Does an equipment-leasing company owe Illinois Retailers' Occupation Tax when it transfers its leased equipment to an affiliated company as part of a corporate reorganization?

Plain-English summary

The Illinois Department of Revenue addressed whether a leasing company owes Retailers' Occupation Tax (Illinois's version of sales tax) when it transfers its leased equipment to a related company as part of a corporate reorganization.

The taxpayer, "Company A," leases access and scaffolding systems to contractors working on infrastructure projects. It occasionally sold equipment and parts outright instead of leasing them, but those sales made up no more than about 1.5% of its total revenue, and Company A did not advertise or seek out retail buyers — the sales arose only when lease customers asked to buy equipment or parts. As part of reorganizing its parent company's legal-entity structure, Company A planned to merge into a related "brother-sister" company by transferring all of its assets in exchange for cash or stock.

The Department concluded that this one-time asset transfer is an exempt "isolated or occasional sale" under 86 Ill. Adm. Code 130.110, not a taxable retail sale, because Company A does not habitually engage in selling equipment at retail — its business is leasing, not selling. The Department pointed to its own rules on lessors (86 Ill. Adm. Code 130.2010(b)), the Valier Coal case defining "business" as an activity habitually engaged in for a livelihood, and Xtra, Inc., where a company selling off-lease equipment for under 2% of its revenue was also found not to be a retailer. Because no tax was due on the sale, the Department also confirmed the recipient (Company C) would not owe a corresponding Use Tax on the transfer.

What this means for you

Equipment lessors and leasing companies

If leasing is your core business and you only occasionally sell equipment — for example, items coming off lease that you no longer need, or equipment a lease customer wants to buy outright — those sales generally do not trigger Retailers' Occupation Tax liability, even if you're registered to collect the tax. The key facts the Department looked at: you don't advertise or seek out buyers, you don't habitually sell like-kind property, and the sales are a small percentage of your overall revenue (this ruling treats about 1.5% as clearly under the line, echoing the roughly 2%-of-gross-receipts threshold discussed in Xtra, Inc.).

Businesses planning a merger or reorganization

A one-time transfer of business assets to an affiliated entity as part of a legal reorganization — even in exchange for cash or stock, which would otherwise look like a "sale at retail" under 35 ILCS 120/1 — can qualify as a non-taxable occasional sale if the transferor doesn't ordinarily sell that kind of property at retail. The reorganization itself having no independent business purpose beyond consolidating entities supported treating the transfer as isolated rather than part of an ongoing retail business.

Accountants and tax professionals

This GIL is a useful roadmap of the interlocking authorities on the occasional-sale exemption: the regulatory language in 86 Ill. Adm. Code 130.110 and 130.2010(b), the "intent to resell" test in 130.110(f), Valier Coal's habitual-occupation definition of "business," and Xtra, Inc.'s de facto revenue-percentage safe harbor. Remember this is a GIL, not a PLR — it directs the taxpayer to existing authority rather than creating new binding policy, so treat the reasoning as persuasive, not as a guarantee for a different taxpayer's facts.

Common questions

Q: Does registering for the Retailers' Occupation Tax automatically make all of a company's sales taxable?
A: No. The ruling notes that Company A was registered for the Retailers' Occupation Tax to remit tax on its isolated sales, but registration alone didn't make it a "retailer" for purposes of this transaction — the Department still analyzed whether the specific transfer was an occasional sale.

Q: What percentage of revenue is safe for occasional sales?
A: The ruling doesn't set a bright-line rule, but it discusses Xtra, Inc., where sales under about 2% of gross receipts were found not to constitute a retail business, and treats Company A's roughly 1.5% figure as consistent with an occasional, non-taxable sale.

Q: Does the buyer owe Use Tax if the seller doesn't owe Retailers' Occupation Tax?
A: No. The letter explains that because the Use Tax complements the Retailers' Occupation Tax, a purchase is not subject to Use Tax if the corresponding sale would have been exempt from the Retailers' Occupation Tax (citing 86 Ill. Adm. Code 150.101(d) and 150.305(d)).

Q: Is this letter binding on the Department for other taxpayers?
A: No. This is a General Information Letter, which merely points to relevant regulations and prior authority. It is not a statement of Department policy and is not binding, unlike a Private Letter Ruling.

