Manufacturing and equipment sales tax exemption expanded to include production related tangible personal property
Through in large part the efforts of the Illinois Manufacturers Association and the Illinois Chamber of Commerce, the manufacturing community secured a reinstatement of sales tax benefits for supplies, consumables, and other similar production related purchases as part of the recently passed budget bill, SB 689. These renewed benefits begin for purchases made on or after July 1, 2019.
Please note that this is not a return of the Manufacturer Purchase Credit (MPC) process—and that’s a good thing. Instead, the manufacturing and equipment sales tax exemption was expanded to include production related tangible personal property. Under the new expansion, manufacturers are no longer obligated to go through the previous time-consuming MPC credit request process and can now purchase qualifying property upfront without having to pay Illinois state and local sales tax, Retailers’ Occupation Tax, or use taxes.
Guidance for Production Related Tangible Personal Property Sales Tax Exemption
The Illinois Department of Revenue has issued an informational bulletin, FY 2019-28, to provide initial guidance regarding the new expanded machinery and equipment sales tax exemption.
The bulletin describes that the following types of property qualify as production related tangible personal property:
- Property purchased by a manufacturer or contractor to be incorporated into real estate within a manufacturing facility and for use in a production related process;
- Property primarily used or consumed in research and development, receiving, inventory control, quality control, storage, preproduction material handling, or packaging; and
- Supplies and consumables primarily used in a manufacturing process including fuels, coolants, solvents, lubricants, oils, adhesives, hand tools, protective apparel, and fire and safety equipment.
Property that requires a title or registration with a government agency or is otherwise used in a company’s non-manufacturing area (such as sales, accounting, purchasing, human resources, or landscaping) does not qualify for the expanded manufacturing and equipment sales tax exemption.
In order to claim the exemption, manufacturers have two options: 1) Provide their active Illinois sales tax account number or resale number to their vendor; or 2) Complete Form ST-587 for each transaction (Form ST-587 does not currently have an option to apply on a continuous basis).
Next Steps for Manufacturers
For Illinois manufacturers, the “reinstatement” of the MPC in its more direct and simple form is a beneficial law that can be taken advantage of on all current and future purchases. Manufacturers can begin benefitting from this exemption by following the steps outlined above. We will continue to observe updates on this exemption as the Department of Revenue releases further guidance. Contact us for more information.