When construction contractors incorporate tangible personal property into real estate under a construction contract, they are not authorized to collect tax from their customers. In this situation, the contractor is considered to be the end user of the tangible personal property and incurs a Use Tax liability, on the cost price of the property incorporated into real estate, which he either pays to his suppliers or self-assesses and remits to the Department. Illinois taxes leases of tangible personal property differently than the majority of other states. If a buy out provision does exist, it must be a fair market value buy out option in order to maintain the character of a true lease. Lessors of tangible personal property under true leases are deemed to be the end users of the tangible personal property and incur a Use Tax liability on their cost price of such property.
Lessees incur no tax liability under true leases.
A conditional sale is usually characterized by a nominal or one dollar purchase option at the close of the lease term. If lessors are guaranteed at the time of the lease that the leased property will be sold, this transaction is considered to be a conditional sale and all receipts are subject to sales tax. Because Company B is registered with Illinois, it is required to either document the resale exemption or collect tax. Certificate of Resale may be used to document a sale for resale transaction. A statement from the purchaser that the items are being purchased for resale.