What does Illinois General Information Letter ST 18-0008-GIL conclude about Motor Vehicles?

Plain-English summary

This GIL did not come from a typical taxpayer asking about a specific transaction. Instead, the Florida Department of Revenue asked the Illinois Department of Revenue to review and confirm a survey chart (used across states) listing motor vehicle sales/use tax rates and rules, including how each state taxes vehicles sold to out-of-state residents and vehicles brought in from other states. The Illinois Department of Revenue responded that it "cannot approve publications other than those issued by the Department of Revenue" and directed the requester to Illinois statutes, administrative rules, and Department publications. That said, the Department added that the chart's information about Illinois "generally appears to be correct," and it offered additional guidance to fill in gaps.

The substantive guidance covers four points. First, on trade-in credits: when a motor vehicle is sold at retail and subject to Retailers' Occupation Tax, the dealer may reduce the taxable selling price by the value of a trade-in (86 Ill. Adm. Code 130.425) — but that credit is not available when the vehicle is sold to be leased for more than one year under the special "selling price" rule described below, and it is also not available for a private-party ("occasional or isolated") sale. Second, on private-party sales: sales of motor vehicles between private individuals are not retail transactions, so they are not subject to Retailers' Occupation Tax at all; instead they're taxed under Illinois' separate Private Party Vehicle Use Tax (625 ILCS 5/3-1001 et seq.). Third, the Department clarified that businesses in the trade of leasing or renting passenger cars are themselves treated as retailers and must collect Retailers' Occupation Tax when they eventually sell those vehicles (35 ILCS 120/1c). Fourth, on long-term vehicle leases: there is no exemption from Retailers' Occupation Tax or Use Tax when a leasing company buys a vehicle from a dealer to lease it out for more than a year, but under Public Acts 98-628 and 98-1080 (effective for such vehicles sold on or after January 1, 2015), the taxable "selling price" is redefined as the total amount the lessee pays under the lease contract — not the price the leasing company paid the dealer.

The Department also noted a formatting/clarity issue with the chart itself: the "Comments" column mixed information about "Retail Sales" (first paragraph) with information about "Occasional or Isolated Sales" (remaining text), and suggested adding captions to distinguish the two.

What this means for you

Motor vehicle dealers

Trade-in credits under 86 Ill. Adm. Code 130.425 reduce your taxable selling price on ordinary retail sales, but that credit disappears if you're selling the vehicle to a company that will lease it out for more than a year (see the leasing discussion below) and it never applies to private-party sales in the first place, since those aren't retail sales you're making.

Leasing companies

If your business leases or rents passenger cars, you're treated as a retailer and owe Retailers' Occupation Tax when you sell those vehicles (35 ILCS 120/1c). And if you purchase a vehicle from a dealer specifically to lease it out for a period longer than one year, remember that under P.A. 98-628 and P.A. 98-1080, the taxable "selling price" for vehicles sold on or after January 1, 2015 for that purpose is the total lease payments the lessee will pay you — not what you paid the dealer. No exemption applies to this purchase.

Private parties and individuals selling/buying used vehicles

A sale of a motor vehicle directly between private individuals (not through a dealer) is an "occasional or isolated sale." It isn't subject to Retailers' Occupation Tax, and no trade-in credit applies, but it is subject to Illinois' Private Party Vehicle Use Tax under 625 ILCS 5/3-1001 et seq.

Accountants and tax professionals comparing multi-state charts

If you're relying on multi-state surveys or third-party charts summarizing vehicle tax rates, treat them with caution: the Department in this letter explicitly declined to formally approve any outside publication and directed readers back to the Illinois statutes, administrative rules, and Department's own publications as the authoritative sources.

Common questions

Q: Did Illinois approve the Florida survey chart as accurate?
A: No. The Department stated it "cannot approve publications other than those issued by the Department of Revenue," though it added that the chart's Illinois information "generally appears to be correct" and offered corrections/clarifications.

Q: Can I take a trade-in credit on a private-party vehicle sale?
A: No. Trade-in credits under 86 Ill. Adm. Code 130.425 apply to retail sales subject to Retailers' Occupation Tax. A private-party (occasional or isolated) sale is instead taxed under the Private Party Vehicle Use Tax (625 ILCS 5/3-1001 et seq.), and no trade-in credit is allowed for that transaction.

Q: How is tax calculated when a leasing company buys a vehicle to lease it out for more than a year?
A: There's no exemption for that purchase. For vehicles sold on or after January 1, 2015 for this purpose, P.A. 98-628 and P.A. 98-1080 redefine "selling price" as the amount paid under the lease contract, rather than the price the leasing company paid the dealer.

Q: Are companies that lease or rent passenger cars treated as retailers?
A: Yes. Under 35 ILCS 120/1c, persons engaged in the business of leasing or renting passenger cars are considered retailers subject to Retailers' Occupation Tax when they sell those motor vehicles.

