Is a watercraft purchase from a licensed Illinois dealer exempt from Illinois sales tax if the watercraft itself is exempt from state titling and registration?

Plain-English summary

A taxpayer asked the Illinois Department of Revenue whether buying a watercraft from a licensed Illinois dealer would be exempt from sales tax. The taxpayer's theory was that because the watercraft would not be used in Illinois for more than 30 days a year and would be registered with the U.S. Coast Guard, it was exempt from Illinois's titling/registration requirements under 625 ILCS 45/3-12 -- and since it did not have to be titled or registered by a state agency, the taxpayer reasoned it should also be exempt from state sales tax.

The Department disagreed. It explained that Illinois actually has two different taxes that can apply to watercraft:

• The Watercraft Use Tax (86 Ill. Adm. Code 153.105) applies only when a watercraft is acquired by gift, transfer, or non-retail purchase. The titling/registration exemption the taxpayer relied on is relevant to this tax.
• The Retailers' Occupation Tax and Use Tax ("sales tax") apply whenever a watercraft (or any tangible personal property) is bought at retail from a retailer. See 86 Ill. Adm. Code 130.101 and 150.101.

Because the taxpayer was buying the watercraft at retail from a licensed dealer (reported on Form ST-556), it fell into the second category. The titling/registration exemption under the Boat Registration and Safety Act has no bearing on Retailers' Occupation Tax/Use Tax liability. The Department also noted that if the purchaser takes delivery in Illinois, the sale is taxable even if the item is immediately removed from the state (86 Ill. Adm. Code 130.605(a)).

What this means for you

Individuals buying a boat, vehicle, or other titled/registered item

Don't assume that an exemption from Illinois's titling or registration rules (like the watercraft numbering exemption in 625 ILCS 45/3-12) also exempts you from sales tax. Those are separate legal questions. If you buy the item at retail from a dealer and take delivery in Illinois, Retailers' Occupation Tax/Use Tax applies even if you plan to register the item elsewhere (e.g., with the U.S. Coast Guard) or use it outside Illinois most of the year.

Watercraft, vehicle, aircraft, and trailer dealers

Titled or registered items sold by Illinois retailers must be reported using Form ST-556 (or ST-556-LSE for leases, or ST-556-D for bulk resale transactions), with tax filed and paid within 20 days of delivery. This applies to retail sales regardless of whether the buyer's item will ultimately be exempt from state titling/registration.

Accountants and tax professionals

The key distinction in this ruling is "retail purchase" vs. "gift, transfer, or non-retail purchase." Only the latter triggers the Watercraft Use Tax under 86 Ill. Adm. Code 153.105, where the 625 ILCS 45/3-12 numbering exemption might be relevant. A retail sale is taxed under the ordinary Retailers' Occupation Tax/Use Tax framework (86 Ill. Adm. Code 130.101, 150.101) instead, and delivery location in Illinois is generally what triggers taxability under 86 Ill. Adm. Code 130.605(a).

Common questions

Q: If my watercraft doesn't need to be titled or registered in Illinois, is the purchase sales-tax exempt?
A: No. The titling/registration exemption under 625 ILCS 45/3-12 is separate from sales tax. A retail purchase of a watercraft from an Illinois dealer is still subject to Retailers' Occupation Tax/Use Tax.

Q: When does the Watercraft Use Tax apply instead of sales tax?
A: The Watercraft Use Tax applies only to watercraft acquired by gift, transfer, or non-retail purchase -- not to ordinary retail sales from a dealer.

Q: Does it matter that I'll register the boat with the U.S. Coast Guard and use it in Illinois less than 30 days a year?
A: Not for sales tax purposes. Those facts go to the titling/registration exemption, which does not affect whether Retailers' Occupation Tax/Use Tax applies to the retail purchase.

Q: What form does the dealer use to report the sale?
A: Titled/registered items such as watercraft are reported by Illinois retailers on Form ST-556 (Sales Tax Transaction Return), due within 20 days of delivery.

Q: Is this letter binding on the Department?
A: No. It is a General Information Letter (GIL), which merely directs the taxpayer to relevant regulations and is not a statement of Department policy or binding on the Department. Binding guidance for a specific taxpayer requires a Private Letter Ruling (PLR) under 2 Ill. Adm. Code 1200.110.

