Did an out-of-state lessor selling an off-lease vehicle located in Illinois use seller Form ST-556 or have the buyer file Form RUT-25?

Plain-English summary

An out-of-state leasing company sold some off-lease automobiles located in Illinois to their Illinois lessees. It had been giving buyers a check payable to IDOR and letting them file purchaser Form RUT-25, but other Department guidance said the lessor had to file seller Form ST-556.

IDOR resolved that conflict: the lessor had to file Form ST-556. Illinois law deemed a lessor selling off-lease passenger cars to be a retailer. When the car was located in Illinois at the time of sale, the sale was subject to Retailers' Occupation Tax even if the lessor's personnel handled it from outside Illinois.

The rate was the “Vehicle (ST-556)” rate for the purchaser's location. In addition to the historical 6.25% State rate, it could include specified local taxes such as Metro-East Mass Transit District, Regional Transportation Authority, or County Water Commission tax on titled or registered property.

A properly completed IL-2848 or other legally sufficient power of attorney could authorize someone to sign for another party. IDOR said the usual practice was to file ST-556 with the Secretary of State along with title and registration paperwork, and understood that an out-of-state lessor could do so without an Illinois dealer license. Secretary of State procedure questions had to go to that office.

IDOR did not require a buyer's driver's license or proof of insurance with ST-556. It identified two historical electronic filing providers and warned paper filers to account for numbered forms because missing forms could prompt audit inquiry.

Common questions

Could the buyer file RUT-25 instead? No. The out-of-state lessor had to file ST-556 for a vehicle located in Illinois at sale.

Was only the State rate due? Not necessarily. Specified local vehicle taxes could apply based on the purchaser's location.

Could a power of attorney sign? Yes, if properly completed and legally sufficient.

Did IDOR require the buyer's license or insurance? No, although the Secretary of State could have separate requirements.

Citations and references

• Illinois Compliance Alert 2011-09
• 35 ILCS 120/1c and 120/3
• 86 Ill. Adm. Code 270.115(b)(3) and 130.525

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2012.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2012/st-12-0021.pdf

Original ruling text

ST 12-0021-GIL 04/04/2012 MOTOR VEHICLES
An out-of-state leasing company that sells a vehicle located in Illinois at the end of a lease to
an Illinois purchaser must report the sale on Form ST-556, Sales Tax Transaction Return. See
Illinois Department of Revenue Compliance Alert 2011-09 (April 2011). (This is a GIL.)

April 4, 2012

Dear Xxxxx:
This letter is in response to your letter dated January 27, 2011 in which you request
information and to the various telephone discussions with our office since receipt of the letter. The
Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are issued by the
Department in response to specific taxpayer inquiries concerning the application of a tax statute or
rule to a particular fact situation. A PLR is binding on the Department, but only as to the taxpayer
who is the subject of the request for ruling and only to the extent the facts recited in the PLR are
correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in the
Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information Letter
(“GIL”) is to direct taxpayers to Department regulations or other sources of information regarding the
topic about which they have inquired. A GIL is not a statement of Department policy and is not
binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website at
www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to your
inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
Initially, I want to thank you for the advice and candid discussions over the last 18 to 24
months on the RUT-25 vs. ST-556 issue. As you may recall, our client is an out-of-state
leasing company that transacts business in a number of states, including Illinois;
however, our client has no business location in this state. The company’s leasing
customers are referred by Illinois automobile dealers. The client’s only contacts with
Illinois are the automobiles, which are located in the state during the life of the lease or
brought into the state upon a lessee move. Our client sells some of the automobiles to
its Illinois lessee(s) when the automobiles come off lease. It is these sales that present
the issue.
As we discussed, our client believes that the Department’s divergent authorities
essentially provided them with an option to use a ST-556 or have the purchaser file a
RUT-25 when the client sells an automobile in Illinois. I relayed our discussion to the
client and your assertion that it must use Form ST-556 to properly report the sales of
the leased vehicles. Our client, however, has received past verbal advice from either
processing or the registration section that appears to differ from your advice. During
these calls, the Department told the client that the use of the RUT-25 is acceptable.
The client is confused by the seemingly contradicting statements, and, as a result, it
drafted the attached Statement of Facts, Questions and Relevant Authorities. My client

