Now that Illinois taxes leases of tangible personal property as retail sales starting January 1, 2025, how do exemptions for construction contractors, exempt organizations, and resale purchases apply to a company that both rents and sells equipment and materials?

Plain-English summary

This GIL explains Illinois's new leasing tax regime, which took effect January 1, 2025 under Article 75 of Public Act 103-592. Before that date, a business leasing out tangible personal property ("TPP") in Illinois paid Use Tax up front when it purchased the item it intended to rent out, and the rental receipts themselves were not separately taxed. Starting January 1, 2025, that model flipped: a "lease" is now treated as a "sale" for Retailers' Occupation Tax (ROT) purposes, so a lessor must charge and remit State and local ROT on its gross receipts from lease payments, sourced to where the lease occurs, for any lease in effect, entered into, or renewed on or after that date.

The taxpayer here rents and sells equipment and materials to contractors nationwide, including contractors working on Illinois construction projects — some of which are for exempt entities like IDOT (the Illinois Department of Transportation). Before 2025 the company paid Use Tax on its rental inventory and treated its rentals as non-taxable; after the change, its rentals became subject to ROT, and it asked the Department three questions: (1) whether rentals or sales to a contractor for incorporation into realty owned by an exempt entity are tax-exempt, (2) what proof of exemption is needed, and (3) what other exemptions might apply.

The Department answered that the same exemptions available under the Retailers' Occupation Tax Act for ordinary sales now apply equally to leases. A construction contractor that buys or rents materials to incorporate into real estate owned by an exempt organization or government entity is exempt from ROT and Use Tax only if that organization or entity holds a valid "E" (exemption identification) number at the time of the transaction — the contractor must get a certification plus the E number and keep it on file. If the contractor instead uses the item itself rather than incorporating it into the exempt entity's real estate, no exemption applies. Separately, the Department described a new resale exemption for lessors: starting January 1, 2025, a lessor can buy tangible personal property tax-free as a sale for resale — using an active registration or resale number and a resale certificate — if that property is purchased exclusively to be leased out (not used or consumed by the lessor itself). Lessors who both use and lease from the same stock generally need to keep separate inventories to use this exemption correctly.

What this means for you

Equipment and material rental companies (lessors)

If you lease tangible personal property in Illinois, you now charge and remit State and local ROT on your lease receipts instead of paying Use Tax on your own purchase of the rental inventory. 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, regardless of when the underlying item was purchased.

Buying inventory you intend to lease out

You may now purchase items tax-free as a sale for resale if you intend to exclusively lease (not use) them — give your supplier a Certificate of Resale along with your active registration or resale number. If you sometimes use the same items yourself (for example, in a demo or rental-to-use situation), you generally cannot buy that stock tax-free; keeping separate inventories for "for lease" versus "for use" items is the safer approach.

Construction contractors and their suppliers

Contractors remain end users who owe Use Tax on materials they incorporate into real property, unless the real estate belongs to an exempt organization or governmental entity that holds a currently valid "E" number. To document that exemption, the contractor must give its supplier a certification identifying the exempt entity by name and address, the date the contract was entered into, and the entity's "E" number. If the item ends up used by the contractor rather than incorporated into the exempt entity's property, the exemption does not apply.

Sales or leases to exempt organizations and government entities

A sale or lease is only exempt if it is invoiced directly to the exempt organization or governmental entity itself, and that entity has an active "E" number at the time of the transaction. Sales to an individual member or client of an exempt organization are generally still taxable, even if the organization itself is tax-exempt.

Common questions

Q: Does Illinois still let lessors pay Use Tax up front instead of charging tax on lease payments?
A: Not anymore, as of January 1, 2025. The old model — Use Tax paid by the lessor at purchase, with rental receipts untaxed — has been replaced by ROT on the lessor's gross lease receipts under Article 75 of P.A. 103-592.

Q: Are rentals or sales to a contractor for a project owned by an exempt entity automatically tax-exempt?
A: No. The exemption depends on the exempt organization or governmental entity holding a valid "E" number at the time of the transaction, and on the contractor providing a proper certification and that E number to its supplier. Without a current E number and documentation, the transaction is taxable even if the ultimate owner is a government agency or nonprofit.

Q: Can a lessor buy equipment tax-free if it plans to rent it out?
A: Yes, as of January 1, 2025 — a purchase by a lessor exclusively for leasing can be made tax-free as a sale for resale, using an active registration or resale number and a resale certificate. Purchases for the lessor's own use or consumption cannot be made tax-free this way.

Q: What if the same equipment is sometimes leased and sometimes used by the company itself?
A: Items purchased tax-free for resale must actually be leased, not used or consumed by the lessor. A lessor that both uses and leases similar property should keep separate inventories — one for items bought tax-free for leasing (with lease receipts subject to ROT) and one for items bought tax-paid for its own use.

Q: Does this GIL bind the Department on my facts?
A: No. A General Information Letter only directs a taxpayer to relevant regulations and other sources; it is not a statement of Department policy and is not binding on the Department. Only a Private Letter Ruling, requested under 2 Ill. Adm. Code 1200.110, is binding, and only as to the requesting taxpayer.

