On July 1, 2019, Illinois sales tax law changed and now expands the manufacturing machinery and equipment exemption to include production-related, tangible personal property purchased on or after July 1, 2019. Consequently, this sales tax law change will have a large impact on Illinois manufacturers.
What this Sales Tax Law Change Means for Illinois Manufacturers
Production-related tangible personal property means all tangible personal property primarily used or consumed in the production related process. For Illinois, the property must be by an Illinois manufacturer in the manufacturing process.
This includes many items in the manufacturing process, such as:
- Tangible personal property purchased for incorporation into real estate within the manufacturing facility for use in the production process,
- Tangible personal property that is primarily used or consumed in production activities such as research and development (R&D), preproduction material handling, receiving, quality control, inventory control, storage, staging, and packaging for shipping and transportation purposes, and
- Supplies and consumables primarily used in a manufacturing process, including fuels, coolants, solvents, oils, lubricants, adhesives, hand tools, protective apparel and fire and safety equipment.
Primary Use of Equipment Must be in the Production Process
The main piece of this expanded exemption is that all items need to be used primarily in the manufacturing process in a manufacturing facility. Therefore, these items now qualify for the manufacturing machinery and equipment exemption. It is important to note some tangible personal property does not qualify if it’s not used in the production process. For example, using property in sales, purchasing, accounting, marketing, or management process will not qualify. In addition, property required to be titled and registered with a department, agency or unit of government will not qualify.
A manufacturer can fill out Form ST-587 and give to the seller in order to make the purchase of tangible personal property without sales tax. This form is required for each exempt purchase and must contain facts that establish the exemption for the transaction.
Illinois Department of Revenue is currently drafting emergency regulations to reflect this expansion of the manufacturing machinery and equipment exemption.
How DHJJ Can Help
To conclude, manufacturers should review how the tax law change will affect their business. This sales tax law change will have a large impact on Illinois manufacturers. If you have further questions about the change in Illinois law for manufacturers, please reach out to DHJJ at (630) 420-1360 or fill out the form below. Click here if you’re interested in more tax strategies for manufacturers.