Does a car-sharing company's base rental charge, membership fees, and various add-on fees get taxed under the Automobile Renting Tax, the sales/use tax, or neither?

Plain-English summary

A tax practitioner wrote to the Illinois Department of Revenue on behalf of a car-sharing company that lets members rent available vehicles through a mobile app for periods ranging from minutes to days. The practitioner asked how a whole list of charges should be taxed: the base rental charge, a one-time validation (membership) fee, a "driver protection fee," various separately stated fees tied to a specific rental (like lost keys or excess cleaning), other administrative charges (declined card payments, cancellations, no-shows), and pass-through costs like tolls and parking tickets.

The Department confirmed the core rule: anyone renting automobiles in Illinois under lease terms of one year or less is subject to the Automobile Renting Occupation and Use Tax (ART) under 35 ILCS 155/1 et seq., not the general sales/use tax, at a rate of 5% of gross receipts from the rental business. It also confirmed that a plain membership fee is generally treated as an intangible and is not subject to the Retailers' Occupation Tax Act or Use Tax Act — unless the membership itself includes drive time or transfers tangible personal property, in which case the charge tied to that transfer can become taxable.

For the long list of specific add-on fees, the Department declined to give a definitive answer. As a GIL, it could only point to the general rule that charges for the use of the vehicle (tangible personal property) tend to be taxable under ART, while certain separately stated charges — such as waivers of damage claims or other charges unrelated to vehicle use — are excluded from ART's gross receipts under 86 Ill. Adm. Code 180.125(a). The Department said it could not evaluate the specific fees (driver protection fee, no-show fee, towing/parking pass-throughs, etc.) without reviewing the company's actual contracts.

What this means for you

Car-sharing and short-term rental businesses

Your base charge for letting a customer use a vehicle — regardless of whether the term is measured in minutes, hours, or days — is subject to ART, not sales tax, as long as the rental term is one year or less. Don't assume you owe both taxes on the same transaction; ART and sales/use tax are largely mutually exclusive for the rental charge itself.

Businesses charging membership or subscription fees

A pure membership fee, standing alone, is usually not taxable at all (it's an intangible under 86 Ill. Adm. Code 130.401(d)). But if the membership fee bundles in free drive time or any transfer of tangible personal property, that bundling can pull the fee into ART or sales/use tax territory. How you structure and describe the fee matters.

Accountants and tax professionals advising rental or subscription businesses

This GIL is a good illustration of the limits of the GIL process: the Department will confirm general legal principles (ART applies to rentals of a year or less; gross receipts exclude certain separately stated non-use charges) but will not bless or reject specific line-item fees without a full-fact PLR request and the underlying contracts. If your client needs certainty on a specific fee schedule, a formal Private Letter Ruling request under 2 Ill. Adm. Code 1200.110 is the better route.

Common questions

Q: Is a car-sharing company's base rental charge subject to sales tax or the Automobile Renting Tax?
A: The Automobile Renting Tax. Businesses renting automobiles in Illinois under terms of one year or less are subject to ART under 35 ILCS 155/1 et seq. at 5% of gross receipts, not the Retailers' Occupation Tax Act or Use Tax Act.

Q: Is a membership or validation fee taxable?
A: Generally no — the Department treats a membership fee as an intangible not subject to the Retailers' Occupation Tax Act or Use Tax Act under 86 Ill. Adm. Code 130.401(d), unless it comes bundled with drive time or a transfer of tangible personal property, in which case that portion can become taxable.

Q: What about fees like driver protection charges, no-show fees, cancellation fees, or towing/toll pass-throughs?
A: The Department did not decide these. It noted that charges for the use of tangible personal property are generally taxable under ART, while separately stated charges unrelated to vehicle use (such as damage-waiver charges) can be excluded from ART gross receipts under 86 Ill. Adm. Code 180.125(a) — but it said it could not apply that framework to specific fees without reviewing the actual rental contracts.

Q: Can I rely on this letter as a ruling for my own business?
A: No. This is a General Information Letter, not a Private Letter Ruling. It is not a statement of Department policy and is not binding on the Department, even for the company that requested it. Businesses wanting a binding answer on specific fees should request a PLR under 2 Ill. Adm. Code 1200.110.

Q: Does "renting" for ART purposes require a long-term lease?
A: No. The Act defines "renting" broadly as any transfer of possession or right to possession of an automobile to a user for valuable consideration for a period of one year or less (35 ILCS 155/2) — this covers rentals lasting minutes or hours, not just traditional multi-day car rentals.