Citations and references

Statutes and rules:

• 35 ILCS 120/2 (Retailers' Occupation Tax Act, as amended by Article 75 of P.A. 103-592) — imposes ROT on lessors' gross receipts from leases, effective January 1, 2025
• 35 ILCS 120/1 (definition of "sale" now includes a "lease")
• 35 ILCS 120/2-12(5.5) (sourcing rule for lease receipts)
• 35 ILCS 120/2c (sale-for-resale exemption for lessors)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposition); 86 Ill. Adm. Code 150.101 (Use Tax imposition)
• 86 Ill. Adm. Code 130.120 (exemptions apply to leases the same as other sales)
• 86 Ill. Adm. Code 130.2007 and 130.2080 ("E" number exemption identification)
• 86 Ill. Adm. Code 130.2075 (construction contractors as end users; exemption for materials incorporated into exempt entities' real estate)
• 86 Ill. Adm. Code 130.1401 and 130.1405 (resale determination and Certificate of Resale)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure); 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

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/st25-0021-gil.pdf

Original ruling text

ST 25-0021-GIL

04/07/2025

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.)
April 7, 2025
NAME, TITLE
COMPANY
ADDRESS
Dear NAME:
This letter is in response to your letter dated February 10, 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:
COMPANY is a material and equipment provider within STATE with the primary
course of business renting and selling tangible personal property to various
contractors around the nation. This includes frequent transactions to supply
rental equipment and/or materials and purchases of tangible personal
property to contractors within the State of Illinois for use or incorporation into
realty during the performance of a contract on various projects, including but
not limited to projects under exempt entity ownership such as IDOT.
Until recently, COMPANY remitted Use Tax whereby rentals into the state
were non-taxable. Effective Jan 1, 2025, our taxing status was changed to
Retailers Occupation Tax (ROT) and rentals of TPP became taxable.

COMPANY
Page 2
April 7, 2025
To better understand and clarify which transactions should be imposed sales
tax, could you please advise on the following questions:

1. Are rentals and/or sales of tangible personal property to a contractor for use
   or incorporation into realty during the performance of a contract under an
   exempt entity ownership project exempt from sales tax?
2. If so, what documentation should be provided by the contractor, exempt
   entity, and retained on file by the seller to provide sufficient proof of
   exemption status at the time of the transaction?
3. Other than exempt entities, are there any other exceptions that could qualify
   for an exempt status in relation to rented and/or purchased tangible personal
   property in the State of Illinois?
   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 at retail to purchasers for use or
   consumption. See 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 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. For retail leases, tax is due at the lessor’s State
   and local retailers’ occupation tax rate based on where the lease is sourced. See 35 ILCS
   120/2-12(5.5).
   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 and are found at Section 130.120 of Title 86 of the Administrative Code. See 86 Ill.

COMPANY
Page 3
April 7, 2025
Adm. Code 130.120. Sales to exempt organizations (organizations that qualify as exclusively
religious, charitable, or educational) and governmental entities are subject to tax unless the
exempt organization or governmental entity has obtained an active exemption identification
number (“E” number) from the Department. See 86 Ill. Adm. Code 130.2007 and 130.2080.
Persons or businesses selling tangible personal property to these organizations or
governmental entities must be provided with an “E” number for the sales to be tax exempt,
unless another exemption can be documented. It is important to note that only sales of
tangible personal property invoiced to the organization or governmental entity itself are
exempt. Sales made to an individual member or client of an exempt organization or entity
are generally subject to tax.
If a person or business is contractually required to purchase tangible personal
property for incorporation into real estate, then that person or business would be acting as
a construction contractor. Construction contractors in Illinois are deemed to be the end
users of tangible personal property purchased for incorporation into real property and owe
Use Tax on those materials. 86 Ill. Adm. Code 130.2075. However, purchases of tangible
personal property by a construction contractor for incorporation into the real estate owned
by an exempt organization or governmental entity that possesses a valid “E” number at the
time of sale may be made free of Illinois Retailers’ Occupation Tax and Use Tax under the
provisions of 86 Ill. Adm. Code 130.2075(d).
In claiming the exemption from tax, the construction contractor must provide its
supplier with a certification stating that its purchases are for conversion into real estate
under a contract with an exempt organization or governmental entity, identifying the
organization or entity by name and address and stating on what date the contract was
entered into. The construction contractor must also provide the “E” number issued by the
Department to the organization or entity for which the purchasing contractor is acting. See
86 Ill. Adm. Code 130.2075(d)(4).
If, however, an item is not incorporated into real estate owned by an exempt
organization or governmental entity as provided above, but is instead used by the
construction contractor, then it is not eligible for the exemption.
Sales for Resale
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 103-

COMPANY
Page 4
April 7, 2025
592, for the purpose of exclusively 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 could keep separate inventories based on items purchased tax-free
for lease, the receipts for the lease of which will be subject to retailers’ occupation tax, and
items purchased tax-paid for use by the lessor. Tax-paid items include tangible personal
property used by transferring it incident to the provision of an entertainment or amusement
environment in which the object of the transaction is the entertainment or amusement
environment and no separate charge is made for the tangible personal property.
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