Since Illinois started taxing lease receipts on January 1, 2025, does a company that rents tower cranes owe tax on the crane rental itself, on the assist cranes and labor used to erect and dismantle it, on a separate maintenance agreement, and on freight charges?

Plain-English summary

Illinois overhauled how it taxes leases and rentals of tangible personal property effective January 1, 2025 (Article 75 of Public Act 103-592). Before that date, a lessor generally paid Use Tax up front on its own cost to acquire the equipment it would lease out. Now, the law instead defines a "lease" as itself a "sale," so lessors owe State and local Retailers' Occupation Tax (ROT) directly on the periodic gross receipts they collect from leasing tangible personal property, sourced to where the property is used.

A company that rents tower cranes to construction sites asked the Department to confirm the tax treatment of several pieces of a typical rental deal: the bare crane rental itself; "assist cranes" and operator labor that a separate crew uses only to erect and later dismantle the tower crane (with no equipment or labor supplied by the taxpayer); an optional, separately-billed maintenance agreement; hourly labor for maintenance and for "jumping" (raising) the crane as a building rises, with no property transferred; and separately-stated freight to deliver and retrieve the crane.

The Department confirmed the headline point: the bare rental of the tower crane is a taxable lease subject to the new destination-based ROT sourcing rules starting January 1, 2025. But rather than confirming or denying each individual line item the taxpayer asked about, the Department (consistent with the general, non-binding nature of a GIL) explained the legal framework the taxpayer must apply itself: the "true object test" for whether a transaction is really a lease of property versus a service, the "inseparable link" rule for whether accompanying service and delivery charges get folded into taxable gross receipts, separate rules for maintenance agreements, and the new lease-sourcing and home-rule-exemption provisions.

What this means for you

Equipment lessors (cranes, construction equipment, etc.)

If you lease tangible personal property in Illinois, you are now the one who owes ROT on your periodic lease receipts (not just Use Tax on your acquisition cost), and you must source and remit tax to the correct jurisdiction for each payment period. For leases with recurring periodic payments where you deliver the property, each payment is sourced to the property's primary location as reflected in your business records — not to a single jurisdiction for the life of the lease.

Deciding whether an arrangement is a "lease" at all

Providing an operator along with equipment does not automatically make an arrangement a taxable lease. If the operator is necessary for the equipment to work as designed and does more than just maintain, inspect, or set up the property — so that the customer never gets unfettered possession or control — the arrangement is not a lease and there is no taxable transfer. This is squarely the situation the taxpayer described for its assist cranes: the lessor's own crew retains control, decides what work gets done, and the taxpayer never has possession of the assist crane.

Bundled service, freight, and maintenance charges

Whether delivery, setup, and similar service charges are taxed along with the lease price turns on the "inseparable link" test: if you don't offer the customer the option to lease the property without paying for the service (or a free-service alternative), the charges are inseparably linked and taxable as part of gross receipts — even if separately stated on the invoice. If the customer really can lease the property without those charges, the service charge is not part of taxable gross receipts. Separately, whether a maintenance agreement is taxable depends on whether it's bundled into the selling price (taxable, with no further tax on parts/labor used) or sold separately (the sale of the agreement itself is not taxable, but the service provider then owes Use Tax on its cost of parts transferred while performing the service).

Self-assessing Use Tax when a lessor doesn't charge tax

If a lessor or retailer doesn't collect tax on a lease invoice, the incidence of the tax is still on the retailer/lessor, not the customer — but as a practical backstop, a registered purchaser who isn't charged tax should self-assess and remit Illinois Use Tax at the 6.25% state rate.

Common questions

Q: Did Illinois start taxing equipment leases and rentals differently in 2025?
A: Yes. Effective January 1, 2025, under Article 75 of Public Act 103-592, a "lease" is included in the definition of "sale," so lessors owe State and local Retailers' Occupation Tax on their periodic lease receipts, sourced under new destination-based rules — replacing the prior approach of taxing the lessor's own purchase of the property.

Q: Does bringing in a separate crew with their own crane just to set up and take down my rented equipment make that setup/teardown work taxable too?
A: Not automatically. If that crew's equipment isn't transferred to you and its operator (not you) retains possession, control, and decision-making authority over that equipment, the arrangement is not a "lease" of that assist equipment, and no tangible personal property changes hands in that piece of the transaction.

Q: Is a separately-billed maintenance agreement on leased equipment taxable?
A: If it's sold separately from the property (not bundled into the selling/lease price), the sale of the agreement itself is not a taxable transaction. However, the company performing the maintenance under that agreement then owes Use Tax on its own cost of any parts it transfers while performing the service.

