Under Illinois's new 2025 lease-receipts tax, does a lessor of leased machinery owe sales tax on the cost of repair or replacement parts it buys to fix or refurbish the equipment it leases out?

Plain-English summary

Illinois overhauled how it taxes equipment leases starting January 1, 2025. Under the old rules, a lessor paid Use Tax up front when it bought the equipment, and the lessee never paid sales tax on the lease payments. Under the new rules (Article 75 of Public Act 103-592), the lessor instead collects state and local retailers' occupation tax on the lease receipts it gets from customers over time — leases are now taxed like ongoing sales.

An accountant asked the Department a follow-up question about that new system: a client leases machinery at retail and now collects sales tax on the lease payments as required. But some of that machinery periodically needs costly repairs or replacement parts (the accountant's example was new tracks for skid-steer loaders, which can cost thousands of dollars per machine). Does the lessor also owe sales tax when it buys those parts? If so, wouldn't that tax the same value twice — once on the repair parts, and again when the lease payments (which reflect the improved equipment) are taxed?

The Department's answer: no double taxation. A lessor's purchase of repair or replacement parts that will be attached to equipment used solely for leasing — equipment whose lease receipts are already subject to the new lease-receipts tax — qualifies as a purchase for resale and is exempt. The lessor just needs an active registration or resale number and a proper resale certificate. (If a lessee, rather than the lessor, buys the same parts, that purchase is taxable — the resale exemption only follows the party that is reselling/re-leasing the property.)

This ruling is squarely about the new post-January-1-2025 lease-receipts tax regime — it doesn't address transition rules for leases entered into before 2025 or any "vested right" in the old tax treatment.

What this means for you

Equipment lessors

If you lease tangible personal property at retail and are now collecting sales tax on your lease receipts under the 2025 law, you can buy repair and replacement parts for your leased-out equipment tax-free as a purchase for resale — as long as that equipment is used solely for leasing (not also for your own use). You'll need to give your parts supplier a valid resale certificate along with your active registration or resale number.

Lessors who also use some equipment themselves

The resale exemption only applies to items purchased for property used solely for leasing. If you buy an item intending to both use it yourself and lease it out, you cannot buy it tax-free for resale. The GIL notes that lessors who want to take advantage of the resale exemption may need to keep separate inventories — one for equipment purchased tax-free for lease (where lease receipts are taxed) and one for equipment purchased tax-paid for the lessor's own use.

Accountants and tax professionals

Note the vehicle carve-outs baked into Article 75: motor vehicles, watercraft, aircraft, and semitrailers required to be registered with an Illinois agency are NOT covered by the new lease-receipts tax — those keep the old model (dealers owe retailers' occupation tax, lessors owe use tax, lessees owe nothing). But ordinary trailers that don't meet the "semitrailer" definition (i.e., where some part of the trailer's own weight rests on the towing vehicle), plus items like ATVs and off-road motorcycles that must be titled but not registered, ARE swept into the new lease tax.

Lessees

If you lease equipment, you're generally now paying sales tax on your lease payments rather than absorbing a tax the lessor already paid up front on the purchase price. If you personally buy repair or replacement parts for equipment you're leasing (rather than the lessor buying them), that purchase is taxable to you — the resale exemption doesn't extend to lessees.

Common questions

Q: Does a lessor owe sales tax on repair or replacement parts for equipment it leases out?
A: No, if the parts are attached to equipment used solely for leasing and the lease receipts are already taxed under the new law — that purchase qualifies as a sale for resale and is exempt.

Q: Isn't that double taxation — taxing the repair cost and then taxing the lease payments that reflect it?
A: The Department's answer avoids that outcome by treating the parts purchase itself as tax-exempt (a resale), so only the lease receipts end up taxed.

Q: What if the lessee buys the replacement parts instead of the lessor?
A: That purchase is taxable. The resale exemption applies to the lessor's purchases of parts for property it leases out — not to a lessee's own purchases.

