Can a construction-equipment rental company with one Illinois office source all its rental receipts to that office for local sales tax purposes, regardless of where the equipment is delivered or picked up?

Plain-English summary

A construction-equipment rental company runs its whole Illinois operation -- billing, payments, customer accounts -- out of a single office, even though the equipment itself is often delivered to jobsites from third-party vendor laydown yards elsewhere. Because its sales-tax software was configured for origin-based sourcing, and switching to destination-based sourcing for every jobsite would be a real administrative burden, the company asked the Department to approve sourcing ALL of its Illinois rental receipts to its one home office, no matter where the equipment physically sits or gets picked up.

The Department didn't grant that blanket approval. Since January 1, 2025 (Article 75 of Public Act 103-592), equipment leases are taxed as retail sales under the Retailers' Occupation Tax, and the law sets out two different sourcing rules depending on the type of lease:

1. Recurring-payment leases where the lessor delivers the equipment to the customer (the company's typical rental pattern): each periodic payment is sourced to the equipment's "primary property location" -- an address the CUSTOMER provides, drawn from the lessor's own business records. Short trips between jobsites, or a rental that starts short-term and gets extended, don't change this. This is a destination-style rule tied to where the equipment actually is, not to the lessor's office.
2. All other leases -- ones without recurring periodic payments, or where the customer picks up the equipment at the lessor's own place of business -- instead follow the SAME general sourcing test used for ordinary retail sales: a fact-specific inquiry into where the retailer is "engaged in the business of selling," based on a list of primary selling activities (where sales staff bind the deal, where payment is taken/invoices issued, where inventory sits, where headquarters is) and secondary selling activities (marketing, procurement, pricing authority, contract handling, title transfer, showroom). If three primary activities line up in one place, that's the taxing jurisdiction; otherwise the secondary factors break the tie.

So for a company whose core business is rentals with periodic payments delivered to customers -- exactly this company's pattern -- the tax generally follows the EQUIPMENT'S location, not the office where billing happens. The Department also noted that if the equipment is instead subject to a qualifying pre-2023 home-rule lease tax (like Chicago's Personal Property Lease Transaction Tax), it's exempt from the new state/local lease tax altogether.

What this means for you

Equipment rental and leasing businesses

Don't assume your billing office's sourcing setup is enough. If your leases involve recurring payments and you deliver equipment to customers, Illinois wants tax sourced to the CUSTOMER'S location for the equipment, not your office -- you likely need a destination-based sourcing process for that category of leases specifically, even if a single-location setup would be administratively simpler.

Businesses with a mix of rental structures

The rule isn't one-size-fits-all: leases without recurring payments, or where the customer picks the item up at your location, are sourced under the general "engaged in the business of selling" test instead -- which can turn on where your sales staff, invoicing, inventory, or headquarters are, not automatically your billing address either.

Chicago-area equipment lessors

Check whether your lease is already covered by a pre-2023 home-rule lease tax like Chicago's Personal Property Lease Transaction Tax -- if so, it's carved out of the new state/local lease tax rather than being taxed twice.

Common questions

Q: Can a rental company just source all its Illinois lease receipts to its single home office?
A: Not automatically. For leases with recurring periodic payments where the equipment is delivered to the customer, tax is sourced to the equipment's location (an address the customer provides), not the lessor's office.

Q: Does it matter that equipment is dispatched through a third-party vendor's laydown yard?
A: No -- where the property is stored before delivery doesn't affect sourcing for recurring-payment leases where it's delivered to the lessee.

Q: What if my lease doesn't involve recurring payments, or the customer picks the equipment up at my location?
A: Then the general Retailers' Occupation Tax "engaged in the business of selling" sourcing test applies instead, based on primary and secondary selling-activity factors like where sales are bound, payment is taken, inventory sits, or headquarters is located.

Q: Does a rental extension from short-term to long-term change the sourcing rule?
A: No -- the length of the lease term, or whether it's later extended, doesn't affect which sourcing rule applies.

Q: Is a Chicago-area equipment rental exempt from the new state/local lease tax?
A: Only if it's already subject to a qualifying pre-2023 home-rule lease tax, such as Chicago's Personal Property Lease Transaction Tax -- that carve-out prevents double taxation on the same lease receipts.

