Now that Illinois taxes leases as sales starting January 1, 2025, can a Chicago-based equipment-rental company charge tax based on its own Chicago location instead of tracking the tax rate for every city its customers take delivery in?

Plain-English summary

Starting January 1, 2025, Illinois overhauled how it taxes leases. Article 75 of Public Act 103-592 rewrote the Retailers' Occupation Tax Act so that a "sale" now includes a "lease" (35 ILCS 120/1). Instead of the old system — where a lessor paid Use Tax up front on buying the equipment it planned to rent out — lessors now owe State and local retailers' occupation tax on their ongoing gross receipts from lease payments (35 ILCS 120/2).

A Chicago rental company wrote in after getting almost no notice (it says it learned of the change on December 30, 2024, for a January 1, 2025 effective date) and asked the Department to let it keep charging tax based on where its business is located (Chicago) rather than tracking the tax rate for every city or county where a customer actually takes delivery of rented equipment. It argued that a destination-based system across 103 counties and roughly 1,300 municipalities would be unworkable for a company with software that can only track two or three taxing jurisdictions.

The Department did not grant that request. It laid out the actual sourcing rule Article 75 created (35 ILCS 120/2-12(5.5)): if a lease requires recurring periodic payments and the lessor delivers the property to the lessee, each periodic payment is sourced to the "primary property location" for that period — generally an address the lessee provides that the lessor already keeps in its ordinary business records — regardless of temporary use elsewhere (like equipment that travels with an employee). Only leases that do not require recurring periodic payments, or where the lessee picks the property up at the lessor's own place of business, fall back to the general "occupation of selling" sourcing rules used for ordinary retail sales (86 Ill. Adm. Code 270.115), which look at where the retailer's primary and secondary selling activities occur (sales personnel, contract acceptance, payment, inventory, headquarters, and so on).

The letter also confirms a carve-out for home-rule lease taxes adopted before January 1, 2023: lease receipts already subject to a qualifying home-rule lease tax — the Department specifically names Chicago's Personal Property Lease Transaction Tax — are exempt from the new State and local retailers' occupation tax on leases (35 ILCS 120/2-5(49)(2)). If a rental would otherwise be caught by the new lease tax but is exempt under this carve-out, the lessor's own purchase of that property can be made tax-free as a sale for resale.

What this means for you

Equipment, tool, and other rental businesses

If you lease tangible personal property in Illinois, you are now a retailer for sales-tax purposes on your lease receipts, not just a taxable purchaser at the time you bought the equipment. Whether you must track destination-based rates depends on your lease structure: recurring-payment leases with lessor-side delivery are sourced to the customer's primary property location, payment by payment, for the whole state. A single flat-fee lease, or any lease where the customer picks up at your location, is instead sourced under the standard "occupation of selling" test — which usually points to wherever your own selling activities (order-taking, invoicing, inventory, headquarters) are concentrated.

Chicago-area lessors specifically

If your lease receipts are already subject to Chicago's Personal Property Lease Transaction Tax under an ordinance adopted before January 1, 2023, those receipts are exempt from the new State/local lease tax, and you may buy the leased property tax-free as a sale for resale. But that exemption applies only to receipts actually covered by the qualifying home-rule tax — it is not a blanket exemption for every rental just because your business is based in Chicago, and it does not let you use Chicago's rate for deliveries made elsewhere in the state.

Compliance and systems planning

The Department's answer confirms the destination-based sourcing rule is real and effective January 1, 2025 for recurring-payment, lessor-delivered leases — there is no administrative relief in this letter for origin-based simplification, no matter how burdensome tracking hundreds of local rates may be. If your lease agreements mostly involve recurring payments and you deliver to customers, budget for a system that can source each payment to the customer's actual property location, or restructure billing (e.g., toward non-recurring, pickup-based arrangements) where that fits your business.