hopes that you will be able to address the questions raised in the document. The
document is substantially similar to the document I sent to you prior to our discussion
last summer.
Please consider the attached as our client’s request for a General Information Letter.
Please let me know if you have any questions or concerns and I will try to address them
as quickly as possible. Again, I want to thank you for your assistance on this and other
matters.
Your attachment titled, “Statement of Facts, Questions and Relevant Authorities”, reads as
follows:
We are an out-of-state auto leasing company that is a subsidiary of a large bank. We
(‘Lessor’) do not maintain a place of business, or have employees or representatives
who operate, in Illinois, though we lease automobiles to individual residents of Illinois.
We are not registered with the Illinois Department of Revenue (‘DOR’), do not have an
Illinois Business Tax number and file no sales or use tax returns of any type with the
DOR (except for the CITY). We possess a Lease Dealer’s License in a state other than
Illinois and have licensed salespersons within that other state. The lease only license is
not however a retail license, but allows for the sale of the lease vehicle to the lessee.
No 3rd party sales are allowed other than to licensed dealers.
The leases, which exceed one year in length, are originated by Illinois automobile
dealers whose customers choose to lease cars and who complete standard form lease
agreements furnished by the lessor. At the time of lease signing at the dealership, one
of two situations occur: the lessee pays use tax directly to the dealer in cash, which in
turn is remitted directly to the DOR by the dealer under the dealer’s IBT #, or the use tax
amount is financed into the lease – in this scenario the out-of-state auto leasing
company funds the use tax amount to the dealership as part of the purchase of the auto
and lease contract – the dealer would then remit that use tax payment directly to the
DOR under the dealer’s IBT #. Upon execution of the agreements, the auto is sold to
Lessor and the lease is assigned to Lessor. The dealer completes, submits, and retains
a copy of the ST-556 form. The lessor conducts these transactions electronically or by
U.S. mail, from outside Illinois.
Upon termination of the leases, some lessee/customers choose to purchase the vehicle
from the lessor. Upon such sale by the lessor, use tax is collected from the purchaser
and the lessor furnishes the purchaser with a cashier’s check payable to the IL DOR, in
the amount of tax collected. These taxes are made part of the payoff quote as a
courtesy by the leasing company to ensure the customer has, or can obtain sufficient
funds, to complete their ownership transfer and to reduce future risk of legal claims or
citations to the lessor due to the lessee not completing the ownership transfer due to
lack of tax funds. These transactions are all effected by mail, phone or electronically by
Lessor’s personnel, who all are located outside Illinois. The lessor never has any faceto-face contact with these buyers.
The purchaser then takes the assigned title and check payable to the DOR to a
Secretary of State (‘SOS’) office to effect title transfer and payment of tax. Form RUT25 is completed at that time, by the purchaser at the direction of the SOS office.
Several times, the lessor has inquired of the DOR, by telephone, about filing either
Form ST-556 or Form RUT-25 to report and remit tax collected upon these sales. It

was informed, in at least one of those calls, that it could not use Form ST-556 unless it
possessed a Dealer’s License issued by the SOS. For several reasons, lessor is not
eligible for such a license. Lessor has been informed by DOR personnel, in each of
those calls, that its practices and its customers filing Form RUT-25 are correct.
Form RUT-25 is for use by purchasers of vehicles, not sellers, as clearly stated in the
instructions to the form. There is no place on this form for a seller to sign it. DOR
Publication 76 states on page nine, under ‘Who must file Form RUT-25?’ that Form
RUT-25 must be filed by a person who purchases an item required to be titled in Illinois
‘from an out-of-state dealer, other retailer, lending institution or leasing company...’
Thus, on the basis of this DOR guidance, it would appear that the practices of Lessor
and its customers comply with Illinois law, as Lessor is an ‘out-of-state’ lessor.
On the other hand, Form ST-556 – Sales Tax Transaction Return – has a set of
instructions for ‘Out-of-State Lessors.’ These instructions state that ‘if you are an out-ofstate lessor who is also in the business of selling used vehicles...to Illinois buyers and
the items are located in Illinois at the time of sale, you must report these sales on Form
ST-556...’ The source of this instruction appears to be Regulation Section 130.605(a).
The Lessor wishes to be in compliance with Illinois filing requirements. Lessor believes
that the guidance in Publication 76 and the instructions to Form ST-556 present two
options for doing so. Customers filing Form RUT-25 is the more desirable option to
Lessor, due to the out-of-state nature of their business, which presents practical
obstacles to effectively filing Form ST-556, as described in detail below.
The SOS requires that titles be transferred and vehicles be registered promptly after a
purchase. Vehicles will not be so titled and registered without proof of use tax payment.
Payment of tax to a retailer is often evidenced by a ‘receipted’ copy of Form ST-556.
This form is required to be filed within 20 days of a sale. Absent a receipted copy of
Form ST-556, a Form RUT-25 (or Form RUT-50) is completed and tax is paid at the
time of titling. The instructions to Form ST-556 state that both the seller and buyer must
sign the form.
If an out-of-state leasing company, such as Lessor, is required to file Form ST-556, the
‘natural’ way to comply would be as follows:
1.

