Is a lessee being double-taxed if their equipment lease already had sales tax paid at signing, before Illinois started taxing lease payments themselves in 2025?

Plain-English summary

A business leasing a piece of construction equipment (a front-end loader used for seasonal snow removal) noticed new sales tax charges appearing on its monthly lease payments starting in early 2026 -- on top of sales tax the lessee understood had ALREADY been paid when the lease was originally signed, before 2025. The lessee argued this amounted to unfair double taxation and asked the Department to fix it.

The Department explained why this isn't legally double taxation, even though it may feel that way financially. Before January 1, 2025, a "true lease" (no buyout option) was taxed at the FRONT END only: the lessor, as the legal "end user" of the equipment, paid Use Tax on its own cost when it originally bought the equipment to lease out -- the lessee itself owed no state sales tax on the lease payments. Some lessors passed that upfront cost through to lessees contractually (as this one apparently did), but that was a private agreement, not a tax law requirement.

Starting January 1, 2025, Illinois changed the rule for MOST leased tangible personal property (registered items like motor vehicles are excluded, but this construction equipment isn't registered, so it's covered): now the lease PAYMENTS themselves are treated as taxable retail sales, taxed as they're received, regardless of any tax the lessor may have already paid on its original purchase. Crucially, the new law includes NO credit or offset for lessors (or their lessees) who already bore tax on the original purchase before 2025 -- the Department confirmed this gap is real and was written into the statute, not an oversight it can fix administratively.

The Department's legal answer relies on a straightforward tax-law principle: the pre-2025 tax (on the lessor's purchase) and the post-2025 tax (on the ongoing lease receipts) are legally two SEPARATE taxable events on two different transactions, so there's no legal double taxation even if the same underlying equipment is involved. And under Illinois case law, no one has a "vested right" in an old tax law continuing forever -- the legislature can change the rules going forward, even for existing leases. Fixing the gap for taxpayers in this exact situation would require a new law, which is outside the Department's own authority to grant.

What this means for you

Businesses with equipment leases signed before 2025

If your lessor is now adding new sales tax to your lease payments starting in 2025/2026, that's likely the new statewide lease tax working as designed -- there's no built-in credit for tax already embedded in your original lease price, even if that feels like paying twice for the same equipment. Budget for the new ongoing tax as a real, permanent added cost rather than expecting relief.

Equipment lessors transitioning existing leases to the new tax regime

Confirm which of your leased items are actually SUBJECT to the 2025 change -- registered items (motor vehicles, watercraft, aircraft, certain semitrailers) are excluded and keep their old treatment, while unregistered equipment (like construction machinery, tools, and most other leased tangible property) is now taxed on lease receipts going forward, with no look-back credit for tax you may have already paid at purchase.

Accountants and tax professionals advising equipment-heavy industries (construction, agriculture, industrial rental)

This transition-year gap is a real, statute-level gap -- not a Department error you can appeal your way out of. If a client is affected, the practical fix is contractual (renegotiating lease terms) or legislative (advocacy for an amendment), not an administrative ruling request; a PLR/GIL request on this exact fact pattern won't produce a different outcome.

Common questions

Q: Is it illegal double taxation to pay sales tax on a lease payment when the original purchase of the leased equipment already had sales/use tax applied?
A: No, legally. The Department treats the original purchase-tax event (pre-2025) and the new tax on ongoing lease receipts (2025-forward) as two different taxable transactions, so there's no double taxation in the legal sense even though it may feel that way to the taxpayer.

Q: Does the 2025 lease-tax law provide any credit for tax already paid on equipment bought before January 1, 2025?
A: No. Public Act 103-592 (which created the new lease tax) includes no such credit provision, and the Department has no authority to create one administratively.

Q: Is all leased tangible personal property subject to the new 2025 tax?
A: No -- items required to be registered with a state agency (motor vehicles, watercraft, aircraft, certain semitrailers) are excluded and keep their pre-2025 treatment. Most other leased equipment, including unregistered construction equipment, is covered by the new rule.

Q: Can I get relief from this transition gap through a private letter ruling or GIL request?
A: No. The Department confirmed that fixing this specific concern would require a legislative amendment, which is beyond its own authority -- a ruling request on identical facts won't produce a different result.

Q: Can I rely on this letter for my own lease situation?
A: No. This is a General Information Letter -- not binding on the Department. If you believe you're affected by this transition gap, consult a tax professional about your specific lease terms and consider legislative advocacy for a fix.