Q: If my lessor doesn't charge me tax on a rental invoice, do I have to pay it myself?
A: The Department notes the legal incidence of ROT falls on the retailer/lessor, not the customer. But since the taxpayer here is itself registered for Illinois Use Tax, self-assessing and remitting at the 6.25% state rate on invoices where tax wasn't charged is the safe practical approach the Department describes.

Q: Did this GIL give a yes/no answer on each of the taxpayer's specific items (assist cranes, labor, freight, maintenance agreement)?
A: No. Consistent with a GIL's limited purpose, the Department explained the general rules (true object test, inseparable link doctrine, maintenance agreement rules, and sourcing) rather than applying them item-by-item to the taxpayer's facts. A taxpayer wanting a binding, fact-specific answer would need to request a Private Letter Ruling instead.

Citations and references

Statutes:

• 35 ILCS 120/2; 35 ILCS 120/1 (Retailers' Occupation Tax Act, lease-as-sale provisions, as amended by Article 75 of Public Act 103-592)
• 35 ILCS 120/2-12(5.5) (sourcing of lease receipts)
• 35 ILCS 120/2-5(49)(2) (home rule lease tax exemption for pre-1/1/2023 ordinances, e.g., Chicago's Personal Property Lease Transaction Tax)
• 65 ILCS 5/8-11-1 (Home Rule Municipal Retailers' Occupation Tax reimbursement)

Regulations:

• 86 Ill. Adm. Code 130.101; 86 Ill. Adm. Code 150.101 (ROT and Use Tax imposition)
• 86 Ill. Adm. Code 130.415(b)(1)(B) (inseparable link of service/delivery charges to lease price)
• 86 Ill. Adm. Code 140.301(b)(3) (maintenance agreements under the Service Occupation Tax Act)
• 86 Ill. Adm. Code 270.115; 86 Ill. Adm. Code 270.101 (local sourcing and reimbursement)

Case law (true object test and nature of the tax):

• Spagat v. Mahin, 50 Ill. 2d 183 (1971)
• Velten & Pulver, Inc. v. Department of Revenue, 29 Ill. 2d 524
• Dow Chemical Co. v. Department of Revenue, 26 Ill. 2d 283
• Kellogg Switchboard & Supply Corp. v. Department of Revenue, 14 Ill. 2d 434
• 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/2025.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2025/st25-0024-gil.pdf

Original ruling text

ST 25-0024-GIL

4/21/2025

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 21, 2025
NAME, TITLE
COMPANY
ADDRESS
EMAIL
Dear NAME:
This letter is in response to your letter dated April 4, 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:
Effective 1/1/2025 leases and rented tangible personal property were
incorporated into sales and subject to destination-based ROT sourcing.
COMPANY is requesting clarification via a Letter Ruling on the taxation of
specific items as well as confirmation on the specific use-tax rate for items in
which we are not charged tax. (35 ILCS 120)
COMPANY rents tangible personal property. In some rental arrangements,
COMPANY procures the services of the Lessor to erect and later dismantle the
piece of equipment it will be renting. These items have been laid out below
with explanation.

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April 21, 2025
Tower Crane: The tower crane is rented for an indeterminate term whereby
we exercise the possession or control of that specific piece of machinery. We
understand the bare rental of the tower crane to be a taxable event subject to
destination-based ROT sourcing effective 1/1/2025.
Assist Cranes: Prior to the tower crane becoming within our control for
operation, the lessor and a third party erect the crane and subsequently
dismantle the crane at completion of the rental term. To perform the erection
and dismantle, the lessor provides an assist crane(s) and the labor to operate
that crane to perform the service. The crane provider handles the set-up,
transportation and operation of these assist cranes. Tangible personal
property is not transferred. Neither the equipment nor the labor to operate the
assist crane(s) are supplied or maintained by COMPANY.
The assist crane is not within COMPANY’s possession or control, the lessor’s
operator and oiler, as applicable, determine when the crane will work and
what picks it will complete. The lessor also determines the type of crane(s)
needed to erect the bare rental tower crane.
Please confirm the operated crane used to assemble/disassemble the tower
crane is not subject to destination-based ROT sourcing by itemized task noted
below
•
the assist crane
•
the labor to operate the assist crane
•
the transportation to/from the site where such equipment is used to
perform the service of erecting and/or dismantling the crane
Maintenance Agreement: The service provider renting the crane extends the
option for the lessee to procure a maintenance agreement on the tangible
property rented. The maintenance agreement is separately sold and stated on
the invoice. The agreement is billed monthly for the same duration as the
tangible property is rented. Please confirm the maintenance agreement is not
subject to destination-based ROT sourcing.
Labor: On occasion, a bare rental will encounter a need to maintenance
and/or labor to provide the raising of the crane. The crane jump (rising) is a
process by which sections are added to the mast, allowing it to extend as the
building rises. It is a service procured and provided by the lessor.
•