Q: Does this GIL cover the pre-2025 lease taxation rules or a transition period for older leases?
A: No. This letter addresses the system in effect on and after January 1, 2025, under Article 75 of Public Act 103-592. It does not discuss grandfathering, transition rules, or vested rights for leases entered into before that date.

Q: Is a General Information Letter binding on the Department?
A: No. A GIL, issued under 2 Ill. Adm. Code 1200.120, merely points taxpayers to relevant regulations or other information — it is not a statement of Department policy and does not bind the Department, unlike a Private Letter Ruling issued under 2 Ill. Adm. Code 1200.110.

Citations and references

Statutes and regulations:

• 35 ILCS 120/2 (Retailers' Occupation Tax Act, as amended by Article 75 of P.A. 103-592 — tax on lease receipts)
• 35 ILCS 120/1 (definition of "sale" includes a lease, effective January 1, 2025)
• 35 ILCS 120/2-5 (exemptions extended to leases)
• 35 ILCS 120/2c (sale for resale to a lessor)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposition); 86 Ill. Adm. Code 150.101 (Use Tax imposition)
• 86 Ill. Adm. Code 130.1401 (use/consumption vs. resale); 86 Ill. Adm. Code 130.1405 (Certificate of Resale)
• 625 ILCS 5/1-187 (definition of "semitrailer"); 625 ILCS 5/1-209 (definition of "trailer")
• 2 Ill. Adm. Code 1200.110 (PLR procedure); 2 Ill. Adm. Code 1200.120 (GIL procedure)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2025.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2025/st25-0019-gil.pdf

Original ruling text

ST 25-0019-GIL

03/24/2025

LEASING

Effective January 1, 2025, persons engaged in the business of leasing tangible
personal property at retail (“lessors”) in Illinois are subject to State and local
retailers’ occupation tax on the gross receipts from leases of tangible personal
property made in the course of business. See 35 ILCS 120/2 as amended by Article
75 of Public Act 103-592. (This is a GIL).
March 24, 2025
NAME
COMPANY
ADDRESS
EMAIL
Dear NAME:
This letter is in response to your email dated January 29, 2025, 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
https://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 email you have stated and made inquiry as follows:
My client has asked me, and I need to be sure of the proper treatment of an
issue. The client leases various kinds of machinery at retail and is now
collecting the sales tax from its customers as instructed in the law. Some of
this equipment will need some costly improvements/repairs in the near
future. Of course, there will also be very common repair and maintenance
done on the equipment as well. Will they need to pay the sales tax on the
“costly” improvements/repairs going forward? It seems as though there
would be a form of double taxation for this? Once for the improvements and
again when the units are leased to the customers. A case could be made that
the lease price subject to the tax is based upon the improved price of the
equipment. Let me give you an [sic] quick example. A company that leases out
skid-steers has to buy new tracks for their units (which are costly). This can

