Since Illinois started taxing leases of tangible personal property on January 1, 2025, does a business that rents out scaffolding owe retailers' occupation tax on those rental charges, and can it accept a manufacturing exemption certificate (Form ST-587) for scaffolding rentals?

Plain-English summary

Illinois overhauled how it taxes leases of tangible personal property effective January 1, 2025. Before that date, most lessors (people or businesses that lease out equipment) paid Illinois Use Tax up front on the property they bought to lease out, and lease payments themselves generally weren't taxed as sales. Article 75 of Public Act 103-592 flipped that model: as of January 1, 2025, lessors are instead treated like retailers and must charge State and local retailers' occupation tax ("sales tax") on the gross receipts they collect from leasing tangible personal property in the course of business, per 35 ILCS 120/2. The law defines a "lease" broadly, covering any transfer of possession, control, or a license to use property for a fixed or indeterminate term for consideration, regardless of what the parties call the deal, so long as it doesn't function merely as a security agreement.

This particular GIL was prompted by a contractor that both performs construction/insulation work in Illinois and separately rents scaffolding to other contractors and companies. The company asked whether it could accept a Form ST-587 (manufacturing machinery and equipment exemption certificate) from customers renting scaffolding, given that scaffolding is sometimes used to access equipment undergoing manufacturing-related repair or servicing. The Department's answer was no: the manufacturing machinery and equipment exemption under 86 Ill. Adm. Code 130.330 applies only to items used primarily in manufacturing or assembling tangible personal property for wholesale or retail sale or lease, and scaffolding used to merely access equipment for repair doesn't meet that test, nor does it qualify as "production related tangible personal property" under 86 Ill. Adm. Code 130.333(h).

The company also asked about a separate wrinkle: whether the new lease tax reaches licensed motor vehicles. The Department confirmed it generally does not. Article 75's expansion of the Retailers' Occupation Tax Act to cover leases carves out motor vehicles, watercraft, aircraft, and semitrailers that must be titled or registered with an Illinois state agency (as defined in Section 1-187 of the Illinois Vehicle Code), per 35 ILCS 120/1.05. Those categories keep the pre-2025 tax treatment: dealers owe retailers' occupation tax, lessors owe use tax, and lessees owe nothing further. However, the new lease tax does apply to non-semitrailer trailers and to items that must be titled (but not registered), such as ATVs and off-road motorcycles.

What this means for you

Equipment rental and leasing businesses

If you lease tangible personal property in Illinois — including equipment like scaffolding — you are now a "lessor" subject to State and local retailers' occupation tax on your lease receipts for any lease in effect, entered into, or renewed on or after January 1, 2025. You must remit tax on lease receipts received in each tax return period, per 35 ILCS 120/2. This is a fundamental shift from the pre-2025 approach where lessors typically paid use tax on their acquisition cost instead of charging tax on rental payments.

Contractors who also rent out equipment like scaffolding

Because scaffolding is generally not used primarily in manufacturing or assembling of tangible personal property, it typically does not qualify for the manufacturing machinery and equipment exemption, even if it's used to access equipment that is itself being repaired or serviced as part of a manufacturing process. You generally should not accept an ST-587 exemption certificate for scaffolding rental charges on that basis; the same exemptions that apply to other sales under the Retailers' Occupation Tax Act apply to leases (86 Ill. Adm. Code 130.120), but the facts have to actually fit the exemption.

Lessors and lessees of vehicles and trailers

If your leasing business involves licensed motor vehicles, watercraft, aircraft, or semitrailers required to be titled or registered with the State, the 2025 changes don't apply to you — the pre-existing regime (dealer pays ROT, lessor pays use tax, lessee owes nothing) continues. But if you lease non-semitrailer trailers, ATVs, or off-road motorcycles, those are swept into the new lease tax regime.

Common questions

Q: Do I owe sales tax on scaffolding rental income now?
A: Yes. Effective January 1, 2025, lessors of tangible personal property, including scaffolding, owe State and local retailers' occupation tax on gross receipts from those leases made in the course of business.

Q: Can I accept a Form ST-587 manufacturing exemption certificate for scaffolding rentals?
A: Generally no. Scaffolding is generally not used primarily in manufacturing or assembling tangible personal property for wholesale or retail sale or lease, and it's generally not "production related tangible personal property," so the manufacturing machinery and equipment exemption doesn't fit even when the scaffolding helps access equipment being repaired for manufacturing purposes.

