Did a bank owe Illinois sales tax when it sold repossessed nursery-school property after foreclosure?

Plain-English summary

A national bank foreclosed on a borrower's pledged nursery-school furniture and accessories, sold them to a third party, and collected Illinois sales tax. It asked whether the transaction was an exempt occasional sale.

IDOR could not determine the answer from the limited facts. Lending agencies and finance companies generally incurred Retailers' Occupation Tax when selling repossessed tangible personal property.

An exception applied when the lender acted as agent for the known or disclosed property owner and did not take title. In that circumstance, the lender was not liable for Retailers' Occupation Tax on the sale proceeds.

The occasional-sale exemption also could apply, but it required a fact-specific review of whether the bank held itself out to the public as a retailer, including how often it made sales and whether the public knew about them.

If the sale was taxable, the seller had to collect Use Tax or document an exemption. A resale purchaser could provide a valid Certificate of Resale; without one, the transaction was presumed not to be for resale.

What this means for you

A lender's ordinary business classification did not automatically exempt repossessed-property sales. Title, agency status, frequency, public marketing, and exemption records all mattered.

Common questions

Did IDOR decide that this bank owed tax? No.

Was a lender always liable on a repossession sale? No, including when it acted only as agent for a disclosed owner and took no title.

Could the occasional-sale exemption apply? Possibly, depending on the facts.

Citations and references

• 86 Ill. Adm. Code 130.1960(a) and (b).
• 86 Ill. Adm. Code 130.110.
• 86 Ill. Adm. Code 130.1405.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2014.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2014/st-14-0035.pdf

Original ruling text

ST 14-0035-GIL 07/29/14 FINANCIAL INSTITUTIONS
Lending agencies or finance companies may be subject to Retailers' Occupation Tax liability on the
sale of repossessed tangible personal property. See 86 Ill. Adm. Code 130.1960(a) and 86 Ill. Adm.
Code 130.110. (This is a GIL.)

July 29, 2014

Dear Xxxx:
This letter is in response to your letter dated April 28, 2014, in which you request information.
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:
This office represents a large national bank which maintains offices in Illinois and
throughout the United States (“Bank”). In 2007, one of the Bank’s borrowers pledged its
business assets to Bank as security for a business loan. After the borrower defaulted,
Bank foreclosed its security interest in certain of these assets comprising of furniture
and accessories associated with a now-closed nursery school. Bank thereafter sold
these business assets to a third-party for $x,xxx.xx. In connection with this sale, Bank
collected $xxx from the purchaser for sales tax to be remitted to the State of Illinois.
Title 86, Part 130, Section 130.110 sets forth the applicable regulations relating to
“occasional sales” that are exempted from collection and remittance of sales tax. Bank,
which is not a “retailer” as such term is defined in 35 ILCS 105/2, understands and
believes that the foregoing sale constitutes an occasional sale that is exempt from sales
tax. Please provide guidance with respect to the foregoing sale. Thank you in advance
for your professional courtesy.
DEPARTMENT’S RESPONSE:
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property to purchasers for use or consumption. Furniture and
accessories from a school are considered tangible personal property. Generally, when lending
agencies and finance companies sell repossessed items of tangible personal property, the sale is
subject to Retailers Occupation Tax. We encourage you to look closely at 86 Ill. Adm. Code

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July 29, 2014
130.1960 to determine whether this rule applies to your client’s particular set of facts. Without more
information, we cannot determine whether your client is obligated to collect Retailers’ Occupation Tax
on the sale of the nursery school furniture and accessories. Please note that if the Bank disclosed
the owner of the repossessed property and did not take title, the Bank would not be responsible for
collecting Retailers’ Occupation Tax.
Except as provided in subsection (b) of 86 Ill. Adm. Code 130.1960, lending agencies or
finance companies are subject to Retailers' Occupation Tax liability on the sale of repossessed
tangible personal property. See subsection (a) of 86 Ill. Adm. Code 130.1960.
Subsection (b) of Section 130.1960 carves out some exceptions in which lending agencies and
finance companies are not liable for Retailers' Occupation Tax liability on sales of repossessed items
of tangible personal property. Subsection (b) states as follows:
1)

Finance companies and other lending agencies are engaged primarily in the business of
financing or acquiring the promissory notes given by purchasers of automobiles, furniture,
refrigerators or other items of tangible personal property.

2)

To guarantee payment of such notes, they sometimes take as security chattel mortgages
upon such tangible personal property. In cases where the purchaser of the automobile or
other tangible personal property fails to meet his obligation, the lending agency
repossesses the property and sells it to satisfy the obligation evidenced by the notes. In
connection with such sales, the lending agency acts as agent for the owner of the
repossessed property if such owner is known or disclosed to the purchaser, and if the
lending agency does not take title to the property; the lending agency, under such
circumstances, is not liable for payment of any Retailers' Occupation Tax with respect to
the proceeds from such sales.

3)

Even if the lending agency does title a repossessed motor vehicle in its name, if the
original buyer, after the expiration of the redemption period provided for in the Retail
Installment Sales Act [815 ILCS 405], is granted permission to redeem and to resume
possession of the vehicle and to continue performance under his original installment
contract without any change in the terms of such contract, and the lending agency reendorses the repossession title to such original buyer, the transaction is not regarded as
a sale and so is not taxable.

If 86 Ill Adm. Code 130.1960 is applicable to your client’s situation, and the sale of the
repossessed items of tangible personal property is subject to Retailers' Occupation Tax liability as
described above, the seller incurs Retailers' Occupation Tax liability on the sale and must collect Use
Tax from the customer or, in the alternative, the seller must document that the sale was exempt.
There are a number of exemptions available in Illinois. Examples of some of the sales that are
exempt in Illinois are described in 86 Ill. Adm. Code 130.120.
If persons or businesses purchase tangible personal property in Illinois for resale, and not for
use or consumption, the purchasers should provide sellers with Certificates of Resale. Certificates of
Resale are valid if they contain the information set out in 86 Ill. Adm. Code 130.1405. If purchasers
fail to provide Certificates of Resale, the sales are presumed to not be for resale and sellers would

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July 29, 2014

incur Retailers' Occupation Tax and would be required to charge the corresponding Use Tax to the
purchasers. See Section 130.1405(d).
We would also like to refer you to 86 Ill. Adm. Code 130.110 regarding occasional sales.
Notwithstanding Section 130.1960, it is possible that the occasional sale exemption could apply to
your client’s situation. However, such determinations are very fact dependent. Based on the limited
information provided in your letter, we cannot determine whether the Bank is making occasional
sales. This fact-specific inquiry requires making a determination of whether the Bank holds itself out
to the public as a retailer engaged in the business of selling tangible personal property. Indicia of this
might include factors such as how often the sales take place and whether the public is aware of such
sales.
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.
Very truly yours,

Cara Bishop
Associate Counsel

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