Illinois – Manufacturer’s Purchase Credit on Service Transactions

SALT Report 2840 – The Illinois Department of Revenue issued a compliance alert for taxpayers who claim the manufacturer’s purchase credit (MPC) on certain service transactions.  The Department warns that the MPC was repealed in 2003 and although it was reinstated in 2004, certain parts of the credit were not.  As a result, taxpayers have been erroneously reporting the MPC on certain types of service transactions.

The alert advises that service customers can only earn MPC when service work is performed by a serviceman who is registered under either the Retailers’ Occupation Tax Act, or the Service Occupation Tax Act.  MPC cannot be earned on purchases from unregistered servicemen that pay use tax to their suppliers, or self assess use tax, if their suppliers are not registered to collect use tax.

To earn the MPC, you must verify that the service work was purchased from a serviceman that is registered with the Department.  You can do this by obtaining the serviceman’s Retailers’ Occupation Tax /Service Occupation tax registration number and writing it clearly on the invoice.  However, the Department warns that a reseller number or a number issued by the Department for self-assessment of use tax is different than a Retailers’ Occupation Tax/Service Occupation Tax number and cannot be used to document earned MPC.

MPC can only be earned on purchases that qualify for the manufacturing machinery and equipment and graphic arts machinery and equipment exemptions.  MPC that is incorrectly earned and used to offset a tax liability will not be allowed and the taxpayer will held be liable for any tax, penalties, and interest incurred.

For Further Information

Illinois Department of Revenue – Compliance Alert