United States

Illinois MPC and graphics arts equipment exemption sunset on Aug. 30, 2014

TAX ALERT  | 

Illinois manufacturers, particularly graphic arts producers and publishers, are going to see retailer's occupation (sales) tax, service occupation tax, use tax, and service use tax increases on purchases of machinery and equipment as a result of the Aug. 30, 2014, sunset of the state's Manufacturer's Purchase Credit (MPC) and the Graphic Arts Machinery and Equipment Exemption.

Illinois Manufacturer's Purchase Credit

The MPC is a credit equal to 50 percent of the state 6.25 percent sales tax that would have applied to the purchase of exempt manufacturing or graphic arts machinery and equipment if such machinery and equipment had not been exempt. The credit is also calculated on the purchase of certain exempt tangible personal property used in the repair and maintenance of qualifying machinery and equipment. The MPC can be used to offset the state 6.25 percent sales tax on the purchase of non-exempt production related tangible personal property, but cannot be applied against local sales tax. To use the credit on purchases where the vendor collects sales tax, the purchaser must provide the vendor with Form ST-16-C. To use the credit on out-of-state purchases where use tax is due, the purchaser must report the amount of credit to be used on Line 16a of Form ST-1.

On July 31, 2009, Illinois Governor Pat Quinn signed into law SB 1691, which extended the MPC through Aug. 30, 2014. Legislation introduced in the spring session to extend the credit sunset date to August 2019 did not pass. Accordingly, effective with purchases made after Aug. 30, 2014, a taxpayer cannot earn the MPC.

For eligible purchases made from Jan. 1, 2014, through Aug. 30, 2014, MPC Forms ST-16 (Annual Report of Manufacturer's Purchase Credit Earned) and ST-17 (Annual Report of Manufacturer's Purchase Credit Used) must be filed by June 30, 2015, in order to receive the credit for qualifying purchases made in 2014. Any credit earned from Jan. 1, 2014, through Aug. 30, 2014, will expire on Dec. 31, 2016.

Graphic Arts Machinery and Equipment Exemption

The Graphic Arts Machinery and Equipment exemption is a retailer's occupation (sales) tax, service occupation tax, use tax, and service use tax exemption that applies to new and used machinery and equipment used for graphic arts, as well as replacement and repair parts for such machinery and equipment. Exempt items include machinery, computers, cameras, parts used specifically for the printing process, equipment used to provide power or cooling for the printing process, computers and other equipment used to transfer materials during production and to package it for shipping, and chemicals and chemicals acting as catalysts if they have a direct and immediate change upon graphic arts products. In order to claim the exemption, a purchaser must provide the seller a completed Form ST-587 (Equipment Exemption Certificate) certifying that the primary use of the machinery and equipment will be for graphic arts production. The exemption is due to sunset on Aug. 30, 2014.

Businesses should consider making purchases of exempt manufacturing and graphic arts machinery and equipment on or before Aug. 30, 2014, in order to take advantage of the Graphic Arts Machinery and Equipment Exemption and maximize the MPC. Furthermore, businesses should retain purchase documents for qualifying purchases made after Aug. 30, 2014, where sales tax was remitted, in the event that potential future legislation regarding this exemption and the MPC is made retroactive to Aug. 30, 2014.

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