If a subcontractor for a tax-exempt organization (like a school or church) rents equipment such as a lift, does the subcontractor have to pay Illinois sales tax on the rental?

Plain-English summary

The Illinois Department of Revenue answered a question from a lift rental company: if the company rents equipment to a subcontractor who is doing work for a tax-exempt organization (a school, village/city, or church), does the subcontractor owe sales tax on the rental?

The Department's answer, in substance, is that the rental is still taxable unless the subcontractor itself qualifies for an exemption. Illinois' sales-tax exemption for sales to exempt organizations and governmental entities only applies when the sale or lease is invoiced directly to the exempt organization or entity itself, and that entity holds an active "E" (exemption identification) number from the Department. A sale or lease to an individual member, client, or -- as here -- a subcontractor of an exempt organization is generally taxable, even though the underlying project benefits the exempt entity.

There is one narrow path to exemption: if the subcontractor is contractually required to buy or lease tangible personal property for incorporation into real estate, the subcontractor is treated as a "construction contractor" under Illinois law. Construction contractors normally owe Use Tax as the end users of materials they incorporate into real property. But if the contractor is incorporating that property into real estate owned by an exempt organization or governmental entity that has a valid "E" number at the time of sale, the purchase (or lease) can be made tax-free -- as long as the contractor gives its supplier a certification identifying the exempt owner and its "E" number. If the item is instead just used by the contractor (not built into the exempt entity's real estate), no exemption applies.

This ruling also confirms the mechanics of Illinois' 2025 leasing tax overhaul: effective January 1, 2025 (Public Act 103-592, Article 75), Illinois now taxes a lessor's gross receipts from leasing tangible personal property directly, rather than taxing the lessor's up-front purchase of the property. 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, sourced to where the lease is deemed to occur.

What this means for you

Equipment rental and leasing companies

As of January 1, 2025, you owe State and local retailers' occupation tax on your gross receipts from leasing equipment, sourced based on where the lease occurs, and you remit that tax for each return period based on receipts collected in that period. Whether your customer is doing work for a tax-exempt entity does not, by itself, exempt the rental -- the exemption analysis runs through your customer's own status, not the ultimate project owner.

Subcontractors working for schools, municipalities, or churches

Just because you're performing work for a tax-exempt organization doesn't mean your equipment rentals are tax-free. The exemption only follows the entity that holds the "E" number and only when the sale or lease is invoiced to that entity directly. If you're renting equipment in your own name as a subcontractor, expect to pay sales tax on the rental unless you separately qualify as a construction contractor incorporating the equipment into the exempt entity's real estate (and can document the exempt owner's "E" number).

Construction contractors

If you're contractually obligated to incorporate purchased or leased tangible personal property into real estate, you're treated as the end user and normally owe Use Tax. To buy or lease that property tax-free, the real estate must be owned by an exempt organization or governmental entity with a valid "E" number at the time of sale, and you must give your supplier a certification naming that entity, its "E" number, and the contract date. If the property isn't incorporated into the exempt owner's real estate -- for example, if you just use the equipment yourself -- the exemption doesn't apply.

Accountants and tax professionals

This GIL is a useful reminder that Illinois' "E" number exemption is entity-specific and invoice-specific: it exempts sales/leases billed directly to the exempt organization or governmental entity, not sales/leases to third parties who happen to be working for that entity. The construction-contractor carve-out in 86 Ill. Adm. Code 130.2075(d) is the main route by which a subcontractor's purchases or leases for an exempt project can become tax-free, and it requires a specific certification under 130.2075(d)(4).

Common questions

Q: My subcontractor is renting a lift to do work for our tax-exempt nonprofit. Does the rental company have to exempt that rental?
A: Not automatically. The exemption for sales to exempt organizations applies only when the sale or lease is invoiced to the exempt organization or governmental entity itself, and that entity has an active "E" number. A rental invoiced to the subcontractor is generally taxable.

Q: Is there any way for the subcontractor's rental to be tax-free?
A: Yes, in one specific scenario: if the subcontractor is a construction contractor contractually required to incorporate the equipment (or materials) into real estate owned by the exempt organization or governmental entity, and that entity has a valid "E" number at the time of sale, the purchase or lease can be made exempt -- but only if the contractor gives its supplier the required certification under 86 Ill. Adm. Code 130.2075(d)(4).

