Alert
Start Collecting New Illinois Sales and Use Taxes Now
Illinois Senate Bill HB 4951 brings important updates that significantly change how sales and use tax applies to retail leases or rentals of tangible personal property (TPP) other than motor vehicles, watercraft, aircraft, and semi-trailers required to be registered with the state.
This legislation amends the persons subject to the Retailers’ Occupation Tax (ROT) Act, sales tax, to include businesses engaged in leases and rentals of TPP and carves out an exemption for software leases that meet certain requirements or are subject to tax by a home-rule jurisdiction.
Who Is Affected by HB 4951?
This new law will impact a broad range of lessors of equipment and other tangible personal property covering a wide range of industries. However, new lessors subject to this tax should keep in mind that customer and usage-based exemptions from the ROT may still apply. Examples would include equipment primarily used in manufacturing. The new law also impacts certain lessors of computer software licenses.
Background on HB 4951
Historically, leases and rental of TPP have not been subject to sales and use tax in Illinois. Lessors were required to pay tax on items they purchased for subsequent lease and. As part of the FY 2025 revenue omnibus legislation, HB 4951 was signed into law by Illinois Governor J.B. Pritzker on June 7, 2024, and included significant changes on the imposition of sales and use tax on leases or rentals of tangible personal property.
What Changes Are New?
Effective January 1, 2025, lessors of TPP other than motor vehicles, watercraft, aircraft, and semi-trailers required to be registered with the state, are now considered to be a retailer subject to Illinois’ sales and use tax laws and must register with the Illinois Department of Revenue.
Tax will be imposed on all gross receipts received on or after January 1, 2025, for leases in effect, entered into, or renewed on or after that date.
Lessors may collect only the taxes based on the selling price received for the applicable return period. The tax rate will be based on the primary property location where the leased or rented item is located for the reporting period. It’s important to note that no credit for taxes paid on the purchase of leased or rented equipment is allowed until such time the equipment is taken off lease and then sold.
Illinois defines a lease as 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, regardless of the name by which the transaction is called.”
The definition of a lease includes what is commonly understood to be a rental. Leases of software are subject to tax unless they meet the current exemption provided in 35 ILCS 120/2-5(49)(1) or if the software license is subject to tax by a home-rule jurisdiction, such as the city of Chicago’s Personal Property Lease Transaction Tax.
Next Steps with Changes
Businesses engaged in the retail leasing or rental of tangible personal property should:
- Register for the Illinois Retailers’ Occupation Tax
- Begin collecting sales and use tax in accordance with the new law
We’re Here to Help
If you have questions about HB 4951 or its implications for your leases and rentals concerning sales and use taxes, contact your Moss Adams professional.