The Illinois Sales and Use Tax on leased tangible personal property, effective January 1, 2025, introduces new requirements for lessors who those involved in leasing or renting tangible personal property as part of their business operations. Here’s a breakdown of key points:
Who It Affects:
Key Points:
- Leases Considered Sales: Under the Retailers’ Occupation Tax Act, leases of tangible personal property are considered “sales” at retail. This means that, starting January 1, 2025, lessors must remit tax on lease payments, not just the purchase price of the leased equipment.
- Taxation on Lease Payments: Lessors must remit tax on the selling price received during the tax period for lease or rental contracts. This will continue for the duration of the lease.
- Destination-Sourcing for Local Tax: Local tax will apply based on the location of the leased property, meaning lessors will need to report taxes to various localities on their Illinois sales tax return if recurring lease payments are involved.
- Self-Remitting Tax: If the lessor does not collect sales tax, the lessee must self-remit tax to the Illinois Department of Revenue (IDOR) via Form ST-1.
- Exemptions:
- Manufacturing Exemption: If your company is engaged in manufacturing, certain leased equipment may be exempt from the sales tax if you file Form ST-587 with the vendor.
- Automobile and Titled Property Rentals: Rentals of automobiles, light trucks, boats, aircraft, and large trucks are not subject to this new tax law.
- Rent-to-Own Transactions: These are already taxed under a separate statute.
- Computer Software: Leases of computer software are exempt.
- Form CRT-61: Companies making tax-exempt purchases of tangible property that will then be leased can use Form CRT-61 to claim exemption from sales tax at the time of purchase.
What To Do Next:
How to Register:
Use MyTax Illinois to register for tax accounts.
Once logged in, select “More…”, then “Register for New Tax Accounts” to add the appropriate registration for leasing or rental tax.
Final Notes:
This change could impact your business’s accounting and tax filing processes, so it’s important to review your leasing agreements, understand your tax obligations, and make any necessary adjustments to ensure compliance with the new law. If you have ongoing leases, especially for manufacturing equipment, you’ll want to make sure all necessary tax exemption forms (ST-587) are in place by the start of 2025.
Let us know if you need more specific guidance on registering or filing forms
