Illinois Use Tax Exemptions: Qualifying Buyers and Forms to File

Illinois use tax exemptions can wipe out or reduce the 6.25% tax that would otherwise apply when you buy tangible personal property from an out-of-state seller and use it in Illinois. The main categories are manufacturing machinery and equipment, farm machinery and production agriculture inputs, purchases by charitable, religious, educational, and government organizations that hold an active exemption number, and a set of narrower categories including rolling stock in interstate commerce, legal tender and bullion, motor vehicles bought for auto renting, and fuel for international air carriers.¹ Each one has its own eligibility test and its own paperwork, and getting either piece wrong is what turns a legitimate exemption into a tax bill with penalties on top.

Manufacturing Machinery and Equipment

Machinery and equipment used primarily in manufacturing or assembling tangible personal property for sale are exempt. “Primarily” is a hard number: more than 50% of the equipment’s operating time must be devoted to the exempt production use. The purchaser carries the burden of documenting that threshold, so a machine that splits its hours between production and non-production work only qualifies if you can prove which side gets the majority.²

The exemption is not limited to new equipment. It reaches used machinery, custom-ordered equipment, replacement parts, and machinery you purchase in order to lease to someone else. Chemicals and catalysts used directly in the production process are covered as well. Since July 2017, graphic arts machinery and equipment sits inside this same manufacturing exemption rather than standing as a separate category.¹

Farm Machinery and Production Agriculture

Farm machinery and equipment used primarily for production agriculture, or for state and federal agricultural programs, are exempt when the purchaser certifies that use. The statutory list is deliberately wide: tractors, combines, harvesters, spreaders, chemical tender tanks, nurse wagons, implements of husbandry, and horticultural polyhouses or hoop houses used for growing or overwintering plants all fit within the category.¹

Precision farming technology qualifies too. GPS and mapping systems, soil-testing sensors, monitors, computers, and software installed on farm equipment are included. So are computers and sensors that run production agriculture facilities, such as systems that monitor animal data to formulate diets or track crop conditions for chemical application. As of January 1, 2024, the exemption explicitly covers electrical power generation equipment used primarily for production agriculture.¹

Farm chemicals sit under their own provision in Section 3-5(7) and carry no “primary use” test at all. One important boundary: motor vehicles required to be registered under the Illinois Vehicle Code generally do not qualify under the farm equipment exemption, with carve-outs for agricultural chemical spreaders and nurse wagons that must be registered.

Nonprofits, Religious Groups, Schools, and Government Bodies

Organizations operated exclusively for charitable, religious, or educational purposes can buy tangible personal property free of use tax. Government bodies at every level can, too. The trap sits in what “can” actually requires. A 501(c)(3) determination letter from the IRS, on its own, does not entitle an organization to make tax-free purchases in Illinois. The IRS letter is evidence, not authorization.³

To actually buy tax-free, the organization has to obtain an active Illinois exemption identification number, usually called an E-number, from the Illinois Department of Revenue. The application is Form STAX-1, filed with articles of incorporation or a constitution, bylaws, a narrative of the organization’s activities, the IRS determination letter if one exists, and the most recent financial statement. Religious organizations do not have to include a financial statement with the initial application.⁴ Until the E-number is issued and active, purchases are taxable no matter how obviously charitable the buyer is.

Several narrower exemptions also live inside 35 ILCS 105/3-5. Arts and cultural organizations with 501(c)(3) status that primarily present or support arts programming can qualify. Not-for-profit organizations serving people aged 55 and older that have no compensated officers or employees are eligible. County fair associations and teacher-sponsored student organizations affiliated with Illinois elementary or secondary schools are exempt.¹

Other Exemptions Worth Knowing

Beyond the three big categories, several other exemptions apply in specific circumstances:

Rolling stock. Motor vehicles and trailers used to haul people or property for hire in interstate commerce are exempt if the carrier holds an active USDOT number, actually operates in interstate commerce, is classified as authorized or exempt for hire, and the vehicle has a gross weight rating above 16,000 pounds. Repair and replacement parts for qualifying rolling stock ride along with the exemption.⁵
Currency and bullion. Legal tender, gold or silver coinage issued by any government, and bullion are exempt.¹
Motor vehicles for auto renting. Vehicles purchased for use in an automobile renting business have their own exemption.
Fuel for international air carriers. Fuel and petroleum products sold to air carriers for flights engaged in foreign trade or travel between the U.S. and its possessions are exempt.¹
Enterprise zone building materials. Building materials incorporated into real estate inside a designated Illinois enterprise zone can qualify for a sales tax exemption. If you are buying those materials from an out-of-state seller, check with IDOR on whether a corresponding use tax exemption applies to your project.