Citations and references

Session laws / statutes:

• P.A. 103-592, Article 75 (2025 imposition of Retailers' Occupation Tax on leasing; no transition credit provision)
• 35 ILCS 120/2 (lessor gross receipts tax, as amended)
• 35 ILCS 120/1 (definition of "sale" including a lease, effective 2025)

Regulations:

• 86 Ill. Adm. Code 130.2010(b) (pre-2025 true-lease treatment: lessor as end user, Use Tax on cost)

Cases:

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

Source

• Landing page: Illinois 2026 Sales Tax Letter Rulings
• Original PDF: ST26-0003-GIL.pdf

Original ruling text

ST 26-0003-GIL 01/22/2026 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. Public Act 103-592 did not include any
provision allowing lessors who became subject to the tax on lease receipts to claim
credits for tax paid on tangible personal property purchased before January 1, 2025
for the purpose of leasing to their customers. See 35 ILCS 120/2 as amended by
Article 75 of Public Act 103-592. (This is a GIL).
January 22, 2026
NAME
COMPANY
ADDRESS
EMAIL
Dear NAME:
This letter is in response to your letter dated December 14, 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:
This letter concerns the recent enactment of the aforementioned tax act. This
act has resulted in sales tax being applied to a piece of construction
equipment we are leasing, specifically a 2022 JCB 409 front end loader. This
additional tax began being applied to our monthly payment in MONTH of
YEAR. This lease was originally signed in MONTH of YEAR1. When the lease
was originated sales tax was paid in the amount of $$,$$$.$$ to the State, I
confirmed this with the lender, COMPANY1. The payment schedule as per my

COMPANY/NAME
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January 22, 2026
original agreement had a total of XX full payments of $$,$$$.$$ + tax and XX
payments of $$$.$$ + tax. The lease is structured such that we pay X “larger”
payments during the winter months and X “smaller” payment during the
spring/summer months as the machine is mostly used for snow removal
operations. The leasing company has chosen to add the sales tax only to the
“larger payments” to recover the original sales tax that was paid at the lease’s
origination. The payment amount we have been paying since MONTH1 of
YEAR1 is $$,$$$.$$, which includes the base payment of $$,$$$.$$ plus the
sales tax of $$$$.$$. Please reference the stated payment schedule on page
X of the attached lease agreement.
It is our understanding that sales tax is now being applied to the “stream of
payments” instead of a lump sum at the origination of the lease as it
previously was. This is fine; however, it does mean that individuals in our
situation would in fact be double taxed under this new law. There does seem
to be an exemption for titled or registered equipment, such as vehicles.
Construction equipment such as ours (skid loaders, wheel loaders,
excavators, etc.) do not have a title or require registration, such as plates, but
is subject to sales tax just as titled equipment would be.
Under the current interpretation of this law, we are being “double taxed”,
which we do not believe to be fair or accurate as our current lease payment
already includes sales tax. We are looking for an amendment to this law to
allow entities such as ours to avoid the double taxation we are now subjected
to. We find the blanket statement that “no credit will be given for taxes
previously paid” to be unjust and unfairly applies tax to leases that already
had tax applied.
Please contact us with any questions or for additional information.
DEPARTMENT’S RESPONSE:
The Illinois Retailers’ Occupation Tax Act imposes a tax upon persons engaged in this
State in the business of selling tangible personal property to purchasers for use or
consumption. See 35 ILCS 120/2; 86 Ill. Adm. Code 130.101. In Illinois, Use Tax is imposed
on the privilege of using, in this State, any kind of tangible personal property that is
purchased anywhere at retail from a retailer. See 35 ILCS 105/3; 86 Ill. Adm. Code 150.101.
These taxes comprise what is commonly known as “sales” tax in Illinois.
Prior to January 1, 2025, Illinois treated leases two ways for sales tax purposes: as
conditional sales or true leases. Conditional sales, usually characterized by a nominal or

COMPANY/NAME
Page 3
January 22, 2026
one dollar purchase option at the close of the lease term, were considered sales at the
outset of the transaction, and thus all receipts of such sales were subject to Retailers’
Occupation Tax. For true leases, which generally did not have a buyout provision at the close
of the lease, the lessor was considered to be the end user of the property to be leased. See
86 Ill. Adm. Code 130.2010(b). As end users of tangible personal property located in Illinois,
lessors owed Use Tax on their cost price of such property at the time they purchased it. The
State of Illinois imposed no sales tax on rental receipts from true leases; consequently,
lessees incurred no tax liability.
For tangible personal property purchased for lease to customers prior to January 1,
2025, lessors were not allowed to “pass through” their Use Tax obligation to 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 and remain 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, with the exception of certain items required to be registered with an
agency of this State, 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. Effective January
1, 2025, for purposes of State and local retailers’ occupation taxes, the term “sale” includes
a lease. See 35 ILCS 120/1. Lessors are subject to tax on the gross receipts received on or
after January 1, 2025 from existing or new leases of tangible personal property. 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.
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).

COMPANY/NAME
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January 22, 2026
“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.
Public Act 103-592 did not include any provision allowing lessors who became
subject to the tax on lease receipts to claim credits for tax paid on tangible personal property
purchased before January 1, 2025 for the purpose of leasing to their customers. As noted
above, the purpose of this letter is to provide information about the law and other sources
of information regarding the topic in question. Amending the law to address your concern
would require a legislative solution beyond the scope of the Department’s authority.
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,
Edward Mroczkowski
Associate Counsel
EM:slc