SALT Report 2346 – The Illinois Department of Revenue issued guidance regarding whether diesel exhaust fluid (DEF) qualifies for the rolling stock sales tax exemption. DEF is a relatively new product that is used by diesel truck operators to reduce their overall vehicle emissions.
Under the rolling stock exemption found in 86 Ill. Adm. Code 130.340 the retailers’ occupation tax does not apply to certain sales or leases of tangible personal property for use as rolling stock moving in interstate commerce. Additionally, the retailers’ occupation tax does not apply to certain sales made to owners, lessors, or shippers of tangible personal property that will be used by interstate carriers for hire for use as rolling stock.
When determining whether the exemption applies, the Department stated that it is not the type of item that determines whether or not it qualifies as rolling stock; rather it is how the item will be used by the interstate carrier. Therefore, not all items of tangible personal property used by an interstate carrier will qualify for the rolling stock exemption.
Generally, the exemption applies to equipment or parts if they will become a component part of qualified rolling stock. The exemption also applies to equipment that is dedicated to a particular qualifying item of rolling stock and will be used directly in the transportation process. For instance, oil, grease, parts, belts, lights, transmission fluids, paint, anti-freeze, filters, hoses, and seats qualify for the exemption since these products become a physical component part of the qualifying rolling stock.
However, consumables such as fuel, flares, cleaners, paint supplies, and tools do not qualify for the exemption because they do not become a part of the vehicles and they do not contribute directly in the transportation process.
Based on the language in 86 Ill. Adm. Code 130.340 the Department determined that DEF does not qualify for the rolling stock exemption because it does not become a physical component part of qualifying rolling stock. Rather, DEF falls under the consumables category and does not contribute directly in the transportation process.
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