Lessor prepares Form ST-556 and mails it to the Illinois purchaser,
requesting the purchaser to sign it.

2.

The purchaser signs the form and mails it back to Lessor.

3.

Lessor then mails it to the DOR, requesting a receipted copy be mailed to
the purchaser.

4.

Upon receipt of the receipted copy of Form ST-556 mailed by the DOR,
the purchaser may now re-title and register the vehicle.

Three practical issues are presented by this approach:
1.

Lessor is concerned that the mailings of the form will not likely result in a
timely filing of Form ST-556 with the DOR or a receipted copy of Form ST-

556 being received promptly to enable timely re-titling and registration of
the vehicle.
2.

Some number of such purchasers do not make it a priority to act promptly
and responsibly in such matters. More than a few such customers never
even bother to re-title the vehicles until they later want to sell them,
sometimes years later. This fact can put the lessor at risk of not being
able to file Form ST-556 on a timely basis.

3.

Publication 76, at page 42, states that receipted copies of Form ST-556
should not be requested ‘as a general practice.’

A process has been identified that would enable timely compliance (If Form ST-556
must be filed), but this process would omit obtaining the purchaser’s signature on Form
ST-556 before filing it with the DOR.
Therefore, we have the following questions for the DOR:
1.

Is the lessor required to file Form ST-556 under the facts described above,
or may it continue its current practices?

2.

If Lessor is required to file Form ST-556, would it be required to collect
any county, city or district taxes based on the purchaser’s address or
would it only be required to collect 6.25%?

3.

If Form ST-556 is required, can an Illinois Secured Power of Attorney form
or IL 2846 Power of Attorney from the purchaser be used by Lessor to
sign the form on behalf of the purchaser or may form ST 556 be left
unsigned by the purchaser?

4.

If Form ST-556 is required, would the DOR routinely accept Forms ST-556
that are not signed by a purchaser due to a) lessor being out-of-state and
b) the lack of cooperation from buyers to get documents signed within the
20 day filing time or even signed at all? We note that neither 35 ILCS
120/3 nor Regulation Sec. 130.540(b)(2) require the buyer’s signature on
such forms.

5.

Can ‘receipted’ copies of the ST-556 be used as a standard practice, due
to lessor’s circumstances of being an out-of-state business and having no
direct (face-to-face) contact with the purchaser? We note that 35 ILCS
120/3 and Regulation Sec. 130.540(e) require the DOR to issue such
receipts. If such receipted copies are mailed directly to the buyers by the
DOR, it would appear that obtaining the buyer’s signature serves no
particular purpose.

6.

Does Lessor need to provide copies of the customer’s drivers [sic] license
and proof of insurance with Form ST-556?

7.

Is there any opportunity to electronically file Form ST-556 for out-of-state
leasing companies without using an outsourced vendor?

8.

If Form ST-556 is required to be filed in this case, what penalties apply
with regard to not filing this form, and under what circumstances would
they apply? Would the DOR ‘accept’ the customer-filed Forms RUT-25 as
satisfying Lessor’s obligation for prior sales? We note that 35 ILCS 120/3
and Regulation Sec. 130.540(g) provide that such use tax payments by
purchasers ‘shall be credited by the Department to the proper retailer’s
account with the Department...’

9.

If Lessor remits tax utilizing Form ST-556 would it then be subject to any
SOS requirements as required for an Illinois motor vehicle dealer?

10.