Citations and references

Statutes and rules:

• 35 ILCS 120/1 (Retailers' Occupation Tax Act, sale at retail)
• 86 Ill. Adm. Code 130.110, 130.110(b), 130.110(f) (occasional sale exemption and its limits)
• 86 Ill. Adm. Code 130.2010(b) (bona fide lessors not "engaged in the business of selling")
• 86 Ill. Adm. Code 130.2013(e); 130.111 (sales of property coming off lease; motor vehicle exception)
• 86 Ill. Adm. Code 150.101(d), 150.101, 150.305(d)-(e) (corresponding Use Tax exemption)

Cases and prior rulings:

• Valier Coal Co. v. Department of Revenue, 11 Ill. 2d 402 (1957)
• Xtra, Inc. v. Illinois Department of Revenue, 95 L 50659 (1999)
• Illinois PLR No. ST 00-0003-PLR (Feb. 29, 2000)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2021.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2021/st21-0021-gil.pdf

Original ruling text

ST-21-0021 05/26/2021 OCCASIONAL SALE
Isolated or occasional sales of tangible personal property at retail by persons
who do not hold themselves out as being engaged (or who do not habitually
engage) in selling such tangible personal property at retail do not constitute
engaging in the business of selling such tangible personal property at retail. See
86 Ill. Adm. Code 130.110. (This is a GIL.)
May 26, 2021
Dear NAME:
This letter is in response to your letter dated April 20, 2021, 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:
Re: General Information Letter Request
To whom it may concern:
We respectfully request the issuance of guidance on behalf of our
client (the "Company B") for the issues described below based on the
facts contained herein. Company B is seeking to rationalize its
structure by reducing the number of operating entities. As described
below, Company B desires to merge Company A into Company C.
Guidance is sought on the tax treatment of the assets being
transferred as part of this transaction.
Facts
Company A is a subsidiary to an infrastructure industry conglomerate
('Company B"). Company A leases access and scaffolding systems in
Illinois. When performing construction, restoration, or other activities
within infrastructure projects, contractors may engage with Company A

COMPANY
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May 26, 2021
to provide temporary access systems under bona fide lease
arrangements.
Within the lease arrangements, Company A provides scaffolding or
other access equipment, for a contractor to utilize until conclusion of
the arrangement. Generally, after the lease expires under its terms,
possession of the leased equipment reverts back to Company A.
Company A does not habitually transfer ownership of its property to
contractors. However, Company A has occasionally sold equipment
and, mostly, parts for equipment (e.g., poles, boards, etc.) to third
parties outright in lieu of a leasing arrangement; in YYYY and YYYY,
these occasional sales represented no more than 1.5% of Company
A's total revenue.
Company A does not hold itself out as a retailer. Specifically,
Company A does not advertise or otherwise seek out retail customers
or sales. Rather, these occasional sales arise at the lease customers
request for the equipment or parts to equipment. Further, a portion of
the retail sales would be related to sales of damaged leased equipment
to the lessee under the lease agreement. In all respects, Company A
does not act as a true retailer in Illinois as it’s [sic] primary business is
the leasing of equipment to customers.
Company A is registered for the Retailers' Occupation Tax to remit
sales tax on these isolated sales. Company A does not collect sales
tax on its rental transactions. As a lessor, Company A pays tax on its
purchase of assets at the time of purchase.
As part of an effort to better organize Company B's legal entity
structure, Company B will merge Company A into a related brothersister company ("Company C"). The reorganization will be
accomplished by having Company A surrender all of its assets to
Company C in exchange for cash or Company C stock.
Issues
Whether Company A' s transfer of assets to Company C a sale [sic]
deemed taxable for the Retailer's Occupation Tax?
Analysis
Illinois Admin. Code 86 §130.2010(b) states that persons who rent
tangible personal property to others are "not engaged in the business of
selling tangible personal property to purchasers for use or consumption
within the meaning of the Retailers' Occupation Tax Act and are not

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required to remit Retailers' Occupation Tax measured by their gross
receipts from such transactions." Furthermore, Illinois Admin. Code 86
§150.305(e) comments that ''the Use Tax does not apply to the rental
payments made by a lessee to a lessor... and the lessor is legally the user
of the property and is taxable on the purchase price thereof."
In a private letter ruling, Illinois determined that the lessor of an aircraft
is not a retailer when it subsequently sells the aircraft it was leasing.
Specifically, Illinois Private Letter Ruling, No. ST 00-0003-PLR, dated
02/29/2000, states, "the sale of the Airplane at the end of the Lease
term by the Trust to another person is an occasional sale which does
not constitute engaging in a business of selling such property at retail.
An occasional sale does not make the Trust a retailer, …" A lessor is
not a retailer of property that it leases under a bona fide rental
agreement, even when an occasional sale is present.
According to Illinois Admin. Code §130.110(a), the Retailers'
Occupation Tax is not imposed " upon persons who are not engaged in
the business of selling tangible personal property, persons who make
isolated or occasional sales thereof do not incur tax liability."
Furthermore, Illinois Admin. Code §130.110(f) confirms that only a
taxpayer with the intent to resell property at purchase" engages in
conduct equivalent to holding himself out as a retailer." Illinois Admin.
Code §150.305(d) mandates that the use tax does not apply for
"tangible personal property purchased from an isolated or occasional
seller who is not engaged in the business of selling such tangible
personal property." The use tax, to complement the Retailers'
Occupation Tax, does not apply to a purchase if an exemption exists
for the Retailers' Occupation Tax.
Under Valier Coal Company v The Department of Revenue, 11 Ill 2d
402, dated 05/23/1957, the Supreme Court of Illinois found that, for
purpose of the Retailers' Occupation Tax Act, "the word 'business' ...
refers to a particular occupation or employment habitually engaged in
for a livelihood or gain." To be considered doing business under the
court's definition, a taxpayer must engage in the activity constantly or
regularly.
In Xtra, Inc. v Illinois Department of Revenue, 95 L 50659, dated
05/07/1999, Illinois Circuit Court ruled that Xtra, Inc. was not a retailer
even though less than 2% of its revenue was attributed to the sale of
property that came off lease. The court noted that the Retailers'
Occupation Tax Act "does not tax the sale of property, but rather the
business of selling property for use or consumption." Xtra establishes a
safe harbor judicial precedence [sic], that activities that both [sic]

