Does the $10,000 cap on the trade-in credit for First Division motor vehicles under Illinois' 2020 trade-in law apply to boats?

Plain-English summary

A marina and boat dealer asked the Illinois Department of Revenue whether a 2020 change to the sales tax law — which caps the trade-in credit for motor vehicles at $10,000 — also applies when a customer trades in a boat toward the purchase of another boat.

The Department said no. Effective January 1, 2020, Public Act 101-0031 amended the definition of "selling price" in the Retailers' Occupation Tax Act so that, for trade-ins of "motor vehicles of the First Division" (generally, vehicles designed to carry 10 or fewer people), only the first $10,000 of trade-in value or credit is excluded from the taxable selling price — any trade-in value above $10,000 becomes part of the taxable price of the new vehicle.

The Department reasoned that "motor vehicle" and "vehicle" under the Illinois Vehicle Code are defined and regulated in the context of highway travel, while boats are separately defined as "vessels" or "watercraft" under the Boat Registration and Safety Act, which governs safety and use of boats on water. Because boats fall under the Boat Registration and Safety Act rather than the Illinois Vehicle Code, the word "vehicles" in the new trade-in credit language does not include boats. As a result, boat trade-ins are not subject to the $10,000 cap.

What this means for you

Boat dealers and marinas

When you take a boat in trade toward the sale of another boat, the full value of that trade-in can still be excluded from the taxable "selling price" — the $10,000 cap that now limits motor-vehicle trade-in credits simply does not apply to boats. You do not need to add any trade-in value above $10,000 back into the taxable price the way a car dealer would for a First Division motor vehicle trade-in.

Motor vehicle (car, truck, motorcycle) dealers

This ruling confirms, by contrast, that the $10,000 trade-in cap does apply to First Division motor vehicles as defined in the Illinois Vehicle Code — vehicles designed to carry 10 or fewer people. If your trade-in credit exceeds $10,000, only the first $10,000 reduces the taxable selling price of the vehicle being sold.

Accountants and tax professionals

The ruling turns on the distinction between two separate statutory regimes: the Illinois Vehicle Code (625 ILCS 5/1-146, 1-217), which defines "motor vehicle" and "vehicle" for highway-travel purposes, and the Boat Registration and Safety Act (625 ILCS 45/1-1, 1-2), which separately defines and regulates "vessels" and "watercraft." Because the trade-in credit cap added to 35 ILCS 120/1 by P.A. 101-0031 refers to "motor vehicles," and boats fall outside the Vehicle Code's definitions, the cap does not extend to boat trade-ins. Remember this is a GIL, not a PLR — it is not binding on the Department.

Common questions

Q: Does the $10,000 trade-in credit cap apply when a customer trades in a boat?
A: No. The Department concluded that boats are not "motor vehicles" under the Illinois Vehicle Code, so the cap added by P.A. 101-0031 does not apply to boat trade-ins.

Q: What vehicles does the $10,000 cap apply to?
A: It applies to trade-ins of "motor vehicles of the First Division" as defined in Section 1-146 of the Illinois Vehicle Code — vehicles designed to carry 10 or fewer people (e.g., typical cars) — where the trade-in is of like kind and character to the vehicle being purchased.

Q: Why are boats treated differently from cars for this purpose?
A: Boats are defined and regulated as "vessels" or "watercraft" under the Boat Registration and Safety Act (625 ILCS 45/1-1, 1-2), a separate statutory scheme from the Illinois Vehicle Code, which governs highway-capable motor vehicles. The Department found the Vehicle Code's "vehicle" definition does not include boats.

Q: Is this ruling binding on the Department?
A: No. This is a General Information Letter (GIL), which merely directs taxpayers to relevant regulations and sources of information. It is not a statement of Department policy and is not binding, unlike a Private Letter Ruling (PLR), which is binding on the Department as to the specific taxpayer and facts presented.

