Starting January 1, 2025, does Illinois Retailers' Occupation Tax apply to leases of tangible personal property, and how is the tax on lease payments sourced?

Plain-English summary

Illinois changed how it taxes equipment and property rentals starting January 1, 2025. Under Article 75 of Public Act 103-592, a "lease" now counts as a "sale" for Retailers' Occupation Tax (ROT) purposes, so a lessor's gross receipts from leasing tangible personal property in the course of business become subject to State and local ROT — the same tax that applies to ordinary retail sales. This GIL responds to a rental-equipment company asking how the new law applies to its day/week/month rentals, including how to source tax when equipment is delivered to or picked up from different Illinois cities, and what happens with titled trailers.

The Department's answer turns on one key distinction: does the lease require recurring periodic payments, or not? A lease requires recurring periodic payments only if it has a fixed or indeterminate term and the consideration is broken into multiple payments due over multiple return periods. If the lease is for a fixed duration with a single payment (even if the customer later extends it or swaps items), it does not require recurring periodic payments. Leases with recurring periodic payments are sourced to the primary property location (generally the customer's address for that period); all other leases — including the finite day/week/month rentals described in the request — are sourced the same way as an ordinary retail sale, under the Department's origin-based "selling activities" test in 86 Ill. Adm. Code 270.115, not simply to the pickup or delivery point.

The ruling also confirms several related mechanics: sales to a lessor for the purpose of leasing can still be made tax-free as a resale if the lessor gives the seller an active registration/resale number (35 ILCS 120/2c); a lessor who later sells off items that were previously leased owes ROT on that sale and can credit any Use Tax or local ROT reimbursement it already paid on that item; and the new leasing tax does not apply to motor vehicles, watercraft, aircraft, or semitrailers required to be registered with an Illinois agency (which remain taxed under the pre-2025 dealer-ROT/lessor-use-tax regime) — but it does apply to trailers that are not "semitrailers" under Section 1-187 of the Illinois Vehicle Code.

Because this is a General Information Letter rather than a Private Letter Ruling, it does not bind the Department as to this specific taxpayer's facts — it only explains how the general rules work and points to the relevant statutes, rules, and case law (including the Illinois Supreme Court's Hartney Fuel Oil and Ex-Cell-O Corp. decisions on sourcing).

What this means for you

Equipment and property rental businesses

If you lease tangible personal property in Illinois, you are now a "retailer" for ROT purposes on those lease receipts starting with payments received on or after January 1, 2025 (for leases in effect, entered into, or renewed on or after that date). Whether a given rental is taxed like a typical day/week/month rental — sourced to wherever your predominant selling activities occur, not simply to the delivery or pickup city — or sourced to the customer's location instead depends on whether the lease calls for recurring periodic payments over multiple return periods. A single lump-sum charge for a fixed rental period is not a "recurring periodic payment," even if you later amend the contract to extend the term or swap equipment.

Businesses that buy inventory to lease out, or sell off used rental equipment

You can still buy items tax-free for resale if you intend to lease them out and you give your supplier a valid resale certificate/registration number — but you cannot buy tax-free any item you intend to use or consume yourself, and if you do both you need separate inventories. When you eventually sell an item that came off lease, that sale is now subject to ROT (it is no longer treated as an occasional/isolated sale), though you can credit any Use Tax or local ROT you already paid on that item when you originally bought it, up to the amount of tax due on the resale.

Owners of titled vehicles and trailers used in a rental business

Motor vehicles, watercraft, aircraft, and semitrailers required to be registered with an Illinois agency are carved out of the new leasing tax entirely and keep being taxed the old way (dealer pays ROT, lessor pays Use Tax, lessee owes nothing). But ordinary trailers that don't meet the Vehicle Code's definition of "semitrailer" are swept into the new leasing tax like any other rental equipment.

Common questions

Q: Does the new Illinois leasing tax apply to my short-term equipment rentals?
A: Yes, if the lease doesn't require recurring periodic payments (e.g., it's a single flat charge for a defined day/week/month period), it's taxed like any other retail sale — sourced to where your business's predominant selling activities take place, not necessarily to the pickup or delivery city.

Q: My customer extends the rental an extra day or swaps equipment mid-contract. Does that make it a "recurring periodic payment" lease?
A: No. The GIL states that a lease with a single payment for a fixed rental period does not become a "recurring periodic payment" lease just because the return date or charges are later adjusted.

Q: Are my titled rental trailers covered by this new tax?
A: It depends on whether they meet the Illinois Vehicle Code's definition of "semitrailer" (625 ILCS 5/1-187). Motor vehicles, watercraft, aircraft, and semitrailers required to be registered with an Illinois agency are excluded from the new leasing tax and continue under the prior dealer-ROT/lessor-use-tax system. Trailers that are not "semitrailers" are subject to the new leasing tax.

