Does Illinois Private Vehicle Use Tax apply when a nominee trust holding a motor vehicle is terminated and the vehicle passes to the trust's beneficiary?

Plain-English summary

The Illinois Department of Revenue was asked whether the state's Private Vehicle Use Tax applies when a nominee trust holding title to a motor vehicle is terminated and the vehicle passes to the trust's beneficiary. The taxpayer had purchased and garaged the vehicle out of state in 2014 in the name of a trust, and was now planning to bring it into Illinois and dissolve the trust, at which point the beneficiary would become the owner.

The Department's answer was two-part. First, on the original move into Illinois: if a nominee trust brings into Illinois a vehicle it purchased at retail in another state, the trust owes Illinois Use Tax on the selling price, with credit allowed for tax already paid to the other state and an allowance for depreciation (35 ILCS 105/3-10 and 35 ILCS 105/3-55(d)). Second, on the trust-to-beneficiary transfer: because the Illinois Vehicle Code imposes the Private Vehicle Use Tax on the privilege of using a motor vehicle "acquired by gift, transfer, or purchase" (625 ILCS 5/3-1001), moving the vehicle from the trust to the beneficiary when the trust terminates counts as a taxable transfer, and the beneficiary owes that tax.

The taxpayer had argued for an exception by analogy: in earlier letters about the Aircraft and Watercraft Use Tax, the Department had said that when two legal entities merge or consolidate — so that one entity survives and the other ceases to exist — no use tax is due, because there is no "transfer" between two separate, still-existing entities. The taxpayer argued that a trust's termination, with its assets and liabilities passing to the surviving beneficiary, was analogous to a merger and should get the same treatment. The Department rejected this: it found no exception in the Private Vehicle Use Tax law for a transfer of title from a trust to its beneficiary, and it held that this kind of transfer does not qualify as a "merger or consolidation" under the law that provides the narrow exception for those specific transactions.

Notably, the Department declined to issue a Private Letter Ruling on this specific fact pattern (which would have been binding just for this taxpayer) and instead responded with this General Information Letter, which points to the relevant law but is not a binding statement of Department policy.

What this means for you

Individuals using a trust to hold a vehicle title

If you place a motor vehicle in a nominee trust and later terminate the trust so that title passes to the beneficiary, expect that transfer to be treated as a taxable event for Illinois Private Vehicle Use Tax purposes. The Department was direct: "transferring the motor vehicle out of the trust also carries certain legal burdens, including the incurrence of the Private Vehicle Use Tax." There's no exception in the statute for moving a vehicle out of a trust to its beneficiary, even though placing it in a trust may offer legal protections.

Tax on the amount owed

The letter notes that, with certain exceptions, the Private Vehicle Use Tax is based on the vehicle's model year unless the purchase price is $15,000 or more, in which case the tax is based on the purchase price. If you're moving a used vehicle out of a trust, check which method applies to your situation.

Accountants and tax professionals advising trust-held vehicles

The "merger or consolidation" exception the Department has recognized for the Aircraft and Watercraft Use Tax (where one legal entity survives and absorbs the other, so there's no "transfer" between two still-existing entities) does not extend to a trust termination that shifts a vehicle to its beneficiary — the Department views a trust and its beneficiary as remaining two distinct parties for this purpose, and it declined to treat the trust's termination as the kind of merger contemplated by the Business Corporation Act provision cited by the taxpayer (805 ILCS 5/11.50(4)).

Common questions

Q: My vehicle is titled in a trust. Will I owe Illinois use tax again when the trust ends and I become the owner?
A: Based on this letter, yes — the Department treats the shift from the trust to the beneficiary as a taxable "transfer" under 625 ILCS 5/3-1001, triggering the Private Vehicle Use Tax.

Q: Didn't the Department already say no tax is due when two entities merge?
A: That exception has been applied to the Aircraft and Watercraft Use Tax when one legal entity survives a merger and the other ceases to exist, so there's no "transfer" between two separate surviving entities. The Department declined to apply the same reasoning here, finding that a trust's termination and the resulting shift of the vehicle to its beneficiary does not qualify as that kind of merger or consolidation.

Q: Is this letter legally binding on the Department?
A: No. This is a General Information Letter (GIL), not a Private Letter Ruling. The Department specifically noted it "would decline to issue a Private Letter Ruling in response to your request" and instead issued this GIL, which merely directs the taxpayer to relevant law and is not a statement of binding Department policy.

Q: Does the vehicle also owe regular Illinois Use Tax when it's first brought into the state?
A: Yes, per the letter — if a nominee trust brings a vehicle into Illinois that it purchased at retail in another state, the trust owes Illinois Use Tax on the selling price under 35 ILCS 105/3-10, with credit for tax paid to the other state and a depreciation allowance under 35 ILCS 105/3-55(d). That is separate from the Private Vehicle Use Tax triggered later when the trust terminates and title passes to the beneficiary.

Q: How is the amount of Private Vehicle Use Tax calculated?
A: The letter states that, with certain exceptions, the tax is based on the vehicle's model year, unless the purchase price is $15,000 or more, in which case it's based on the purchase price.

