Reminder: Important Changes to Illinois Sales Tax Rules for Lessors Starting January 1, 2025

Reminder: Important Changes to Illinois Sales Tax Rules for Lessors Starting January 1, 2025

Key Updates

Beginning January 1, 2025, Illinois will implement significant updates to its sales tax rules for lessors of tangible personal property (TPP). These changes are designed to align Illinois with sales tax rules with most other states, simplifying compliance for businesses operating across jurisdictions. Here’s what you need to know:

Exceptions to the New Rules

Certain types of leases and rentals remain unaffected by the updated legislation, including:

• Short-term rentals of vehicles (subject to the Automobile Renting Occupation Tax).
• Long-term vehicle rentals (leases over one year).
• Titled property leases (e.g., boats, aircraft, large trucks, except certain trailers).
• Rent-to-own transactions (currently taxed under separate statutes).
• Computer software rentals that fall under the five-part test for the exemption (already treated differently under Illinois regulations)

Chicago-Specific Details

While Illinois will exempt the asset from sales tax on acquisition, the City of Chicago will continue imposing a 9% non-titled Personal Property Lease Transaction Tax and a 1% home rule use tax on TPP purchased for lease within city limits.

Compliance

Businesses should:

• Update processes for documenting lease-related purchases with resale certificates.
• Implement systems to collect and remit sales tax on lease streams.
• Review their inventory acquired before 2025 to determine eligibility for credits.

This change represents a significant shift in how Illinois approaches taxation for leases. Staying informed and proactive will help ensure compliance and minimize disruptions to your business operations.