Starting in 2025, do Illinois retailers have to collect sales tax based on where a customer receives the goods, and do businesses that lease equipment now owe Retailers' Occupation Tax on lease payments?

Plain-English summary

This GIL responds to a taxpayer's questions about two 2025 changes to Illinois sales tax law: destination sourcing for retailers with an Illinois physical presence (Public Act 103-0983), and the extension of Retailers' Occupation Tax to leases of tangible personal property (Article 75 of Public Act 103-592).

On sourcing, the Department explains that Illinois already taxes "remote retailers" (those with no physical presence in the state) once they hit $100,000 in cumulative gross receipts from Illinois sales, or 200 or more separate transactions with Illinois purchasers, in a 12-month period. Those remote retailers are treated as selling at the Illinois location where the property is shipped, delivered, or picked up, and they owe state and local Retailers' Occupation Tax at that location's rate. Starting January 1, 2025, that same destination-based rule extends to retailers that do have a physical presence in Illinois but make sales sourced from outside Illinois to Illinois customers — they too must now collect state and local Retailers' Occupation Tax based on where the customer receives the goods, rather than the retailer's own location. Before that date, those retailers only had a Use Tax collection obligation on such sales.

On leasing, the Department confirms that, effective January 1, 2025, lessors of tangible personal property in Illinois become subject to Retailers' Occupation Tax on the gross receipts from their leases, because "lease" is now included within the statutory definition of "sale." This applies to lease receipts received on or after January 1, 2025, for leases in effect, entered into, or renewed on or after that date, and lessors must remit tax for each return period based on the lease receipts received in that period. The Department also addresses two carve-outs: (1) motor vehicles, watercraft, aircraft, and semitrailers that are required to be registered with an Illinois agency continue to be taxed as before (dealers owe Retailers' Occupation Tax upfront, lessors owe Use Tax upfront, and lessees owe nothing), while non-semitrailer trailers are now taxed under the new lease-receipts regime; and (2) titled-but-not-required-to-be-registered items, such as ATVs and off-road motorcycles, are also subject to the new lease-receipts tax and may be purchased tax-free for resale by the lessor.

The GIL also flags two structural points: lessors get no credit against the new lease tax for Use Tax they already paid when they originally bought property to lease out before 2025, but a lessor who later sells an item coming off lease can credit any Use Tax or local Retailers' Occupation Tax reimbursement it paid when it purchased that item. Lessors report and pay the new lease tax using Form LSE-1, and the Department noted it was still finalizing that form and would issue an Informational Bulletin.

What this means for you

Retailers with an Illinois physical presence selling to Illinois customers from out-of-state locations

If your business has a physical presence in Illinois (a store, warehouse, office, or similar) but some of your sales to Illinois customers are sourced or fulfilled from outside Illinois, you can no longer treat those sales as subject only to Use Tax collection. Starting January 1, 2025, you must determine the Illinois destination where the customer takes delivery or possession, and collect state and local Retailers' Occupation Tax at the rate applicable to that location.

Lessors of tangible personal property

If you lease out equipment, machinery, or other tangible personal property in Illinois, you now owe Retailers' Occupation Tax on lease receipts received on or after January 1, 2025 — even if you already paid Use Tax when you bought the property to lease it out, since there is no credit for that prior payment. Watch the vehicle/watercraft/aircraft/semitrailer carve-out: those items required to be registered with an Illinois agency keep the old "upfront tax at purchase" treatment, while titled-but-unregistered items like ATVs and off-road motorcycles fall under the new lease-receipts tax and can be bought tax-free for resale. Use Form LSE-1 to report and remit.

Remote sellers without an Illinois physical presence

The GIL reiterates the existing rule: you're only required to register and remit Illinois Retailers' Occupation Tax once you cross $100,000 in cumulative gross receipts or 200 separate transactions into Illinois in a 12-month period. Below those thresholds you have no mandatory collection obligation, though you may voluntarily register to collect Use Tax as a courtesy to your Illinois customers, who otherwise must self-assess and remit it themselves.

