Illinois DOR Issues General Information Letter on Sales and Use Taxability of TRAC Leases

The Illinois Department of Revenue (DOR) March 15 issued a general information letter on the tax treatment of a heavy commercial trucks and trailers finance company’s Terminal Rent Adjustment Clause (TRAC) lease transactions, for sales and use tax purposes. The DOR explained: 1) the vehicles’ lessors incur use tax obligations because TRAC leases are true leases; 2) lessors may not pass through their tax obligation to the lessees but may make private contractual arrangements for a tax reimbursement; 3) purchasers of property to be leased must pay their use tax liability to the retailer if the purchase occurred in Illinois; ...