Maintenance: A technician is provided by the crane company and the
labor for the services performed on the piece of equipment are
invoiced to COMPANY at agreed upon hourly rates. No tangible

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April 21, 2025

•

personal property is transferred. Please confirm the labor on the bare
rental continues to be a non-taxable event and is not subject to
destination-based ROT sourcing.
Raising the crane: A technician(s) is provided by the crane company
and labor is performed on the piece of equipment to add sections to
the mast. The service is completed at agreed upon hourly rates. No
tangible personal property is transferred. Please confirm the labor
continues to be a non-taxable event and is not subject to destinationbased ROT sourcing.

Freight: The crane provider delivers the tower crane to/from the construction
side. The freight is separately stated on the invoice. Please confirm the
transportation charge of the bare rental continues to be a non-taxable event
and is not subject to destination-based ROT sourcing.
Use Tax on Leased or Rented: COMPANY is registered within Illinois for Use
Taxes (XXXX-XXXX). For invoices related to a lease or rental in which the
retailer or lessor has not assessed tax on the invoice, please confirm the tax
shall be self-assessed by COMPANY at the IL rate of 6.25% and remitted to
the State of Illinois, thereby fulfilling COMPANY’s obligation on the
transaction.
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.
The provision of a service in Illinois that is not accompanied by the transfer of tangible
personal property is generally not subject to Retailers’ Occupation Tax or Service
Occupation Tax liability. The sale of service that is accompanied by a transfer of tangible
personal property would be subject to liability under the Service Occupation Tax Act.
Maintenance Agreements
The taxation of maintenance agreements is discussed in subsection (b)(3) of Section
140.301 of the Department’s administrative rules under the Service Occupation Tax Act.
See 86 Ill. Adm. Code Sec. 140.301(b)(3). The taxability of agreements for the repair or
maintenance of tangible personal property depends upon whether charges for the

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April 21, 2025
agreements are included in the selling price of the tangible personal property. If the charges
for the agreements are included in the selling price of the tangible personal property, those
charges are part of the gross receipts of the retail transaction and are subject to tax. In those
instances, no tax is incurred on the maintenance services or parts when the repair or
servicing is performed. A manufacturer’s warranty that is provided without additional cost
to a purchaser of a new item is an example of an agreement that is included in the selling
price of the tangible personal property.
If agreements for the repair or maintenance of tangible personal property are sold
separately from tangible personal property, sales of those agreements are not taxable
transactions. However, when maintenance or repair services or parts are provided under
those agreements, the service or repair companies will be acting as service providers under
provisions of the Service Occupation Tax Act that provide that when service providers enter
into agreements to provide maintenance services for particular pieces of equipment for
stated periods of time at predetermined fees, the service providers incur Use Tax based on
their cost price of tangible personal property transferred to customers incident to the
completion of the maintenance service. See 86 Ill. Adm. Code 140.301(b)(3). The sale of an
optional maintenance agreement or extended warranty is an example of an agreement that
is not generally a taxable transaction.
Leases
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).
When the provision of tangible personal property includes an operator for the
tangible personal property for a fixed or indeterminate period, the arrangement may
constitute a lease taxable under the Retailers’ Occupation Tax Act. If the operator is

COMPANY
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necessary for the equipment to perform as designed and is responsible for more than
maintaining, inspecting, or setting up the tangible personal property, the arrangement is not
a lease. When a purchaser enters into such an agreement to use tangible personal property
for a predetermined period, but an owner operator retains possession and control of the
tangible personal property, such agreement does not constitute a lease. The customer may
gain access to the benefit of the tangible personal property, but an owner operator remains
in possession and control of the property throughout its use under the agreement. In this
situation, the customer does not have the unfettered right to possess or control the tangible
personal property, and the transaction does not include any taxable transfer of tangible
personal property. However, if the provision of tangible personal property includes an agent
of the lessor to simply maintain, inspect, set up, or disassemble the tangible personal
property, such arrangement is subject to the provisions of Article 75 of Public Act 103-592.
True Object Test
If it is determined that a transaction includes a taxable transfer of tangible personal
property, it must be determined whether the transaction is a retail lease transaction or a
transfer by lease of tangible personal property incident to a sale of service. To make this
determination, the lessor must determine the true object or substance of the transaction.
“If the article sold has no value to the purchaser except as a result of services rendered by
the vendor and the transfer of the article to the purchaser is an actual and necessary part of
the service rendered, then the vendor is engaged in the business of rendering service and
not in the business of selling at retail. If the article sold is the substance of the transaction
and the service rendered is merely incidental to and an inseparable part of the transfer to
the purchaser of the article sold, then the vendor is engaged in the business of selling at
retail.” Spagat v. Mahin, 50 Ill. 2d 183 (1971); Velten & Pulver, Inc. v. Department of Revenue,
29 Ill. 2d 524, 529; Dow Chemical Co. v. Department of Revenue, 26 Ill. 2d 283, 285; Kellogg
Switchboard & Supply Corp. v. Department of Revenue, 14 Ill. 2d 434, 437. If the tangible
personal property rented would have value even without the services a company provides,
the substance of the transaction is the tangible personal property.
Inseparable Link
If the true object of the transaction is the lease or rental of tangible personal property,
any accompanying service charges, such as delivery and setup, if inseparably linked to the
lease or rental of the tangible personal property, are part of the lessor’s costs of doing
business and are includable in the lessor’s taxable gross receipts. This is true even if the
charges for the services are separately stated on the agreement or bill between the lessor
and its customers.
When an “inseparable link” exists between the lease of tangible personal property
and related service charges, including delivery charges, the related service charges are part