Q: Can I still buy equipment tax-free if I'm going to lease it out?
A: Yes — as a lessor subject to the new leasing tax, you can buy tax-free for resale if you have an active registration/resale number and furnish it to your supplier, but only for items you intend to lease, not items you'll also use or consume yourself.

Q: If I sell a piece of equipment after I'm done renting it out, do I owe tax on that sale?
A: Yes. As of January 1, 2025, a lessor's sale of property coming off lease is subject to ROT (it's no longer an exempt isolated/occasional sale), though you can credit Use Tax or local ROT you already paid on that item, capped at the tax due on the resale.

Citations and references

Statutes and rules:

• 35 ILCS 120/2 (ROT imposed on lease receipts, as amended by Article 75 of P.A. 103-592)
• 35 ILCS 120/1 (definition of "sale" includes a "lease")
• 35 ILCS 120/2c (resale exemption for sales to lessors)
• 35 ILCS 120/2-12(5.5) (sourcing of lease payments)
• 86 Ill. Adm. Code 130.1401 (use/consumption vs. resale)
• 86 Ill. Adm. Code 130.1405 (Certificate of Resale)
• 86 Ill. Adm. Code 130.2013(h)(2), (h)(4) (credit for Use Tax/local ROT paid on items later sold)
• 86 Ill. Adm. Code 270.115 (local ROT sourcing; primary/secondary selling activities)
• 625 ILCS 5/1-187 (Vehicle Code definition of semitrailer)

Case law cited in the ruling:

• Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130
• Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316 (1943)
• Automatic Voting Machs. v. Daley, 409 Ill. 438 (1951)
• Young v. Hulman, 39 Ill. 2d 219 (1968)

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/ST24-0045-GIL.pdf

Original ruling text

ST 24-0045-GIL

12/19/2024

RETAILERS’ OCCUPATION TAX

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 19, 2024
NAME
COMPANY1
ADDRESS
Dear NAME:
This letter is in response to your letter dated December 16, 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. I am looking for some clarification around the sourcing
rules and destination-sourcing for my company which is based in CITY1, IL.
and what constitutes a periodic recurring lease payment.
I believe after reading numerous informational sheets that my
company’s transactions would not qualify as a periodic recurring lease
payment whether it was picked up at my CITY1 location or if we delivered it to
another location. All my rentals of PRODUCTS are rented for a finite period,
are described on my contract as a day, week or month, and the contract
shows the “Agreed Return date “. However, if a customer asks to keep the
equipment additional day or switch to the week rate, we would adjust the
contract to show the revised return date and charges. The customer

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substantially controls the equipment’s usage. Hence, the rental payments
would not be periodic, and origin sales tax should apply… correct????
I have provided some other routine rental situations that we encounter
daily and would appreciate your comments:
COMPANY2 needs a PRODUCT1 delivered to CITY2 Illinois for a week.
At the end of the week, he asks us to pick it up in CITY3 Illinois. Not
recurring/periodic rental payments, origin rate?
COMPANY2 picks up a PRODUCT1 and a PRODUCT2 at my location,
returns the PRODUCT2 after 2 days and keeps the PRODUCT1 for a month and
then asks us to pick it up in CITY3 Illinois. Origin rate since pick-up is CITY1?
COMPANY2 rents a PRODUCT3 for the winter and asks us to deliver it
to CITY4 Ill. We offer a one-time 16 week rental price at a discount with a
return date listed on the contract. Not recurring/periodic rental payments,
origin rate?
COMPANY2 wants to rent a PRODUCT3 with the option to buy it after
90 days. We offer a program where you can rent an item for up to 90 days and
receive a portion of the rental payment back to reduce the agreed upon price.
The rental contract is for 1 month with an agreed upon date and can be
extended for a 2nd and 3rd month. Not recurring/periodic rental payments,
origin rate?
I have listed just a few scenarios that we would encounter daily. My
understanding of the rules would be that the rentals described above would
fall under the Retailers’ Occupation Tax Act for sales at retail and the payment
would be sourced at the retailer’s location since the rental payments are not
periodic and recurring, irrespective of delivery.
I would also like clarification on the rental of trailers for the equipment.
We have a small fleet of NUMBER trailers that we rent out to customers and
use to make deliveries. Currently we are paying RUT25 taxes at the DMV when
we apply for title and plates. Titled vehicles/trailers are generally excluded
from the new IL leasing law. What about these titled trailers???
DEPARTMENT’S RESPONSE:
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

