Illinois DOR Rules Company’s Freezing & Cooling Machinery is Exempt

In a private letter ruling issued on June 2, 2023, the Illinois Department of Revenue ruled that an Illinois company’s machinery was exempt from sales tax due to its role in preserving and maintaining food to be sold. 


The company owns seven locations in the state of Illinois and processes perishable foods such as chicken, beef, fish, and produce on behalf of its customers who are the Producers. Once the perishable foods arrive at a location, they undergo one of four processes: Blast Freezing, Slow Freezing, Cooling, or Cold Storage. The company argued that all processes fall under “manufacturing process,” and are thus exempt from Illinois’ Retailer’s Occupation Tax. 


Illinois does not define manufacturer but does define manufacturing process as the production of an article of tangible personal property, whether the 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 a procedure commonly regarded as manufacturing, processing, fabricating, or refining that changes some existing material into a material with a different form, use, or name. In relation to a recognized integrated business composed of a series of operations that collectively constitute manufacturing, or individually constitute manufacturing operations, the manufacturing process commences with the first operation or stage of production in the series and does not end until the completion of the final product in the last operation or stage of production in the series.

The Ruling said that just because the machinery may be essential to manufacturing and assembling, that machinery’s primary purpose may not necessarily be to manufacture. For example, air conditioning may aid in keeping the food from spoiling as quickly, but air conditioning’s primary purpose is not to maintain perishable food. However, in this case, the Ruling determined that the machinery was exempt. The Ruling based this decision off two conclusions- firstly, that the machinery’s primary purpose was in the manufacturing or assembling of tangible personal property for wholesale, resale, or leasing. Secondly, the machinery qualifies as tangible personal property related to production. Because perishable food would spoil and therefore be unsellable without a freezer, a freezer would be eligible for the machinery and equipment exemption. 


Private Letter Ruling, ST 23-0003-PLR, Illinois Department of Revenue, June 2, 2023, ¶403971 

Posted on August 31, 2023