Accountants and tax professionals

This GIL is a useful primer on the mechanics of Article 75 of P.A. 103-592: the "lease" definition, the recurring-vs-non-recurring payment distinction under 35 ILCS 120/2-12(5.5), the home-rule carve-out at 35 ILCS 120/2-5(49)(2), and how the pre-existing "occupation of selling" sourcing case law (Ex-Cell-O Corp. v. McKibbin, Hartney Fuel Oil Co. v. Hamer) still governs leases that fall outside the new recurring-payment sourcing rule. Note this letter addresses only the going-forward sourcing regime — it does not discuss any transition relief or grandfathering for leases that straddle the January 1, 2025 effective date.

Common questions

Q: Did the Department let this taxpayer use origin-based sourcing instead of destination-based sourcing?
A: No. The Department explained the law as written — recurring-payment leases with lessor delivery are sourced to the customer's primary property location, not the lessor's location — and did not create any exception or administrative relief for the taxpayer's tracking-burden concerns.

Q: What's a "primary property location" for sourcing purposes?
A: For a lease with recurring periodic payments where the lessor delivers the property, it's the address for the property that the lessee provides and that the lessor already keeps in its ordinary business records, so long as using that address isn't done in bad faith. Temporary use elsewhere (like equipment that travels with an employee) doesn't change the property's primary location.

Q: What if a lease doesn't have recurring payments, or the customer picks up the property at the lessor's business?
A: Then the lease payment is sourced the same way an ordinary retail sale is sourced under the Retailers' Occupation Tax Act — based on where the retailer's "primary" and "secondary" selling activities occur under 86 Ill. Adm. Code 270.115, not based on the property's delivery destination.

Q: Does Chicago's lease tax still apply on top of the new state lease tax?
A: No, not for receipts covered by a qualifying home-rule ordinance adopted before January 1, 2023 — the Department specifically points to Chicago's Personal Property Lease Transaction Tax. Those receipts are exempt from the new State and local retailers' occupation tax on leases, and the lessor may buy that property tax-free as a sale for resale.

Q: Can I rely on this letter for my own leasing business?
A: No. This is a General Information Letter, not a Private Letter Ruling — it is not a statement of Department policy and is not binding on the Department. It only points to the relevant statutes and regulations; a business with its own specific fact pattern should not assume this letter resolves its situation.

Citations and references

Statutes and rules:

• 35 ILCS 120/2 (Retailers' Occupation Tax Act; lessors' lease receipts taxed, added by Article 75 of P.A. 103-592)
• 35 ILCS 120/1 (definition of "sale" now includes a "lease")
• 35 ILCS 120/2-5(49)(2) (exemption for lease receipts already subject to a pre-1/1/2023 home-rule lease tax)
• 35 ILCS 120/2-12(5.5) (sourcing: recurring-payment vs. non-recurring-payment leases)
• 35 ILCS 105/3 (Use Tax Act, imposition)
• 86 Ill. Adm. Code 130.101; 86 Ill. Adm. Code 150.101 (Retailers' Occupation Tax and Use Tax regulations)
• 86 Ill. Adm. Code 270.115 (local sourcing; primary/secondary selling activities)
• 2 Ill. Adm. Code 1200.120 (General Information Letters)

Case law cited in the ruling:

• Automatic Voting Machs. v. Daley, 409 Ill. 438, 447 (1951)
• Mahon v. Nudelman, 377 Ill. 331 (1941)
• Standard Oil Co. v. Dep't of Finance, 383 Ill. 136 (1943)
• Young v. Hulman, 39 Ill. 2d 219, 225 (1968)
• Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316 (1943)
• Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130

