Pub-113-L, Lease Tax FAQs

The lessor must remit for each tax return period only the tax applicable to that part of the selling price actually received during such tax return period. Lessors must report and pay tax on their receipts as they are collected over the course of the lease or rental contract.

“Selling price” with regard to a rental or lease is the same as with a retail sale: the consideration for a sale valued in money whether received in money or otherwise, including cash, credits, property, and services.

“Selling price” is determined without any deduction on account of the cost of the property sold, the cost of materials used, labor or service cost or any other expense whatsoever. For ROT purposes, these charges are generally referred to as “costs of doing business” and are not deductible from the taxable selling price. The selling price includes all charges for the lease or rental of tangible personal property and any service charges that are inseparably linked to the lease or rental.

Yes. The tax is imposed on all gross receipts received under a lease or rental contract on or after January 1, 2025.

While the tax does not apply to any of these receipts received before January 1, 2025, any amounts received on or after January 1, 2025, are subject to the tax, including amounts received on contracts with current customers that were in place before January 1, 2025. 

In most cases, leases and rentals of computer software are not subject to the leasing tax if the following requirements are met:

• The lease or rental is evidenced by a written agreement signed by the licensor and the customer.
• The written agreement must restrict the customer’s duplication and use of the software.

·        The licensor must have a policy of providing another copy at minimal or no charge if the customer loses or damages the software or of permitting the licensee to make and keep an archival copy, and this policy must either be stated in the license agreement, be supported by the licensor’s books and records, or be supported by a notarized statement made under penalties of perjury by the licensor.

• The written agreement prohibits the customer from licensing, sublicensing, or transferring the software to a third party without the permission and continued control of the licensor.
• The customer is required to destroy or return all copies of the software to the licensor at the end of the license period.

See Informational Bulletin FY 2025-15, Illinois Sales and Use Tax Applies to Leased or Rented Tangible Personal Property.

Receipts for most leases or rentals of items of tangible personal property are reported on Form ST-1, Sales and Use Tax and E911 Surcharge Return. Form ST-1 can be filed using MyTax Illinois, available at mytax.illinois.gov.

For a lease or rental requiring BOTH recurring periodic payments AND delivery of the item to the customer, each periodic payment is sourced to the primary property location where the leased or rented item is delivered for the reporting period covered by the payment.

The primary property location shall be as indicated by an address for the property provided by the lessee that is available to the lessor from its records maintained in the ordinary course of business, when use of this address does not constitute bad faith. The property location is not altered by intermittent use at different locations, such as use of business property that accompanies employees on business trips and service calls.  

A lease requires recurring periodic payments if the lease agreement for the property provides for a fixed or indeterminate term and requires consideration to be broken into multiple payments due over the course of multiple return periods. If a lease agreement is fixed in duration and requires a single payment to be made in consideration for the lease of a specified item or items, the lease does not require recurring periodic payments.

Leases that do not require periodic payments and leases in which the item is not delivered to the customer are sourced the same as all other sales under the Retailers’ Occupation Tax Act. See 86 Ill. Adm. Code 270.115.

See Informational Bulletin FY 2025-15, Illinois Sales and Use Tax Applies to Leased or Rented Tangible Personal Property (“How do I determine the rate of tax to collect on lease or rental transactions?”) and the Tax Rate Database for more information.

Tangible personal property or equipment used exclusively for rental purposes may be purchased tax-free for resale. Document the sale using IDOR’s Form CRT-61.

In general, the answer is no because, if the lessor retains possession and control of the equipment, this is considered a pure service transaction. If the operator is necessary for the equipment to perform as designed and is responsible for more than maintaining, inspecting, or setting up the tangible personal property, the arrangement is not a lease. However, if the agreement includes an agent of the lessor to simply maintain, inspect, set up, or disassemble the tangible personal property, such arrangement is subject to the lease tax. It will depend on the specific contract.

No. Items of tangible personal property that are subject to a local lease transaction tax that was adopted by ordinance by a home rule unit of local government prior to January 1, 2023, such as the City of Chicago’s Personal Property Lease Transaction Tax, are exempt from the State and local Retailers’ Occupation Tax on lease receipts under Public Act (P.A.) 103-592. 35 ILCS 120/2-5(49)(2). All purchases for lease of property that is subject to tax on lease receipts under P.A. 103-592 are authorized to be purchased tax-free for resale, even property that, when leased, is exempt from State and local Retailers’ Occupation Tax because it is subject to a local lease tax as described above, such as Chicago’s Personal Property Lease Transaction Tax.