Citations and references

Statutes:

• 35 ILCS 120/1 (definition of "sale" includes a lease, effective January 1, 2025)
• 35 ILCS 120/2 (Retailers' Occupation Tax on lease receipts, P.A. 103-592 Article 75)
• 35 ILCS 120/2-5(49)(2) (pre-2023 home-rule lease tax exemption)
• 35 ILCS 120/2-12(5.5) (lease sourcing rules)

Regulations:

• 86 Ill. Adm. Code 270.115 (local retailers' occupation tax sourcing; primary and secondary selling activities)

Source

• Landing page: Illinois 2026 Sales Tax Letter Rulings
• Original PDF: ST26-0002-GIL.pdf

Original ruling text

ST 26-0002-GIL 01/14/2026 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. Leases subject to retailers’ occupation taxes are sourced
to either the primary property location or the same as other retail sales. See 35 ILCS
120/2-12(5.5) as amended by Article 75 of Public Act 103-592. (This is a GIL).
January 14, 2026
NAME
COMPANY
ADDRESS
Dear NAME:
This letter is in response to your letter dated December 9, 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:
I am writing on behalf of COMPANY to request a Legal Ruling from the Illinois
Department of Revenue regarding our desired sales tax sourcing method for
equipment rental transactions within Illinois.
Our company operates from a single Illinois business location, located at:
ADDRESS
We rent construction equipment to customers throughout Illinois. Although
equipment is often delivered from third-party vendor laydown yards to

COMPANY/NAME
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January 14, 2026
customer jobsites, all rental agreements, invoicing, payments, customer
account management, and administrative functions are handled through our
CITY office. Rentals may be short-term or long-term, and frequently begin as
short-term before extending into long-term based on customer project needs.
Additionally, our sales tax system provider is configured to calculate sales tax
using an origin-based sourcing method. Because of this system configuration,
and because all business operations originate from our CITY office, we are
requesting clarification and approval from the Department to treat our Illinois
rental transactions as origin-based for sales tax sourcing purposes. Requiring
our team to manage both origin- and destination-based sourcing for Illinois
rental transactions would create a significant and undue administrative
burden on our staff, given the complexity of tracking multiple jobsite
locations, frequent rental extensions, and the operational realities of
equipment dispatched through third-party vendor yards.
Accordingly, we request a Legal Ruling addressing the following:

1. Whether all Illinois rental receipts may be sourced to our sole Illinois
   business location at ADDRESS, irrespective of where the equipment is
   physically stored or dispatched when using vendor-operated laydown
   yards.
2. Whether the use of third-party vendor locations to ship equipment affects
   the ability to use origin-based sourcing.
3. Whether changes in rental duration (short-term rentals transitioning to
   long-term) impact sourcing requirements.
4. Any related local tax, reporting, or compliance considerations that would
   apply if our rentals are sourced to our CITY office.
   We believe origin-based sourcing is consistent with the operational structure
   of our business and will ensure accuracy and consistency in reporting,
   particularly given the configuration of our current sales tax system.
   We are prepared to provide additional documents or clarification upon
   request. We appreciate your consideration of this matter and respectfully
   request written guidance or a formal Legal Ruling.
   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

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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).
Gross receipts from the lease of property that is subject to a tax on lease receipts
imposed by a home rule unit of local government are exempt from the State and
Department-administered local retailers’ occupation taxes if the ordinance imposing the
home rule tax was adopted prior to January 1, 2023. See 35 ILCS 120/2-5(49)(2) as added by
Article 75 of Public Act 103-592. Specifically, gross receipts from the lease of property that
is subject to Chicago’s Personal Property Lease Transaction Tax are exempt from the State
and Department-administered local retailers’ occupation taxes. However, if the lease of this
property would, but for this exemption, be subject to the tax on leases implemented by
Article 75 of Public Act 103-592, then a sale to the lessor of this tangible personal property,
for the purpose of leasing that property, shall be made State and local retailers’ occupation
tax-free as a sale for resale.
Sourcing
The lease of tangible personal property that is subject to the tax on leases under
Article 75 of Public Act 103-592 is sourced as follows:
i)

For a lease that requires recurring periodic payments and for which the
property is delivered to the lessee by the lessor, each periodic payment
is sourced to the primary property location for each period covered by
the payment. The primary property location shall be as indicated by an

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January 14, 2026
address for the property provided by the lessee that is available to the
lessor from its records maintained in the ordinary course of business,
when use of this address does not constitute bad faith. The property
location is not altered by intermittent use at different locations, such
as use of business property that accompanies employees on business
trips and service calls.
ii)

For all other leases, including a lease that does not require recurring
periodic payments and any lease for which the lessee takes
possession of the property at the lessor’s place of business, the
payment is sourced as otherwise provided under this Act for sales at
retail other than leases.

