The Illinois Manufacturer’s Purchase Credit ("MPC") is a significant sales tax credit available to Illinois manufacturing and graphic arts companies that purchase manufacturing or graphic arts machinery and equipment. The MPC can be applied against the sales tax or use tax on future purchases of “production related tangible personal property” by a manufacturer, graphic arts producer, or lessor who rents or leases the use of the property to a manufacturer or graphic arts producer.

Eligible purchases that the credit can be applied to include production related tangible personal property that is:

• Incorporated into real estate within a manufacturing or graphic arts facility.
• Used or consumed in activities such as preproduction material handling, receiving, quality control, inventory control, storage, staging, and packaging for shipping and transportation purposes.
• Used or consumed for research and development.

To earn and report the credit, Form ST-16 (Report of Manufacturer’s Purchase Credit Earned) must be completed and filed no later than June 30 following the calendar year that the exempt manufacturing or graphic arts machinery and equipment was originally purchased. Failure to file within this period results in forfeiture of the credit. The credit is not transferable, and all unused credit expires the last day of the second calendar year following the year the manufacturing or graphic arts machinery and equipment was purchased (e.g., credits earned during the year ended December 31, 2006 will expire December 31, 2008). Form ST-17 (Report of Manufacturer’s Purchase Credit Used) is filed to report the portion of the credit used (including none, if applicable) during the prior calendar year and is due June 30.

Public Act 095-0707 (enacted January 11, 2008) expands the sales tax exemption for manufacturing and assembly machinery and equipment to include production related tangible personal property purchased from July 1, 2007 through June 30, 2008. The exemption will be awarded to the taxpayer in the form of a credit memorandum equal to 5% of the purchase price.

The aggregate amount of credit memorandums for production related tangible property awarded to all taxpayers may not exceed $10,000,000. If claims for the credit memorandums exceed $10,000,000, then the Illinois Department of Revenue shall reduce the amount of the credit memorandum to each taxpayer on a proportional basis. Further, production related tangible personal property for which the temporary sales tax exemption is claimed is not eligible for the Manufacturer's Purchase Credit.

Taxpayers must file an Exemption Report after the close of the eligibility period on June 30, 2008, but no later than September 1, 2008. The Exemption Report must be filed in a manner prescribed by the Department, which is to include the following:

• Vendor's or supplier's name and identification number (Illinois registration number or Federal Employer Identification Number),
• A description of the production related tangible personal property, including the date of purchase and purchase price, and
• A certification signed by the vendor or supplier (on a form provided by the Department or on the purchaser's own form containing the appropriate information) that acknowledges the purchaser will file an Exemption Report for the qualifying property and certifies the vendor or supplier will not claim against the taxes paid to the Department on that qualifying property.

The Department has not issued final forms that would comply with the format prescribed to meet the standards of the Exemption Report.

The Department will determine the aggregate amount of credit memorandums to be issued as soon as possible after the September 1, 2008 deadline for filing, but no later than November 1, 2008. All taxpayers will be notified by the Department of the approved amount within 30 days after making its final determination.

You have made considerable investments in your business. The Manufacturer's Purchase Credit and Temporary Sales Tax Exemption could provide a substantial return on your investments. Plante & Moran is available to help you identify eligible purchases and prepare reports to claim the credits you have earned and used.