Ill. Admin. Code tit. 86, § 130.2115 - Sellers of Machinery, Tools and Special Order Items
a) When Liable For Retailers' Occupation Tax
1) Sellers of machinery, tools, dies, jigs,
patterns, gauges, models, exhibits, and the like to users or consumers incur
Retailers' Occupation Tax liability except as specified in subsection (b) of
this Section, and except to the extent that the item sold is exempted by the
provisions of the Act. This is true whether the seller installs the tangible
personal property for the purchaser or not. (For information concerning the
taxability of receipts from installation charges, see Section
130.450
of this Part.)
2) The fact that it
is not a stock item and is only produced after an order is received, or is an
alteration of a standard item, is not sufficient to exempt it from Retailers'
Occupation Tax unless it meets all the exemption tests of subsection
(b).
3) Even if the sale would
otherwise qualify for exemption under subsection (b) of this Section, the sale
is taxable if the designing of the property that is to be sold is done by the
purchaser, or by someone other than the seller hired by the purchaser, but the
sale is not taxable if the seller is responsible for furnishing the service of
designing the property or for contributing substantially to the designing of
the property.
4) However, a single
order from a purchaser for 50 or more of the same item or simultaneous orders
from a purchaser for 50 or more in the aggregate of the same item that would
otherwise qualify for exemption under subsection (b) of this Section will be
deemed to be volume production and will be subject to Retailers' Occupation Tax
on the total amount received by the seller from any such volume production
order or orders. For purposes of this subsection (a)(4), "simultaneous orders"
consist of any orders placed on the same day by the same purchaser. Also, even
if an item qualifies for Retailers' Occupation Tax exemption under subsection
(b) of this Section, subsequent sales by the seller of the same item without
material change to any purchaser for use (so-called repeat orders) are subject
to the Retailers' Occupation Tax because the skill that is involved after the
first item is made is production skill and not specialized engineering and
design skill. For purposes of this subsection (a)(4), a "repeat order" is an
order for the same item without material change that is placed by the same
purchaser on a date after the date that the original order for that item was
placed or an order for the same item without material change that is placed by
another purchaser at any time after the original order for that item.
EXAMPLES:
A) Single
orders. For example, on May 1, a building contractor special orders 75
identical roof trusses in a single order that are to be engineered and
fabricated by the seller and would otherwise qualify for exemption under
subsection (b) of this Section. Even though the seller may use his or her skill
to design and build the 75 identical roof trusses, the seller will be deemed to
be engaged in volume production and will incur Retailers' Occupation Tax
liability on those sales.
B)
Simultaneous Orders
i) Simultaneous orders of
50 or more. For example, on May 1, a purchaser special orders a single order of
40 electrical turbines that are to be engineered and fabricated by the seller
and would otherwise qualify for exemption under subsection (b) of this Section.
On that same day, the same purchaser places another order for 25 electrical
turbines that are identical to the 40 other electrical turbines ordered earlier
that day. Even though the seller may use his or her skill to design and build
the 65 identical electrical turbines, the seller will be deemed to be engaged
in volume production and will incur Retailers' Occupation Tax liability on
those sales.
ii) Simultaneous
multiple orders of fewer than 50. For example, on May 1, a purchaser special
orders a single order of 20 identical rain gutter components that are to be
engineered and fabricated by the seller and would otherwise qualify for
exemption under subsection (b) of this Section. On that same day, the same
purchaser places another order for 25 rain gutter components that are identical
to the 20 other rain gutter components ordered earlier that day. Since that
purchaser has ordered fewer than 50 identical rain gutter components on that
date, the seller will not be deemed to be engaged in volume production with
these orders and would be exempt from Retailers' Occupation Tax liability on
those sales. However, the seller will incur either Service Occupation Tax
liability or Use Tax liability, depending upon the seller's activities in
relation to the sale of those 45 rain gutter components. See the Department's
Service Occupation Tax rules, 86 Ill. Adm. Code 140.
