Illinois – Taxability of Conditional Sale Leases

SALT Report 1790 – The Illinois Department of Revenue issued a general information letter regarding the tax obligations of conditional sale leases.  Conditional sale leases differ from traditional leases in that at the end of the contract, the lessee has the option of purchasing the item for a nominal or $1 fee, essentially guaranteeing that the leased property will be sold.

If the lessee enters into a conditional sale lease with an out-of-state lessor, the lessee is obligated to self-assess and remit use tax if the lessor does not have nexus with Illinois and is not registered with the Department.

Also, the lessee will be required to register with the Department since it is liable for use tax on the contracted lease payments. However, out-of-state lessors may register with the Department to collect and remit use tax as a courtesy to their customers.

Lessees who purchase items for resale under conditional sales contracts can avoid paying tax to their suppliers if they provide a certificate of resale.

For Further Information:

Illinois Department of Revenue – General Information Letter ST 12-0035-GIL