Citations and references

Statutes and rules:

• 35 ILCS 120/1 (Retailers' Occupation Tax Act — "selling price" definition and $10,000 trade-in credit cap)
• 86 Ill. Adm. Code 130.425 (regulation implementing the selling price/trade-in credit rule)
• 625 ILCS 5/1-146 (Illinois Vehicle Code — definition of "motor vehicle" and First Division)
• 625 ILCS 5/1-217 (Illinois Vehicle Code — definition of "vehicle")
• 625 ILCS 5/1-100 et seq. (Illinois Vehicle Code — general regulatory scope)
• 625 ILCS 45/1-1, 1-2 (Boat Registration and Safety Act — policy and definition of "vessel"/"watercraft")
• 2 Ill. Adm. Code 1200.120 (GILs are non-binding)
• 2 Ill. Adm. Code 1200.110 (PLR request procedures)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2021.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2021/st21-0019-gil.pdf

Original ruling text

ST 21-0019-GIL 04/27/2021 MOTOR VEHICLES
The $10,000 cap on the trade-in credit allowed for the trade-in of first division motor
vehicles does not apply to boats. See 35 ILCS 120/1 and 86 Ill. Adm. 130.425. (This is
a GIL.)
April 27, 2021
Dear NAME:
This letter is in response to your letter 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 writing to request guidance on SB0690 going into effect January 1,
2020. We are a marina and boat dealer located in CITY, IL and are unsure
if the “trade-in rule” applies to boats. Below is an excerpt of the specific
piece of the law I am referring to.
“beginning January 1, 2020, “selling price” includes the portion of the
value of or credit given for traded-in motor vehicles of the First
Division as defined in Section 1-146 of the Illinois Vehicle Code of
like kind and character as that which is being sold that exceeds
$10,000.”
Our question is, in the context of SB0690 and section [sic] Section 1-146 of
the Illinois Vehicle Code, are boats considered vehicles?
DEPARTMENT’S RESPONSE:
Senate Bill 0690 was passed into law as Public Act 101-0031, and the provisions
mentioned in your letter took effect January 1, 2020. Specifically, the definition of “Selling
Price” in Section 1 of the Retailers’ Occupation Tax Act (35 ILCS 120/1; 86 Ill. Adm. Code
130.425) was amended by P.A. 101-0031 by adding the following language:

BUSINESS
Page 2
April 27, 2021
[B]eginning January 1, 2020, “selling price” includes the portion of the value
of or credit given for traded-in motor vehicles of the First Division as defined
in Section 1-146 of the Illinois Vehicle Code of like kind and character as
that which is being sold that exceeds $10,000.
Section 1-146 of the Illinois Vehicle Code, in relevant part, defines “motor vehicle” as:
Every vehicle which is self-propelled and every vehicle which is propelled
by electric power obtained from overhead trolley wires, but not operated
upon rails except for vehicles moved solely by human power, motorized
wheelchairs, low-speed electric bicycles, and low-speed gas bicycles. For
this Act, motor vehicles are divided into two divisions: First Division: Those
motor vehicles which are designed for the carrying of not more than 10
persons.
Section 1-217 of the Illinois Vehicle Code, in relevant part, defines “vehicle” as “[e]very
device, in, upon or by which any person or property is or may be transported or drawn
upon a highway.”
Generally, the Illinois Vehicle Code promotes the safety of persons and property
in connection with the use, operation, and equipment of motor vehicles as defined above.
See 625 ILCS 5/1-100 et seq. Similarly, the Boat Registration and Safety Act codified the
policy of the State of Illinois to promote safety for persons and property in and connected
with the use, operation and equipment of vessels and to promote uniformity of laws
relating thereto. 625 ILCS 45/1-1. “Vessel” or “Watercraft” means every description of
watercraft used or capable of being used as a means of transportation on water . . . and
boats designed and used exclusively for such concessions. 625 ILCS 45/1-2. Given the
definitions provided in the Illinois Vehicle Code and the use of the Illinois Vehicle Code to
regulate those vehicles capable of highway travel as opposed to the Boat Registration
and Safety Act’s regulation of vessels and watercraft, the word “vehicles” as used in P.A.
101-0031 does not include boats.
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,

AKO:rkn

Alexis K. Overstreet
Associate Counsel