(35 ILCS 115/2)
(from Ch. 120, par. 439.102)
In this Act:
"Transfer" means any transfer of the title to property or of
the ownership of property whether or not the transferor retains title as
security for the payment of amounts due him from the transferee.
"Cost Price" means the consideration paid by the serviceman for a
purchase valued in money, whether paid in money or otherwise, including
cash, credits and services, and shall be determined without any deduction
on account of the supplier's cost of the property sold or on account of any
other expense incurred by the supplier. When a serviceman contracts out
part or all of the services required in his sale of service, it shall be
presumed that the cost price to the serviceman of the property
transferred to him by his or her subcontractor is equal to 50% of the
subcontractor's charges to the serviceman in the absence of proof of the
consideration paid by the subcontractor for the purchase of such
"Department" means the Department of Revenue.
"Person" means any natural individual, firm, partnership, association, joint
stock company, joint venture, public or private corporation, limited liability
company, and any receiver, executor, trustee, guardian or other representative
appointed by order of any court.
"Sale of Service" means any transaction except:
(a) A retail sale of tangible personal property taxable under the Retailers'
Occupation Tax Act or under the Use Tax Act.
(b) A sale of tangible personal property for the purpose of resale made in
compliance with Section 2c of the Retailers' Occupation Tax Act.
(c) Except as hereinafter provided, a sale or transfer of tangible personal
property as an incident to the rendering of service for or by any governmental
body or for or by any corporation, society, association, foundation or
institution organized and operated exclusively for charitable, religious or
educational purposes or any not-for-profit corporation, society, association,
foundation, institution or organization which has no compensated officers or
employees and which is organized and operated primarily for the recreation of
persons 55 years of age or older. A limited liability company may qualify for
the exemption under this paragraph only if the limited liability company is
organized and operated exclusively for educational purposes.
(d-1) A sale or transfer of tangible personal
property as an incident to
the rendering of service for owners, lessors or shippers of tangible personal
property which is utilized by interstate carriers for hire for use as rolling
stock moving in interstate commerce, and equipment operated
by a telecommunications provider, licensed as a common carrier by the
Federal Communications Commission, which is permanently installed in or
affixed to aircraft moving in interstate commerce.
(d-1.1) On and after July 1, 2003 and through June 30, 2004, a sale or transfer of a motor vehicle
second division with a gross vehicle weight in excess of 8,000 pounds as an
incident to the rendering of service if that motor
vehicle is subject
to the commercial distribution fee imposed under Section 3-815.1 of the
Code. Beginning on July 1, 2004 and through June 30, 2005, the use in this State of motor vehicles of the second division: (i) with a gross vehicle weight rating in excess of 8,000 pounds; (ii) that are subject to the commercial distribution fee imposed under Section 3-815.1 of the Illinois Vehicle Code; and (iii) that are primarily used for commercial purposes. Through June 30, 2005, this exemption applies to repair and replacement parts added after the
purchase of such a motor vehicle if that motor vehicle is used in a manner that
qualify for the rolling stock exemption otherwise provided for in this Act. For purposes of this paragraph, "used for commercial purposes" means the transportation of persons or property in furtherance of any commercial or industrial enterprise whether for-hire or not.
(d-2) The repairing, reconditioning or remodeling, for a common carrier by
rail, of tangible personal property which belongs to such carrier for hire, and
as to which such carrier receives the physical possession of the repaired,
reconditioned or remodeled item of tangible personal property in Illinois, and
which such carrier transports, or shares with another common carrier in the
transportation of such property, out of Illinois on a standard uniform bill of
lading showing the person who repaired, reconditioned or remodeled the property
as the shipper or consignor of such property to a destination outside Illinois,
for use outside Illinois.
(d-3) A sale or transfer of tangible personal property which
is produced by the seller thereof on special order in such a way as to have
made the applicable tax the Service Occupation Tax or the Service Use Tax,
rather than the Retailers' Occupation Tax or the Use Tax, for an interstate
carrier by rail which receives the physical possession of such property in
Illinois, and which transports such property, or shares with another common
carrier in the transportation of such property, out of Illinois on a standard
uniform bill of lading showing the seller of the property as the shipper or
consignor of such property to a destination outside Illinois, for use outside
(d-4) Until January 1, 1997, a sale, by a registered serviceman paying tax
under this Act to the Department, of special order printed materials delivered
outside Illinois and which are not returned to this State, if delivery is made
by the seller or agent of the seller, including an agent who causes the product
to be delivered outside Illinois by a common carrier or the U.S.
(e) A sale or transfer of machinery and equipment used primarily in
the process of the manufacturing or assembling, either in an existing, an
expanded or a new manufacturing facility, of tangible personal property for
wholesale or retail sale or lease, whether such sale or lease is made directly
by the manufacturer or by some other person, whether the materials used in the
process are owned by the manufacturer or some other person, or whether such
sale or lease is made apart from or as an incident to the seller's engaging in
a service occupation and the applicable tax is a Service Occupation Tax or
Service Use Tax, rather than Retailers' Occupation Tax or Use Tax. The exemption provided by this paragraph (e) includes production related tangible personal property, as defined in Section 3-50 of the Use Tax Act, purchased on or after July 1, 2019. The exemption provided by this paragraph (e) does not include machinery and equipment used in (i) the generation of electricity for wholesale or retail sale; (ii) the generation or treatment of natural or artificial gas for wholesale or retail sale that is delivered to customers through pipes, pipelines, or mains; or (iii) the treatment of water for wholesale or retail sale that is delivered to customers through pipes, pipelines, or mains. The provisions of Public Act 98-583 are declaratory of existing law as to the meaning and scope of this exemption. The exemption under this subsection (e) is exempt from the provisions of Section 3-75.
