What does Illinois General Information Letter ST 18-0012-GIL conclude about Rental Purchase Agreement Tax?

Plain-English summary

A company that sells and rents durable medical equipment (like the kind used by patients at home, billed to Medicare, Medicaid, private insurers, and patients directly) asked the Illinois Department of Revenue to confirm that its rental agreements were not "rental purchase agreements" subject to the state's 6.25% Rental Purchase Agreement Occupation and Use Tax. The company argued its rental forms had no purchase-option price, no fixed rental term, and were not entered into with the intent that the customer would end up owning the equipment — so, in its view, the agreements fell outside the statutory definition found in the Rental Purchase Agreement Act (815 ILCS 655/0.01 et seq.).

The Department did not directly confirm or deny that the company's specific agreements were exempt. Instead, because this is a General Information Letter rather than a Private Letter Ruling, it responded with general guidance: it explained what a "rental purchase agreement" is under the statute (an agreement for personal, family, or household use with an initial term of four months or less, automatically renewable, that lets the consumer eventually become the owner), and it stated its general opinion that items taxed at the low 1% state sales tax rate — a category that includes medical appliances like the ones described — are "not intended to be covered" by the 6.25% Rental Purchase Agreement Tax. The Department also noted that the legislature's House sponsor referred to "rent-to-own dealer[s]" as the intended target of the law, and that the company "does not appear to fit that category."

Importantly, the Department qualified its answer: "each rental agreement must be evaluated in light of the specific rental contract and the other aspects of the transaction to determine whether the Rental Purchase Agreement Occupation and Use Tax applies." So this GIL gives useful directional guidance but stops short of a binding, fact-specific determination.

What this means for you

Durable medical equipment retailers and rental businesses

If you rent medical equipment or other items that are separately taxed at Illinois' 1% low sales tax rate, this GIL suggests the Department generally does not view those rentals as falling under the 6.25% Rental Purchase Agreement Tax. But that is a general opinion, not a guarantee for your business — you still need to check whether your rental agreements meet the statutory definition of a "rental purchase agreement" (initial term of four months or less, automatically renewable, with the consumer able to become the owner).

Rent-to-own dealers and other consumer rental businesses

If your rental agreements do let consumers work toward ownership through renewable short-term payments — the classic "rent-to-own" model the legislature had in mind — this GIL does not help you. The Department specifically distinguished the requester's business from "rent-to-own dealer[s]," implying that businesses fitting that description remain squarely subject to the 6.25% tax.

Accountants and tax professionals

Because this is a GIL, not a PLR, it is not binding on the Department even for the company that requested it — it only points to the relevant law and shares the Department's general reasoning. If a client needs a binding, fact-specific answer, they would need to request a Private Letter Ruling under 2 Ill. Adm. Code 1200.110 instead.

Common questions

Q: Did the Department rule that this company's rentals are exempt from the Rental Purchase Agreement Tax?
A: No. The Department gave only a general opinion that items taxed at the 1% sales tax rate are "not intended to be covered" by the 6.25% tax, and it noted the company doesn't appear to be a "rent-to-own dealer." It did not issue a binding determination on the company's specific agreements — it expressly said each rental agreement must be evaluated on its own facts.

Q: What is a "rental purchase agreement" under Illinois law?
A: Per 815 ILCS 655/0.01 et seq., it's an agreement for a consumer's personal, family, or household use of merchandise, with an initial period of four months or less, that automatically renews with each payment after that initial period, and that lets the consumer eventually become the owner of the merchandise.

Q: Why didn't the Department just answer yes or no?
A: Because the taxpayer requested (or the Department determined it warranted) a General Information Letter rather than a Private Letter Ruling. A GIL directs taxpayers to relevant statutes and Department reasoning but is not a statement of Department policy and is not binding — see 2 Ill. Adm. Code 1200.120.

Q: Can this company or a similar business rely on this letter if the Department later audits them?
A: No. A GIL is not binding on the Department, even for the requester. A business wanting a binding answer specific to its facts would need to request a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Citations and references

• 35 ILCS 180/1 et seq. (Rental Purchase Agreement Occupation and Use Tax Act — imposes the 6.25% tax)
• 815 ILCS 655/0.01 et seq. (Rental Purchase Agreement Act — defines "rental purchase agreement")
• 2 Ill. Adm. Code 1200.120 (General Information Letters — not binding on the Department)
• 2 Ill. Adm. Code 1200.110 (Private Letter Rulings — binding procedure, referenced for contrast)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2018.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2018/st-18-0012-gil.pdf

Original ruling text

ST 18-0012-GIL 04/05/2018 RENTAL PURCHASE AGREEMENT TAX
In general, items that are subject to the State 1% sales tax rate are not intended to be covered
by the 6.25% Rental Purchase Agreement Occupation and Use Tax. See 35 ILCS 180/1 et
seq. (This is a GIL.)

