What do I file if I recently leased a boat?

Leased through a registered retailer

If you are a lessor (e.g., leasing company) and you purchased a watercraft from a registered retailer, the retailer will collect and remit tax for you using Form ST-556-LSE, Transaction Return for Leases. See 86 Ill. Adm. Code 150.305(e).  

While the legal incidence of tax is on the lessor (e.g., leasing company), if you are a lessee (e.g., lease customer) and you leased a watercraft through a registered retailer (e.g., watercraft dealer), the retailer will collect and remit tax for you using Form ST-556-LSE, Transaction Return for Leases. See 86 Ill. Adm. Code 150.305(e). This is because, generally, leases contain contractual provisions stating that the lessees will reimburse the lessors for their tax costs. It is not because of Illinois tax law. 

Leased through an unregistered or out-of-state retailer

If you are a lessor (e.g., leasing company) and you purchased a watercraft to lease to others from an out-of-state or unregistered retailer, you must file Form RUT-25-LSE, Use Tax Return for Lease Transactions, to report the transaction and pay the tax. Attach a copy of the bill of sale as proof of the selling price and of any tax previously paid. If you cannot obtain the proper documentation, you may submit a letter from the retailer. 

While the legal incidence of tax is on the lessor (e.g., leasing company), if you are a lessee (e.g., lease customer) and you leased a watercraft through an out-of-state or unregistered retailer (e.g., watercraft dealer), you must file Form RUT-25-LSE to report the transaction and pay the tax. This is because, generally, leases contain contractual provisions stating that the lessees will reimburse the lessors for their tax costs. It is not because of Illinois tax law. When you file Form RUT-25-LSE, attach a copy of the lease contract as proof of the selling price and of any tax previously paid. If you cannot obtain the proper documentation, you may submit a letter from the leasing company.

Note: If you are a lessee and you leased a watercraft through a retailer outside of Illinois and used the watercraft outside of Illinois before bringing it to Illinois for use, the selling price is subject to a reasonable allowance for depreciation for the period of prior out-of-state use. See 35 ILCS 105/3-10. Also, if you leased the watercraft outside of Illinois and already paid a tax in another state on the lease of the watercraft, credit is authorized under the Use Tax Act for taxes properly due and paid to the other state. See 35 ILCS 105/3-55(d).

Form RUT-25-LSE is generally obtained when you license and title your watercraft at the appropriate State agency. Do not make copies of the form prior to completing. The form has a unique transaction number that should not be duplicated. Doing so could delay processing.

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