In a Private Letter Ruling issued December 29, 2025, the Illinois Department of Revenue (DOR), addressed whether machinery and equipment used to convert landfill gas into renewable natural gas (RNG) qualifies for the Illinois manufacturing machinery and equipment exemption. The DOR concluded that the exemption does not apply. The taxpayer described its Illinois operation, which captures methane gas from a landfill and processes it through several stages. The gas is cleaned, cooled, compressed, and refined to remove impurities such as hydrogen sulfide, carbon dioxide, nitrogen, and oxygen. After dehydration and final compression, the finished product becomes pipeline-quality renewable natural gas that is injected into local natural gas pipelines for transportation use. The company maintained that this multi-step conversion qualifies as “manufacturing” under Illinois law because it changes the landfill methane into a product with a different form, use, and name. Based on this, the company requested confirmation that its machinery, equipment and related consumables would qualify for the state’s manufacturing exemption.
Under Illinois law, machinery and equipment used over 50% of the time in manufacturing tangible personal property for sale may qualify for an exemption. “Manufacturing process” is clearly defined as a process that changes existing materials into a product with a different form, use, or name. However, the statute contains an important exception, the exemption does not apply to machinery and equipment uses in the generation of electricity for wholesale or retail, the generation or treatment of natural or artificial gas for wholesale or retail sale delivered through pipes, pipelines or mains, and the treatment of water for wholesale or retail sale delivered through pipes, pipelines or mains. The DOR determined that, while the process involves multiple technical steps, it falls within the exception. Concluding that because the final RNG product is delivered through pipelines for sale, the activity is excluded from the manufacturing exemption. As a result, machinery, equipment, and related tangible personal property purchases for use in the RNG process are subject to Illinois Retailers’ Occupational Tax or Use Tax.
The ruling highlights the importance of looking beyond a process that appears to be “manufacturing” in the traditional sense. In Illinois, certain activities are carved out of the manufacturing exemption even when they involve complex, multi-step operations. Businesses should carefully review these statutory exclusions when evaluating exemption eligibility and avoid assuming that transformation alone is enough to qualify.
(Private Letter Ruling ST 25-0008-PLR, Illinois Department of Revenue, December 29, 2025)