Was a rental company's one-off sale of a used man lift from rental inventory subject to Illinois sales or use tax?

Plain-English summary

A purchaser bought a used man-lift work platform from a rental company that had replaced it and no longer needed it. The seller was described as strictly a lessor that did not regularly sell man lifts.

IDOR said the sale was a nontaxable isolated or occasional sale under those facts:

• The strict lessor did not owe Retailers' Occupation Tax on the sale of an item no longer needed in rental inventory.
• The purchaser did not owe corresponding Use Tax.
• The result did not change based on whether the lessor had paid tax when it acquired the man lift or had bought it in a nontaxable transaction.

The letter noted a separate rule for motor vehicles; the man lift was described as an untitled item.

Common questions

Did the purchaser owe sales or use tax? No, under the stated facts.

Would the result change if the seller regularly sold like-kind equipment? The letter said the analysis depended on whether the seller was strictly a lessor or was also in the business of selling similar property.

Did the lessor's original tax payment control? No.

Citations and references

• 86 Ill. Adm. Code 130.2013(e) and 130.110
• 86 Ill. Adm. Code 150.101(d)
• 86 Ill. Adm. Code 130.111

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-12-0038.pdf

Original ruling text

ST 12-0038-GIL 07/24/2012 LEASING
The question of whether a lessor’s sale of tangible personal property coming off lease
that is no longer needed for the lessor’s rental inventory is subject to Retailers'
Occupation Tax liability depends on whether the seller is strictly a lessor, or whether the
seller is otherwise engaged in the business of selling like-kind property. See 86 Ill.
Adm. Code 130.2013. (This is a GIL).
July 24, 2012
Dear:
This letter is in response to your letter received by the Department on June 29, 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:
On June 13, 2012 I purchased a MAN LIFT WORK PLATFORM. I made this purchase
at the COMPANY at STREET, CITY, IL.
This is an item off of the rental company’s rental inventory. The reason that they
wanted to sell this one is that they had bought a newer one and did not need three of
them. They do not sell these man lift work platforms on a regular basis as part of their
business. The seller is strictly a lessor whose sale of this item was because the item
was no longer needed for his rental inventory.
The owner of the rental company and myself were not sure if I should pay a sales tax or
not. Not wanting either of us to get in trouble I went ahead and paid the sales tax. I told
him that I would check with the Department of Revenue. He told me that was fine and
that he would chick with his accountant.
A couple of days later after speaking with an agent at the Department of Revenue and
revuing [sic] Part 130 section 130.2013 paragraph E I made a copy of this rule and took
it to the owner of the rental company. He told me that this looked fine and reasonable
but that he had not heard back from his accountant yet.
About 2 weeks had gone by so I called the owner of the rental company today June 29
2013. He told me that his accountant stated, that since the rental company purchased
this item at an auction and did not pay a sales tax that I had to pay the sales tax when I
purchased it out of his rental inventory. This item is not a Titled item.

ST 12-0038-GIL
July 24, 2012
Page 2
So now I don’t know who is correct. I am not sure if I should have paid a sales tax or
not.
I am requesting a letter of rule so that we can close this matter. I appreciate your
expertise in this matter and look forward to hearing from you.
DEPARTMENT’S RESPONSE:
Sales Tax
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in the
business of selling tangible personal property to purchasers for use or consumption. See 86 Ill. Adm.
Code 130.101. In Illinois, Use Tax is imposed on the privilege of using, in this State, any kind of
tangible personal property that is purchased anywhere at retail from a retailer. See 86 Ill. Adm. Code
150.101. These taxes comprise what is commonly known as "sales" tax in Illinois.
Leases
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 lessors are guaranteed at the time of the lease that the leased
property will be sold, this 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 person under a conditional sales contract are
subject to Retailers’ Occupation Tax at the time they are received. 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.
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.
Sales Of Items Coming Off Lease That Are No Longer Needed In A Rental Inventory
The question of whether a lessor’s sale of tangible personal property coming off lease that is no
longer needed for the lessor’s rental inventory is subject to Retailers' Occupation Tax liability depends
on whether the seller is strictly a lessor, or whether the seller is otherwise engaged in the business of
selling like-kind property. See 86 Ill. Adm. Code 130.2013(e). Except in the case of motor vehicles,
as explained at 86 Ill. Adm. Code 130.111, a person who is strictly a lessor and whose only sales are

ST 12-0038-GIL
July 24, 2012
Page 3
of items no longer needed for his rental inventory does not incur Retailers' Occupation Tax liability on
those sales because they constitute non-taxable isolated or occasional sales. See 86 Ill. Adm. Code
130.110.
Consequently, the purchaser of that tangible personal property does not incur a
corresponding Use Tax liability on that purchase. See 86 Ill. Adm. Code 150.101(d).
Whether the lessor paid tax on the purchase of the leased item or bought it in a nontaxable manner
(such as in an occasional sale) does not change the above analysis.
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