Common questions

Q: My business has a store in Illinois, but I also ship some orders from an out-of-state warehouse. Do I now owe more tax?
A: Possibly. Effective January 1, 2025, if those out-of-state-sourced sales go to Illinois customers, you must collect state and local Retailers' Occupation Tax based on the Illinois location where the customer receives the property, rather than treating the transaction as only a Use Tax collection matter as you could before that date.

Q: I lease out equipment in Illinois. Do I now charge sales tax on lease payments?
A: Yes, for lease receipts received on or after January 1, 2025 (for leases in effect, entered into, or renewed on or after that date), you must charge and remit Retailers' Occupation Tax on your gross lease receipts, unless the property is a motor vehicle, watercraft, aircraft, or semitrailer required to be registered with an Illinois agency.

Q: Can I get credit for the Use Tax I already paid when I bought equipment to lease out?
A: No. The GIL states Article 75 of Public Act 103-592 makes no provision for a credit against the new lease tax for Use Tax paid before January 1, 2025 when the lessor acquired the leased property. However, if you later sell an item coming off lease, you may credit Use Tax or local Retailers' Occupation Tax reimbursement you paid when you originally purchased that item.

Q: What about ATVs and off-road motorcycles that are titled but not required to be registered?
A: These are subject to the new lease-receipts tax provisions (unlike registered motor vehicles, watercraft, aircraft, and semitrailers), and may be purchased tax-free for resale if they will be leased out subject to that tax.

Q: Is this letter binding on the Department?
A: No. It is a General Information Letter, which only directs the taxpayer to relevant regulations and sources of information. It is not a statement of Department policy and is not binding on the Department, unlike a Private Letter Ruling.

Citations and references

Statutes, rules, and public acts:

• 35 ILCS 120/2, as amended by Public Act 103-0983 (destination sourcing for Illinois-physical-presence retailers, effective 1/1/2025)
• 35 ILCS 120/2, as amended by Article 75 of Public Act 103-592 (Retailers' Occupation Tax on leases, effective 1/1/2025)
• 35 ILCS 120/2(b) (remote retailer $100,000/200-transaction nexus thresholds)
• 35 ILCS 120/1 (definitions of "sale" and "lease")
• 35 ILCS 120/2c (tax-free sale for resale to a lessor)
• 35 ILCS 105/3 (Use Tax imposition)
• 86 Ill. Adm. Code 130.101; 130.2013(h) (Retailers' Occupation Tax imposition; credit on items coming off lease)
• 86 Ill. Adm. Code 131.105, 131.110, 131.115 (remote retailer definition, location of sale, nexus thresholds/redetermination)
• 86 Ill. Adm. Code 150.101, 150.201 (Use Tax; retailer maintaining a place of business)
• 2 Ill. Adm. Code 1200.110, 1200.120 (PLR and GIL procedures)
• Section 1-187, Illinois Vehicle Code (semitrailer definition)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2024.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2024/ST24-0043-GIL.pdf

Original ruling text

ST 24-0043-GIL 12/13/2024 RETAILERS’ OCCUPATION TAX
Effective January 1, 2025, retailers with a physical presence in Illinois who make sales
that are sourced outside of this State to Illinois customers also incur State and local
retailers’ occupation tax at the Illinois location to which the tangible personal
property is shipped or delivered or at which possession is taken by the purchaser.
See 35 ILCS 120/2 as amended by Public Act 103-0983. Effective January 1, 2025,
persons engaged in the business of leasing tangible personal property at retail
(“lessors”) in Illinois are subject to State and local retailers’ occupation tax on the
gross receipts from leases of tangible personal property made in the course of
business. See 35 ILCS 120/2 as amended by Article 75 of Public Act 103-592.
December 13, 2024
NAME
COMPANY
EMAIL
Dear NAME:
This letter is in response to your email dated November 22, 2024, in which you
requested information. The Department issues two types of letter rulings. Private Letter
Rulings (“PLRs”) are issued by the Department in response to specific taxpayer inquiries
concerning the application of a tax statute or rule to a particular fact situation. A PLR is
binding on the Department, but only as to the taxpayer who is the subject of the request for
ruling and only to the extent the facts recited in the PLR are correct and complete. Persons
seeking PLRs must comply with the procedures for PLRs found in the Department’s
regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information Letter
(“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department
policy and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may
access our website at https://tax.illinois.gov/ to review regulations, letter rulings and other
types of information relevant to your inquiry.
The nature of your inquiry and the information you have provided require that we
respond with a GIL. In your letter you have stated and made inquiry as follows:
[REDACTED]
We would like to inquire about the Illinois Department of Revenue’s position
on the upcoming tax changes related to the passing of S.B. 3362 and H.B.
4951.