Q: Does this ruling involve Illinois' new 2025 leasing tax rules?
A: Yes. The ruling confirms that, effective January 1, 2025 under Public Act 103-592 (Article 75), Illinois taxes a lessor's gross receipts from leases directly (rather than taxing the lessor's original purchase of the leased property), with tax due on lease receipts received on or after that date for leases in effect, entered into, or renewed on or after that date.

Q: Is a General Information Letter binding on the Department?
A: No. A GIL, issued under 2 Ill. Adm. Code 1200.120, simply points taxpayers to relevant regulations or other information; it is not a statement of Department policy and does not bind the Department. Only a Private Letter Ruling (PLR), issued under 2 Ill. Adm. Code 1200.110, binds the Department, and only as to the specific taxpayer and facts presented.

Q: Does the exemption cover sales to individual members of an exempt organization?
A: No. Only sales (or leases) invoiced to the exempt organization or governmental entity itself are exempt. Sales made to an individual member or client of an exempt organization or entity are generally subject to tax.

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 120/2-12(5.5) (sourcing of retail lease receipts)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposition)
• 86 Ill. Adm. Code 150.101 (Use Tax imposition)
• 86 Ill. Adm. Code 130.120 (exemptions applicable to leases)
• 86 Ill. Adm. Code 130.2007, 130.2080 ("E" number exemption for exempt organizations/governmental entities)
• 86 Ill. Adm. Code 130.2075, 130.2075(d), 130.2075(d)(4) (construction contractors as end users; exemption for materials incorporated into exempt-entity real estate)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter 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/st25-0030-gil.pdf

Original ruling text

ST 25-0030-GIL

5/27/2025

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.)

May 27, 2025
NAME
COMPANY
ADDRESS
EMAIL
Dear NAME:
This letter is in response to your letter dated March 24, 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:
We are a lift rental company and rent to customers that are
subcontractors for tax exempt organizations, such as schools, villages/cities
and churches.
We are writing to request clarification regarding sales tax and
subcontractors doing work for tax exempt organizations. Is a rental customer
that is a subcontractor for the tax exempt organization required to pay sales
tax on the rented equipment? The subcontractor is renting the equipment, not
the tax exempt organization.

COMPANY
Page 2
May 27, 2025
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. 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 retail leases, tax is due at the lessor’s State
and local retailers’ occupation tax rate based on where the lease is sourced. See 35 ILCS
120/2-12(5.5).
The exemptions from tax under the Retailers’ Occupation Tax Act apply to leases of
tangible personal property in the same manner as the exemptions apply to other sales under
the Act and are found at Section 130.120 of Title 86 of the Administrative Code. See 86 Ill.
Adm. Code 130.120. Sales (including leases) to exempt organizations (organizations that
qualify as exclusively religious, charitable, or educational) and governmental entities are
subject to tax unless the exempt organization or governmental entity has obtained an active
exemption identification number (“E” number) from the Department. See 86 Ill. Adm. Code
130.2007 and 130.2080. Persons or businesses selling tangible personal property to these
organizations or governmental entities must be provided with an “E” number for the sales to
be tax exempt, unless another exemption can be documented. It is important to note that
only sales of tangible personal property invoiced to the organization or governmental entity
itself are exempt. Sales made to an individual member or client of an exempt organization
or entity are generally subject to tax.

COMPANY
Page 3
May 27, 2025
If a person or business is contractually required to purchase tangible personal
property for incorporation into real estate, then that person or business would be acting as
a construction contractor. Construction contractors in Illinois are deemed to be the end
users of tangible personal property purchased for incorporation into real property and owe
Use Tax on those materials. 86 Ill. Adm. Code 130.2075. However, purchases of tangible
personal property by a construction contractor for incorporation into the real estate owned
by an exempt organization or governmental entity that possesses a valid “E” number at the
time of sale may be made free of Illinois Retailers’ Occupation Tax and Use Tax under the
provisions of 86 Ill. Adm. Code 130.2075(d).
In claiming the exemption from tax, the construction contractor must provide its
supplier with a certification stating that its purchases are for conversion into real estate
under a contract with an exempt organization or governmental entity, identifying the
organization or entity by name and address and stating on what date the contract was
entered into. The construction contractor must also provide the “E” number issued by the
Department to the organization or entity for which the purchasing contractor is acting. See
86 Ill. Adm. Code 130.2075(d)(4).
If, however, an item is not incorporated into real estate owned by an exempt
organization or governmental entity as provided above, but is instead used by the
construction contractor, then it is not eligible for the exemption.
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