A recent change in Illinois tax law is creating confusion and concern for businesses that lease equipment, mainly those with older lease agreements. Starting January 1, 2025, Illinois began applying sales tax on lease payments, not just the equipment when it is first purchased. This is having financial effects for businesses with leases in place prior to the January 1, 2025, change. In the past, leases were treated differently depending on their structure. In many cases, the leasing company paid tax upfront when it bought the equipment, then the customer paid the lease payments without additional sales tax. Now the state treats lease payments as taxable, meaning tax is added to each lease payment moving forward. Some businesses entered into lease agreements years ago and have already paid sales tax at the start of the agreement. Now, tax is being added to their ongoing payments. To them, this feels like they are being taxed twice on the same piece of equipment.
In response to a December 14, 2025, a taxpayer’s letter request for information, the Illinois Department of Revenue (Department) has addressed this concern with a General Information Letter (GIL). According to the Department, the two taxes apply to different transactions. The first tax was on the purchase of the equipment, while the new tax is on the lease payments themselves. Because of this distinction, the state does not consider it double taxation under the law. Another key issue is that the law does not provide any relief for taxes already paid. Businesses and leasing companies cannot claim a credit for sales tax paid before 2025, even if that cost is effectively being passed through to customers again in the form of taxed leased payments. Additionally, many lease agreements include built-in costs to recover the tax the leasing company paid upfront. Those provisions are part of the contract and not the tax law, therefore they still apply. This means that some businesses may be paying both the original embedded tax cost and the new tax on lease payments. The Department has made it clear that any change to this outcome would need to be made from lawmakers. In the meantime, businesses with existing leases may want to review their agreements and understand how this new rule affects their total cost. Even though Illinois treats this as two separate taxable events, the cash impact can feel like double taxation and the actual cost of leasing may be higher than expected.
(General Information Letter ST 26-0003-GIL: Leasing, Illinois Department of Revenue, January 22, 2026)