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March 24, 2025
cost several thousands of dollars for each machine. Would they need to pay
sales tax on these repairs? (keep in mind they don’t have to change out the
tracks on a regular basis)
DEPARTMENT’S RESPONSE:
The Illinois Retailers’ Occupation Tax Act imposes a tax upon persons engaged in this
State in the business of selling tangible personal property at retail 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.
Effective January 1, 2025, in accordance with the provisions of Article 75 of Public Act
103-592, persons engaged in the business of leasing tangible personal property at retail
(“lessors”) in Illinois are subject to State and local retailers’ occupation tax on the gross
receipts from leases of tangible personal property made in the course of business. See 35
ILCS 120/2. A “lease” is defined as a transfer of the possession or control of, the right to
possess or control, or a license to use, but not title to, tangible personal property for a fixed
or indeterminate term for consideration, regardless of the name by which the transaction is
called, but does not include a lease entered into merely as a security agreement that does
not involve a transfer of possession or control from the lessor to the lessee. On and after
January 1, 2025, for purposes of State and local retailers’ occupation taxes, the term “sale”
includes a lease. See 35 ILCS 120/1. This includes the extension of all exemptions from
retailers’ occupation tax and use tax to leases. See 35 ILCS 120/2-5. The tax applies to lease
receipts received on or after January 1, 2025 for leases in effect, entered into, or renewed on
or after that date. The lessor must remit for each tax return period the tax applicable to lease
receipts received during that tax return period. See 35 ILCS 120/2.
The inclusion of leases in the tax imposed under the Retailers’ Occupation Tax Act by
Article 75 of Public Act 103-592 does not, however, extend to motor vehicles, watercraft,
aircraft, and semitrailers, as defined in Section 1-187 of the Illinois Vehicle Code, that are
required to be registered with an agency of this State. The taxation of these items continues
as prior to January 1, 2025 (i.e., dealers owe retailers’ occupation tax, lessors owe use tax,
and lessees of these items are not subject to retailers’ occupation or use tax). Beginning
January 1, 2025, the tax on leases does, however, extend to trailers that are not semitrailers
as defined in Section 1-187 of the Illinois Vehicle Code and items that are required to be
titled with an agency of this State but not required to be registered with an agency of this
State, such as all-terrain vehicles (“ATVs”) and off-road motorcycles.
“Semitrailer” is defined as “every vehicle without motive power, other than a pole
trailer, designed for carrying persons or property and for being drawn by a motor vehicle and

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March 24, 2025
so constructed that some part of its weight and that of its load rests upon or is carried by
another vehicle.” 625 ILCS 5/1-187. All other trailers are subject to tax under Article 75 of
Public Act 103-592. “Trailer” is defined as “every vehicle without motive power in operation,
other than a pole trailer, designed for carrying persons or property and for being drawn by a
motor vehicle and so constructed that no part of its weight rests upon the towing vehicle.”
625 ILCS 5/1-209. If a trailer meets the definition of a “semitrailer”, it is not subject to sales
tax on lease payments beginning January 1, 2025. However, if the trailer meets the definition
of a “trailer”, it is subject to tax on lease payments. The difference is whether the trailer is
constructed so that no part of its weight rests upon the towing vehicle.
Sale for Resale
A person who sells tangible personal property to a purchaser who may use or
consume such property within the meaning of the Retailers’ Occupation Tax Act, but who
also may resell such property, must determine, at the time when he sells the property to
such purchaser, whether the purchaser is buying the property “for use or consumption”
within the meaning of the Act or whether the purchaser is buying the property “for resale”.
86 Ill. Adm. Code 130.1401. Beginning January 1, 2025, a sale to a lessor of tangible personal
property who is subject to the tax on leases implemented by Article 75 of Public Act 103592, for the purpose of leasing that property, shall be made tax-free on the ground of being
a sale for resale if the purchaser has an active registration number or resale number from
the Department and furnishes that number to the seller in connection with certifying to the
seller that the sale to such purchaser is nontaxable because of being a sale for resale. See
35 ILCS 120/2c. See 86 Ill. Adm. Code 130.1405 for Certificate of Resale requirements.
Purchases for use or consumption may not be made tax-free for resale. If a retailer,
including lessors beginning January 1, 2025, purchases an item that the retailer intends to
use or consume as well as lease, that item may not be purchased tax-free for resale. If a
lessor wants to avail themselves of the opportunity to make purchases tax-free for resale,
such lessor could keep separate inventories based on items purchased tax-free for lease,
the receipts for the lease of which will be subject to retailers’ occupation tax, and items
purchased tax-paid for use by the lessor.
Repair or Replacement Parts
A lessor’s purchase of repair or replacement parts for the purpose of being attached
to tangible personal property used solely for leasing or renting as a part thereof and subject
to the tax on leases under Article 75 of Public Act 103-592, is exempt as a purchase for
resale. However, if the same property is purchased by a lessee, the purchase is taxable.
I hope this information is helpful. If you require additional information, please visit
our website at https://tax.illinois.gov/ or contact the Department’s Taxpayer Information
Division at 800-732-8866.

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March 24, 2025

Very truly yours,
Samuel J. Moore
Associate Counsel