Citations and references

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax on retail sales of tangible personal property)
• 86 Ill. Adm. Code 150.101 (Use Tax on tangible personal property purchased at retail)
• 86 Ill. Adm. Code 130.605(a) (sale taxable if delivery taken in Illinois, even if item is removed immediately)
• 86 Ill. Adm. Code 153.105 (Watercraft Use Tax applies to gift, transfer, or non-retail acquisitions)
• 625 ILCS 45/3-12 (exemption from Illinois watercraft numbering/registration requirements)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures)
• 2 Ill. Adm. Code 1200.120 (General Information Letters not binding on the Department)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2022.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2022/st22-0015-gil.pdf

Original ruling text

ST-22-0015-GIL 07/06/2022 SALE AT RETAIL
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. 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 130.101 and 86 Ill. Adm. Code
150.101. (This is a GIL.)
July 6, 2022
NAME/ADDRESS
Dear Mr. XXX:
This letter is in response to your E-Mail dated September 27, 2021, 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 requesting a private letter ruling (PLR) for myself, an
individual whom is a resident and tax payer within the State of Illinois, in
regards to a concern dealing with sales tax on the purchase of a
watercraft by a licensed dealer within the State of Illinois.
I affirm that I am not currently under any audit with the department nor is
there any pending litigation regarding this matter.
Specifically, the details of the tax matter at hand are as follows:
•
•
•

On September ##, 20## I completed paperwork to purchase a
PRODUCT within the State of Illinois from a registered dealer
The dealer informed me that the purchase would be subject to the
State’s Sales Tax and filed on form ST 556
The State of Illinois law states the following regarding watercraft:

NAME
Page 2
July 6, 2022

°

°

Titled or registered items – Illinois retailers selling items that are of
the type that must be titled or registered by an agency of Illinois
state government (i.e., vehicles, watercraft, aircraft, trailers, and
mobile homes) must register with the Department to report these
sales using Form ST 556, Sales Tax Transaction Return. Illinois
retailers that sell such items for lease must report these sales for
lease using Form ST 556-LSE, Transaction Return for Leases.
Forms ST-556 and ST-556-LSE must be filed and taxes paid within
20 days of the date of delivery. Persons who are in the business of
leasing or renting motor vehicles, watercraft, aircraft, or trailers that
are required to be registered with an agency of Illinois state
government and who, in connection with such business, sell any
such item to a retailer for the purpose of resale can bulk file these
transactions using form ST-556-D.
Title 86 Chapter I Part 153 specifically deals with watercraft use tax
(https://www2.illinois.gov/rev/research/legalinformation/regs/Docum
ents/part 153/153-115.pdf). This act specifically states that “The
tax imposed by the watercraft use tax does not apply if. . .” section
D “the watercraft is exempted from the numbering provisions of
section 3-12 of the boat registration and safety act (625 ILCS 45/312) . . . so long as the watercraft is not used upon the waters of this
state for over 30 days in a calendar year”.
625 ILCS 45/3-12
(https://www.ilga.gov/legislation/ilcs/ilcs4.asp?DocName=06250045
0HArt%2E+Ill&ActID=1826&ChapterID=49&SeqStart=1300000&Se
qEnd=2800000) states that the watercraft is exempt from state
numbering so long as it is not used in this state for a period of more
than 60 days in a calendar year AND it is registered with the US
Coast Guard.

I do not and will not utilize the watercraft in question within the State of
Illinois for more than 30 days in a calendar year and I do intend to register
the watercraft upon delivery with the US Coast Guard. The watercraft is
exempt by law from being titled or registered within the State of Illinois,
and as such, since it is not of the type that must be titled or registered by a
state agency, should be exempt from any state sales tax.
Should you have any additional questions regarding this matter please
feel free to contact me at the address on this letter. I appreciate your time
and look forward to your review of this matter.
DEPARTMENT’S RESPONSE:

NAME
Page 3
July 6, 2022
The Watercraft Use Tax is a privilege tax imposed on the privilege of using, in
this State, watercraft acquired by gift, transfer, or non-retail purchase. See 86 Ill. Adm.
Code 153.105. Watercraft acquired through a retail transaction is not subject to the
Watercraft Use Tax and is instead subject to Retailers’ Occupation Tax and Use Tax.
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 the 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 their
Retailers' Occupation Tax liability incurred on those sales. Please note that where the
purchaser takes delivery in Illinois, the sale is taxable even if the purchaser will
immediately remove the item from Illinois. See 86 Ill. Adm. Code 130.605(a).
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