently affixed to the real estate," but stated it "cannot make a binding ruling in a General Information Letter." The ultimate determination depends on facts evaluated under the intention test.

Q: What is the enterprise zone building materials exemption?
A: Under 35 ILCS 120/5k(a), a retailer that makes a "qualified sale" of building materials to be incorporated into real estate in a designated enterprise zone (through remodeling, rehabilitation, or new construction) may deduct those receipts when calculating its Retailers' Occupation Tax. A "qualified sale" requires the purchaser to hold an active Enterprise Zone Building Materials Exemption Certificate issued by the Department at the time of purchase.

Q: How does the Department decide whether an item is "permanently affixed" to real estate?
A: Per the intention test (citing General Information Letter ST 00-0156), the Department examines at least three factors: whether the item is affixed to the realty, whether it is applied to the use or purpose of the realty, and the intent of the person affixing the item. Whether the item is essential to the real estate's use is another factor often considered. The determination is made on an item-by-item basis (citing ST 08-0003-PLR).

Q: Do fencing and gate materials ever qualify as exempt building materials?
A: The Department cites its earlier holding in ST-00-0034-PLR that fencing materials that become permanently installed improvements to realty -- for example, as part of roadway paving or site security fencing during sitework development -- can qualify as building materials, provided the other requirements of the exemption are met.

Q: Why did the Department issue a GIL instead of a binding ruling?
A: The inquiry required a determination on the taxpayer's specific facts, which would ordinarily call for a PLR under 2 Ill. Adm. Code 1200.110. The Department's response here was a GIL, which directs the taxpayer to relevant regulations and prior rulings but is not binding and does not commit the Department to a particular outcome, per 2 Ill. Adm. Code 1200.120.

Citations and references

Statutes:

• 35 ILCS 120/2 (Retailers' Occupation Tax Act: imposition of tax on retailers)
• 35 ILCS 120/5k (enterprise zone building materials exemption)
• 35 ILCS 105/3 (Use Tax Act: imposition of tax on purchasers)

Regulations:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax regulation)
• 86 Ill. Adm. Code 130.1951 (enterprise zone building materials exemption regulation, including qualifying examples at subsection (e) and certificate requirement at subsection (c)(1))
• 86 Ill. Adm. Code 150.101 (Use Tax regulation)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Prior letter rulings cited by the Department:

• ST 08-0003-PLR (April 1, 2008) (intention test applied to construction contractors; item-by-item determination)
• General Information Letter ST 00-0156 (sets forth the intention test)
• ST-00-0034-PLR (fencing and sitework materials permanently installed can qualify as building materials)

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/ST24-0007-GIL.pdf

Original ruling text

ST 24-0007-GIL 02/16/2024 ENTERPRISE ZONES
This letter discusses the enterprise zone building materials exemption. 35 ILCS 120/5k; 86 Ill.
Adm. Code 130.1951. (This is a GIL.)
February 16, 2024
NAME
ENTITY
ADDRESS
Dear NAME:
This letter is in response to your email dated February 5, 2024, 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 emails you have stated and made inquiry as follows:
February 5, 2024 Hello Legal
Team,
I trust this email finds you well. I am reaching out regarding the tax-exempt certificates
for the properties located at ADDRESS2 and ADDRESS3.
In my conversation with NAME2, the revenue tax specialist, he suggested reaching out
to you for a letter of ruling concerning the gates that are affixed to the real property and
are not detachable. They are securely poured into the ground with concrete and set as
posts.
I kindly request your assistance in providing the letter of ruling for the mentioned
properties to ensure our exemption from taxes.
Your prompt attention to this matter is highly appreciated.
January 31, 2024 Hello,
I trust this email finds you well.

ENTITY
Page 2
February 16, 2024
I am reaching out regarding the tax-exempt certificates for the properties located at
ADDRESS2and ADDRESS3.
For these properties, it is essential to note that the gates are anticipated to remain in
place for a duration of 2 years. This serves a dual purpose—compliance with city code
requirements and securing the lots, particularly during the construction phase of the
property. Once construction progresses to include the completion of the roof, windows,
all concrete sidewalks, and the garage, the plan is to replace the current fencing with
new iron fencing.
Could you kindly confirm whether these properties fall within the eligibility criteria of the
state's program? This information is crucial for NAME3 to proceed with the process of
securing the tax-exempt certificates.
Please go through the previous email in case you require more information. Your
prompt response on this matter is greatly appreciated.
DEPARTMENT’S RESPONSE:
The Retailers’ Occupation Tax Act imposes a tax upon persons engaged in this State in the
business of selling tangible personal property at retail to purchasers for use or consumption. 35 ILCS
120/2; 86 Ill. Adm. Code 130.101. Use Tax is imposed on the privilege of using, in this State, any
kind of tangible personal property that is purchased anywhere at retail from a retailer. 35 ILCS 105/3;
86 Ill. Adm. Code 150.101. These taxes comprise what is commonly known as “sales tax” in Illinois.
Each retailer who makes a qualified sale of building materials to be incorporated into real
estate in an enterprise zone established by a county or municipality under the Illinois Enterprise Zone
Act by remodeling, rehabilitation or new construction, may deduct receipts from such sales when
calculating the tax imposed by the Retailers’ Occupation Tax Act. 35 ILCS 120/5k(a).
A “qualified sale” means a sale of building materials that will be incorporated into real estate
as part of a building project for which an Enterprise Zone Building Materials Exemption Certificate
has been issued to the purchaser by the Department. A construction contractor or other entity shall
not make tax-free purchases unless it has an active Enterprise Zone Building Materials Exemption
Certificate issued by the Department at the time of the purchase. 35 ILCS 120/5k(a); 86 Ill. Adm.
Code 130.1951(c)(1).
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. General Information Letter ST 00-0156 sets forth the intention test as follows:

ENTITY
Page 3
February 16, 2024
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.
Generally, the determination of whether an item qualifies for the exemption must be made on
an item-by-item basis. ST 08-0003-PLR (April 1, 2008). The Department has held in ST-00-0034PLR that “[g]enerally, items that become permanently incorporated into realty when conducting
sitework development qualify as building materials. Items, such as asphalt and fencing materials that
become permanently installed improvements to realty when conducting roadway paving and site
security fencing qualify as building materials.” It appears that the items at issue in your request may
qualify if they are permanently affixed to the real estate. However, the Department cannot make a
binding ruling in a General Information Letter.
I hope this information is helpful. If you require additional information, please visit our website
at https://tax.illinois.gov/ or contact the Department’s Taxpayer Information Division at
(217) 782-3336.
Very truly yours,
Katarzyna Kowalska
Associate Counsel
KK:sc