Q: Are leases of motor vehicles now taxed the same way?
A: No. Leases of motor vehicles, watercraft, aircraft, and semitrailers that must be titled or registered with an Illinois state agency are excluded from the new lease tax under 35 ILCS 120/1.05; taxation of those items continues as it did before January 1, 2025 (dealer owes ROT, lessor owes use tax, lessee owes nothing further).

Q: What about trailers, ATVs, or off-road motorcycles?
A: Those are treated differently from semitrailers/registered vehicles. Non-semitrailer trailers and items required to be titled (but not registered), like ATVs and off-road motorcycles, are subject to the new lease tax starting January 1, 2025.

Q: Is this letter binding on the Department?
A: No. This 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, unlike a Private Letter Ruling.

Citations and references

Statutes and rules:

• 35 ILCS 120/2 (Retailers' Occupation Tax Act imposition of tax; amended by Article 75 of P.A. 103-592 to reach lessors)
• 35 ILCS 120/1 (definitions of "lease" and "sale")
• 35 ILCS 120/1.05 (exclusion for motor vehicles, watercraft, aircraft, and semitrailers required to be titled/registered)
• 35 ILCS 105/3 (Use Tax Act imposition of tax)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax Act regulations)
• 86 Ill. Adm. Code 150.101 (Use Tax Act regulations)
• 86 Ill. Adm. Code 130.120 (exemptions apply to leases same as other sales)
• 86 Ill. Adm. Code 130.330(c) (manufacturing machinery and equipment exemption; primary-use test)
• 86 Ill. Adm. Code 130.333(h) (production related tangible personal property)
• Section 1-187, Illinois Vehicle Code (definition of semitrailer)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedures)
• Article 75, Public Act 103-592 (2025 lease-tax overhaul)

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/st25-0006-gil.pdf

Original ruling text

ST 25-0006-GIL

2/4/2025

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.)
February 4, 2025
NAME
TITLE
COMPANY
ADDRESS
EMAIL
Dear NAME:
This letter is in response to your email dated January 9, 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:
Our business does contract work in IL, but we also rent scaffolding to other
contractors and or plant companies directly.
Some of our customers issue us a ST587 related to various work that we do.
While we know this qualifies for insulation work we do, we are not sure how
this applies to scaffolding rental charges.
Can we accept the ST587 related to scaffolding equipment rentals? While
scaffolding equipment is not part of the direct process of manufacturing, the
scaffolding equipment could be used to access equipment that needs to be
repaired or serviced that does qualify for the manufacturing process.

COMPANY
Page 2
February 4, 2025
It’s a gray area and the answer varies from state to state. Since lease
transactions are a new law for Illinois, we want to make sure we are doing
things right from the start.
One follow up question please. The below was on the website concerning
vehicles. When I called the state, they stated licensed vehicles were not
taxable per the below. My vendor believes these are taxable.
Can you please clarify whether licensed vehicles are now subject to lease
taxes? I know trailers are, but I am questioning motor vehicles.
Generally, no. The changes made by this legislation do not apply to leases of
motor vehicles, watercraft, aircraft, and semitrailers, as defined in Section 1187 of the Illinois Vehicle Code, that are required to be titled or registered with
an agency of the State of Illinois, except for trailers other than semitrailers. 35
ILCS 120/1.05.
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.

COMPANY
Page 3
February 4, 2025
The exemptions from tax under the Retailers’ Occupation Tax Act apply to leases of
tangible personal property in the same manner as the exemptions apply to other sales under
the Act. See 86 Ill. Adm. Code 130.120. Additional guidance on the manufacturing
machinery and equipment exemption is provided at 86 Ill. Adm. Code 130.330. The lease or
rental of scaffolding would generally not be eligible for the manufacturing machinery and
equipment exemption since it is generally not used primarily in the manufacturing or
assembling of tangible personal property for wholesale or retail sale or lease. See 86 Ill.
Adm. Code 130.330(c). Nor is it generally used or consumed in a production related process
by a manufacturer in a manufacturing facility in which a manufacturing process takes place.
See discussion of “production related tangible personal property” at 86 Ill. Adm. Code
130.333(h).
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. For the treatment of
leases of first division and certain second division motor vehicles, which treatment did not
change on January 1, 2025, see “ST-9-LSE A Guide for Reporting Sales Using Form ST-556LSE, Transaction Return for Leases” on the Department’s website.
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
SJM:sce