Illinois Manufacturing Sales Tax Exemption Remains Intact Following 2026 Legislative Session 

Illinois lawmakers recently concluded the 2026 Spring Legislative Session, approving a $55.9 billion budget and numerous tax law changes. While much attention has focused on new taxes and revenue-generating measures, one valuable incentive for manufacturers remains in place. 

Illinois’ expanded manufacturing sales and use tax exemption continues to provide opportunities for qualifying manufacturers to reduce sales tax costs on a broad range of production-related purchases. Businesses may want to revisit whether they are fully utilizing the exemption. 

Production-related tangible personal property includes the following in its definition.  

• All tangible personal property that is used or consumed by the purchaser in a manufacturing facility in which a manufacturing process takes place and includes, without limitation, tangible personal property that is purchased for incorporation into real estate within a manufacturing facility.  
• Supplies and consumables used in a manufacturing facility including:  
  • Fuels;  
  • Coolants;  
  • Solvents;  
  • Oils;  
  • Lubricants;  
  • Adhesives;  
  • Hand tools;  
  • Protective apparel;  
  • Fire and safety equipment used or consumed within a manufacturing facility; and  
  • Tangible personal property that is used or consumed in activities such as research and development, preproduction material handling, receiving, quality control, inventory control, storage, staging, and packaging for shipping and transportation purposes.  
  • Eligible production-related tangible personal property for sales and use tax exemption must meet the existing requirements for the manufacturer’s sales and use tax exemption. Specifically, the production-related tangible personal property must be primarily used in manufacturing and assembly. 

As Illinois businesses evaluate the impact of recent tax law changes, manufacturers should not overlook existing incentives that remain available. 

Reviewing purchasing practices and exemption eligibility may uncover opportunities to reduce sales tax costs and improve overall tax efficiency.  

If you have questions about whether your operations qualify for the manufacturing sales and use tax exemption, contact FGMK’s State and Local Tax team. To download the exemption form, click here.