Illinois also carves several items out of the Use Tax Act entirely rather than exempting them. Electricity, natural gas, and water delivered through pipes or wires fall outside the Act. So do leases of motor vehicles, watercraft, aircraft, and semitrailers that must be registered with a state agency.⁶ If you already paid sales or use tax to another state on the same purchase, you get a dollar-for-dollar credit and only owe Illinois the difference.⁷

How to Actually Claim the Exemption

The claim mechanism depends on which exemption you are using.

Equipment Purchases: Form ST-587

For machinery and equipment used in manufacturing, production agriculture, or coal and aggregate mining, the buyer completes Form ST-587 (Equipment Exemption Certificate) and gives it to the seller. The seller keeps the certificate as its proof that no tax was due on the sale.⁸ On the form, the buyer certifies that the equipment will be used primarily, meaning more than 50% of the time, for the exempt purpose.⁹ False certifications carry penalties, so the usage percentage you sign to needs to be defensible.

If your out-of-state seller does not accept Illinois exemption certificates, you may have to pay the tax at purchase and then file for a refund with IDOR.

Nonprofits and Government Bodies: E-Number

Once IDOR issues an E-number, the organization gives that number to sellers at the point of purchase. Without it, the sale is taxable regardless of the buyer’s charitable status.⁴

Rolling Stock: Form RUT-7

Carriers claiming the rolling stock exemption complete a certification tied to each qualifying vehicle. The certification should be updated at least every three years.⁵

Records That Back Up the Claim

Every exemption category assumes you can produce records that connect the purchase to the exempt use. For manufacturing and farm equipment, that means usage logs, production records, or operating data that actually show the over-50% threshold. For nonprofits, records that show property was used for the organization’s exempt purpose rather than the personal benefit of officers or members. For rolling stock, mileage and trip records demonstrating interstate operation. If an auditor asks how you know the equipment cleared 50%, “we estimated” is not an answer that ends the audit well.

What Happens If You Get It Wrong

Illinois enforces use tax through the Uniform Penalty and Interest Act. Payment penalties climb with delay: 2% of the unpaid amount if you pay within 30 days of the due date, 10% if you pay after that but before IDOR opens an audit, and 20% once IDOR has initiated an audit or investigation, dropping to 15% only if you pay everything within 30 days of receiving the audit results.¹⁰ Interest runs on top, at a rate tied to the federal underpayment rate and adjusted each January 1 and July 1. Filing a required return late brings its own penalty of 2% of the tax due, capped at $250, with an additional penalty triggered if you still have not filed 30 days after IDOR sends a nonfiling notice.

If you have been operating in Illinois without paying use tax and IDOR has not contacted you yet, the voluntary disclosure program can cap the lookback at four years and avoid the full penalty stack. You file an application with IDOR’s Problems Resolution Division before any audit begins, then have 30 days from the signed agreement to file returns for the four-year period, pay tax and interest, and start filing going forward. Any use tax you actually collected from customers but never remitted is owed in full, regardless of the four-year limit. Eligibility disappears if IDOR contacts you first, if you miss the 30-day window, or if you understate liability by 10% or more without a good-faith basis.¹¹

For borderline cases, especially equipment that serves both exempt and non-exempt functions, IDOR’s published guidance and administrative rulings are worth reading before you sign an exemption certificate. The cost of checking is small; the cost of a rescinded exemption in year three of an audit is not.

1
Illinois General Assembly. Illinois Code 35 ILCS 105/3-5 – Exemptions
2
LII / Legal Information Institute. Illinois Administrative Code 86-130.330 – Manufacturing Machinery and Equipment
3
Illinois Department of Revenue. Sales and Property Tax Exemptions
4
Illinois Department of Revenue. How Does a Qualified Organization Apply for a Tax-Exempt (E) Number
5
Illinois Department of Revenue. RUT-7 Rolling Stock Certification for Motor Vehicles
6
Illinois General Assembly. Illinois Code 35 ILCS 105/3 – Tax Imposed
7
Illinois Department of Revenue. Use Tax Rates
8
Illinois Department of Revenue. ST-587 Exemption Certificate
9
Illinois Department of Revenue. How Do I Properly Document an Exempt Sale or Purchase of Machinery and Equipment
10
Illinois General Assembly. Illinois Code 35 ILCS 735/3-3 – Penalties
11
LII / Legal Information Institute. Illinois Administrative Code tit. 86, Section 210.126 – Voluntary Disclosure