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May 26, 2021
infrequent in occurrence and represent 2% or less of gross receipts are
exempt from administration of the Retailers' Occupation Tax.
Conclusion
Based on the guidance described above, Company A's one-time
transfer of its assets to Company C is excepted from the Retailers'
Occupation Tax because the sale is not a business activity. Illinois
regulations notate that an intent to resell property must be present for
a taxpayer to be a retailer; however, Company A acquired its
equipment with the intent to lease it, not resell it. The above stated
guidance confirms that the Retailers' Occupation Tax Act does not tax
the occasional sale of property, but taxes business activities, or an
activity that is habitually conducted. In applying Valier Coal Company,
Company A must be constantly or regularly engaged in the activity of
making retail sales to be considered a retailer. As described in the
facts, Company A does not constantly or even regularly engage in such
activity. Specifically, Company A does not hold itself out as a retailer,
does not seek out retail sales, and, further, does not have considerable
revenue from such activity. Rather, its retail sales are a by-product of
its business of leasing property to customers.
The opinion in Xtra, Inc. would suggest a threshold for establishing a
business activity from an occasional sale for the Retailers' Occupation
Tax. Specifically, the court found that retail revenue must, at minimum,
exceed 2% of a taxpayer's revenue. Representing about 1.5% of
Company A's total revenue from YYYY-YYYY, Company A's historical
retail sales of leased equipment are both de minimus and infrequent.
Moreover, the transfer of leased assets (upon which tax was paid at the
time of purchase) to Company C by Company A serves no business
purpose other than to complete a one-time legal reorganization of
Company B's entity structure.
As such, even though Company A is registered to collect the Retailers'
Occupation Tax, Company A- as a lessor of property- is not habitually
engaged as a retailer in Illinois, and should not collect tax upon the
occasional one-time transfer of its assets to Company C as part of the
restructuring transaction.
As you review the above request for guidance, please do not hesitate
to reach out to me with any questions at ##### or E-MAIL. Further, we
kindly request an opportunity to have a conference call to discuss the
above request.

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DEPARTMENT’S RESPONSE:
Generally, when cash or stock is received in consideration of capital assets, a
"sale at retail" has occurred. See 35 ILCS 120/1. Please note that in general, the
transfer of capital assets pursuant to a reorganization may not be subject to sales tax
liability in Illinois if the transferor of such capital assets has not ordinarily sold like-kind
property at retail. See 86 Ill. Adm. Code 130.110.
Isolated or occasional sales of tangible personal property at retail by persons
who do not hold themselves out as being engaged (or who do not habitually engage) in
selling such tangible personal property at retail do not constitute engaging in the
business of selling such tangible personal property at retail. See 86 Ill. Adm. Code
130.110. For example, if a retailer sells tangible personal property, such as machinery
or other capital assets, which he has used in his business and no longer needs, and
which he does not otherwise engage in selling, he does not incur Retailers' Occupation
Tax liability when selling such tangible personal property even if the sales are at retail
and even if he may be required to make a considerable number of such sales in order to
dispose of such tangible personal property. This is because such sales are isolated or
occasional and do not constitute a business of selling tangible personal property at
retail. See 86 Ill. Adm. Code 130.110(b). Similarly, persons who, under bona fide
agreements, lease tangible personal property to others are, to this extent, not engaged
in the business of selling tangible personal property to purchasers for use or
consumption within the meaning of the Retailers' Occupation Tax Act. See 86 Ill. Adm.
Code 130.2010(b). Further, those engaging in this type of leasing business do not
purchase inventory with the intent to resell it to purchasers for use or consumption and,
therefore, are not holding themselves out as retailers. See 86 Ill. Adm. Code
130.110(f).
For instance, 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 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).
A one-time sale of business assets as part of a business reorganization that
consist of leasing inventory would constitute isolated or occasional sales if the seller is
not engaged in the business of selling like-kind tangible personal property. Sellers
making such one-time sales would not incur Retailers' Occupation Tax liability on the

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gross receipts. Consequently, the purchasers of that tangible personal property do not
incur a Use Tax liability on those purchases. See 86 Ill. Adm. Code 150.101.
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,
Alexis K. Overstreet
Associate Counsel
AKO:rkn