C) Repeat order by same purchaser. For
example, on June 1, a purchaser orders 20 identical window cladding materials
that are to be engineered and fabricated by the seller and would otherwise
qualify for exemption under subsection (b) of this Section. The seller will
incur Service Occupation Tax liability or Use Tax liability depending upon the
seller's activities, rather than Retailers' Occupation Tax liability, in
relation to those sales. See the Department's Service Occupation Tax rules, 86
Ill. Adm. Code 140. If, however, on June 2, the same purchaser orders another
10 window cladding materials that are identical to the first 20 window cladding
materials ordered by that purchaser, then the seller will incur Retailers'
Occupation Tax liability on the sales of those 10 additional window cladding
materials because those transactions are considered subsequent sales by the
seller of the same item without material change (repeat orders). In this
example, the seller's skill that is involved after the first order is made is
considered production skill and not specialized engineering and design
skill.
D) Repeat order by different
purchaser. For example, on June 1, a purchaser orders 20 identical roof trusses
that are to be engineered and fabricated by the seller and would otherwise
qualify for exemption under subsection (b) of this Section. The seller will
incur Service Occupation Tax liability or Use Tax liability, depending upon the
seller's activities, rather than Retailers' Occupation Tax liability, in
relation to those sales. See the Department's Service Occupation Tax rules, 86
Ill. Adm. Code 140. Later that day on June 1, a different purchaser orders 10
roof trusses that are identical to the first 20 roof trusses ordered earlier
that day by the previous purchaser. The seller will incur Retailers' Occupation
Tax liability on the sales of those 10 roof trusses because those transactions
are considered subsequent sales by the seller of the same item without material
change (repeat orders). On June 2 another purchaser orders 30 roof trusses that
are identical to the roof trusses ordered on June 1 by previous purchasers. The
seller will incur Retailers' Occupation Tax liability on the sales of those 30
roof trusses because those transactions are considered subsequent sales by the
seller of the same item without material change (repeat orders). In this
example, the seller's skill that is involved after the first order is made is
considered production skill and not specialized engineering and design skill.
5) In the case of
special assemblies, such as switchboards, where the completed product is made
almost entirely of standard parts and materials that can be interchanged in
other like products and sold to other users, the sale is taxable.
b) When Not Liable For Retailers'
Occupation Tax
1) The seller of a special
machine, tool, die, jig, pattern, gauge or other similar item is engaged
primarily in a service occupation, rather than in the business of selling
tangible personal property, and so does not incur Retailers' Occupation Tax
liability with respect to the sale, if the following tests for exemption are
all met in the transaction:
A) The purchaser
employs the seller primarily for his engineering or other scientific skill to
design and produce the property on special order for the purchaser and to meet
the particular needs of the purchaser;
B) the property has use or value only for the
specific purpose for which it is produced; and
C) the property has use or value only to the
purchaser.
2) On the
requirement of design by the seller, it is sufficient if the seller is
responsible for making a substantial contribution to the designing of the
property that is to be produced on special order and sold.
3) If the item qualifies for Retailers'
Occupation Tax exemption under this Section, the exemption is not lost merely
because the seller subcontracts the service work to someone else as long as the
seller is contractually responsible to see that the necessary service work is
provided.
4) On the question of
"use or value only to the purchaser", this test for exemption is met if the
property is not standard enough to be stocked or to be ordered from a catalog
or other type of sales literature, but has to be produced in accordance with
special requirements that are peculiar to the purchaser and not common to
someone else whose conditions for possible use of the property can be shown by
the Department to be reasonably comparable to those of the purchaser.
5) In the case of special assemblies such as
special conveyors, the sale does not become taxable (if it would otherwise be
exempt under this subsection (b)) merely because a fairly substantial portion
of the completed product is made of standard parts or of raw material (such as
steel) that can be stocked for sale.
6) The seller has the burden of establishing
that the sale qualifies for exemption under the provisions of this subsection
(b), and unless the seller overcomes that burden, the sale is taxable under the
Retailers' Occupation Tax Act.
c) Cross Reference to Service Occupation Tax
Regulations
When a seller is exempt from the Retailers' Occupation Tax under subsection (b) of this Section because of being engaged primarily in a service occupation, the transaction is governed by the Service Occupation Tax (see Subpart A of the Service Occupation Tax rules, 86 Ill. Adm. Code 140).
Notes
Amended at 32 Ill. Reg. 17519, effective October 24, 2008
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