Illinois Administrative Code › Title 86 - REVENUE › Part 130 - RETAILERS' OCCUPATION TAX › Subpart S - SPECIFIC APPLICATIONS › Section 130.2013 - Persons in the Business of Both Renting and Selling Tangible Personal Property - Tax Liabilities, Credit

Current through Register Vol. 48, No. 28, July 12, 2024
a)
				Purchases of Tangible Personal Property for Rental
Use Tax is due whenever tangible personal property is
				  purchased for use. For Illinois sales tax purposes, lessors of tangible
				  personal property under true leases are deemed to be the users of that
				  property. Consequently, lessors incur a Use Tax liability (and applicable local
				  occupation tax reimbursement obligations) based on their cost price of the
				  items they purchase for rental purposes. (See Section
				  130.2010
				  of this Part.) The only exception is the rentor of an automobile under a lease
				  term of one year or less. (See 86 Ill. Adm. Code
				  180.101.) (Further
				  references in this Section to "Use Tax" due on a purchase includes the Use Tax
				  and all applicable local occupation tax reimbursement obligations due on that
				  purchase.)
Persons who sell tangible personal property to lessors who
				  will rent or lease that property incur Illinois and local Retailers' Occupation
				  Tax liabilities on their gross receipts from such sales. Consequently, when a
				  lessor purchases tangible personal property for rental purposes, he should pay
				  his Use Tax liability to his supplier. If the lessor does not pay the Use Tax
				  to his supplier, he must self-assess and pay it directly to the Department.
				  Persons who are lessors and whose only selling activity consists of selling
				  items that come off lease and are no longer needed for rental purposes cannot
				  purchase for resale.
If an item is placed in a rental inventory, it has been
				  purchased for rental purposes and Use Tax is due. "Rental inventory" means that
				  the owner, in order to state his intended use of the property as rental
				  property, has recorded the property in his books and records as rental property
				  in accordance with generally accepted accounting principles. Depreciation of
				  property used for rental purposes demonstrates an intent to include that
				  property in rental inventory.
b) Purchases of Tangible Personal Property
				for Resale
If a retailer purchases tangible personal property for
				  resale, no tax is due on that transaction so long as all of the requirements of
				  Section
				  130.1405
				  of this Part are satisfied. If an item is purchased for resale and placed in a
				  sales inventory immediately after it is purchased, the Department will
				  determine that it has been purchased for resale for so long as it remains in
				  the sales inventory. "Sales inventory" means that the owner, in order to
				  demonstrate his intention to resell the property, has recorded the property in
				  his books and records as being for sale in accordance with generally accepted
				  accounting principles.
c)
				Purchases of Tangible Personal Property by Persons Who Both Rent It and Sell It
				to Others but Who Do Not Maintain Separate Rental and Sales Inventories
Some persons function as combination lessors/retailers and do
				  not maintain separate rental and sales inventories. These persons purchase
				  tangible personal property to rent to others and also purchase tangible
				  personal property to sell to others without making such property available for
				  rental. The question of whether the combination lessor/retailer, who does not
				  maintain separate sales and rental inventories, incurs a Use Tax liability when
				  purchasing items for his combined inventory depends on whether he is primarily
				  engaged in the business of renting or is primarily engaged in the business of
				  selling. In order to make that determination, the Department will look to this
				  lessor/retailer's gross receipts.
1)
				If the gross receipts from Illinois locations are primarily from rentals, the
				combination lessor/retailer who does not maintain separate rental and sales
				inventories is primarily a lessor who incurs a Use Tax liability on items
				purchased for rental purposes and a Retailers' Occupation Tax liability on all
				items sold at retail. This combination lessor/retailer can give suppliers
				certificates of resale, but only for items that will be resold without being
				rented. If the lessor/retailer knows, at the time of purchase, that a
				percentage of the items being purchased will be resold without being rented, he
				may give his supplier a certificate of resale specifying the percentage of
				items that will be resold without being rented and pay tax only on those items
				that will be rented before they are sold. The combination lessor/retailer who
				does not maintain separate rental and sales inventories and who is primarily a
				lessor incurs a Use Tax liability on all items that are rented before they are
				sold.
2) If the gross receipts from
				Illinois locations are primarily from sales, including sales of items coming
				off lease and sales of items encumbered by leases, the combination
				lessor/retailer who does not maintain separate inventories is primarily a
				retailer. This combination lessor/retailer can purchase his entire inventory
				tax-free by providing certificates of resale to his suppliers. He may use items
				for rental purposes without incurring a Use Tax liability if the items are used
				in demonstrations to potential buyers or are put to some other interim use.
				(See 86 Ill. Adm. Code
				150.306.)