Does a lessor that already paid use tax on equipment cost under a pre-2025 operating lease now also owe the new lease tax on payments received after January 1, 2025?

Plain-English summary

A company that finances material handling equipment (like forklifts) through long-term operating leases had already done everything right under the OLD rules: before January 1, 2025, a "true lease" made the lessor the end user of the equipment, so the lessor either paid its supplier's Retailers' Occupation Tax or self-assessed and remitted Use Tax on the equipment's own cost -- with the lessee typically agreeing by contract to reimburse the lessor for that cost. The company had done exactly that for its existing operating leases. Then Illinois's 2025 overhaul (Article 75 of Public Act 103-592) started taxing LEASE PAYMENTS THEMSELVES as retail sales going forward. The company's leases entered into before 2025 kept running past that date, with the lessees continuing to make payments through 2025 and beyond -- so the company asked whether it now had to start collecting tax on those ongoing payments too, even though it had already paid its Use Tax obligation on the same equipment before the law changed. The company argued that taxing the same equipment twice -- once via Use Tax on its cost, and now again via Retailers' Occupation Tax on the lease payments -- would be "excessive taxation."

The Department's answer: yes, tax on the ongoing lease receipts is still owed, and it isn't double taxation in a legal sense. The key move in the analysis is that the OLD tax (Use Tax on the lessor's cost, pre-2025) and the NEW tax (Retailers' Occupation Tax on lease receipts, 2025-forward) fall on two DIFFERENT transactions -- the purchase of the equipment versus the ongoing lease of it -- even though both taxes ultimately relate to the same physical equipment. Having already met the tax obligation on the purchase doesn't exempt the lessor from the separate tax now imposed on the lease receipts. The Department backed this up by quoting Illinois appellate case law (New Heights Recovery & Power, LLC v. Bower): a taxpayer doesn't have a "vested right" in the continuation of an existing tax law, and the legislature can amend a statute going forward without creating a transition credit for taxpayers who already complied with the old rules. The only carve-out from the new lease tax that DOES exist is for certain items required to be registered with a state agency -- motor vehicles, watercraft, aircraft, and semitrailers -- which stay under the pre-2025 regime regardless.

What this means for you

Equipment lessors with leases that straddle January 1, 2025

Budget for the new lease-receipts tax on payments received from January 1, 2025 onward, even for leases that started years earlier and even if you already paid Use Tax on the equipment's cost under the old rules. There's no transition credit or exemption for having already complied with the pre-2025 regime.

Businesses arguing "we already paid tax on this" as a defense to a new tax

The Department's reasoning here is a useful general principle: paying tax under an old law doesn't protect you from a NEW tax later imposed on a different aspect of the same underlying asset or arrangement, since Illinois law recognizes no vested right in an existing tax scheme continuing unchanged.

Fleets/equipment renters specifically excluded from the new lease tax

Confirm whether your leased items are registered vehicles, watercraft, aircraft, or semitrailers -- those specific categories stay under the OLD taxation approach (supplier owes Retailers' Occupation Tax, lessor owes Use Tax, lessee owes nothing) rather than the new lease-receipts tax.

Common questions

Q: Does a lessor owe the new 2025 lease tax on payments from a lease that started before 2025?
A: Yes, for payments received on or after January 1, 2025, even if the lease itself was entered into years earlier.

Q: Is this double taxation if the lessor already paid Use Tax on the equipment's cost?
A: The Department doesn't treat it that way -- it considers the earlier Use Tax and the new lease-receipts tax to fall on two different transactions (the purchase versus the ongoing lease), not one transaction taxed twice.

Q: Is there any transition credit for tax already paid under the old rules?
A: No. The Department found no statutory credit or exemption, and cited case law holding there's no vested right in an existing tax law continuing unchanged.

Q: Are any leased items excluded from the new 2025 lease tax?
A: Yes -- motor vehicles, watercraft, aircraft, and semitrailers required to be registered with a state agency continue under the pre-2025 approach (supplier/lessor tax, no lessee tax) rather than the new lease-receipts tax.