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/st25-0020-gil.pdf

Original ruling text

ST 25-0020-GIL

03/25/2025

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).
March 25, 2025
NAME, TITLE
COMPANY
ADDRESS
EMAIL
Dear NAME:
This letter is in response to your letter dated March 13, 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:
I hope this letter finds you well. I am writing to you in regards to the recent
notification that we received regarding Sales and Use Tax that applies to
Leased or Rented Personal Property. I am writing to formally request that the
Illinois Department of Revenue consider a redetermination of our sales tax
rates for rentals outside of Chicago.
We are a local PRODUCT rental house that is based within Chicago. We
currently charge the 11% Chicago Transaction Tax on all rentals that occur
within the Chicago area. Prior to 01/01/25, rentals that occurred outside of the
Chicago area were not subject to any tax. As I understand this new policy, we
are now required to charge a tax on all rentals that occur within Illinois. The
rate of tax is based on where the customer takes possession of our property.

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March 25, 2025
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All payments and contracts are processed at our location in Chicago.
Many of our customers are CUSTOMERS that rent equipment from our
Chicago location and take it LOCATIONS throughout the United States.
Just because we deliver to one location does not mean the equipment
will stay in that municipality for the entire rental period.
None of our rentals are subject to recurrent costs. All contracts are
paid, confirmed, fulfilled and completed from our Chicago location.
Our business is run on a proprietary software that manages all aspects
of our business. From order-entry, invoicing, inventory management,
etc. While we have the ability to track 2 or 3 taxing authorities, we do
not have the ability to track hundreds of different tax rates. The costs
to hire a programmer to augment our system would be extensive and
expensive.
We deliver our equipment all over the state. During our busy season,
we can deliver to over 50 different locations in one day. The expectation
to charge a different tax rate based on each municipality would be
unduly burdensome. Then the requirement to input each delivery
address into the Illinois Tax website for filing would require that we hire
more personnel to complete these tasks. We are not financially
prepared to bring on more staff. We currently lack the resources to
comply with a complex destination-based system.
Receiving notification on such a broad tax change with less then (sic)
24 hours notice to roll out has been excessively burdensome. We
received this communication on 12/30/24 at 9:42pm for tax changes
that would go in effect on 01/1/25.

We pride ourselves on being compliant with our tax responsibilities and are
not looking to avoid them in any way. We are just looking for a solution that we
know is accurate and manageable moving forward. We humbly request that
we charge our taxes based on the origin rate instead of the destination rate. I
feel confident that we can charge, collect, and track two tax rates. It's when
we start looking at 103 different counties or 1300 municipalities it becomes
impossible for us. I hope we can come to a mutually beneficial solution
moving forward.
Thank you for considering this petition. I would be happy to provide any
additional information or discuss this request further. I look forward to your
response and am hopeful for a positive outcome.
DEPARTMENT’S RESPONSE:

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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.
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.
Sourcing
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

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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
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.
Sourcing – Retail Leases
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. 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

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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
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

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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;

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

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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).
If, for example, a retailer is engaged in the business of renting PRODUCT in the City
of Chicago, then, if the rental of a PRODUCT is subject to the Chicago Personal Property
Lease Transaction Tax, the rental is exempt from Illinois Retailers’ Occupation Tax and
locally imposed retailers’ occupation taxes administered by the Illinois Department of
Revenue, (i.e., Chicago’s Home Rule Municipal Retailers’ Occupation Tax, Cook County’s
Home Rule County Retailers’ Occupation Tax Act, and the Regional Transportation Authority
Retailers’ Occupation Tax). If, however, the rental is not subject to Chicago’s Personal
Property Lease Transaction Tax, then it is subject to State and local retailers’ occupation
taxes. In that case, if the rental contract requires recurring periodic payments and the
PRODUCT is delivered to the rental customer, then the rate of tax on each periodic payment
is the rate in effect at the primary property location for each period covered by the payment.
If the rental contract does not require recurring periodic payments, or if the PRODUCT is not
delivered to the customer, then the rate of tax is determined by the State and local retailers’
occupation tax rate in effect at the location where the primary selling activities occur as
listed above (or as otherwise provided above if less than three primary selling activities
occur in one location).
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
AKO:sce