When Illinois lawmakers voted to overhaul the way sales tax is applied to leased equipment, it sounded like a technical fix. However, for businesses that rely on leasing everything from medical devices to construction equipment, the stakes are high.
Starting January 1, 2025, Illinois shifted sales tax collection from upfront at lease signing to ongoing payments. While pitched as modernization, the change has created serious problems, especially applied to existing contracts.
The Risk of Double Taxation
The biggest concern is retroactivity. Many companies signed leases years ago and already paid sales tax in full. Under the new rules, they could be taxed again on the very same agreements.
ELFA’s state policy recognizes that this is not modernization, but rather a double taxation, which pushes companies that follow the rules and shakes the confidence of Illinois being a reliable place to do business.
Other states have avoided this trap. When Maine updated its tax framework, it grandfathered existing contracts and issued refunds in some cases, and ELFA is urging Illinois to do the same.
Stability Matters
For an industry built on long-term agreements, predictability is essential. Companies leasing equipment for five to 10 years need assurance that tax treatment won’t change midstream. To protect businesses, ELFA has recommended:
- Grandfathering existing contracts signed before Jan. 1, 2025.
- Providing transitional relief through credits or offsets for taxes already paid.
- Clarifying credit guidance for companies using Form 8654.
Without these changes, Illinois risks undermining its investment climate and creating unnecessary financial strain.
Illinois’ decision will be closely watched nationwide
Illinois’ decision is being closely watched nationwide, and industry professionals are warning that if Illinois adopts retroactive double taxation, other states might follow, which could chill investment in sectors that rely heavily on leasing.
Illinois isn’t alone. Across the country, state legislatures have been busy tackling tax and finance rules with big implications for the equipment leasing and finance sector.
In New Jersey, Senate Bill 1397 sought sweeping disclosure rules, including APR calculations ill-suited to leasing. After meeting with ELFA, Senate Budget Chair Paul Sarlo agreed to hold the bill, preventing passage this session.
In New York, Assembly Bill 4889, proposing broad licensing requirements for finance providers, along with significant costs and penalties for noncompliance, was stalled in committee, thanks in part to ELFA’s targeted state advocacy efforts. ELFA engaged directly with Assemblymember Kwani O’Pharrow, who acknowledged the essential and legitimate role our industry plays in supporting businesses.
The Bigger Picture
What ties these debates together is trust. Businesses need clear, stable rules when entering long-term leases. Sudden shifts, whether in taxation, disclosure or licensing, risk disrupting financing options that keep hospitals equipped, contractors building, and manufacturers growing.
This outlook isn’t about resisting modernization. It’s about ensuring modernization is done fairly, without punishing businesses that are driving growth and investment.
As state legislatures resume their next sessions, ELFA’s state policy efforts will continue to ensure that lawmakers across the country hear directly from the industry before reforms are set in stone.