Cryogenic Systems Exempt as Manufacturing Equipment in Illinois

Tuesday, September 24th, 2013


An Illinois Court of Appeals recently ruled that a taxpayer's cryogenic systems were exempt from use tax as manufacturing machinery.

A taxpayer leased cryogenic systems to its customers. The systems stored liquid gases and converted them to a gaseous state. The taxpayer's customers then used the gases either in a manufacturing process or for delivery to medical patients.

Illinois imposes a use tax on the use of tangible personal property in Illinois. However, it exempts the use of machinery used primarily in manufacturing. "Manufacturing" includes the production of an article of tangible personal property for use in manufacturing.

The Department argued that the taxpayer owed use tax on the systems because they were used primarily for storage rather than manufacturing. The taxpayer argued that because the systems converted liquid gas into a gaseous gas, the systems were exempt as manufacturing equipment.

The Court ruled that the cryogenic systems were used primarily in an exempt manner. The conversion of liquid gas into gaseous gas (a form of tangible personal property) was a manufacturing process. This was the systems' primary use. The fact that the systems were also used for storage did not prevent them from qualifying for the exemption.

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