A taxpayer, a masonry contractor in Chicago, inquired about the application of Illinois’ new lease tax, effective January 1, 2025, regarding the sale and lease of construction equipment. They sought clarification on whether the tax rate should be determined by the location of the lessor, the lessee, or the jobsite, especially when both state and local taxes (such as Chicago’s 11% lease tax) are involved. They also asked if state tax would be applied in addition to the Chicago tax and whether there are any exemptions, particularly for property leased in Chicago.
The Illinois Department of Revenue responded that, beginning January 1, 2025, lessors in Illinois will be subject to both state and local retailers’ occupation taxes on gross receipts from leases of tangible personal property. The Department clarified that lease receipts are taxed based on the property’s primary location, as provided by the lessee. For recurring lease payments, the tax is sourced to the property location for each period covered by the payment. The Department also explained that leases of certain property, like motor vehicles, watercraft, aircraft, and semitrailers, are exempt from the new state lease tax, but other items such as trailers and off-road vehicles are subject to the new tax. Additionally, the Department noted that equipment subject to Chicago’s Personal Property Lease Transaction Tax remains exempt from the new state lease tax, but certain sales of leased property are exempt from state and local taxes if they are for resale. (Illinois Department of Revenue, General Information Letter ST 25-0004-GIL, January 27, 2025)