Citations and references

Statutes and rules:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposition)
• 86 Ill. Adm. Code 150.101 (Use Tax imposition)
• 86 Ill. Adm. Code 130.425 (trade-in credit)
• 86 Ill. Adm. Code 151.101 et seq. (Vehicle Use Tax)
• 625 ILCS 5/3-1001 et seq. (Private Party Vehicle Use Tax)
• 35 ILCS 120/1c (leasing companies treated as retailers)
• P.A. 98-628; P.A. 98-1080 (redefined "selling price" for long-term vehicle leases, effective for sales on or after January 1, 2015)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2018.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2018/st-18-0008-gil.pdf

Original ruling text

ST 18-0008-GIL 03/27/2018 MOTOR VEHICLES
This letter responds to a survey concerning taxation of vehicles. (This is a GIL.)

March 27, 2018

Dear Xxxxx:
This letter is in response to your email dated October 2, 2017, in which you requested
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:
Each year the Florida Department of Revenue publishes information regarding the
taxability of the sale or transfer of motor vehicles that are:
•
•

sold in Florida to residents of another state; and
purchased in another state and brought into Florida.

This information is beneficial to our Department as well as to motor vehicle dealers
within Florida who sell vehicles to residents of your state.
So that our Department may continue to use and distribute accurate information, we are
requesting that your agency review the specific information related to your state and let
us know if any changes that occurred in the past year or will occur for 2018.
A copy of the document (TIP-16A01-24R2 Motor Vehicle Sales Tax Rate by State) is
attached.
For ease of editing, we have attached a Microsoft Word chart (State Motor Vehicle Tax
Rate Chart 10032017) of the tax rate information used last year.
Thank you for your assistance. We would appreciate a return email with your edits and
comments.

ST 18-0008-GIL
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DEPARTMENT’S RESPONSE:
The Department cannot approve publications other than those issued by the Department of
Revenue. We advise you to consult Illinois statutes and administrative rules, as well as Department
publications on these matters. However, the information in the chart generally appears to be correct.
In the interest of limiting the dissemination of incomplete information, we offer the following additional
guidance and suggestions.
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. See 86 Ill.
Adm. Code 130.101. In Illinois, Use Tax is imposed on the privilege of using, in this State, any kind of
tangible personal property that is purchased anywhere at retail from a retailer. See 86 Ill. Adm. Code
150.101. These taxes comprise what is commonly known as "sales" tax in Illinois. If the purchases
occur in Illinois, the purchasers must pay Use Tax to the retailer at the time of purchase. The retailers
are then allowed to retain the amount of Use Tax paid to reimburse themselves for the Retailers’
Occupation Tax liability incurred on those sales.
With respect to trade-in credits, for the sale of a motor vehicle subject to Retailers’ Occupation
Tax, the retailer is allowed to accept a trade-in to reduce the taxable selling price in accordance with
86 Ill. Adm. Code 130.425. If, however, the motor vehicle is sold for the purpose of leasing it for a
defined period that is longer than one year and the transaction otherwise qualifies to use the “selling
price” as defined in P.A. 98-628 (see discussion below), then no trade-in credit is allowed. For a sale
of a motor vehicle between private parties (referred to as “occasional or isolated sale” in the in the
chart provided) subject to tax under 625 ILCS 5/3-1001 et seq. (i.e., a non-retail transaction), a tradein credit is not allowed. See 86 Ill. Adm. Code 151.101 et seq.
With respect to “Occasional or Isolated Sales,” the State of Illinois imposes a vehicle use tax
on private party (non-retail) transactions involving motor vehicles (commonly referred to as the
“Private Party Vehicle Use Tax” or “Private Vehicle Use Tax”). See 625 ILCS 5/3-1001 et seq.
However, persons engaged in the business of leasing or renting passenger cars are considered
retailers subject to the Retailers’ Occupation Tax when they sell those motor vehicles. See 35 ILCS
120/1c.
With respect to the “Comments” section in the chart, it is important to note that the first
paragraph in this column relates to “Retail Sales” while the remaining information in this column
relates to “Occasional or Isolated Sales.” Adding captions that note this would make this information
more clear.
With respect to the purchase of a motor vehicle from a motor vehicle dealer by a leasing
company in order to lease the motor vehicle for a period of more than one year, there is no exemption
from Retailers’ Occupation Tax or Use Tax in Illinois. Please note, however, that Public Acts 98-628
and 98-1080 changed the definition of “selling price” for sales of motor vehicles of the first division
and certain motor vehicles of the second division that are sold on or after January 1, 2015 for the
purpose of leasing the vehicle for a defined period of more than one year. Under these provisions
“selling price” equals the amount paid under the lease contract, rather than the amount the leasing
company pays to the motor vehicle dealer to purchase the vehicle. While it does not appear that this
change would alter the information in the publication, it is worth noting.

ST 18-0008-GIL
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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,

Samuel J. Moore
Associate Counsel

SJM:bkl

ST 18-0008-GIL
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MOTOR VEHICLES: This letter responds to a survey concerning taxation of vehicles. (This is a GIL.)