Could a vehicle dealer exclude a federal gas-guzzler tax passed through in the vehicle price from the Illinois sales-tax base?

Plain-English summary

A buyer purchased a new vehicle whose list price included a federal gas-guzzler tax imposed on the manufacturer and passed through to the buyer. The dealer calculated Illinois tax using the vehicle price—including the gas-guzzler amount—less the trade-in. The buyer asked whether that amounted to an improper "tax on a tax."

IDOR said the gas-guzzler amount stayed in the Illinois tax base. Retailers' Occupation Tax was measured by selling price without deductions for property cost, labor, service cost, or other business expenses, even when an expense was separately stated.

The controlling question was who bore the legal incidence of the other tax. A tax legally imposed on the consumer was excluded from selling price. But a tax imposed higher in the distribution chain—on a manufacturer, importer, or distributor—was included. Because the federal gas-guzzler tax was imposed on automobile manufacturers, passing its economic burden to the retail buyer did not make it deductible.

What this means for you

Separately listing a manufacturer-level excise tax does not remove it from Illinois gross receipts. The legal taxpayer named by the other tax law matters, not who ultimately bears the cost economically.

Common questions

Was the gas-guzzler amount deductible from selling price? No.

Would every separately stated tax be included? No. IDOR distinguished taxes legally imposed on consumers from taxes imposed earlier in the distribution chain.

Citations and references

• 35 ILCS 120/1.
• 35 ILCS 105/2 and 105/3-45.
• 86 Ill. Adm. Code 130.410 and 130.445.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2015.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2015/st-15-0107-gil.pdf

Original ruling text

ST 15-0107-GIL 10/19/2015 GROSS RECEIPTS
Federal excise taxes, such as the “gas guzzler tax”, which are imposed on the manufacturer of
automobiles are not deductible when calculating Retailers' Occupation Tax liability. See 86 Ill.
Adm. Code 130.445. The “gas guzzler tax” is merely a cost of doing business to the person
who pays such a tax or to the persons to whom the economic burden of such taxes may be
shifted by those who pay such taxes to the Federal government. See 86 Ill. Adm. Code
130.410. (This is a GIL.)

October 19, 2015

Dear Xxxxx:
This letter is in response to your letter dated September 14, 2015, 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:
On September 2, 20XX I purchased a new CAR from COMPANY (See copy of
invoice enclosed) The list price included a gas guzzler tax Of [sic] $$$ imposed on the
manufacturer and passed on the purchaser. My Illinois sales tax was calculated on the
difference between my trade in and the list price including the gas guzzler tax. This
amounts to a sales tax on a tax which does not seem fair to me.
Your current rules do not address the gas guzzler tax. According to Google,
other states have determined the dealer should refund that part of the sales tax. Kindly
give me your opinion on this matter as soon as you can.
DEPARTMENT’S RESPONSE:
The Retailers’ Occupation Tax is imposed upon persons engaged in this State in the business
of selling tangible personal property for use or consumption. Retailers’ Occupation Tax is based
upon the “selling price” of the tangible personal property sold. Section 1 of the Retailers’ Occupation
Tax Act defines the term, “selling price,” as the “consideration for a sale valued in money … and shall
be determined without any deduction on account of the cost of the property sold, the cost of materials
used, labor or service cost or any other expense whatsoever….” See 35 ILCS 120/1. As indicated by
this definition, a retailer’s cost of doing business is not deductible from his or her gross receipts. This
principle is articulated in Section 130.410 of the Department’s rules. This rule states that in

calculating Retailers’ Occupation Tax liability, “labor or service costs” . . . “overhead costs” . . . “or any
other expenses whatsoever” are not deductible from gross receipts. The rule provides that these
costs of doing business are an element of a retailer’s gross receipts subject to tax even if separately
stated on the bill to the customer. See 86 Ill. Adm. Code 130.410.
The Use Tax Act imposes a tax upon the privilege of using in this State tangible personal
property purchased at retail from a retailer. 86 Ill. Adm. Code 150.101. A retailer maintaining a place
of business in Illinois or a retailer authorized by the Department to collect Use Tax must collect Use
Tax from a purchaser. Retailers must collect the tax from users by adding the tax to the selling price
of tangible personal property. See 35 ILCS 105/3-45. Because the Retailers’ Occupation Tax and
the Use Tax work together in a complementary fashion, Section 2 of the Use Tax Act contains the
equivalent definition of “selling price” that is contained in Section 1 of the Retailers’ Occupation Tax
Act. Selling price means the consideration for a sale valued in money whether received in money or
otherwise, including cash, credits, property… and services… See 35 ILCS 105/2.
When deciding the question about whether a particular tax is included in the selling price for
computing Retailers' Occupation Tax, one must look at the statute or tax act to see upon whom the
taxing government (whether federal, state or local) has placed the legal incidence of the tax. When
the legal incidence of a tax is on the consumer, it is not considered to be part of the "selling price" of
the tangible personal property for the purpose of calculating Retailers' Occupation Tax. On the other
hand, when the legal incidence of a tax is not imposed on the consumer but is imposed at a higher
level in the distribution chain, e.g. upon the manufacturer, importer, or distributor, then the amounts of
the retail selling price of the tangible personal property that represents these taxes is includable in the
base and cannot be deducted in computing Retailers' Occupation Tax. See 86 Ill. Adm. Code
130.445.
Federal excise taxes, such as the “gas guzzler tax” are imposed on the manufacturers of
automobiles and, thus, are not deductible in computing the Retailers' Occupation Tax liability from the
gross receipts of persons who sell such automobiles at retail. The “gas guzzler tax” is merely a cost
of doing business to the person who pays such a tax or to the persons to whom the economic burden
of such taxes may be shifted by those who pay such taxes to the Federal government. See 86 Ill.
Adm. Code 130.410.
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,

Debra M. Boggess
Associate Counsel
DMB:eh