Did an out-of-state company owe Illinois tax on receipts from renting chassis through an Illinois container terminal?

Plain-English summary

An out-of-state corporation rented transportation chassis to truckers through an Illinois container terminal. It had no Illinois office or employees and asked whether tax applied to the rentals.

IDOR described two different lease classifications without deciding which one covered the company's contracts.

A conditional sale generally involved a nominal or $1 purchase option or another guarantee that the property would be sold to the lessee. Receipts under that agreement were subject to Retailers' Occupation Tax, and property acquired for resale under the conditional-sale contract could be bought with a qualifying resale certificate.

A true lease generally had no buyout, or only a fair-market-value buyout. The lessor was the end user of property located in Illinois and owed Use Tax on its cost. Illinois imposed no tax on true-lease rental receipts, so the lessee did not incur tax on those receipts. The lessor paid its registered supplier or self-assessed; tax properly due and paid to another state could reduce Illinois Use Tax under the cited credit rule.

Common questions

Were true-lease rental receipts taxable? No, under the 2012 guidance.

Who owed tax in a true lease? The lessor owed Use Tax on its cost as the property's end user.

What made a lease a conditional sale? A nominal or $1 buyout, or another guarantee at inception that the property would be sold to the lessee.

Did IDOR classify the chassis rentals? No. It gave the governing general rules.

Citations and references

• 86 Ill. Adm. Code 130.2010, 130.220, and 130.1405
• 86 Ill. Adm. Code 150.310(a)(3)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2012.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2012/st-12-0025.pdf

Original ruling text

ST 12-0025-GIL 06/14/2012 LEASING
Information regarding the tax liabilities in lease situations may be found at 86 Ill. Adm.
Code 130.220 and 86 Ill. Adm. Code 130.2010. (This is a GIL.)
June 14, 2012
Dear:
This letter is in response to your letter dated May 9, 2012, in which you request information. The
Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are issued by the
Department in response to specific taxpayer inquiries concerning the application of a tax statute or
rule to a particular fact situation. A PLR is binding on the Department, but only as to the taxpayer
who is the subject of the request for ruling and only to the extent the facts recited in the PLR are
correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in the
Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information Letter
(“GIL”) is to direct taxpayers to Department regulations or other sources of information regarding the
topic about which they have inquired. A GIL is not a statement of Department policy and is not
binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website at
www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to your
inquiry.
The nature of your inquiry and the information you have provided require that we respond with a GIL.
In your letter you have stated and made inquiry as follows:
We are a STATE corporation conducting a chassis rental business in the state of
Illinois.
We do not have a physical location or employees in the state. However, the rental is
done through a container terminal to truckers.
We would like to receive in writing if we have to assess sales or use tax for the rentals.
Should you have any questions, please feel free to contact me at the number below.
Thank you in advance for your keen attention.

DEPARTMENT’S RESPONSE:
The State of Illinois taxes leases differently for Retailers’ Occupation Tax and Use Tax purposes than
the majority of other states. For Illinois sales tax purposes, there are two types of leasing situations:
conditional sales and true leases. A conditional sale is usually characterized by a nominal or one
dollar purchase option at the close of the lease term. Stated otherwise, if a lessor is guaranteed at the
time of the lease that the leased property will be sold to the lessee, that transaction is considered to
be a conditional sale at the outset of the transaction. Persons who purchase items for resale under
conditional sales contracts can avoid paying tax to suppliers by providing certificates of resale that
contain all the information set forth in 86 Ill. Adm. Code 130.1405. All receipts received by a
lessor/retailer under a conditional sales contract are subject to Retailers’ Occupation Tax. See 86 Ill.
Adm. Code 130.2010.
A true lease generally has no buy out provision at the close of the lease. If a buy-out provision does
exist, it must be a fair market value buy-out option in order to maintain the character of the true lease.

ST 12-0025-GIL
June 14, 2012
Page 2

Lessors of tangible personal property under true leases in Illinois are deemed end users of the
property to be leased. See 86 Ill. Adm. Code 130.220. As end users of tangible personal property
located in Illinois, lessors owe Use Tax on their cost price of such property.
The State of Illinois imposes no tax on rental receipts. Consequently, lessees incur no tax liability. As
stated above, in the case of a true lease, the lessors of the property being used in Illinois would be
the parties with Use Tax obligations. The lessors would either pay their suppliers, if their suppliers
were registered to collect Use Tax, or would self-assess and remit the tax to the Department. If the
lessors already paid taxes in another state with respect to the acquisition of the tangible personal
property, they would be exempt from Use Tax to the extent of the amount of such tax properly due
and paid in such other state. See subsection (a)(3) of 86 Ill. Adm. Code 150.310.
I hope this information is helpful. If you require additional information, please visit our website at
www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,

Debra M. Boggess
Associate Counsel