Illinois law changes affect sales tax, leased property
December 18, 2024
By Scott Brawdy, CPA
Principal and SALT Practice Leader
Businesses selling products to customers in Illinois will face new sales tax rules starting on January 1, 2025.
The State of Illinois also will implement significant changes to the taxation of leased property starting next year.
Below are details about both new tax law changes.
Changes for Out-of-State Sellers
Starting January 1, 2025, Illinois will implement significant changes to its sales tax regulations for out-of-state sellers. This law aims to standardize the sales tax collection process, ensuring fairness and consistency across all retail transactions.
KEY CHANGES
1.) Destination-Based Tax Collection
Out-of-state retailers, regardless of whether they have a physical presence in Illinois, will be required to collect state and local sales taxes based on the destination where the goods are delivered.
2.) Uniform Tax Base
The new law aligns the tax obligations of out-of-state sellers with those of remote sellers, who are already required to collect destination-based taxes. This change ensures that all sellers, whether local or remote, adhere to the same tax base.
3.) Impact on Retailers
Retailers shipping goods to Illinois from outside the state will need to adjust their tax collection systems to comply with the new destination-based rates. These rates can vary significantly, ranging from 6.25% to 11%, depending on the local jurisdiction.
IMPLICATIONS
For Consumers: This change aims to create a level playing field, ensuring that consumers pay the same tax rate for goods, regardless of whether they are purchased from in-state or out-of-state retailers.
For Retailers: Out-of-state sellers will need to update their systems to accurately calculate and remit the appropriate sales tax based on the delivery location. This may involve additional administrative efforts and potential system upgrades.
Changes to Leased/Rented Property
Starting January 1, 2025, Illinois will change the taxation of leased property, aligning its practices more closely with those of other states.
KEY CHANGES
1.) Taxation Shift
Current Practice: Currently, Illinois imposes sales tax to the lessor on the acquisition cost of leased equipment at the time of purchase.
New Practice: From January 1, 2025, the tax will be imposed on the lease stream payments instead. This means that lessors will collect sales tax on each lease payment received from lessees.
2.) Exemptions and Resale Provisions
Resale Exemption: Lessors can purchase property intended for leasing without paying sales tax, provided they meet the resale provisions. This is a shift from the current practice, where sales tax is paid by the lessor on their acquisition price of the item to be leased.
3.) Impact on Lessors:
System Updates: Lessors will need to update their tax systems to comply with the new tax treatment. This includes ensuring that they correctly charge and remit sales tax on lease payments.