**LTi are not tax experts. Below is the information gathered via the ELFA and supporting documents from the State of Illinois and Maine. The instructions that follow are our best attempt at complying with these change as best as we understand them. As with any tax questions, our customers (the finance company) should defer to tax experts when determining impact and how to best comply with the law in Illinois and Maine.**
What We Are Hearing from the Market:
- One of the biggest concerns is regarding the transition – how to handle contracts that were booked or assets that were purchased prior to January 1, 2025, but will have rent billed after January 1st, 2025. Illinois and Maine have different stances on this, below I have summarized these, see detail section for further information
o Illinois – Illinois revenue agency has indicated that contracts booked prior to January 1, 2025 where upfront tax was paid would be “credited” for that tax paid and would not be required to assess tax on rental payments going forward.
§ NOTE: While the revenue service has some leeway in administration of the law, this is not explicit in the law.
o Maine – Maine’s revenue agency has indicated that each rental payment is a separate transaction and, as such, tax needs to be paid rental payments after January 1, 2025, even if upfront tax was paid.
§ Maine has indicated that there will be a refund process (more on that below)
- The second biggest concern is how to communicate with customers Maine’s decision to, effectively, double tax leases that were booked prior to January 1, 2025.
o While the Maine revenue agency has indicated that a refund will be possible for upfront taxes paid, they have stated that they will not be taking applications for refunds until January 2027 and there are uncertainties regarding the refund process.
Details
Illinois
- Effective: January 1, 2025
- Overview: Leases of non-titled equipment will have tax assessed on-stream for state level tax. Prior to January 1, 2025 tax has been assessed upfront on equipment cost
o This only impacts the state level and RTA taxes administered by the state of Illinois. Personal Property Lease Transaction tax in Chicago will still apply and 1% City of Chicago non-titled use tax will continue to be paid upfront.
- Exempt from this law:
o Titled property – vehichles/trailers, watercraft, and aircraft
- Impact on Existing Leases
o No tax will be due on lease payments booked prior to January 1st, 2025, since tax was paid upfront already - **this is not explicit in the law but has been provided as guidance from Illinois revenue agency**
o There is some ambiguity in the law as it applies to contracts booked prior to 1/1/25 and the asset is moved after the first. ELFA is seeking clarification from Illinois and may require legislation to clarify
§ During a call with ELFA, the suggestion was made, in cases where assets are purchased prior to 1/1/2025, but the lease commences on or after 1/1/2025, that tax could be assessed upfront since the sale occurred before the law took effect.
§ If there is a subset of assets that were purchased prior to 1/1/2025 and a subset of assets purchased after 1/1/2025 one the same contract, the suggestion was either to administrate the taxes based on their sale date (so upfront before the first, on-stream if purchased after) OR provide resale certificate after 1/1/2025 and assess all tax on stream.
Maine
- Effective: January 1, 2025
- Overview: Sales tax on leased or rented tangible personal property will go from being assessed upfront to onstream after January 1, 2025.
- Exempt:
o Tangible personal property excludes motor vehicles, trailers, semis, campers, and aircraft. Also transportation equipment used in interstate commerce
o Leases with an option to purchase the property for $1.00 or other nominal consideration
o Agreements transferring possession of asset that requires transfer of title upon completion of the required payments
o Some assets are exempt: furniture, audio equipment, etc.
o There are some “special” classes of rental agreements where the operator of the equipment is provided. Not sure this is ever a case we run into, but it is exempt from this law
- Impact on Existing Leases:
o For leases that were booked prior to January 1, 2025, tax will be due on stream payments. Maine considers each lease payment a separate sale for the purpose of this law
§ The ELFA is less confident that the Maine revenue agency will move from this stance
§ The Main revenue agency has indicated (**not explicit in law**) that a refund may be available for upfront taxes paid and will start taking applications for refunds January 2027
· In the guidance provided, lessor is responsible for refund claim, although it is not clear if this can be “assigned” to lessee. ELFA recommends retaining contract documents (or ancilliary documents that document payment of upfront tax) and invoices where onstream tax has been paid for future refund process
· Due to the statute of limitations on tax refunds in Maine (4 years) and when Maine currently plans on allowing applications for refunds in these cases (January 2027), in order to be eligible for refund, the contract must have been booked after January 1, 2023.
· ELFA has recommended lessors be careful communicating the refund to customers and rely heavily on what is in the law and what Maine’s revenue agency has communicated regarding.
· There are many open questions about the refund, including the refund only covering the future on stream tax amounts on rent (i.e. given as a credit to those payments)
As a side note, 501c3s will also become tax exempt in Maine starting on January 1, 2025