Significant Tax Changes Effective January 1, 2025: What Businesses in Illinois, Louisiana, and Maine
Need to Know
Effective January 1, 2025, several impactful tax changes will take effect in Illinois, Louisiana, and Maine, with significant implications for businesses involved in rentals, leases, and digital goods. These updates require careful attention to ensure compliance and avoid potential penalties. Below is a detailed overview of the key changes and their potential impact on your business.
Illinois (Including Chicago)
1. Rentals and Leased Property
Beginning January 1, 2025, lessors in Illinois must collect sales and use tax on lease streams for rented or leased property. This means sales tax will now apply to lease payments, and lessors must ensure these taxes are incorporated into lease agreements and invoices for all transactions dated after the effective date.
Additionally, purchases of property intended for rental or lease will qualify for the resale exemption, reducing upfront tax costs for lessors.
In Chicago, rentals and leases will be exempt from state sales tax but will remain subject to the Chicago Personal Property Lease Tax, which will increase to 11%. Lessees should be aware of the increased tax burden on contracts invoiced after January 1, 2025, regardless of when the rental or lease agreement was signed.
2. Out-of-State Sellers
Out-of-state sellers shipping goods to Illinois will now be required to collect **destination-based Retailer’s Occupation Tax** (sales tax), including state and local taxes. This applies to all goods originating from outside Illinois. For goods originating within the state, the origin-based sales tax (based on the seller’s location) will continue to apply.
Maine
Rentals and Leased Property
Similar to Illinois, Maine will implement new rules requiring sales tax to be collected on lease streams for rented or leased property. Purchases of property intended for rental or lease will qualify for the resale exemption, providing lessors with upfront tax savings. Businesses should update their invoicing and accounting systems to reflect these changes.
Louisiana
1. State Sales Tax Rate Increase
Louisiana’s state sales tax rate will increase from 4.45% to 5%, effective January 1, 2025. Businesses should adjust their pricing and tax collection systems accordingly to reflect this change.
2. Taxation of Digital Goods
Louisiana will now impose sales tax on previously untaxed digital goods, including:
- Digital books
- Audio-visual content
- Digital audio
- Games
- Information services
- Remotely accessed software (regardless of delivery or access method).
Businesses should note that certain exceptions may apply, so it is essential to review the specifics to determine if your products or services qualify for exemptions.
Key Considerations for Businesses
- Lessors in Illinois and Maine: Update lease agreements, invoicing systems, and accounting processes to account for the new sales tax requirements on lease streams. Ensure compliance with the resale exemption for property purchases.
- Out-of-State Sellers in Illinois: Implement systems to collect destination-based sales tax for goods shipped to Illinois.
- Businesses in Louisiana: Prepare for the increased sales tax rate and ensure digital goods are taxed appropriately, unless an exception applies.
- Chicago Lessees: Be aware of the increased 11% Personal Property Lease Tax on rentals and leases, which will apply to all invoices dated after January 1, 2025.
Next Steps for Compliance
These changes underscore the importance of proactive planning and system updates to ensure compliance with evolving tax regulations. Businesses impacted by these changes should:
1. Review the specific requirements for their state and industry.
2. Update invoicing, accounting, and tax collection systems to reflect the new rules.
3. Consult with SGM or state tax authority for clarification on complex areas, such as exemptions or out-of-state sales tax collection.
By taking these steps, businesses can minimize disruptions, avoid penalties, and ensure a smooth transition into the new tax landscape.
For further assistance or guidance on how these changes may impact your business, feel free to reach out to our SGM team. Stay informed, stay compliant, and prepare for a successful start to 2025.
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