Sales Tax on Rental Equipment: State-by-State Guide

One of the biggest questions that new rental business owners have is, “Do you charge tax on rentals?”

It’s not always clear what the right move is, and failing to meet tax requirements can have serious consequences and penalties.

It’s always best to thoroughly research what your company’s tax obligations are.

Is There Sales Tax on Rental Equipment?
Sales Tax and Different Types of Equipment Rentals
Other Factors that Affect Sales Tax on Equipment
Cross-Border Considerations
Sales Tax in Different States
How to Better Manage Equipment Rental Sales Tax
Frequently Asked Questions
Manage Your Equipment Rentals With Quipli

Is There Sales Tax on Rental Equipment?

You might think that there wouldn’t be any applicable sales tax on rental equipment because you aren’t really selling it. However, this generally isn’t the case.

Most rentals are subject to sales tax, just like any other goods or services. Finding out the right amount to collect can be difficult due to state, city, and county tax rates varying.

You’ll need to look up the exact tax regulations for your geographic area, which can vary substantially from place to place. Not only do tax codes vary substantially from state to state, but there may be additional taxes levied by your specific city or county.

While handling sales tax might seem like an additional burden when starting your equipment rental business, the process isn’t all that complicated. With effective software for managing your business, you shouldn’t have any trouble keeping up.

Recommended Resource: The Most Rented & Profitable Construction Equipment in 2025

Sales Tax and Different Types of Equipment Rentals

When you’re considering if there is sales tax on rental equipment, you need to take a look at exactly what it is that you’re renting out.

Different categories can have different requirements and exemptions, and knowing ahead of time will save you a lot of trouble in the long run. Vehicles are one of the most prominent categories that have major differences.

Vehicles and other types of heavy-duty machinery can often fall under other tax schemes. In many states, they face specific taxes called excise taxes.

This tax can be on top of or in place of regular state, city, and county sales taxes. In general, vehicle rentals will have multiple taxes applied that will be very specific to individual jurisdictions.

Excise Tax & Equipment Rentals

Several states — including but not limited to Indiana, Michigan, and Washington — have additional excise taxes on heavy equipment rentals. An excise tax is an additional tax, imposed on certain kinds of goods, services, or activities — in this case, on equipment rentals.

A good example of an excise tax we all encounter every day is the federal gas tax.

Like a sales tax, an additional excise tax on equipment rentals will impact the final amount that you’ll need to charge each customer that rents from you. Excise taxes can be imposed at any of the following times, depending on state and context:

Sale or use after something is imported from another country
Sale or use by the manufacturer
Sale or use by a retailer
Sale or use by a customer

Other Factors that Affect Sales Tax on Equipment

Beyond just the type of equipment you’re renting, there are several other important factors that can impact how sales tax applies to your rental business:

Rental Duration

Many states have different tax treatments based on how long the equipment is rented:

Short-term rentals (typically less than 28-30 days) are often taxed at higher rates
Long-term rentals may qualify for different tax treatments or even be considered leases for tax purposes
Some states consider rentals exceeding certain durations (often 3+ years) to be sales transactions

For example, in Texas, short-term vehicle rentals (1-30 days) are taxed at 10%, while longer-term rentals (31-180 days) are taxed at 6.5%.

Business vs. Personal Use

The purpose of the rental can affect tax treatment:

Some states offer exemptions for business-to-business rentals
Agriculture and certain industries may have special exemptions
Government entities often have tax-exempt status
Nonprofit organizations may qualify for exemptions in some jurisdictions

It’s important to collect and maintain proper exemption certificates when not charging tax to exempt customers.

Damage Waivers and Insurance

Additional services and fees associated with rentals may be taxed differently:

Damage waivers may be considered taxable in some states but exempt in others
Optional insurance may have different tax treatment than the base rental
Environmental fees, cleaning fees, and other surcharges each have their own tax considerations

Cross-Border Considerations

If your rental business operates near state borders or you allow customers to take equipment to other states:

You may need to register for sales tax in multiple states
The location where the customer takes possession of equipment often determines which tax rates apply
Some states have special rules for equipment that crosses state lines during the rental period

Properly tracking the location of use can help ensure compliance with multi-state tax obligations.

Sales Tax in Different States

Of course, anything to do with taxes for your rental business is going to be affected by what state you’re in. Here’s a quick rundown of a few states with prominent differences or exceptions when it comes to sales taxes on equipment rentals.

If you’re not sure about your own state, it’s a good idea to consult with an accountant, attorney, or another professional with expertise in local tax code.

