Reed Smith Client Alerts

Key takeaways

  • Starting January 1, 2025, the State of Illinois will impose sales and use tax on payments for the lease of tangible personal property. This alert addresses some of the implications of this change in a question and answer format.

As outlined in the published bulletin, starting January 1, 2025, the State of Illinois will classify the rental, leasing and licensing (collectively, “leasing”) of tangible personal property (“TPP”) as a retail sale for purposes of the retailers’ occupation tax (sales) and use tax (hereinafter, the “lease tax”). This reclassification means that businesses leasing TPP in the ordinary course of their business must now register with the Illinois Department of Revenue (the “Department”) and remit tax on the lease receipts. However, if a locality already imposes a specific tax on leases or rentals of TPP (like the City of Chicago’s Personal Property Lease Transaction Tax), the lease receipts sourced to that locality are exempt from the State’s lease tax. The tax rate applied to the lease receipts will generally be determined using the same sourcing rules used for traditional sales of TPP.

As illustrated through the hypothetical questions and responses below, this tax reclassification of leases creates several implications which may not be immediately apparent.1