Does Illinois approve or confirm the accuracy of another state's chart summarizing motor-vehicle sales/use tax rates and rules across states?

Subject

Motor Vehicles

Plain-English summary

Another state's department of revenue wrote to the Illinois Department of Revenue as part of an annual survey it conducts on the taxability of motor vehicles that are sold to residents of another state, or purchased out of state and brought into that state. The requester attached its own chart, "Motor Vehicle Sales Tax Rate by State," along with an editable Word version, and asked Illinois to review and confirm (or correct) the Illinois-specific entries so the chart could be updated for 2019.

The Department's response explained that it "cannot approve publications other than those issued by the Department of Revenue," and advised the requester to consult Illinois statutes and administrative rules and Department publications directly. That said, the Department added that "the information in the chart generally appears to be correct," and then offered supplemental guidance to avoid the dissemination of incomplete information.

That guidance covered several points about how Illinois actually taxes motor vehicles:

• Illinois's "sales tax" is really two taxes: the Retailers' Occupation Tax, imposed on sellers of tangible personal property (86 Ill. Adm. Code 130.101), and the Use Tax, imposed on the purchaser's privilege of using tangible personal property in Illinois (86 Ill. Adm. Code 150.101). For in-state purchases, the purchaser pays Use Tax to the retailer, and the retailer uses that amount to offset its own Retailers' Occupation Tax liability.
• A trade-in credit that reduces the taxable selling price is allowed for retail sales of motor vehicles (86 Ill. Adm. Code 130.425) — but not if the vehicle is sold for simultaneous long-term leasing (over one year) under the "selling price" rules of P.A. 98-628, and not for private-party ("occasional or isolated") sales, which are instead subject to the separate vehicle use tax under 625 ILCS 5/3-1001 et seq.
• Illinois imposes a "Private Party Vehicle Use Tax" on non-retail, private-party motor vehicle transactions (625 ILCS 5/3-1001 et seq.), but persons in the business of leasing or renting passenger cars are treated as retailers subject to Retailers' Occupation Tax when they sell those vehicles (35 ILCS 120/1c).
• There is no exemption from Retailers' Occupation Tax or Use Tax when a leasing company buys a vehicle from a dealer to simultaneously lease it out for more than one year. However, Public Acts 98-628 and 98-1080 changed the definition of "selling price" for such transactions (motor vehicles sold on or after January 1, 2015 for simultaneous long-term lease): the taxable "selling price" becomes the amount paid under the lease contract, rather than the price the leasing company paid the dealer — though the Department noted this change did not appear to alter the chart's bottom-line information.
• The Department also suggested the chart's "Comments" column be clarified with captions, since its first sentence addresses retail sales while the rest addresses private-party (occasional or isolated) transactions.

As the letter itself states, this is a GIL, not a Private Letter Ruling — it is designed to point the requester to relevant regulations and information, and it is not a statement of Department policy and not binding on the Department.

What this means for you

Motor vehicle dealers and lessors

If you sell or lease motor vehicles in Illinois, this letter is a useful compact summary of core mechanics: retail sales are subject to Retailers' Occupation Tax (collected as Use Tax from the buyer), trade-in credits reduce the taxable selling price for ordinary retail sales but not for vehicles sold into a simultaneous long-term lease or for private-party sales, and businesses that lease or rent passenger cars are treated as retailers when they later sell those vehicles.

Buyers and sellers in private-party (non-dealer) transactions

If you're buying or selling a vehicle between private parties, this letter confirms that transaction is taxed differently — under the Private Party Vehicle Use Tax (625 ILCS 5/3-1001 et seq.) rather than the Retailers' Occupation Tax — and that no trade-in credit is available in that context.

Leasing companies structuring long-term vehicle leases

If your business buys vehicles for simultaneous lease of more than one year, be aware there is no special exemption from Retailers' Occupation Tax or Use Tax for that structure, and that under P.A. 98-628 and P.A. 98-1080 (for vehicles sold on or after January 1, 2015), the taxable "selling price" is measured by the total lease payments rather than the dealer's sale price to the leasing company.

Anyone relying on the multi-state chart referenced in this letter

This letter does not itself endorse or vouch for the accuracy of the "Motor Vehicle Sales Tax Rate by State" chart discussed in it (that chart is not part of this ruling's text) — the Department expressly declined to approve any publication other than its own, while noting the Illinois entries "generally appear[ed] to be correct" at the time.

Common questions

Q: Did Illinois officially approve or certify the accuracy of the multi-state tax rate chart described in this letter?
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 information "generally appears to be correct" and offered corrective guidance where needed.

Q: Is a trade-in credit always available when selling a motor vehicle in Illinois?
A: No. A trade-in credit against the taxable selling price is allowed for ordinary retail sales under 86 Ill. Adm. Code 130.425, but it is not allowed if the vehicle is sold for simultaneous long-term leasing (over one year) under the P.A. 98-628 "selling price" rules, and it is not allowed for private-party (occasional or isolated) sales.

Q: How are private-party motor vehicle sales taxed in Illinois?
A: They are subject to the Private Party Vehicle Use Tax under 625 ILCS 5/3-1001 et seq., rather than the Retailers' Occupation Tax that applies to dealer sales. However, businesses engaged in leasing or renting passenger cars are treated as retailers (subject to Retailers' Occupation Tax) when they sell those vehicles, per 35 ILCS 120/1c.

Q: Is there a special exemption when a leasing company buys a vehicle to lease it out for more than a year?
A: No. The letter states there is no exemption from Retailers' Occupation Tax or Use Tax for that scenario. But Public Acts 98-628 and 98-1080 changed how "selling price" is calculated for such transactions (for vehicles sold on or after January 1, 2015): it becomes the total amount paid under the lease contract rather than the dealer's sale price.

Q: Is this letter binding on the Illinois Department of Revenue?
A: No. It is a General Information Letter, which the Department describes as directing taxpayers to relevant regulations and information; it is not a statement of Department policy and is not binding on the Department (see 2 Ill. Adm. Code 1200.120, cited in the letter's own boilerplate language).

Q: Who asked for this letter, and why?
A: The letter responds to an inquiry described as coming from "the STATE Department of Revenue" (the actual state name is redacted in the text), which conducts an annual survey on motor vehicle tax treatment across states and asked Illinois to review and update the Illinois-specific entries in its multi-state chart for 2019.

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-18-0031-gil.pdf

Original ruling text

ST 18-0031-GIL 11/09/2018 MOTOR VEHICLES
This letter responds to a survey concerning taxation of vehicles. (This is a GIL.)

November 19, 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 STATE Department of Revenue publishes information regarding the
taxability of the sale or transfer of motor vehicles that are:
•
•

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

This information is beneficial to our Department as well as to motor vehicle dealers
within STATE 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 2019.
A copy of the document 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) 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 18-0031-GIL
Page 2

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 simultaneously
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 chart provided) subject to tax under 625 ILCS 5/3-1001 et seq. (i.e., a non-retail
transaction), a trade-in 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
sentence in this column relates to “Retail Sales” while the remaining information in this column relates
to private party transactions (i.e., 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 simultaneously 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 simultaneously 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 18-0031-GIL
Page 3

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

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