California

In California, there is a sales tax on essentially every type of tangible property rental. There are also taxes applied specifically to motor vehicle rentals.

Along with sales tax, California also imposes a “use tax,” in some cases in which taxable items are purchased for use, storage, or consumption, but not for direct sale. This can sometimes apply if you purchase equipment out-of-state from an out-of-state vendor.

Leases are taxed based on rental receipts or payments
Use tax can apply if you remove a unit from your fleet for personal use (versus rental by a customer)
Some districts may have their own additional taxes, with total sales tax exceeding the typical 7.5%. Check your local city or county tax code, or consult with an accountant in your area, to find out if this applies to your business.

Washington

In Washington, there is both the regular sales tax and the Business and Occupation tax to consider.

The Business and Occupation Tax is measured based on the total value of the products, gross proceeds of sale, or gross income of a business.

There are no exemptions available for the B&O tax for labor, materials, or other costs of doing business. However, there are several tax credits that are subtracted from the B&O tax on your business’s tax return:

Rural County B&O Credit for New Employees
High Technology B&O Credit
Small Business B&O Tax Credit
Multiple Activities Tax Credit
Credit for Hiring Unemployed Veterans

Washington’s B&O tax is paid on your excise tax returns.

The specifics here can vary with tax classification, which depends on your type of business and what activities it engages in.

You can check out the tax classification details for rental businesses in Washington here.

Texas

Texas has a motor vehicle rental tax, which is applied to equipment rentals of heavy construction machinery and other types of vehicles, as well as to passenger car rentals.

Texas tax law handles motor vehicle rentals a bit differently than straightforward sales. They’re exempt from the general sales tax, but have another tax with different rates applying depending on the duration of the rental.

When you rent a vehicle to a consumer in Texas — including heavy construction equipment — you must also collect the motor vehicle rental tax from the customer, as part of their total payment. (In a very few cases, the customer may have some form of exemption, but this is relatively rare.)

This additional tax is calculated based on gross rental receipts — this means the total amount charged to the customer for the rental. So it functions similarly to a typical sales tax.

Texas has two different motor vehicle tax rates for rentals, depending on duration:

Short-term contracts of 1 to 30 days: 10%
Longer term rentals of 31 to 180 days: 6.5%

Individual cities and counties are also able to impose additional local taxes on short-term motor vehicle rentals — if this is the case in your jurisdiction, you’ll need to include that as well when invoicing customers. You may want to check your local city or county tax code, or consult with an accountant.

Both state and city/county motor vehicle rental taxes must be itemized in invoices and clearly delineated from the rest of the cost. So you’ll need to include a separate line item in each invoice to account for it.

Colorado

Colorado takes a different approach, considering the equipment rental business to be the end-user of the equipment.

As such, there is no requirement for sales tax on rentals, except when the rental exceeds three years and the person renting is considered to be the end-user. There are applicable taxes on motor vehicle rentals, though.

New York

In New York, there are some considerations when taking a look at rental taxes. While a sales tax is applied to rentals, this doesn’t apply to rentals where an operator accompanies the equipment. In that case, it’s treated not as a sale or rental, but as a service performed.

With that said, per New York State tax law, any purchase, rental, lease, or license to use construction equipment and motor vehicles by a contractor, is subject to both sales tax and use tax. It is the contractor renting from you who is liable for these taxes — that is, you’ll need to include them in your invoices when you bill your customers.

New York also has specific taxes that apply to motor vehicle rentals, including requirements for paying in advance for extended rentals.

Florida

Florida applies its 6% state sales tax to equipment rentals, plus any applicable local option taxes imposed by counties. Construction equipment rentals are generally taxable, but certain exemptions exist for:

Agricultural equipment under specific conditions
Equipment rentals to federal government agencies
Equipment rentals to 501(c)(3) organizations with valid exemption certificates

Florida also has a unique Commercial Rental Tax that applies to the rental of commercial real property, which can sometimes impact equipment rental businesses that also rent out space.

Illinois

Illinois imposes its 6.25% state sales tax on equipment rentals. Additionally, local jurisdictions can add their own taxes, bringing the total rate much higher in some areas.

One unique aspect of Illinois’ rental tax system is that if you provide an operator with the equipment, the transaction may be classified as a service rather than a rental, which can affect the tax treatment.

Illinois also offers exemptions for manufacturing equipment in certain situations, making it important to understand the specific purpose for which your customer is renting the equipment.

