New Illinois Lease / Rental Tax: Impact on Event Rental Companies
Illinois recently introduced statewide changes to its Sales and Use Tax law that will significantly impact businesses involved in renting or leasing tangible personal property, including event rental companies. Specifically, the state has expanded its tax reach to cover leased or rented tangible personal property, and Chicago has implemented a higher tax rate for such transactions. These updates will undoubtedly affect the way event rental companies operate and manage their pricing structure. Here's a breakdown of these changes and how they might influence businesses in the event rental industry.
New Illinois Sales and Use Tax on Leased or Rented Tangible Personal Property
Effective January 1, 2025, Illinois now imposes sales tax on the rental or lease of tangible personal property, which previously may not have been taxed in certain situations. This change affects various industries, but it is particularly significant for event rental companies that provide items like tents, tables, chairs, audio-visual equipment, and decor on a lease or rental basis.
Under the revised law, businesses that lease or rent tangible personal property for periods of less than one year are required to collect sales tax from their customers. This change applies to all types of tangible goods rented for events, including anything from party supplies to expensive audiovisual gear used at corporate events or weddings. In other words, all event rental businesses located in the state of Illinois will now need to use the “same origin sourcing” that is used for over-the-counter sales of Tangible Personal Property (TPP).
Example: EZ Tent Rentals is in the city of Countryside, IL within Cook County. Because of this their lease/rental tax rate will be 9.75% on all equipment. See below chart for reference:
Increased Sales Tax Rate in Chicago
In addition to the new state-wide tax, Chicago has raised its already existing local sales tax rate for rental transactions from 9% to it now being 11% in 2025.
Chicago is known for its relatively high local tax rates, and businesses renting tangible personal property in the city will need to navigate both the state and local tax rules. For example, the sales tax rate on event rentals, including tables, chairs, and tents, could now be significantly higher than previously expected. This increase will directly affect pricing, as rental companies will need to adjust their rates to accommodate the added tax burden.
Impact on Event Rental Companies
For event rental companies, these changes pose both challenges and opportunities.
Increased Operational Complexity: Companies will need to adjust their invoicing systems to ensure they are collecting the correct amount of tax from clients. With differing rates depending on where a rental business is located in Illinois, all businesses will need to implement location-based tax calculations. This could require updating accounting software or seeking professional tax advice.
Price Adjustments: To maintain profitability, rental companies might need to raise their prices to cover the added tax. This could lead to higher costs for customers, particularly those hosting events in Chicago, where the tax rate is higher. Rental companies will need to balance competitiveness with profitability when adjusting their pricing structures.
Increased Compliance and Recordkeeping: These new tax rules will require more thorough recordkeeping and more frequent tax filings. Rental businesses will need to ensure that they are compliant with both state and local tax requirements, which may increase administrative costs and burdens.
Customer Education: Event rental companies should communicate with their customers about these changes, particularly if they have historically not included taxes in their pricing. Transparent communication about why prices have risen due to tax changes will help manage customer expectations and avoid confusion.
Conclusion
The new Illinois sales tax on leased or rented tangible personal property, coupled with the increased tax rate in Chicago, introduces significant changes for event rental companies in the state. While it may require operational adjustments, increased prices, and a focus on compliance, businesses that adapt to these changes effectively will continue to thrive. By understanding the new tax landscape and planning accordingly, event rental companies can mitigate the impact and maintain strong relationships with their clients while staying profitable.