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(“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.
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.
A person who sells tangible personal property to a purchaser who may use or
consume such property within the meaning of the Retailers’ Occupation Tax Act, but who
also may resell such property, must determine, at the time when he sells the property to
such purchaser, whether the purchaser is buying the property “for use or consumption”
within the meaning of the Act or whether the purchaser is buying the property “for resale”.
86 Ill. Adm. Code 130.1401. 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 103592, 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. See 86 Ill. Adm. Code 130.1405 for Certificate of Resale requirements.
Purchases for use or consumption may not be made tax-free for resale. If a retailer,
including lessors beginning January 1, 2025, purchases an item that the retailer intends to
use or consume as well as lease, that item may not be purchased tax-free for resale. If a
lessor wants to avail themselves of the opportunity to make purchases tax-free for resale,
such lessor will need to keep separate inventories based on items purchased tax-free for
lease and items for use by the lessor.

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On and after January 1, 2025, a lessor’s sale of tangible personal property coming off
lease that is no longer needed for the lessor’s rental inventory is subject to Retailers’
Occupation Tax regardless of whether the seller is strictly a lessor or is also engaged in the
business of selling like-kind property other than leasing it. This is true because, on and after
January 1, 2025, except for 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, a person who is engaged in the business of leasing or renting tangible personal
property is a retailer of these items under the Act and, therefore, cannot make an isolated or
occasional sale of like-kind tangible personal property that is no longer needed for the rental
inventory. [35 ILCS 120/2]. A lessor who incurs a Retailers’ Occupation Tax liability on the
sale of an item can take a credit against that liability for any Use Tax and any local Retailers’
Occupation Tax reimbursements that he paid to a supplier registered to collect Illinois tax
when he purchased that particular item. However, this credit cannot exceed the amount of
State and local retailers’ occupation tax incurred by the lessor/retailer when he sells the
item. 86 Ill. Adm. Code 130.2013(h)(2). The credit is available to all lessors who are required
to pay Retailers’ Occupation Tax when selling an item after having used that item for rental
purposes. 86 Ill. Adm. Code 130.2013(h)(4).
The lease of tangible personal property that is subject to the tax on leases under
Article 75 of Public Act 103-592 is sourced as follows:
(i)

For a lease that requires recurring periodic payments and for which the
property is delivered to the lessee by the lessor, each periodic payment
is sourced to the primary property location for each period covered by
the payment. The primary property location shall be as indicated by an
address for the property provided by the lessee that is available to the
lessor from its records maintained in the ordinary course of business,
when use of this address does not constitute bad faith. The property
location is not altered by intermittent use at different locations, such
as use of business property that accompanies employees on business
trips and service calls.

(ii)

For all other leases, including a lease that does not require recurring
periodic payments and any lease for which the lessee takes
possession of the property at the lessor’s place of business, the
payment is sourced as otherwise provided under this Act for sales at
retail other than leases.

See 35 ILCS 120/2-12(5.5) as amended by Article 75 of Public Act 103-592.
A lease requires recurring periodic payments if the lease agreement for the property
provides for a fixed or indeterminate term and requires consideration to be broken into

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multiple payments due over the course of multiple return periods. If a lease agreement is
fixed in duration and requires a single payment to be made in consideration for the lease of
a specified item or items, the lease does not require recurring periodic payments.
If a lease does not require recurring periodic payments, pursuant to 35 ILCS 120/212(5.5), the payment is sourced as otherwise provided under the Retailers’ Occupation Tax
Act for sales at retail. Because the tax is imposed on the retail business of selling and not on
specific sales, the jurisdiction in which the sale takes place is not necessarily the
jurisdiction where the retailers’ occupation tax is owed. Rather, it is the jurisdiction where
the seller is engaged in the business of selling that can impose the tax. Automatic Voting
Machs. v. Daley, 409 Ill. 438, 447 (1951) (“In short, the tax is imposed on the “occupation”
of the retailer and not upon the “sales” as such.") (citing Mahon v. Nudelman, 377 Ill. 331
(1941) and Standard Oil Co. v. Dep’t of Finance, 383 Ill. 136 (1943)); see also Young v.
Hulman, 39 Ill. 2d 219, 225 (1968) (“the retailers occupational tax...imposes liability upon
the occupation of selling at retail and not on the sale itself”). See, for example, 86 Ill. Adm.
Code 270.115(b)(1). The Illinois Department of Revenue has created administrative rules
that govern the sourcing of local retailers’ occupation taxes. See, for example, 86 Ill. Adm.
Code 270.115. The rules provide that:
The occupation of selling is comprised of “the composite of many activities
extending from the preparation for, and the obtaining of, orders for goods to
the final consummation of the sale by the passing of title and payment of the
purchase price”. Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316, 321 (1943). Thus,
establishing where “the taxable business of selling is being carried on”
requires a fact-specific inquiry into the composite of activities that comprise
the retailer’s business. Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130,
paragraph 32 (citing Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316, 321-22 (1943)).
86 Ill. Adm. Code 270.115(b)(2).
Some retailers are engaged in retail operations with selling activities in multiple
jurisdictions within the State, or in jurisdictions located in more than one state. The selling
activities that comprise these businesses “are as varied as the methods which men select
to carry on retail businesses.” Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316, 321 (1943).
Consequently, “it is...not possible to prescribe by definition which of the many activities
must take place in [a jurisdiction] to constitute it an occupation conducted in [that
jurisdiction] . . . . It is necessary to determine each case according to the facts which reveal
the method by which the business was conducted.” Ex-Cell-O Corp. v. McKibbin, 383 Ill.
316, 321-22 (1943); see also Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130, paragraph 36.
See, for example, 86 Ill. Adm. Code 270.115(b)(3).
A seller incurs Retailers’ Occupation Tax in a given taxing jurisdiction if its
predominant and most important selling activities take place in that jurisdiction. Isolated or