In the end, the responsibility is on business owners to find out whether you pay sales tax on leased equipment in your state. With strict reporting requirements, you can’t afford to leave this up to chance.

How to Better Manage Equipment Rental Sales Tax

Managing sales tax calculations for your equipment rental business can quickly become complex. Rates vary by location, equipment type, rental duration, and customer type. Manually calculating these variables introduces risk of errors that could lead to underpayment (with penalties) or overpayment (eating into your margins).

Automated Tax Calculation

Quipli’s equipment rental software takes the guesswork out of sales tax management with automated calculations based on:

Your business location(s)
Customer location
Equipment type
Tax exemption status

Quipli integrates directly with TaxJar, the industry-leading tax calculation service, to automatically calculate and apply the correct sales tax rates for every transaction. This integration ensures you’re always charging the most current and accurate rates without having to manually research tax codes.

The system automatically applies the correct tax rates to each rental transaction, ensuring you charge customers accurately every time. When tax regulations change, Quipli updates the rates automatically so you stay compliant without having to constantly monitor tax code changes.

Real-Time Tax Rate Updates

Tax rates aren’t static – they change regularly as jurisdictions update their tax codes. Through our TaxJar integration, Quipli provides real-time tax rate updates, so you’re always charging the most current rates without manual intervention.

This integration is particularly valuable for businesses operating in multiple jurisdictions or those with customers who take equipment across tax boundaries. TaxJar constantly monitors tax code changes across over 14,000 tax jurisdictions in the United States, ensuring your rental business remains compliant without you having to track these changes manually.

Streamlined Reporting

Come tax filing time, Quipli makes reporting simple with:

Detailed tax reports by jurisdiction
Export capabilities for your accountant
Integration with QuickBooks for seamless financial management
Audit-ready documentation of all transactions

This means less administrative time spent on tax compliance and more time focused on growing your rental business.

Frequently Asked Questions

Is equipment rental tax deductible?

For businesses renting equipment, rental expenses (including taxes paid) are generally deductible as ordinary business expenses. However, there are some important considerations:

The equipment must be used for business purposes
Proper documentation of the rental and tax paid must be maintained
Different rules may apply for rentals that extend beyond one tax year
Personal use of rental equipment is typically not deductible

Always consult with a qualified tax professional regarding deductions for your specific situation.

Can a POS system automate this for me?

Yes, a modern equipment rental POS system like Quipli can automate sales tax calculations. The best systems will:

Apply correct tax rates based on location and equipment type
Handle tax exemptions for qualified customers
Keep tax rates updated as they change
Generate reports for tax filing
Integrate with accounting software

Without a specialized system, you’ll likely need to manually research, calculate, and update tax rates – a time-consuming process prone to errors.

Are delivery, pickup, or setup fees taxable when included in an equipment rental?

The taxability of ancillary charges varies by state:

Some states consider these charges part of the rental and fully taxable
Others treat these as separate services with different tax treatments
In some jurisdictions, the taxability depends on whether these charges are separately stated on the invoice

For example, in California, delivery charges are generally taxable when included in the rental price but may be exempt when separately stated and actually reflecting reasonable delivery costs. Meanwhile, Texas generally considers delivery charges to be taxable regardless of how they’re itemized.

Quipli’s system is configured to handle these state-specific nuances automatically.

Do cross-border rentals require me to register for tax in that other region?

When equipment crosses state lines during a rental, complex tax situations can arise:

You may need to collect and remit taxes for multiple jurisdictions
Some states have economic nexus thresholds that determine when you must register
Interstate commerce rules may impact how and where taxes apply
Special rules may apply to equipment used temporarily in another state

The general rule is that if you have a significant business presence (physical or economic) in a state, you’ll likely need to register and collect taxes there. However, specific rules vary considerably, and it’s advisable to consult with a tax professional familiar with multi-state taxation.

Other Rental Business Financial Resources

Manage Your Equipment Rentals With Quipli

Quipli provides comprehensive software for managing equipment rental inventory and presenting an attractive website to customers. With Quipli, you can easily manage orders, invoices, rental websites, and inventory without the need for separate tools.

Our tax management features ensure you:

Charge the correct tax rates every time
Stay compliant with changing regulations
Minimize the administrative burden of tax compliance
Have accurate records for reporting and audits

To see Quipli, the #1 rated equipment rental platform in action, request your free personalized demo.

Sales Tax on Rental Equipment: The Guide for Owners & Operators

Table of Contents

Is There Sales Tax on Rental Equipment?