(f) Until July 1, 2003, the sale or transfer of distillation
and equipment, sold as a
unit or kit and assembled or installed by the retailer, which machinery
and equipment is certified by the user to be used only for the production
of ethyl alcohol that will be used for consumption as motor fuel or as a
component of motor fuel for the personal use of such user and not subject
to sale or resale.
(g) At the election of any serviceman not required to be otherwise
registered as a retailer under Section 2a of the Retailers' Occupation Tax Act,
made for each fiscal year sales of service in which the aggregate annual cost
price of tangible personal property transferred as an incident to the sales of
service is less than 35% (75% in the case of servicemen transferring
prescription drugs or servicemen engaged in graphic arts production) of the
aggregate annual total gross receipts from all sales of service. The purchase
of such tangible personal property by the serviceman shall be subject to tax
under the Retailers' Occupation Tax Act and the Use Tax Act.
However, if a
primary serviceman who has made the election described in this paragraph
subcontracts service work to a secondary serviceman who has also made the
election described in this paragraph, the primary serviceman does not
incur a Use Tax liability if the secondary serviceman (i) has paid or will pay
Tax on his or her cost price of any tangible personal property transferred
to the primary serviceman and (ii) certifies that fact in writing to the
Tangible personal property transferred incident to the completion of a
maintenance agreement is exempt from the tax imposed pursuant to this Act.
Exemption (e) also includes machinery and equipment used in the
general maintenance or repair of such exempt machinery and equipment or for
in-house manufacture of exempt machinery and equipment.
On and after July 1, 2017, exemption (e) also
includes graphic arts machinery and equipment, as
defined in paragraph (5) of Section 3-5. The machinery and equipment exemption does not include machinery and equipment used in (i) the generation of electricity for wholesale or retail sale; (ii) the generation or treatment of natural or artificial gas for wholesale or retail sale that is delivered to customers through pipes, pipelines, or mains; or (iii) the treatment of water for wholesale or retail sale that is delivered to customers through pipes, pipelines, or mains. The provisions of Public Act 98-583 are declaratory of existing law as to the meaning and scope of this exemption. For the purposes of exemption (e), each of these terms shall have the following
meanings: (1) "manufacturing process" shall mean the production of any
article of tangible personal property, whether such article is a
finished product or an article for use in the process of manufacturing
or assembling a different article of tangible personal property, by
procedures commonly regarded as manufacturing, processing, fabricating,
or refining which changes some existing material or materials into a
material with a different form, use or name. In relation to a
recognized integrated business composed of a series of operations which
collectively constitute manufacturing, or individually constitute
manufacturing operations, the manufacturing process shall be deemed to
commence with the first operation or stage of production in the series,
and shall not be deemed to end until the completion of the final product
in the last operation or stage of production in the series; and further for
purposes of exemption (e), photoprocessing is deemed to be a manufacturing
process of tangible personal property for wholesale or retail sale;
(2) "assembling process" shall mean the production of any article of
tangible personal property, whether such article is a finished product
or an article for use in the process of manufacturing or assembling a
different article of tangible personal property, by the combination of
existing materials in a manner commonly regarded as assembling which
results in a material of a different form, use or name; (3) "machinery"
shall mean major mechanical machines or major components of such machines
contributing to a manufacturing or assembling process; and (4) "equipment"
shall include any independent device or tool separate from any machinery but
essential to an integrated manufacturing or assembly process; including
computers used primarily in a manufacturer's computer
assisted design, computer assisted manufacturing (CAD/CAM) system; or any
subunit or assembly comprising a component of any machinery or auxiliary,
adjunct or attachment parts of machinery, such as tools, dies, jigs, fixtures,
patterns and molds; or any parts which require periodic replacement in the
course of normal operation; but shall not include hand tools. Equipment
includes chemicals or chemicals acting as catalysts but only if the chemicals
or chemicals acting as catalysts effect a direct and immediate change upon a
product being manufactured or assembled for wholesale or retail sale or lease.
The purchaser of such machinery and equipment
who has an active resale registration number shall furnish such number to
the seller at the time of purchase. The purchaser of such machinery and
equipment and tools without an active resale registration number shall furnish
to the seller a certificate of exemption for each transaction stating facts
establishing the exemption for that transaction, which certificate shall
be available to the Department for inspection or audit.
Except as provided in Section 2d of this Act, the rolling stock exemption
applies to rolling
used by an interstate
carrier for hire, even just between points in Illinois, if such rolling
stock transports, for hire, persons whose journeys or property whose
shipments originate or terminate outside Illinois.
Any informal rulings, opinions or letters issued by the Department in
response to an inquiry or request for any opinion from any person
regarding the coverage and applicability of exemption (e) to specific
devices shall be published, maintained as a public record, and made
available for public inspection and copying. If the informal ruling,
opinion or letter contains trade secrets or other confidential
information, where possible the Department shall delete such information
prior to publication. Whenever such informal rulings, opinions, or
letters contain any policy of general applicability, the Department
shall formulate and adopt such policy as a rule in accordance with the
provisions of the Illinois Administrative Procedure Act.
On and after July 1, 1987, no entity otherwise eligible under exemption
(c) of this Section shall make tax-free purchases unless it has an active
exemption identification number issued by the Department.
"Serviceman" means any person who is engaged in the occupation of
making sales of service.
"Sale at Retail" means "sale at retail" as defined in the Retailers'
Occupation Tax Act.
"Supplier" means any person who makes sales of tangible personal
property to servicemen for the purpose of resale as an incident to a
sale of service.
(Source: P.A. 100-22, eff. 7-6-17; 100-321, eff. 8-24-17; 100-863, eff. 8-14-18; 101-9, eff. 6-5-19.)