Citations and references

• 625 ILCS 5/3-1001 et seq. (Private Vehicle Use Tax, Illinois Vehicle Code, Chapter 3, Article X)
• 35 ILCS 105/3-10 (Use Tax Act — tax rate on selling price)
• 35 ILCS 105/3-55(d) (Use Tax Act — credit for tax paid to another state and depreciation allowance)
• 35 ILCS 157/10-15 (Aircraft Use Tax Law)
• 35 ILCS 158/15-10 (Watercraft Use Tax Law)
• 2 Ill. Adm. Code 1200.110(a)(4) (Department's discretion whether to issue a Private Letter Ruling)
• 2 Ill. Adm. Code 1200.120 (General Information Letters)
• 805 ILCS 5/11.50(4) (Business Corporation Act — transfer of property to surviving entity on merger)
• Cited prior letters: ST 07-0138-GIL; ST 12-0040-GIL; ST 10-0007-PLR; ST 15-0020-PLR; ST 18-0002-PLR

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2019.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2019/st19-0036-gil.pdf

Original ruling text

ST 19-0036-GIL 11/05/2019 VEHICLE USE TAX
Article X of Chapter 3 of the Illinois Vehicle Code imposes a tax on the privilege of
using a motor vehicle in this State that is acquired by gift, transfer, or purchase. 625
ILCS 5/3-1001. (This is a GIL)
November 5, 2019
Dear XXX:
This letter is in response to your letter dated October 15, 2018, 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:
I am requesting a private letter ruling regarding applicability of the Vehicle Use
Tax when a nominee trust is terminated and ownership of the vehicle in the trust
changes to the sole Beneficiary.
Per Illinois Code, a tax is imposed on the privilege of using any motor vehicle
“acquired by gift, transfer, or purchase….” 1 Similar language is used for the
Aircraft and Watercraft Use Tax. 2 3
In 2014, I purchased and garaged a vehicle out-of-state in the name of Trust. It is
now my intention to bring the car to Illinois and terminate the Trust at which time
ownership of the vehicle will change to the Beneficiary.
Illinois Department of Revenue (IDOR) has previously ruled in two letters
regarding the Aircraft Use Tax that transfers from one legal entity to another legal
entity incur a tax even if the tax identification number is the same because the
“transfer does not change the outcome…” 4 5

625 ILCS 5/3-1001
35 ILCS 157/10-15
3
35 ILCS 158/15-10
4
ST 07-0138-GIL
5
ST 12-0040-GIL
1
2

ST 19-0036-GIL
November 5, 2019
IDOR has separately opined in three other letters regarding the Aircraft and
Watercraft Use Tax that when two legal entities merge or consolidate, then no tax
is due. 6 7 8 IDOR argued “there is not a ‘transfer’ between two separate legal
entities, rather, one entity becomes another entity…while the original entity
ceases to exist” In justifying this decision, IDOR cited a section of the Business
Corporation Act that states all property of the surviving entity in a merger
“…shall be taken and deemed to be transferred…” 9
This part of the Act
explicitly endorsing a transfer seems to undermine IDOR’s position that no
transfer occurs.
However, if IDOR continues to hold that change of watercraft ownership from
one legal entity to another legal entity be means of a merger does not incur a
Watercraft Use Tax when the first legal entity ceases to exist then a similar
argument should be applied to the Vehicle Use Tax when this Trust is terminated.
The termination of this trust triggers an analogous merger of liabilities and assets
with the surviving entity (Beneficiary) while the original entity (Trust) also ceases
to exist precluding any transfer between the two extant entities.
Your guidance on this specific question is appreciated. Please feel free to contact
me with any questions.
DEPARTMENT’S RESPONSE:
The Department’s regulation “Public Information, Rulemaking and Organization”
provides that “[w]hether to issue a private letter ruling in response to a letter ruling request is
within the discretion of the Department. The Department will respond to all requests for private
letter rulings either by issuance of a ruling or by a letter explaining that the request for ruling will
not be honored.” 2 Ill. Adm. Code 1200.110(a)(4). The Department met and determined that it
would decline to issue a Private Letter Ruling in response to your request. We hope however, the
following General Information Letter will be helpful in addressing your questions based on the
limited information provided.
USE TAX:
In general, if a nominee trust moves a vehicle into Illinois that was purchased at retail in
another state, the trust is subject to Use Tax on the selling price of the vehicle, with credit for tax
paid to the other state and allowance for depreciation. See 35 ILCS 105/3-10 and 35 ILCS
105/3-55(d).
PRIVATE VEHICLE USE TAX:
ST 10-0007-PLR
ST 15-0020-PLR
8
ST 18-0002-PLR
9
805 ILCS 5/11.50(4)
6
7

ST 19-0036-GIL
November 5, 2019

In general, if a nominee trust transfers a motor vehicle from the trust to the beneficiary of
the trust in Illinois, the beneficiary is subject to tax under Article X of Chapter 3 of the Illinois
Vehicle Code. 625 ILCS 5/3-1001 et seq. Article X of Chapter 3 of the Illinois Vehicle Code
imposes a tax on the privilege of using a motor vehicle in this State that is acquired by gift,
transfer, or purchase. 625 ILCS 5/3-1001. This tax is commonly referred to as the Private
Vehicle Use Tax. With certain exceptions, the amount of tax assessed is based on the model year
of the car unless the purchase price is $15,000 or greater, in which case the tax is based on the
purchase price of the car. There is no exception in the Private Vehicle Use Tax law for the
transfer of a motor vehicle title from one legal entity (a trust) to another legal entity (the
beneficiary of the trust). In addition, such a transfer does not qualify as a merger or
consolidation, under which, in certain circumstances, no Private Vehicle Use Tax is due. While
placing a motor vehicle in a trust allows the benefit of certain legal protections, transferring the
motor vehicle out of the trust also carries certain legal burdens, including the incurrence of the
Private Vehicle Use Tax.
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