Starting January 1, 2025: New Rules for Leasing or Renting Property in Illinois
If your business leases or rents out physical items, you’ll need to register with the Illinois Department of Revenue (IDOR) and pay sales tax on the money earned from these transactions. This applies to all leases and rentals under Illinois tax laws (P.A. 103-592).
What Counts as a Lease or Rental?
A lease or rental means giving someone the right to use or control an item (but not own it) for a set time, in exchange for payment. It doesn’t matter what the arrangement is called—if it’s a lease or rental, it’s taxable.
Who Needs to Pay Tax on Leases?
If you’re in the business of leasing or renting out physical items, you must register as a retailer with IDOR and collect sales tax. Starting January 1, 2025, the tax must be listed on receipts for leases or rentals.
Are There Exceptions?
Yes. The new rules generally don’t apply to motor vehicles, watercraft, aircraft, or certain trailers that require registration or titling in Illinois.
Buying Items for Leasing Without Paying Tax
If you buy items to lease or rent out, you can use Form CRT-61 (Certificate for Resale) to avoid paying tax on those purchases. The form is available on the IDOR website.
How Is the Tax Calculated and Paid?
- You only pay tax on the part of the lease payment you actually collect during each reporting period.
- For leases with recurring payments, tax applies to payments received after January 1, 2025—even for contracts signed earlier.
- Use MyTax Illinois to file Form ST-1 (Sales and Use Tax Return) and pay the tax electronically.
Special Situations
- Computer Software: Tax applies to leased software unless it qualifies for an exemption.
- Existing Contracts: Taxes start on payments received after January 1, 2025, even for older contracts.
- Local Taxes: Items already taxed under a local lease tax (like Chicago’s Personal Property Lease Transaction Tax) are exempt from the state lease tax.
Tax Rates and Location Rules
For leases requiring regular payments, tax is based on the location of the leased item. Use the Tax Rate Finder on MyTax Illinois to determine the rate. If the item is used at multiple locations, tax is based on its primary location.
Other Important Notes
- Filing Deadlines: Form ST-1 is due by the 20th of the month after the reporting period ends.
- No Credits for Previously Paid Taxes: You can’t claim a refund for taxes you already paid when purchasing items for leasing.
- Out-of-State Leases: If you use leased items in Illinois but the lessor doesn’t collect tax, you must report and pay the tax directly to IDOR using Form ST-1 or Form ST-44.
For more detailed guidance, visit the Illinois Department of Revenue website at tax.illinois.gov or call the Central Registration Division at 217-785-3707.