Are a religious school's mandatory laptop rentals to students, billed as part of tuition, exempt from Illinois sales tax as a 'noncompetitive' sale like school yearbooks?

Plain-English summary

A firm representing a private religious school asked the Illinois Department of Revenue whether the school's mandatory laptop rentals to students -- purchased tax-free by the school and then leased to students, with the rental cost built into tuition -- were exempt from sales and use tax as "noncompetitive items," the same way school yearbooks are exempt.

The Department did not directly answer yes or no. Instead it laid out two separate bodies of law the school needs to apply to its own facts.

First, effective January 1, 2025 (Public Act 103-592, Article 75), Illinois now taxes leases directly: a lessor's gross receipts from leasing tangible personal property are subject to State and local retailers' occupation tax, and "sale" now includes "lease" for Retailers' Occupation Tax and Use Tax purposes. This also means every exemption that applies to ordinary retail sales now extends to leases as well -- which is why the school's exemption question matters even though it's leasing (not selling) the laptops.

Second, the Department reviewed the specific exemption framework for exclusively charitable, religious, or educational organizations. Schools are generally taxable on their own retail sales, but limited exceptions exist for sales to members/students, "noncompetitive" sales, and certain occasional events, if the school holds a Department-issued exemption ("E") number. Yearbooks are exempted by a specific administrative rule because they're deemed "noncompetitive," but the Department did not say a laptop rental qualifies for that same treatment -- it instead recited the multi-factor tests (frequency of the sale, whether the dominant motive is a charitable donation rather than acquiring the property, and whether the sale would put the school in unfair competition with for-profit sellers) that must be applied to determine whether a given sale (or, after 2025, a lease) is truly "noncompetitive."

What this means for you

Schools and other exempt educational institutions

If your school leases property to students as part of a mandatory program (like a 1:1 laptop program folded into tuition), don't assume the yearbook exemption automatically covers it. The "noncompetitive sales" exemption turns on fact-specific tests: is the sale/lease infrequent, is the dominant motive of the transaction a charitable contribution rather than acquiring the property, and would exempting it give your school an unfair edge over commercial retailers selling the same kind of property? A recurring, mandatory laptop rental built into annual tuition looks different from an occasional yearbook sale, and the Department did not say the two are treated the same.

Lessors and lessees generally

Since January 1, 2025, leasing tangible personal property in Illinois is its own taxable event -- the lessor owes State and local retailers' occupation tax on lease receipts, not just Use Tax on the up-front purchase of the leased property. But the flip side is that every ROT/Use Tax exemption (charitable/religious/educational exemptions, resale, etc.) now applies to leases exactly as it applies to sales, so an otherwise-exempt transaction doesn't become taxable merely because it's structured as a lease instead of a sale.

Accountants and tax professionals advising exempt organizations

This GIL is a good roadmap of the interlocking exemption rules for schools: the general rule that schools are taxable retailers (86 Ill. Adm. Code 130.2005), the narrow "sales to members" and "noncompetitive sales" carve-outs (130.2005(a)(2)-(4)), the specific schoolbook/yearbook rule (130.2005(c)(2)), and the Illinois Supreme Court's Follett's Book & Supply Store v. Isaacs decision, which held that book sales by school bookstores to their own students were taxable and struck down a Department regulation that had tried to exempt them. The Department's answer here signals that a recurring, tuition-embedded laptop rental is not an easy fit for the noncompetitive-sales exemption, since that exemption is meant to be infrequent and donation-motivated, not a routine part of doing business with students.

Common questions

Q: Did the Department rule that the school's laptop rentals are taxable or exempt?
A: Neither, directly. This is a General Information Letter, which only directs the taxpayer to relevant rules and case law -- it does not resolve the specific facts. The school must apply the noncompetitive-sales and sales-to-members tests itself (or seek a binding Private Letter Ruling).

Q: Does leasing property instead of selling it avoid sales tax?
A: No, not since January 1, 2025. Illinois now taxes a lessor's gross receipts from leases the same way it taxes retail sales, under 35 ILCS 120/1 and 120/2 as amended by Article 75 of Public Act 103-592.

Q: Do the same tax exemptions that apply to sales apply to leases?
A: Yes. 35 ILCS 120/2-5 extends all Retailers' Occupation Tax and Use Tax exemptions to leases, so an exempt organization's leases can qualify for the same carve-outs (sales to members, noncompetitive sales, etc.) that apply to its sales.

Q: Why doesn't the yearbook exemption obviously cover the laptop rentals?
A: The yearbook exemption exists because yearbook sales are treated as "noncompetitive" under 86 Ill. Adm. Code 130.2005(c)(2). But the broader noncompetitive-sales test requires the sale to be infrequent and motivated primarily by a charitable donation rather than acquiring the property -- factors the Department did not find self-evidently satisfied by a mandatory, tuition-embedded laptop rental program.