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limited business activities within a jurisdiction do not constitute engaging in the business of
selling in that jurisdiction when other more significant selling activities occur outside the
jurisdiction, and the business predominantly takes advantage of government services
provided by other jurisdictions. Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316, 322- 23 (1943);
Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130, paragraphs 30 through 35. See, for example,
86 Ill. Adm. Code 270.115(b)(5). The Department’s regulations enumerate several “primary
selling activities” and “secondary selling activities” to aid in this inquiry, which are listed at
86 Ill. Adm. Code 270.115(c)(1) and (4). “Primary selling activities” include:
A)

Location of sales personnel exercising discretion and authority to
solicit customers on behalf of a seller and to bind the seller to the sale;

B)

Location where the seller takes action that binds it to the sale, which
may be acceptance of purchase orders, submission of offers subject
to unilateral acceptance by the buyer, or other actions that bind the
seller to that sale;

C)

The location where payment is tendered and received, or from which
invoices are issued with respect to each sale;

D)

Location of inventory if tangible personal property that is sold is in the
retailer’s inventory at the time of its sale or delivery; and

E)

The location of the retailer’s headquarters, which is the principal place
from which the business of selling tangible personal property is
directed or managed. In general, this is the place at which the offices
of the principal executives are located. When executive authority is
located in multiple jurisdictions, the place of daily operational decision
making is the headquarters.

See, for example, 86 Ill. Adm. Code 270.115(c)(1). If three primary selling activities occur in
the same location, that is the jurisdiction where you are engaged in the business of selling.
If the primary selling activities occur in multiple jurisdictions, but no individual jurisdiction
has more than two primary selling activities, you must consider the listed secondary selling
activities to determine the jurisdiction where you are engaged in the business of selling.
“Secondary selling activities” include:
A)

Location where marketing and solicitation occur;

B)

Location where the seller engages in activities necessary to procure
goods for sale;

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C)

Location of the retailer's officers, executives or employees with
authority to set prices or determine other terms of sale if
determinations are made in a location different than that identified in
subsection (c)(1)(A);

D)

Location where purchase orders or other contractual documents are
received when purchase orders are accepted, processed or fulfilled in
a location or locations different from where they are received;

E)

Location where title passes; and

F)

Location where the retailer displays goods to prospective customers,
such as a showroom.

See 86 Ill. Adm. Code 270.115(c)(4).
Every retailer in this State must determine the taxing jurisdictions where it is engaged
in the business of selling with respect to each of its sales by applying the standards set forth
in Section 270.115(c), except when a retailer is engaged in particular selling activities
identified by a statute that specifies the taxing jurisdiction where retailers engaged in those
activities shall remit retailers’ occupation tax. See 86 Ill. Adm. Code 270.115(c). If you are
engaged in any special selling activity where your remittance of retailers’ occupation tax
would be directed by statute rather than these rules, please refer to the applicable statute.
Except as provided in subsection (d), a retailer that is not engaged in the business of
selling in a jurisdiction under subsection (c)(2) is engaged in the business of selling in the
jurisdiction where its inventory is located under subsection (c)(1)(D), or where its
headquarters is located under subsection (c)(1)(E), whichever jurisdiction is the location
where more selling activities occur, considering both primary and secondary selling
activities. A retailer that is not engaged in the business of selling in a jurisdiction under
subsection (c)(2) or (c)(5) is presumed to be engaged in the business of selling at the location
of its headquarters absent clear and convincing evidence to the contrary. See 86 Ill. Adm.
Code 270.115(c)(5) and (6).
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,

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Alexis K. Overstreet
Deputy General Counsel
AKO:sce