• The publication explaining the new leasing laws is FY 2025-15, Illinois Sales and Use Tax Applies to Leased or Rented Tangible Personal Property.
• For steps needed to get your rental business set up initially, see PIO-117, How to Register your Illinois Business.
• For steps needed for each rental event, see Publication 113, Retailer's Overview of Sales and Use Tax, Prepaid Wireless E911 Surcharge, and Illinois Telecommunications Access Corporation (ITAC) Assessment.
• For steps needed for tax-free purchases of items that will be rented out, see Form CRT-61.

When a construction contractor rents something for its own use, it is not exempt. This is true even if the construction contractor’s customer is an exempt entity. Unless the construction contractor is renting the item to the exempt entity, the user in this situation is the construction contractor who is not exempt. There is no pass-through of an exempt customer’s exempt status when a construction contractor is renting equipment for the construction contractor’s own use – even when used to work on a project for an exempt customer.

There is no exemption from tax for persons engaged in leasing an item from one legal entity to another, even if the legal entities are related or owned by the same entity. If the transaction meets the definition of a lease (i.e., it is 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), and there is no applicable exclusion or exemption, the transaction is subject to tax under the Retailers’ Occupation and Use Tax Acts as amended by Article 75 of P.A. 103-592.

In general, when a furnished apartment is rented, the true object is deemed to be the rental of the apartment, with the furnishings being incidental. If the true object of the transaction is the rental of the apartment and if appliances or furniture are provided incidentally to the rental of the apartment, no retailers’ occupation tax or use tax is incurred on the charges for the rental of the apartment. If no separate charge is made under the rental contract for the appliances or the furniture provided, the rentor is considered the user of the appliances and furniture and incurs use tax on its cost price of the appliances or furniture transferred incidentally to the rental of the apartment. If a separate charge is made for any appliance or furniture transferred incidentally to the rental of the apartment, the rentor incurs retailers’ occupation tax on the selling price (i.e., lease charges) for the appliances or the furniture.

It depends.

If the true object of the transaction is the rental of space or providing an amusement, e.g., batting cages, mini golf courses, bowling alleys, skating rinks, and golf courses, no tax applies to the charges for the space or amusement. If there is no separate charge for the rental of the equipment, the rentor is the user of the equipment and owes Use Tax on its cost price of the equipment transferred to its customers to enjoy the space or amusement.

If a separate charge is made for any tangible personal property rented incidentally to the rental of space or providing an amusement, lease tax applies to the rental charge. For example, a bowling alley sells games of bowling with bowling balls included in the price. The bowling alley owes Use Tax to their supplier for the bowling balls. BUT if the bowling alley charges for shoe rental separately, lease tax applies to the charge for the shoe rental.

If the true object of the transaction is the tangible personal property and not the space or amusement, the tangible personal property is subject to lease tax and the charges for the space or amusement may also be subject to lease tax. If charges for the space or amusement are inseparably linked to the charges for the tangible personal property, all such charges are subject to lease tax regardless of if they are separately stated on the invoice.

An inseparable link exists when (a) the service charges are not separately identified to the lessee on the contract or invoice or (b) the service charges are separately identified to the lessee on the contract or invoice, but the lessor does not offer the lessee the option to lease the property without the payment of service charges added to the lease or rental price of an item (e.g., the lessor does not offer the lessee the option to lease the tangible personal property separately from the related service, or the lessor does not offer, or the lessee does not qualify for, a free service option).

If the lessee can rent or lease the tangible personal property without payment of service charges to the lessor, then an inseparable link does not exist, and the service charges should not be included in the taxable lease or rental price of the tangible personal property.

EXAMPLE: A business offers guided kayak tours that include the rental of a kayak for the one-hour tour duration. Renters are encouraged to participate in the tour but are allowed to venture off on their own. The business requires tour participants to use the provided rented kayaks. The business does not offer rentals of kayaks independent of purchasing the tour. The kayak rental is the true object of the transaction since the tour could not be done without the kayak, but the kayak rental would still have value without the tour. The charge for the tour is inseparably linked to the rental charges for the kayak, regardless of if they are separately stated, as you cannot rent the kayak without the tour charge. As such, the entirety of the proceeds of the transaction is includable in the business’s gross receipts and subject to tax. However, if the business were to offer independent kayak rentals in addition to kayak tours, the charge for the tour would not be inseparably linked to the rental charges for the kayak. In this instance, if the business separately states the charge for kayak rental from the charge for the tour on the business’s invoice, the charges for the tour would not be includable in the business’s gross receipts for retailers’ occupation tax purposes and would be a nontaxable service charge.

Yes, service providers will either owe Use Tax to their suppliers on the cost price of the tangible personal property they rent or lease OR service occupation tax on the lease or rental of the tangible personal property.

See the following General Information Letters and Private Letter Rulings for more information: ST-25-0002-GIL; ST 25-0012-GIL; ST-25-0001-PLR.

For additional information on leases, please refer to the Sales Tax Letter Rulings webpage for letters on “Leasing.”