Since Illinois started taxing equipment leases on January 1, 2025, whose location sets the tax rate, and does Chicago's lease tax stack on top of the new state tax?

Plain-English summary

A masonry contractor in Chicago wrote to the Illinois Department of Revenue asking how the state's brand-new lease tax, effective January 1, 2025, interacts with the equipment rentals it already pays 11% Chicago lease tax on. The Department's General Information Letter explains the mechanics of the new law rather than resolving the contractor's specific account, since a GIL only points taxpayers to the relevant rules.

Effective January 1, 2025, under Article 75 of Public Act 103-592, businesses that lease tangible personal property at retail ("lessors") owe State and local retailers' occupation tax on their gross receipts from those leases, just as if the lease were a sale. See 35 ILCS 120/2. The tax rate for a given lease is determined by sourcing rules: for leases with recurring periodic payments where the property is delivered to the lessee, each payment is sourced to the property's "primary location" (an address the lessee provides that the lessor keeps in its ordinary business records) — not the lessor's location, the lessee's billing address, or a moving jobsite each time equipment changes hands. All other leases are sourced the same way an ordinary retail sale would be. See 35 ILCS 120/2-12(5.5).

The letter also addresses the contractor's specific worry about double taxation with Chicago's Personal Property Lease Transaction Tax. Illinois exempts gross receipts from a lease already subject to a home-rule unit's lease tax from the new State and Department-administered local retailers' occupation tax, but only if that home-rule tax's ordinance was adopted before January 1, 2023 — which Chicago's was. So property already taxed under Chicago's ordinance does not also owe the new State/local lease tax; instead, the lessor's own purchase of that property for leasing purposes is treated as a tax-free sale for resale. See 35 ILCS 120/2-5(49)(2).

Finally, the GIL notes the carve-out for titled/registered vehicles: motor vehicles, watercraft, aircraft, and semitrailers required to be registered with an Illinois agency are not swept into the new lease tax and continue to be taxed the old way (dealers owe retailers' occupation tax, lessors owe use tax, lessees owe nothing). Trailers that are not semitrailers, and items that must be titled but not registered (like ATVs and off-road motorcycles), are taxed under the new lease-tax rules.

What this means for you

Equipment lessors and rental companies

You now owe State and local retailers' occupation tax on lease receipts for tangible personal property leases in effect, entered into, or renewed on or after January 1, 2025 — remitted for each tax return period based on receipts received during that period. See 35 ILCS 120/2. Figuring out the correct rate means tracking the primary location of the leased property (as the lessee discloses it to you and as you record it in the ordinary course of business), not your own location or a moving jobsite.

Contractors and other lessees renting equipment

If you're a business (like a masonry contractor) that rents construction equipment, the rate charged should reflect the equipment's primary location as recorded by the lessor — not simply where your company is headquartered. If your equipment is used within a jurisdiction like Chicago that already imposes its own pre-2023 home-rule lease tax, that lease should be exempt from the new State/local lease tax rather than stacking both.

Accountants and tax professionals advising on the 2025 lease-tax overhaul

Watch for the interaction between 35 ILCS 120/2-5(49)(2) (home-rule carve-out) and 35 ILCS 120/2-12(5.5) (sourcing rules) — they operate together to prevent double taxation in jurisdictions like Chicago while still applying the new sourcing regime everywhere else. Also flag the titled/registered vehicle exception for clients leasing motor vehicles, trailers, watercraft, or aircraft, since those follow different (pre-2025) rules.

Common questions

Q: Whose location determines the lease tax rate — the lessor's, the lessee's, or the jobsite?
A: Neither the lessor's nor the lessee's business address, and not a jobsite that changes with each move. For leases with recurring periodic payments where the property is delivered to the lessee, the rate is based on the property's "primary location," an address the lessee provides that the lessor keeps in its ordinary business records. Intermittent use at other locations (like equipment that travels with employees) doesn't change that primary location.

Q: Does Illinois's new state lease tax stack on top of Chicago's 11% Personal Property Lease Transaction Tax?
A: No. Gross receipts from a lease already subject to a home-rule lease tax adopted before January 1, 2023 — which covers Chicago's tax — are exempt from the new State and Department-administered local retailers' occupation tax on leases.