COMPANY/NAME
Page 2
December 13, 2024
S.B. 3362 - In light of the ILDOR FY 2025-10 publication, we would like to
clarify the treatment of remote sellers without a substantial nexus in Illinois.
Specifically, are remote sellers who do not meet the requirements to register
for Retailers’ Occupation Tax (ROT) still subject to voluntarily collect the
6.25% use tax?
H.B. 4951 - We have two questions related to the changes concerning leases:
•

Tax Collection on Leased Property

Are lessors who paid tax upon acquisition of leased property prior to January
1, 2025, required to collect and remit tax on all lease payments received after
January 1, 2025? If so, will the ILDOR provide an opportunity for a refund or
credit?
•

Titled but Non-Registered Property

In Article 75 of the bill, there is an addition to Section 1.05 of 35 ILCS 110 which
specifies that motor vehicles, watercraft, aircraft and semitrailers are
excluded from other leased tangible personal property and they will continue
to be taxed “upfront.” Prior to January 1, 2025, the tax was paid by the lessor
at the time the leased property was purchased (upfront tax) for all tangible
personal property, both titled and non-titled.
For the titled property listed above, it is our understanding that it will be
subject to the lower tax on vehicles (State rate of 6.25% and applicable MetroEast/RTA district taxes), as well as the tax being collected “upfront”, as
opposed to collecting on the stream payments. However, the new provisions
of the legislation also specify that this applies if the titled property is “required
to be registered with an agency of this State.” We are trying to determine if
certain types of leased vehicles are (1) Subject to “upfront” tax and (2) Taxed
at the lower motor vehicle tax rate if they are only titled, but do not have a
registration requirement. A couple examples are All terrain vehicles (ATV’s)
and Off-Road Motorcycles.
DEPARTMENT’S RESPONSE:
Public Act 103-983
The Illinois Retailers’ Occupation Tax Act imposes a tax upon persons engaged in this
State in the business of selling tangible personal property to purchasers for use or
consumption. See 35 ILCS 120/2; 86 Ill. Adm. Code 130.101. In Illinois, Use Tax is imposed

COMPANY/NAME
Page 3
December 13, 2024
on the privilege of using, in this State, any kind of tangible personal property that is
purchased anywhere at retail from a retailer. See 35 ILCS 105/3; 86 Ill. Adm. Code 150.101.
These taxes comprise what is commonly known as “sales” tax in Illinois. If the purchases
occur in Illinois, the purchasers must pay the Use Tax to the retailer at the time of purchase.
The retailers are then allowed to retain the amount of Use Tax paid to reimburse themselves
for their Retailers’ Occupation Tax liability incurred on those sales. If the purchases occur
outside Illinois, purchasers must self-assess their Use Tax liability and remit it directly to the
Department.
A Remote Retailer is a retailer that does not maintain within this State, directly or by
a subsidiary, an office, distribution house, sales house, warehouse or other place of
business, or any agent or other representative operating within this State under the authority
of the retailer or its subsidiary, irrespective of whether that place of business or agent is
located in Illinois permanently or temporarily or whether the retailer or subsidiary is licensed
to do business in this State. A retailer that fulfills any orders from its inventory in Illinois is
not a remote retailer. See 35 ILCS 120/1; 86 Ill. Adm. Code 131.105. As of January 1, 2021,
a remote retailer is engaged in the occupation of selling at retail in Illinois for purposes of the
Retailers’ Occupation Tax Act if either of the following thresholds is met:
A)

The cumulative gross receipts from sales of tangible personal property to
purchasers in Illinois are $100,000 or more; or

B)

The remote retailer enters into 200 or more separate transactions for the sale
of tangible personal property to purchasers in Illinois.