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of the gross receipts subject to the Retailers’ Occupation Tax. See 86 Ill. Adm. Code
130.415(b)(1)(B)(i). An inseparable link exists when (a) the service charges are not
separately identified to the lessee on the contract or invoice or (b) the service charges are
separately identified to the lessee on the contract or invoice, but the lessor does not offer
the lessee the option to lease the property without the payment of service charges added to
the lease or rental price of an item (e.g., the lessor does not offer the lessee the option to
lease the tangible personal property separately from the related service, or the lessor does
not offer, or the lessee does not qualify for, a free service option). 86 Ill. Adm. Code
130.415(b)(1)(B)(ii). In contrast, if the lessee can rent or lease the tangible personal property
without payment of service charges to the lessor, then an inseparable link does not exist,
and the service charges should not be included in the lease or rental price of the tangible
personal property. 86 Ill. Adm. Code 130.415(b)(1)(B)(ii)-(iii).
The following example illustrates whether a service charge constitutes an
inseparable link to rental or lease charges. A business offers guided kayak tours that include
the rental of a kayak for the one-hour tour duration. Renters are encouraged to participate
in the tour but are allowed to venture off on their own. The business requires tour
participants to use the provided rented kayaks. The business does not offer rentals of
kayaks independent of purchasing the tour. The kayak rental is the true object of the
transaction since the tour could not be done without the kayak, but the kayak rental would
still have value without the tour. The charge for the tour is inseparably linked to the rental
charges for the kayak, regardless of if they are separately stated, as you cannot rent the
kayak without the tour charge. As such, the entirety of the proceeds of the transaction is
includable in the business’s gross receipts and subject to tax. However, if the business were
to offer independent kayak rentals in addition to kayak tours, the charge for the tour would
not be inseparably linked to the rental charges for the kayak. In this instance, if the business
separately states the charge for kayak rental from the charge for the tour on the business’s
invoice, the charges for the tour would not be includable in the business’s gross receipts for
retailers’ occupation tax purposes and would be a nontaxable service charge.
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
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

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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.
For sales at retail, if a lease does not require recurring periodic payments, pursuant
to 35 ILCS 120/2-12(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.
Home Rule Lease Tax Exemption
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

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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.
Local Tax
Locally imposed retailers’ occupation taxes (e.g. the Home Rule Municipal Retailers’
Occupation Tax (HRMROT)) authorize retailers subject to these taxes to reimburse
themselves for their liability by separately stating these taxes to their customers. See, for
example, 86 Ill. Adm. Code 270.101. The statutory language authorizing the HRMROT states,
in part, the following:
Persons subject to any tax imposed under the authority granted in this Section
may reimburse themselves for their seller’s tax liability hereunder by
separately stating such tax as an additional charge, which charge may be
stated in combination, in a single amount, with State tax which sellers are
required to collect under the Use Tax Act...
65 ILCS 5/8-11-1. Sellers (including lessors) are responsible for State and local retailers’
occupation taxes on lease receipts subject to tax under the provisions of Article 75 of Public
Act 103-592 and may collect from purchasers (including lessees) the 6.25% Use Tax liability
and all local tax reimbursement liabilities.
If tax is not collected by the retailer, purchasers (including lessees) should selfassess and remit Use Tax to the Department at the rate of 6.25%. In this situation, the
purchaser would not be obligated to pay State and local retailers’ occupation taxes as the
incidence of those taxes is on the retailer, not the user.
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