Citations and references

Statutes:

• 35 ILCS 120/1, 120/2, 120/2-5 (Retailers' Occupation Tax Act -- "sale" includes a lease, effective January 1, 2025, P.A. 103-592 Article 75)

Regulations:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposition)
• 86 Ill. Adm. Code 150.101, 150.310(a)(3) (Use Tax imposition; other-state use tax credit)

Case law:

• New Heights Recovery & Power, LLC v. Bower, 347 Ill. App. 3d 89, 96 (2004) (no vested right in continuation of an existing tax law)

Source

• Landing page: Illinois 2025 Sales Tax Letter Rulings
• Original PDF: ST25-0051-GIL.pdf

Original ruling text

ST 25-0051-GIL

9/19/2025

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).

September 19, 2025
NAME
COMPANY
ADDRESS
Dear NAME:
This letter is in response to your letter dated June 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.
Whether to issue a private letter ruling in response to a letter ruling request is within
the discretion of the Department. 2 Ill. Adm. Code 1200.110(a)(4). If there is case law or
there are regulations dispositive of the subject of the request, the Department will decline
to issue a private letter ruling on the subject. 2 Ill. Adm. Code 1200.110(a)(3)(D). Having
reviewed your request, the Department notes that there are laws and regulations dispositive
of the subject of the request. Thus, the Department is declining to issue a private letter ruling
in response to your request. However, 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:
Please allow this letter to serve as a request for a Private Letter Ruling (“PLR”)
pursuant to the Illinois’ Department Code Section 1200.110. The undersigned

COMPANY
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September 19, 2025
individual is an employee authorized to request the private letter ruling on
behalf of COMPANY An executed power of attorney is attached hereto as
Exhibit “I”
Taxpayer Incorporated’s identifying information is set out as follows:
Taxpayer’s Name and State of Formation: COMPANY, Formed in STATE
Location: ADDRESS, Federal ID: ##-#######
Illinois Taxpayer ID: ####-####
Statement of Relevant Facts
COMPANY is a provider of financing solutions for material handling
equipment (i.e., lender for PRODUCTS). Through its network of dealers and
team of dedicated service representatives, COMPANY offers a variety of lease
and loan products and programs to help its customers finance their
equipment.
COMPANY leases material handling equipment such as forklifts under longterm lease types (i.e., greater than 36 months). For operating lease contracts
(“True leases”) commenced before 1/1/2025, COMPANY had paid and
remitted the lessor use tax obligations on cost of purchases for all leased
equipment under operating leases to the Illinois Department of Revenue.
COMPANY made contractual agreements with the lessees under which the
lessees reimbursed COMPANY for the tax paid by COMPANY.
Statements Relating to Request
This issue is not under consideration by the Illinois Department of Revenue in
connection with an audit examination of any type, a refund request, a
voluntary disclosure agreement, an administrative hearing, or litigation for
Taxpayer Incorporated. Additionally, COMPANY has not made a similar
request from a taxing jurisdiction of another state. Should COMPANY see a
need to make a similar request in another state, it may make a request
depending on the law and regulations of that state.
Requested Ruling
COMPANY requests a private letter ruling regarding the following:
Whether COMPANY is required to assess or collect additional sales taxes on
operating leases commenced before 1/1/2025, despite COMPANY paying
use tax on the cost of equipment the subject of these operating leases to the
Illinois Department of Revenue.
Authorities in Support of Requested Ruling
86 Ill. Adm. Code 130.101