See 35 ILCS 120/2(b); 86 Ill. Adm. Code 131.115. A remote retailer meeting either of these
thresholds is liable for all applicable State and local retailers’ occupation taxes
administered by the Department on all retail sales shipped or delivered to Illinois
purchasers. See 86 Ill. Adm. Code 131.110(a); Section 131.115(a).
If a remote retailer meets either threshold, that retailer is deemed to be engaged in
the business of selling at the Illinois location to which the tangible personal property is
shipped or delivered or at which possession is taken by the purchaser. State and local
retailers’ occupation taxes are incurred at the rate in effect at this location. See 86 Ill. Adm.
Code 131.110(b).
Effective January 1, 2025, retailers with a physical presence in Illinois who make sales
that are sourced outside of this State to Illinois customers also incur State and local
retailers’ occupation tax at the Illinois location to which the tangible personal property is
shipped or delivered or at which possession is taken by the purchaser. See 35 ILCS 120/2
as amended by Public Act 103-0983. These retailers maintaining a place of business in this
State incur a Use Tax collection obligation on these sales through December 31, 2024.

COMPANY/NAME
Page 4
December 13, 2024
Beginning January 1, 2025, if a retailer making sales into Illinois determines that, for
the preceding 12-month period, it does not have physical presence in Illinois (does not meet
the definition of “retailer maintaining a place of business in this State” as set out in 86 Ill.
Adm. Code 150.201) and, pursuant to the criteria set out in Section 131.115, determines
that its sales to Illinois purchasers did not meet either threshold, it is not required to remit
State and local retailers’ occupation taxes. These remote retailers would also have no Use
Tax collection obligation. However, these retailers may voluntarily register with the
Department to collect and remit Use Tax as a courtesy to their Illinois purchasers, since
those purchasers will still incur a Use Tax liability that they must otherwise self-assess and
remit directly to the Department. See, for example, 86 Ill. Adm. Code 131.115(d).
Retailers making sales into Illinois who did not previously meet a threshold under
Section 131.115 or the definition of “retailer maintaining a place of business in this State”
and are therefore not required to remit State and local retailers’ occupation taxes must
redetermine, on a rolling quarterly basis, whether they are obligated to begin remitting State
and local retailers’ occupation taxes. See, for example, 86 Ill. Adm. Code 131.115(e). If the
retailer meets either threshold in Section 131.115 or meets any of the criteria in the
definition of “retailer maintaining a place of business in this State” for a 12-month period, it
is a retailer engaged in the occupation of selling at retail at each Illinois location to which
tangible personal property is shipped or delivered or at which possession is taken by the
purchaser and is required to remit the Retailers’ Occupation Tax and all retailers’
occupation taxes imposed by local taxing jurisdictions in Illinois, provided the local taxes
are administered by the Department, and to file all applicable returns for one year.
Public Act 103-592, Article 75
Effective January 1, 2025, in accordance with the provisions of Article 75 of Public Act
103-592, persons engaged in the business of leasing tangible personal property at retail
(“lessors”) in Illinois are subject to State and local retailers’ occupation tax on the gross
receipts from leases of tangible personal property made in the course of business. See 35
ILCS 120/2. A “lease” is defined as a transfer of the possession or control of, the right to
possess or control, or a license to use, but not title to, tangible personal property for a fixed
or indeterminate term for consideration, regardless of the name by which the transaction is
called, but does not include a lease entered into merely as a security agreement that does
not involve a transfer of possession or control from the lessor to the lessee. On and after
January 1, 2025, for purposes of State and local retailers’ occupation taxes, the term “sale”
includes a lease. See 35 ILCS 120/1. The tax applies to lease receipts received on or after
January 1, 2025 for leases in effect, entered into, or renewed on or after that date. The lessor
must remit for each tax return period the tax applicable to lease receipts received during
that tax return period. See 35 ILCS 120/2.