See 35 ILCS 120/2-12(5.5) as amended by Article 75 of Public Act 103-592.
A lease requires recurring periodic payments if the lease agreement for the property
provides for a fixed or indeterminate term and requires consideration to be broken into
multiple payments due over the course of multiple return periods. If a lease agreement is
fixed in duration and requires a single payment to be made in consideration for the lease of
a specified item or items, the lease does not require recurring periodic payments. The length
of a lease term, as well as whether the lease term is extended during the lease, does not
affect the sourcing of leases of construction equipment. When a lease requires periodic
payments and the property is shipped to the lessee by the lessor, where the property is
stored prior to the lease also does not affect the sourcing. The location of the property at
the time of sale or delivery may however, play a role in sourcing for leases that do not require
recurring periodic payments or for which the property is not delivered to the lessee by the
lessor, as explained below.
Sourcing–Retail Leases
For sales at retail, if a lease does not require recurring periodic payments or the
property is not delivered to the lessee by the lessor, pursuant to 35 ILCS 120/2-12(5.5), the
payment is sourced as otherwise provided under the Retailers’ Occupation Tax Act.
Because the tax is imposed on the retail business of selling and not on specific sales, the
jurisdiction in which the sale takes place is not necessarily the jurisdiction where the
retailers’ occupation tax is owed. Rather, it is the jurisdiction where the seller is engaged in
the business of selling that can impose the tax. Automatic Voting Machs. v. Daley, 409 Ill.
438, 447 (1951) (“In short, the tax is imposed on the “occupation” of the retailer and not
upon the “sales” as such.”) (citing Mahon v. Nudelman, 377 Ill. 331 (1941) and Standard Oil
Co. v. Dep’t of Finance, 383 Ill. 136 (1943)); see also Young v. Hulman, 39 Ill. 2d 219, 225
(1968) (“the retailers occupational tax...imposes liability upon the occupation of selling at
retail and not on the sale itself”). See 86 Ill. Adm. Code 270.115(b)(1). The Illinois

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Department of Revenue has created administrative rules that govern the sourcing of local
retailers’ occupation taxes. See 86 Ill. Adm. Code 270.115. The rules provide that:
The occupation of selling is comprised of “the composite of many activities
extending from the preparation for, and the obtaining of, orders for goods to
the final consummation of the sale by the passing of title and payment of the
purchase price”. Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316, 321 (1943). Thus,
establishing where “the taxable business of selling is being carried on”
requires a fact-specific inquiry into the composite of activities that comprise
the retailer’s business. Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130,
paragraph 32 (citing Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316, 321-22 (1943)).
86 Ill. Adm. Code 270.115(b)(2).
Some retailers are engaged in retail operations with selling activities in multiple
jurisdictions within the State, or in jurisdictions located in more than one state. The selling
activities that comprise these businesses “are as varied as the methods which men select
to carry on retail businesses.” Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316, 321 (1943).
Consequently, “it is...not possible to prescribe by definition which of the many activities
must take place in [a jurisdiction] to constitute it an occupation conducted in [that
jurisdiction].... It is necessary to determine each case according to the facts which reveal
the method by which the business was conducted.” Ex-Cell-O Corp. v. McKibbin, 383 Ill.
316, 321-22 (1943); see also Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130, paragraph 36.
See 86 Ill. Adm. Code 270.115(b)(3).
A seller incurs Retailers’ Occupation Tax in a given taxing jurisdiction if its
predominant and most important selling activities take place in that jurisdiction. Isolated or
limited business activities within a jurisdiction do not constitute engaging in the business of
selling in that jurisdiction when other more significant selling activities occur outside the
jurisdiction, and the business predominantly takes advantage of government services
provided by other jurisdictions. Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316, 322- 23 (1943);
Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130, paragraphs 30 through 35. See 86 Ill. Adm.
Code 270.115(b)(5). The Department’s regulations enumerate several “primary selling
activities” and “secondary selling activities” to aid in this inquiry, which are listed at 86 Ill.
Adm. Code 270.115(c)(1) and (4). “Primary selling activities” include:
A)
B)

Location of sales personnel exercising discretion and authority to solicit
customers on behalf of a seller and to bind the seller to the sale;
Location where the seller takes action that binds it to the sale, which
may be acceptance of purchase orders, submission of offers subject to
unilateral acceptance by the buyer, or other actions that bind the seller
to that sale;

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C)
D)
E)

The location where payment is tendered and received, or from which
invoices are issued with respect to each sale;
Location of inventory if tangible personal property that is sold is in the
retailer’s inventory at the time of its sale or delivery; and
The location of the retailer’s headquarters, which is the principal place
from which the business of selling tangible personal property is directed
or managed. In general, this is the place at which the offices of the
principal executives are located. When executive authority is located in
multiple jurisdictions, the place of daily operational decision making is
the headquarters.