If Lessor starts filing Form ST-556 with the DOR, would the SOS require
Lessor to complete the title\registration transfer on behalf of the customer?

11.

Will the DOR provide us written responses to all of our questions?

12.

If Form ST-556 is required, would the DOR hold the lessor to the
requirement outlined in Title 86 Part 130 Section 130.540 (b)(1)? . ‘Such
forms will be numbered. The Department will keep a record of all of these
forms which it supplies to a given retailer, and he (retailer) is responsible
for accounting to the Department for all such forms. If a transaction
reporting return form should be spoiled, the retailer should mark it ‘voided’
and retain it in his books and records for 42 months.’ The lessor could not
prevent a customer from losing or not returning the ST-556 mailed to them
for signature. What are the consequences imposed by the DOR on the
lessor due to lack of accountability of the ST-556 forms?

DEPARTMENT’S RESPONSE:
As we have previously discussed with you, the Department issued Compliance Alert 2011-09
addressing some of the questions you raise. The Alert makes clear that an out-of-state leasing
company that sells a vehicle located in Illinois at the end of a lease to an Illinois purchaser must file
form ST-556, Sales Tax Transaction Return rather than form RUT-25, Vehicle Use Tax Transaction
Return. Under Illinois law, a lessor selling passenger cars coming off lease is statutorily deemed to
be a retailer engaged in the business of selling such passenger cars. See 35 ILCS 120/1c. If a sale
takes place outside Illinois but the tangible personal property which is sold is in an inventory of the
retailer located in Illinois, the place where the property is located at the time of the sale will determine
where the seller is engaged in business. See, for example, 86 Ill. Adm. Code 270.115(b)(3). If the
inventory, such as a leased passenger car that is being sold to the lessee at the end of the lease, is
located in Illinois at the time it is sold, then Retailers’ Occupation Tax is owed on that sale.
To find the appropriate tax rate for each sale, use the “Tax Rate Finder” on the Department’s
web site at tax.illinois.gov. Use the rate listed for “Vehicle (ST-556)” at the purchaser’s location.
Depending on the location of the vehicle at the time of sale, in addition to the State rate of 6.25%, the
rate may also include certain local taxes such as a Metro-East Mass Transit District, Regional
Transportation Authority, or County Water Commission Retailers’ Occupation Tax on titled or
registered property.
The Retailers’ Occupation Tax requires that retailers sign returns, including ST-556’s. See 86
Il. Adm. Code 130.525. You have asked if a power of attorney may be used to sign a return on behalf

of a purchaser. A properly completed Power of Attorney form (IL-2848 Power of Attorney or other
legally sufficient form) may be used to authorize a party to sign a return on behalf of another party.
The Retailers’ Occupation Tax Act provides that “[t]he transaction reporting return and tax
remittance or proof of exemption from the Illinois use tax may be transmitted to the Department by
way of the State agency with which, or State officer with whom the tangible personal property must be
titled or registered (if titling or registration is required) if the Department and such agency or State
officer determine that this procedure will expedite the processing of applications for title or
registration.” (35 ILCS 120/3) Issuing receipted copies of tax returns is not intended to be a common
practice. Rather, the more common practice is to file the ST-556 directly with the Illinois Secretary of
State along with all other required Secretary of State paperwork. It is our understanding that an outof-state leasing company that sells a vehicle off-lease to an Illinois customer may file title/registration
documents as well as the ST-556 with the Illinois Secretary of State even though the out-of-state
leasing company does not possess an Illinois Dealer’s License issued by the Illinois Secretary of
State. Please pursue this issue as well as the other issues you raise in this letter related to the
Secretary of State’s policies and procedures directly with the Secretary of State’s Office.
When form ST-556 is filed by a retailer, the Department of Revenue does not require a copy of
the buyer’s driver’s license or proof of insurance. You may want to check with the Secretary of
State’s Office to inquire whether they have any requirement related to this.
The electronic filing programs for Form ST-556 are currently conducted by two companies:
Computerized Vehicle Registration (CVR) and Electronic License Services (ELS). Please see the
Department’s website for more information on this. If, however, you file paper ST-556 returns, it is
important to keep track of ST-556 returns the Department supplies to you. If a return or returns are
not accounted for, this could result in the Department’s Audit Division inquiring further into those
transactions.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Sincerely,

Samuel J. Moore
Associate Counsel