SALT Report 2062 – The Illinois Department of Revenue issued a private letter ruling regarding the taxability of Carbon that is excavated, dredged, extracted, and processed by a non-profit cooperative. The Co-op owns and operates a coal-fueled electricity generating facility in Illinois. In a separate transaction, the Co-op purchased real estate that previously housed a coal mining business. The coal mining resulted in the accumulation of carbon in the property’s ponds and lakes.
The Co-op plans to dredge the ponds to extract and process the carbon which it will then use as fuel to generate electricity. Because the Co-op has title to the property it will own the carbon both before and after it is excavated. The Co-op does not plan to sell any of the carbon as it needed to generate the electricity in their facility.
The Co-op requested guidance as to whether the excavation, dredging, extraction, and processing of carbon from the ponds located on the property and the subsequent use of the carbon as fuel in their coal-fueled electricity generating facility will be exempt from the state’s Retailer’s Occupation Tax and the Use Tax.
Based on the information provided, the Department confirmed that Taxpayer owns the land on which the carbon is located as well as the coal-fueled electric generating facility. Because of this, the Department determined that the carbon that comes from the property for use in the electricity generating facility is exempt from the Retailers’ Occupation and Use Tax because it is for the sole use of the Co-op and will not be sold as tangible personal property.
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