Illinois enacts legislation changing imposition of sales and use tax on leased motor vehicles

Illinois has enacted legislation that imposes sales and use tax on the lease stream of motor vehicles that are sold on or after July 1, 2014. The taxation of vehicle leases historically has followed the traditional Illinois approach that a lessor of tangible property owes sales and use tax when an item is purchased for lease purposes and no tax is due on the lease stream. Under the legislation, a lessor that incurs an Illinois retailers’ occupation tax liability on the sale of a motor vehicle following the end of a lease may not take a credit against that liability for the use tax the lessor paid on the purchase of the motor vehicle.

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