April 5, 2018
Dear Xxxxx:
This letter is in response to your letter dated September 12, 2017, in which you requested
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 behalf of COMPANY we respectfully request written clarification that Public Act 1000437 will not apply to COMPANY’s rentals of durable medical equipment within Illinois.
We believe that the terms of COMPANY’s agreements with insurers and customers are
not rental purchase agreements as defined by Public Act 100-0437 and consequently
COMPANY is not required to remit rental purchase agreement occupation tax. We
have described below COMPANY’s business operations.
Background Information
COMPANY is in the business of selling and renting durable medical equipment and
related supplies to patients primarily for use in their homes. COMPANYs rental
equipment Payment for products sold and rented is received from Medicare, Medicaid,
private insurance companies and patients. COMPANY’s rental equipment is primarily
medical appliances that are subject to the low tax rate under Illinois ROT.
Sales and rentals are generally made only pursuant to a prescription issued by the
patient’s physician. Sales and rentals billed to Medicare and Medicaid require a
physician’s prescription to qualify for reimbursement.
Upon delivery of rental equipment to a patient, the customer signs COMPANY’s Sales,
Service and Rental Agreement form (copy with standard terms attached) which lists the
equipment and supplies provided. COMPANY bills patients for equipment on a monthly

ST 18-0012-GIL
Page 2

basis and customers may return the equipment at any time during the month. Patients
are entitled to a pro-rata reduction of the monthly charge for equipment returned before
the end of the monthly billing period. There is no explicit rental period in COMPANY’s
agreements and typically billing continues until the patient returns the equipment. The
agreements signed by COMPANY’s patients do not include a purchase option amount
for the equipment the patient receives. COMPANY has some contractual agreements
with insurers as well as Medicare that provide for cessation of rental payments after a
specified period of time has elapsed. In circumstances where the rental term reaches
the contractually specified period, the patient is entitled to retain use of the equipment
without any additional monthly rental payments. For some types of equipment, the
insurer or Medicare continues to pay COMPANY a reduced monthly fee to maintain and
service the equipment.
Illinois Public Law 100-0437 defines Rental Purchase Agreement as “an agreement for
the use of merchandise by a consumer for personal, family or household purposes for
an initial period of 4 months or less that is automatically renewable with each payment
after the initial period and that permits the consumer to become the owner of the
merchandise.”
COMPANY’s agreements do not include a purchase option amount and patient’s do not
enter into the rental agreements with COMPANY with the intention of obtaining
ownership of the property covered.
COMPANY’s services and equipment are
traditionally utilized and rented to patients who have short term immediate need for
medical equipment. Based on the absence of a purchase option amount, we believe
that COMPANY’s Agreements do not meet the Illinois definition to a Rental Purchase
Agreement. Consequently, we believe COMPANY’s rental agreements are not taxable
under Public Act 100-0437 and COMPANY is not liable for Rental Purchase Agreement
Occupation Tax or collection of Rental Purchase Agreement Use Tax from COMPANY
patients.
We respectfully request that the Department confirm that the Rental Purchase
Occupancy [sic] Tax and Rental Purchase Use Tax will not apply to COMPANY’s
rentals of durable medical equipment to patients based on the same agreement terms
we have provided.
If you have any questions or need any additional information, please call me.
DEPARTMENT’S RESPONSE:
Persons who are engaged in the business of renting merchandise in Illinois under a rental
purchase agreement are subject to the Rental Purchase Agreement Occupation and Use Tax. 35
ILCS 180/1 et seq. A “rental purchase agreement" is an agreement for the use of merchandise by a
consumer for personal, family, or household purposes for an initial period of 4 months or less that is
automatically renewable with each payment after the initial period and that permits the consumer to
become the owner of the merchandise. For more information regarding rental purchase agreements,
please see the Rental Purchase Agreement Act (815 ILCS 655/0.01 et seq.). The Rental Purchase
Agreement Occupation and Use Tax is imposed at the rate of 6.25% of the gross receipts from the
business of renting merchandise in Illinois under a rental purchase agreement. The Rental Purchase

ST 18-0012-GIL
Page 3

Agreement Occupation and Use Tax does not apply to tangible personal property that is required to
be titled and registered by a State agency.
Generally, a rental transaction is subject to the Rental Purchase Agreement Occupation and
Use Tax if the transaction is governed by the Rental Purchase Agreement Act (815 ILCS 655/0.01 et
seq.). The Department is of the opinion that, in general, items that are subject to the State 1% sales
tax rate are not intended to be covered by the newly enacted 6.25% Rental Purchase Agreement
Occupation and Use Tax. The House sponsor of the legislation referred in debate to “rent-to-own
dealer[s]” when discussing taxpayers subject to the Act. See State of Illinois, 100th General Assembly,
House, Transcription of Debate, May 30, 2017, page 17. COMPANY does not appear to fit that
category. It is important to note, however, that each rental agreement must be evaluated in light of the
specific rental contract and the other aspects of the transaction to determine whether the Rental
Purchase Agreement Occupation and Use Tax applies.
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,

Samuel J. Moore
Associate Counsel
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