See 86 Ill. Adm. Code 270.115(c)(1).
If three primary selling activities occur in the same location, that is the jurisdiction
where you are engaged in the business of selling. If the primary selling activities occur in
multiple jurisdictions, but no individual jurisdiction has more than two primary selling
activities, you must consider the listed secondary selling activities to determine the
jurisdiction where you are engaged in the business of selling. “Secondary selling activities”
include:
A)
B)
C)
D)
E)
F)

Location where marketing and solicitation occur;
Location where the seller engages in activities necessary to procure
goods for sale;
Location of the retailer’s officers, executives or employees with authority
to set prices or determine other terms of sale if determinations are made
in a location different than that identified in subsection (c)(1)(A);
Location where purchase orders or other contractual documents are
received when purchase orders are accepted, processed or fulfilled in a
location or locations different from where they are received;
Location where title passes; and
Location where the retailer displays goods to prospective customers,
such as a showroom.

See 86 Ill. Adm. Code 270.115(c)(4).
Every retailer in this State must determine the taxing jurisdictions where it is engaged
in the business of selling with respect to each of its sales by applying the standards set forth
in Section 270.115(c), except when a retailer is engaged in particular selling activities
identified by a statute that specifies the taxing jurisdiction where retailers engaged in those
activities shall remit retailers’ occupation tax. See 86 Ill. Adm. Code 270.115(c). If you are
engaged in any special selling activity where your remittance of retailers’ occupation tax
would be directed by statute rather than these rules, please refer to the applicable statute.

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Two such situations are over-the-counter sales and remote sales where the purchaser takes
possession of the property at the retailer’s place of business.
If a purchaser who is present at the retailer’s place of business, having no prior
commitment to the retailer, agrees to purchase and makes payment for
tangible personal property at the retailer’s place of business, then the
transaction shall be deemed an over-the-counter sale occurring at the
retailer’s same place of business where the purchaser was present and made
payment for that tangible personal property if the retailer regularly stocks the
purchased tangible personal property or similar tangible personal property in
the quantity, or similar quantity, for sale at the retailer’s same place of
business and then either (i) the purchaser takes possession of the tangible
personal property at the same place of business or (ii) the retailer delivers or
arranges for the tangible personal property to be delivered to the purchaser.
See 35 ILCS 120/2-12(1); 86 Ill. Adm. Code 270.115(c)(3)(A).
If a purchaser, having no prior commitment to the retailer, agrees to purchase
tangible personal property and makes payment over the phone, in writing, or
via the Internet and takes possession of the tangible personal property at the
retailer’s place of business, then the sale shall be deemed to have occurred
at the retailer’s place of business where the purchaser takes possession of
the property if the retailer regularly stocks the item or similar items in the
quantity, or similar quantities, purchased by the purchaser.
See 35 ILCS 120/2-12(2).
Except as provided in subsection (d), a retailer that is not engaged in the business of
selling in a jurisdiction under subsection (c)(2) is engaged in the business of selling in the
jurisdiction where its inventory is located under subsection (c)(1)(D), or where its
headquarters is located under subsection (c)(1)(E), whichever jurisdiction is the location
where more selling activities occur, considering both primary and secondary selling
activities. A retailer that is not engaged in the business of selling in a jurisdiction under
subsection (c)(2) or (c)(5) is presumed to be engaged in the business of selling at the location
of its headquarters absent clear and convincing evidence to the contrary. See 86 Ill. Adm.
Code 270.115(c)(5) and (6).
If, for example, a retailer is engaged in the business of renting construction
equipment in the City of Chicago, then, if the rental of construction equipment is subject to
the Chicago Personal Property Lease Transaction Tax, the rental is exempt from Illinois
Retailers’ Occupation Tax and locally imposed retailers’ occupation taxes administered by
the Illinois Department of Revenue, (i.e., Chicago’s Home Rule Municipal Retailers’

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Occupation Tax, Cook County’s Home Rule County Retailers’ Occupation Tax Act, and the
Regional Transportation Authority Retailers’ Occupation Tax). If, however, the rental is not
subject to Chicago’s Personal Property Lease Transaction Tax, then it is subject to State and
local retailers’ occupation taxes. In that case, if the rental contract requires recurring
periodic payments and the construction equipment is delivered to the rental customer, then
the rate of tax on each periodic payment is the rate in effect at the primary property location
for each period covered by the payment. If the rental contract does not require recurring
periodic payments, or if the construction equipment is not delivered to the customer, then
the rate of tax is determined by the State and local retailers’ occupation tax rate in effect at
the location where the primary selling activities occur as listed above (or as otherwise
provided above if less than three primary selling activities occur in one location).
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,
Edward Mroczkowski
Associate Counsel
EM:slc