COMPANY
Page 3
September 19, 2025
86 Ill. Adm. Code 150.101
86 Ill. Adm. Code 130.220
Article 75 of Public Act 103-592
Explanation of Grounds for Requested Ruling
We examined the Illinois Administrative Code, agency rules, and the 2025
Sales Tax Letter Rulings issued by the Department after 1/1/2025 under the
Leasing subject to determine a possible answer to our inquiry. However, we
were not able to find a similar scenario or a clear answer to our question.
Article 75 of Public Act 103-592
Based on our reading of some of the General Information Letter (“GIL”), it
appears that the tax applies to lease receipts received on or after January 1,
2025, for leases in effect, entered, or renewed on or after that date. In the case
of COMPANY, the existing operating leases in question commenced or
entered before that date (i.e., before January 1, 2025). As stated in the
statement of relevant facts, COMPANY had paid and remitted the lessor use
tax obligations on cost of purchases for all leased equipment under operating
leases to the Illinois Department of Revenue. COMPANY made contractual
agreements with the lessees under which the lessees reimbursed COMPANY
for the tax paid.
However, the lessee continued to make payment under the operating leases
until the leases reach maturity dates in 2025 and beyond. COMPANY is
seeking to confirm whether the receipts from the old leases of which the tax
obligations had been met are subject to sales tax effective from January 1,
2025.
Authorities Contrary to Requested Ruling
In relation to the operating leases commenced before January 1, 2025, of
which COMPANY had met the tax obligations to the Department. Our
understanding that assessing sales tax on the receipts after 1/1/2025 may be
considered excessive taxation because COMPANY met its tax obligation for
the equipment when the operating leases commenced prior to January 1,
2025.
DEPARTMENT’S RESPONSE:
The 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

COMPANY
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September 19, 2025
consumption. See 86 Ill. Adm. Code 130.101. 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.
Through December 31, 2024, and in the case of what was considered a “true lease”,
lessors of tangible personal property being used in Illinois were the end users of that
property and, as such, incurred Use Tax obligations thereon. The lessors would either pay
their suppliers, who were liable for Retailers’ Occupation Tax on the property sold at retail
to the lessor, or self-assess and remit their Use Tax to the Department. If the lessors had
already paid use tax in another state with respect to the purchase at retail of the tangible
personal property, they would be exempt from Illinois Use Tax to the extent of the amount of
such tax properly due and paid in such other state. See 86 Ill. Adm. Code 150.310(a)(3). The
State of Illinois imposed no Retailers’ Occupation Tax or Use Tax on lease receipts, and as
such lessors were not permitted to “pass through” their Use Tax obligation to the lessees as
taxes. However, it was typical of true leases to contain contractual provisions stating that
the lessees would reimburse the lessors for their tax costs. This was not a matter of Illinois
tax law but private agreement between lessors and lessees. If the lessees agreed to such
provisions, they were bound to satisfy that duty because of a contractual agreement, not
because of Illinois tax law.
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 now 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. This includes the extension of all exemptions from
retailers’ occupation tax and use tax to leases. See 35 ILCS 120/2-5. 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.
Prior to January 1, 2025, Illinois did not tax gross receipts from the lease of tangible
personal property as described in this letter. Under the Retailers’ Occupation Tax Act as
amended by Article 75 of Public Act 103-592, with the exception of certain items required to
be registered with an agency of this State, lessors are, however, subject to tax on the gross
receipts received on or after January 1, 2025, from existing or new leases of tangible

COMPANY
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September 19, 2025
personal property. The fact that a lessor of tangible personal property was subject to tax
under the Use Tax Act on its purchase of that property, prior to January 1, 2025, does not
exempt or exclude the lessor from Retailers’ Occupation Tax on lease receipts received on
or after January 1, 2025, on the taxable lease of the property. The incidence of tax prior to
January 1, 2025, was on a different transaction than the incidence of tax beginning January
1, 2025. As the First District Illinois Appellate Court stated in New Heights Recovery & Power,
LLC v. Bower, “A right, to be within the protection of the constitution, must be a vested right.
It must be something more than a mere expectancy based upon an anticipated continuance
of an existing law.” New Heights Recovery & Power, LLC v. Bower, 347 Ill. App. 3d 89, 96
(2004). “Our supreme court has held there is no vested right in the mere continuation of a
law and the legislature has an ongoing right to amend a statute.” Id.
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 1st, 2025 (i.e., suppliers owe Retailers’ Occupation Tax, lessors owe Use
Tax, and lessees of these items are not subject to Retailers’ Occupation or Use Tax).
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 (217) 782-3336.
Very truly yours,

George L. Encarnacion, Jr.
Associate Counsel
GLE:sce