Q: If Chicago's lease tax exempts the transaction from the new state tax, does the lessor still owe anything on buying the equipment?
A: If the lease would otherwise be subject to the new lease tax but for this exemption, the lessor's purchase of the property for leasing purposes is treated as a sale for resale and is State and local retailers' occupation tax-free.

Q: Does the new lease tax apply to leased vehicles?
A: Not to motor vehicles, watercraft, aircraft, and semitrailers required to be registered with an Illinois agency — those keep their pre-2025 tax treatment (dealers owe retailers' occupation tax, lessors owe use tax, lessees owe nothing). It does apply to non-semitrailer trailers and to items that must be titled but not registered, such as ATVs and off-road motorcycles.

Q: Is this letter a binding ruling on my specific situation?
A: No. This is a General Information Letter, which only directs taxpayers to relevant regulations and other information; it is not a statement of Department policy and is not binding on the Department. A binding Private Letter Ruling requires following the separate procedures at 2 Ill. Adm. Code 1200.110.

Citations and references

• 35 ILCS 120/2 (Retailers' Occupation Tax Act imposition; leases treated as sales)
• 35 ILCS 120/1 (definition of "lease" and "sale" as amended)
• 35 ILCS 120/2-12(5.5) (sourcing of lease receipts to primary property location)
• 35 ILCS 120/2-5(49)(2) (exemption for property already subject to a pre-2023 home-rule lease tax, e.g., Chicago)
• Article 75 of Public Act 103-592 (2025 Illinois lease-tax overhaul)
• 35 ILCS 105/3 (Use Tax Act imposition)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax regulations)
• 86 Ill. Adm. Code 150.101 (Use Tax regulations)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedures)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2025.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2025/st25-0004-gil.pdf

Original ruling text

ST 25-0004-GIL

1/27/2025

LEASING

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. (This is a GIL.)
January 27, 2025
NAME, TITLE
COMPANY
ADDRESS
EMAIL
Dear NAME:
This letter is in response to your email dated January 8, 2025, 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:
We are a masonry contractor located in the city of Chicago. We rent
construction equipment and for past few years subject to city of Chicago
lease tax for any equipment rental. That rate is 11% starting 01/01/25.
State of Illinois implemented state lease tax starting 01/01/25. It is our
understanding that any vendor in the business of leasing personal property
has the obligation to collect lease tax on the value of the lease.
What determines the treatment of assigning the tax lease rate: Lessor
location, Lessee location, or the location of the jobsite (where the
equipment is being ‘consumed’)?

COMPANY
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January 27, 2025
When the location deciding on the rate is city of Chicago (either it is lessor,
lessee, or the jobsite), is state tax applied on top of 11%? It is my
understanding that there is a ‘Chicago carve out’/an exemption for Chicago
from the new law.
DEPARTMENT’S RESPONSE:
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
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.
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.
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 and 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 Retailers’ Occupation Tax Act provides that to determine the tax rate for lease
transactions the lease receipts shall be sourced as follows:

COMPANY
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January 27, 2025
(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).
Gross receipts from the lease of property that is subject to a tax on lease receipts
imposed by a home rule unit of local government are exempt from the State and
Department-administered local retailers’ occupation taxes if the ordinance imposing the
home rule tax was adopted prior to January 1, 2023. See 35 ILCS 120/2-5(49)(2) as added by
Article 75 of Public Act 103-592. Specifically, gross receipts from the lease of property that
is subject to Chicago’s Personal Property Lease Transaction Tax are exempt from the State
and Department-administered local retailers’ occupation taxes. However, if the lease of
this property would, but for this exemption, be subject to the tax on leases implemented by
Article 75 of Public Act 103-592, then a sale to the lessor of this tangible personal property,
for the purpose of leasing that property, shall be made State and local retailers’ occupation
tax-free as a sale for resale.
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,

Samuel J. Moore
Associate Counsel

COMPANY
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January 27, 2025
SJM:sce