By Angela Adams, CPA, Manager
What Businesses Need to Know in 2025
In 2025, Illinois is expecting changes to take effect, including easier gym membership cancellations and the introduction of digital driver’s licenses. One significant change that became effective on January 1, 2025, impacts those who lease or rent tangible personal property to others in the ordinary course of business. Lessors are now considered to be retailers subject to Illinois’ Sales and Use Tax, and are required to register with the Illinois Department of Revenue (IDOR) and pay tax on lease or rental receipts.
What is Considered a Lease for Purposes of Illinois Sales and Use Tax?
A “lease” 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, regardless of the name by which the transaction is called.”
- The definition of a “lease” includes what is commonly understood to be a rental. Both leases and rentals are subject to sales and use tax.
- The term also includes leases and rentals of computer software, but excludes qualifying software license payments.
- The definition excludes leases of motor vehicles, watercraft, aircraft, and semitrailers required to be titled with an agency of the state of Illinois.
- The term further excludes leases entered into as a security agreement that does not involve a transfer of possession or control (so-called finance lease).
Key Considerations
- Sales Tax Rate Determination: A lessor can use MyTax Illinois https://mytax.illinois.gov to determine the applicable local sales tax rate for the jurisdiction where the rentals will be sourced:
– Leases or rentals with periodic payments and delivery to the customer location will be sourced using destination-based sales tax sourcing. This property will be taxed at the rate applicable to the customer location.
– Leases or rentals in which the customer takes possession of the property at the lessor’s place of business will be sourced as otherwise provided under the Retailers’ Occupation Tax Act, usually the retailer’s location. - Chicago Leases: Illinois sales tax does not apply to lease and rental payments subject to the Chicago Personal Property Lease Transaction Tax.
- Use Tax: If you lease or rent personal property from a business that does not charge you Illinois sales tax on your rent payments, you are responsible to self-assess Illinois Use Tax on your rental payments. Use tax is also reported on Form ST-1.
Next Steps
- If you are in the business of leasing or renting tangible personal property, you must register as a retailer with the IDOR.
- Lessors must report and pay Illinois sales tax on their receipts as they are collected.
- You must submit Form ST-1, along with your payment for any tax due, on or before the 20th day of the month following the end of your reporting period.
- Some exemptions are allowed.
Details in P.A. 103-592: https://tax.illinois.gov/research/publications/bulletins/fy-2025-15.html
Businesses should review lease agreements to determine if this change applies. If so, ensure accurate record keeping, file and remit the proper forms with tax payments, and stay informed on potential legislative changes. MichaelSilver takes pride in putting our clients at ease with compliance with State and Local tax filings. We are happy to guide you through these new sales tax rules. We try to make things easy – unlike those gym membership cancellations. Please contact your trusted advisors at 847-982-0333.
Angela Adams, CPA – Manager brings extensive expertise across various areas of taxation, with a primary focus on corporate and individual income tax and a strong emphasis on state and local tax compliance. Since joining MichaelSilver in 2020, she has played an active role on the Firm’s State and Local Tax Committee, contributing to the management of large corporate accounts. Angela holds both a Master of Professional Accountancy and a Bachelor of Science from Illinois State University and is a member of the AICPA.