COMPANY/NAME
Page 5
December 13, 2024
The inclusion of leases in the tax imposed under the Retailers’ Occupation Tax Act by
Article 75 of Public Act 103-592 does not, however, extend to motor vehicles, watercraft,
aircraft, and semitrailers, as defined in Section 1-187 of the Illinois Vehicle Code, that are
required to be registered with an agency of this State. The taxation of these items continues
as prior to January 1, 2025 (i.e., dealers owe retailers’ occupation tax, lessors owe use tax,
and lessees of these items are not subject to retailers’ occupation or use tax). On and after
January 1, 2025, the tax on leases does, however, extend to trailers that are not semitrailers
as defined in Section 1-187 of the Illinois Vehicle Code.
Beginning January 1, 2025, a sale to a lessor of tangible personal property who is
subject to the tax on leases implemented by Article 75 of Public Act 103-592, for the purpose
of leasing that property, shall be made tax-free on the ground of being a sale for resale if the
purchaser has an active registration number or resale number from the Department and
furnishes that number to the seller in connection with certifying to the seller that the sale to
such purchaser is nontaxable because of being a sale for resale. See 35 ILCS 120/2c.
Article 75 of Public Act 103-592 makes no provision for a credit for Use Tax paid prior
to January 1, 2025, by lessors when they acquired property for leasing purposes. Lessors
may not reduce the Retailers’ Occupation Tax owed on their gross receipts from leasing by
any Use Tax they paid for leased property acquired prior to January 1, 2025. A lessor who
incurs a Retailers’ Occupation Tax liability on the sale of an item coming off lease, however,
may take a credit against that liability for any Use Tax and any local retailers’ occupation tax
reimbursement the lessor paid to a supplier registered to collect Illinois tax when the lessor
purchased that particular item. See 86 Ill. Adm. Code 130.2013(h).
Article 75 of Public Act 103-592 makes no changes with respect to the rate of tax
imposed on tangible personal property. A leased item that is subject to tax on leases under
this legislation for which tax is reported and paid on a transaction return (e.g., ST-556 or RUT25) prior to January 1, 2025, will continue to be taxed at the vehicle rate on and after January
1, 2025, albeit on lease receipts. Generally, the lease tax provisions of Article 75 of Public
Act 103-592 do not apply to items that are required to be registered with an agency of this
State. The exception is that the tax on lease receipts applies to trailers, other than
semitrailers as defined in Section 1-187 of the Illinois Vehicle Code, that are required to be
registered with an agency of this State. With respect to items that are required to be titled
with an agency of this State, but not required to be registered with an agency of this State,
such as all-terrain vehicles (ATVs) and off-road motorcycles, the lease tax provisions of
Article 75 of Public Act 103-592 also apply. These items may be purchased tax-free for
resale if they will be subject to the tax on leases under the provisions of Article 75 of Public
Act 103-592. Persons engaged in the business of leasing or renting these items must report
and pay taxes on these items. For items that are required to be reported on a transaction
return, lessors must use Form LSE-1 to report and pay tax on lease receipts, which form the

COMPANY/NAME
Page 6
December 13, 2024
Department is currently modifying to accommodate such reporting and payment. The
Department will issue an Informational Bulletin and updated return instructions soon.
I hope this information is helpful. If you require additional information, please visit
our website at https://tax.illinois.gov/ or contact the Department’s Taxpayer Information
Division at 800-732-8866.
Very truly yours,
Alexis K. Overstreet
Deputy General Counsel
Sales and Excise Tax Policy
AKO:slc