Q: What is a GIL, and can the taxpayer rely on it?
A: A General Information Letter directs a taxpayer to relevant Department regulations or other sources of information. It is not a statement of Department policy and is not binding on the Department, unlike a Private Letter Ruling issued under 2 Ill. Adm. Code 1200.110.

Citations and references

Statutes and rules:

• 35 ILCS 120/1, 120/2 (Retailers' Occupation Tax Act -- "sale" includes a lease effective January 1, 2025, under P.A. 103-592, Article 75)
• 35 ILCS 120/2-5 (exemptions extended to leases)
• 35 ILCS 105/3-5(4) (Use Tax exemption for the religious school's own purchases)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposition)
• 86 Ill. Adm. Code 150.101 (Use Tax imposition)
• 86 Ill. Adm. Code 130.2005(a)(2)-(4) (sales to members, noncompetitive sales, and other exceptions)
• 86 Ill. Adm. Code 130.2005(a)(3)(B)-(C) (tests for noncompetitive sales)
• 86 Ill. Adm. Code 130.2005(c)(2) (schoolbooks, school supplies, and yearbooks)
• 86 Ill. Adm. Code 130.2007 (exemption ("E") number application)
• 86 Ill. Adm. Code 130.1405 (Certificates of Resale)
• 86 Ill. Adm. Code 130.2105 (digital textbooks)
• 2 Ill. Adm. Code 1200.110 (PLR procedure); 2 Ill. Adm. Code 1200.120 (GIL procedure)
• Follett's Book & Supply Store v. Isaacs, 27 Ill. 2d 600 (1963)

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/st25-0026-gil.pdf

Original ruling text

ST 25-0026-GIL

4/28/2025

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).
April 28, 2025
NAME
COMPANY
ADDRESS
EMAIL
Dear NAME:
This letter is in response to your email dated February 18, 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 letter you have stated and made inquiry as follows:
Our firm provides tax representation to a private religious school for whom purchases
are sales tax exempt under 35 ILCS 105/3-5(4). We have an [sic] question about the
taxability of educational equipment that the school purchases tax-free and
subsequently leases to its students.
It is mandatory that students at the school rent laptops directly from the school each
year. The laptops are purchased tax-free and the costs to rent them are built into the
students’ annual tuition costs.
We would like to know if the leases are exempt from sales and use tax under 86 Ill.
Admin. Code § 130.2005(b)(2)(B) [sic], which provides that sales of yearbooks to

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April 28, 2025
students by for-profit educational institutions are exempt because the yearbooks are
“noncompetitive items.”
Here, essentially, students are required to rent inventory owned by the school and
they cannot acquire the property from anywhere else in the marketplace. The leases
are mandatory and a condition of the students’ attendance.
As such, are these leases exempt from tax as “noncompetitive items”?
The relevant legislation is attached. Please let me know if you require any other
information.
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 103592, 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.
For purposes of the issues discussed in this letter please note that, on and after January 1,
2025, “sales” include leases and rentals.
Sales by Educational Institutions

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Your letter references sales of yearbooks by schools. The administrative rule related to that
provision is included in Special Rules Concerning Sales by Educational Institutions and reads as
follows:
Schoolbooks and School Supplies
A)

A school incurs retailers’ occupation tax liability when selling schoolbooks
and school supplies to its students or others for use. Sales of digital textbooks
that are downloaded electronically do not incur tax as they are considered
intangibles. See 86 Ill. Adm. Code 130.2105.

B)

Schools are not taxable on their sales of school yearbooks because these are
noncompetitive items.

86 Ill. Adm. Code 130.2005(c)(2).
This provision is in the context of the larger discussion related to the taxability of sales by
exclusively charitable, religious, or educational organizations discussed below and codifies
Section 2 of the Retailers’ Occupation Tax Act definition of “sale at retail” as it relates to this issue,
which provides that “[t]he selling of school books and school supplies by schools at retail to
students is not “primarily for the purposes of” the school which does such selling. 35 ILCS 120/2.
Organizations that qualify as exclusively charitable, religious, or educational organizations
can apply to the Illinois Department of Revenue to obtain a tax exemption identification number
(“e-number”). Please see 86 Ill. Adm. Code 130.2007 for the requirements for making application
for an e-number. E-numbers establish that the Department recognizes said organizations as
exempt from incurring Use Tax when purchasing tangible personal property in furtherance of their
organizational purposes.
Organizations and institutions that are both operated and organized exclusively for
charitable, religious, or educational purposes are as a general matter subject to Retailers’
Occupation Tax upon their own sales of tangible personal property. There are, however, limited
exceptions where such organizations are authorized to engage in a restricted amount of retail
selling activity without incurring Retailers Occupation Tax liability. Exclusively charitable, religious,
and educational organizations that hold exemption numbers may engage in sales to members,
noncompetitive sales, and certain occasional dinners and similar activities without incurring
Retailers’ Occupation Tax liability. 86 Ill. Adm. Code 130.2005(a)(2)-(4).
Section 2 of the Retailers’ Occupation Tax Act defines “sale at retail” as it relates to this
issue as follows:

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A person whose activities are organized and conducted primarily as a not-for-profit
service enterprise, and who engages in selling tangible personal property at retail
(whether to the public or merely to members and their guests) is engaged in the
business of selling tangible personal property at retail with respect to such
transactions, excepting only a person organized and operated exclusively for
charitable, religious, or educational purposes either (1), to the extent of sales by such
person to its members, students, patients or inmates of tangible personal property
to be used primarily for the purposes of such person, or (2), to the extent of sales by
such person of tangible personal property which is not sold or offered for sale by
persons organized for profit. 35 ILCS 120/2.
Noncompetitive Sales
With respect to sales that are exempt as “noncompetitive sales” the Department’s
administrative rules provide the following:
B)

C)

The Attorney General has laid down the following tests for determining that
selling is noncompetitive:
i)

The transactions are conducted by members of the charitable entity
and not by any franchisee or licensee.

ii)

All of the proceeds must go to the charity.

iii)

The transaction must not be a continuing one but rather should be held
either annually or a reasonably small number of times within a
year. The test of reasonableness would be an administrative decision,
to be made by the Department.

iv)

The reasonably ascertainable dominant motive of most transferees of
the items sold must be the making of a charitable contribution, with
the transfer of property being merely incidental and secondary to the
dominant purpose of making a gift to the charity.

In addition, the Attorney General has stated that there are these further
considerations for the purpose of furnishing some guides to the resolution of
questions raised by each individual situation:
i)

The nature of the particular item sold. All other things being equal, the
decision as to candy might well be different from the decision as to
refrigerators.

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ii)

The character of the particular sale, and the real practical effect upon
punitive competition.

86 Ill. Adm. Code 130.2005(a)(3)(B) and (C).
In this category, the Attorney General’s opinion stresses that the sale must be infrequent,
and that the dominant motive of the purchase must be the making of a donation to the charitable
or religious organization that conducts the sale, rather than the acquisition of property. Even if the
sale to the public occurs only once a year, the charitable or religious organization that conducts the
sale would incur retailers’ occupation tax liability if it sells hats, greeting cards, or other items for
which the dominant motive of the purchase is the acquisition of the property rather than the
exchanging of the property merely as a token for the making of a donation.
Sales to Members
The sales to members exemption found at 86 Ill. Adm. Code 130.2005(a)(2) is limited to
sales by an exclusively charitable, religious, or educational organization that are made primarily for
the purposes of the selling organization to its members, or students in the case of a school. Please
note the population to which sales are made must be limited to persons specifically associated
with that exempt organization and must be for the primary purpose of the selling organization. If
such sales are made to the public at large, the selling activity is subject to the Retailers’ Occupation
Tax. See Section 130.2005(a)(2) through (a)(4). Whether the sales are for the primary purpose of
the selling organization depends on the nature of the tangible personal property sold and how that
tangible personal property is used. If an organization sells literature or other items of tangible
personal property that would place them in competition with religious bookstores, the sales
generally would not be primarily for the purpose of the selling organization. However, sales of choir
robes or like tangible personal property to members would generally be primarily for the purpose of
the selling organization. It is very important that these organizations not be cavalier in determining
the nature of their sales.
The Illinois Supreme Court provided guidance in this area in the case of Follett’s Book &
Supply Store v. Isaacs, 27 Ill.2d 600, 1963. In Follett’s the court analyzed a situation where schools
were selling books only to their students. The schools were not charging sales tax pursuant to a
Department of Revenue regulation that exempted sales of schoolbooks by schools to its students.
Retail bookstores that competed with the school bookstores brought the lawsuit and claimed that
the schools were operated for educational purposes and that their book sales were not essential
to such purposes or operated in furtherance of such purposes. The Illinois Supreme Court
concluded that the sales were subject to sales tax and the court voided the Department regulation
that had exempted such sales from sales tax liability. If organizations engage in ongoing selling
activities (such as Little League concession stands or sales of items in a thrift shop run by a church),
they must also register with the Department as retailers, file returns and collect and remit tax. For
these types of ongoing sales, the organizations would provide their suppliers with Certificates of

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Resale for the items they purchase to resell and remit Retailers’ Occupation Tax on their gross
receipts from sales. See 86 Ill. Adm. Code 130.1405, which describes the requirements for validly
executed Certificates of Resale.
The reason, in part, for both the noncompetitive sales and sales to members rules is to
ensure that exempt entities do not have a competitive advantage when selling items that are also
sold by Illinois retailers. The Illinois General Assembly did not intend to give exempt entities a
competitive advantage over Illinois retailers.
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.
Very truly yours,

Samuel J. Moore
Associate Counsel
SJM:sce