Effective January 1, 2025, Illinois will begin taxing lease transactions, which will bring Illinois more in line with most other states’ sales tax treatment of leases. Prior to January 1, 2025, Illinois opted to tax personal property at the time of purchase instead of during a lease term.
Under the new law, exemptions have been created for the resale of equipment purchased with the intention to re-lease to eventual clients (who will then be charged tax on the lease transactions). Property which is subject to Chicago’s personal property lease transaction tax and software licenses that meet the Illinois five-part test for licensed software are also exempted from this new tax law.
Going into 2025, it will be very important for Illinois taxpayers in the business of leasing to ensure they are correctly charging and remitting tax. Any tax systems currently in place should be evaluated to ensure they are ready to handle the change, and transactions should be reviewed to determine whether the property being purchased may qualify for the new resale exemption if the intent is to re-lease it. (Illinois H.B. 4951, Signed by JB Pritzker 6/7/2024)