Citations and references

Statutes and regulations:

• 35 ILCS 155/1 et seq. (Automobile Renting Occupation and Use Tax Act)
• 35 ILCS 155/2 (definition of "renting")
• 35 ILCS 120/1 et seq. (Retailers' Occupation Tax Act)
• 35 ILCS 105/1 et seq. (Use Tax Act)
• 86 Ill. Adm. Code 180.101 (ART regulations generally)
• 86 Ill. Adm. Code 180.120, 180.125 (gross receipts; charges excluded from ART)
• 86 Ill. Adm. Code 130.401(d) (membership fees as intangibles)
• 86 Ill. Adm. Code 140.101 (Service Occupation Tax where property is transferred incident to service)
• 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/2022.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2022/st22-0018-gil.pdf

Original ruling text

ST-22-0018-GIL 07/13/2022 AUTOMOBILE RENTING TAX
Persons who are engaged in the business of renting automobiles in Illinois under
rental terms of one year or less are subject to the Automobile Renting
Occupation and Use Tax set for at 35 ILCS 155/1 et seq. See 86 Ill. Adm. Code
180.101. (This is a GIL.)
July 13, 2022
NAME/ADDRESS
Dear Mr. XXX:
We apologize for the delay in responding to your letter of inquiry. 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:
After reaching out by e-mail to the Illinois Department of Revenue, we
were instructed by the Revenue Tax Specialist to direct our inquiry below
to your office.
Our client, COMPANY, plans on operating in CITY (COUNTY) in the near
future. They have registered with the IL Department of Revenue and have
been issued Automobile Rental Tax (#####-####) and Sales/Use Tax &
E911 Surcharge (#####-####) account IDs/licenses. After reviewing the
regulations and other information, we are looking for additional guidance
on the applicability of the Automobile Renting Occupation Tax and/or
Sales Tax on some of their services/charges.
For some general background information, COMPANY is a car-sharing
organization. Members have to [sic] opportunity to rent available vehicles
using an app on their mobile device for a period that could range from
minutes – hours – day. I have included a link to their webpage if you need
more information below.

COMPANY/NAME
Page 2
July 13, 2022
ADDRESS
We understand that their base rental charge is subject ONLY to the
Automobile Renting Tax (not Sales Tax). We have included the types of
charges that are incurred by members that we would like guidance on the
applicability of either the Automobile Renting Tax or Sales Tax. Our
questions/requests are indicated in BOLD.

1. Validation fee – this is a fee incurred when a user initially joins
   COMPANY as a member.
   a. No drive time included. Our presumption is this fee is
   NOT subject to the Automobile Rental Tax under Title 86
   Part 180 Section 180.125(5) and it is NOT subject to
   Sales Tax under Title 86 Part 130 Section 130.401(d).
   b. Drive time included. There are times that a pre-determined
   amount of free rental time (drive time) is included with a
   validation fee. Our presumption is that the Automobile
   Rental Tax would apply to this fee using the logic of the
   Title 86 Part 130 Section 130.301(d). However, since the
   service being provided IS subject to the Automobile
   Rental Tax, only that tax would apply and Sales Tax
   would NOT be collected.
2. Driver Protection Fee – Charged per trip and is $x per trip, but
   only for y number of times during the course of a calendar year.
   Resets annually. This is essentially a fee related to the
   deductible in case of an accident.
   Our presumption is this fee is NOT subject to the
   Automobile Rental Tax under Title 86 Part 180 Section
   180.125(2). Please confirm.
3. Separately stated charges directly related to a rental. There
   about ##+ charges related to a rental that are an added fee to
   the base drive time rental charge depending on the nature of the
   circumstances leading to the fee (e.g. – lost key, excess
   cleaning, unauthorized parking, etc.)
   It is our presumption based on our interpretation of the
   regulations that these types of charges are subject to the
   Automobile Rental Tax. They are all related to the use of
   tangible personal property and are not specifically
   excluded in Title 86 Part 180 Section 180.125. Please

COMPANY/NAME
Page 3
July 13, 2022
advise is [sic] any of the above charges are exempt from
the Automobile Rental Tax and/or would be subject to Sales
Tax in lieu of the Automobile Rental Tax.

4. Other Charges:
   a. Declined Credit Card Payment – Penalty fee incurred by
   member when credit card transaction is declined. This is
   separate from original transaction that still needs to be
   completed.
   b. Cancellation – Administrative fee to cancel a vehicle
   reservation.
   c. No Show – Penalty fee that is incurred when member does
   not use a reservation they have initiated.
   It is our presumption that these charges are NOT subject to
   the Automobile Rental Tax as they are not for the use of
   tangible personal property as provided in Title 86 Part 180
   Section 180.125(5).
   Do these item [sic] fall under the meaning of Gross
   Receipts of Title 86 Part 130 Section 130.401 and therefore
   subject to Sales Tax?
5. Direct Pass-through charges:
   a. Towing Costs;
   b. Parking tickets;
   c. Tolls.
   It is our presumption that the reimbursement of actual
   costs incurred would not be subject to the [sic] either the
   Automobile Rental Tax or Sales Tax.
   Thanks in advance for your reply. We look forward to a response in order
   to comply appropriately. Please let me know if you need any additional
   information.
   DEPARTMENT’S RESPONSE:
   Please note that the Department cannot give a definitive ruling to your specific
   questions in the context of a General Information Letter.
   The Illinois Retailers' Occupation Tax Act, 35 ILCS 120/1 et seq., and the Use
   Tax Act, 35 ILCS 105/1 et seq., apply to the retail sale of tangible personal property.
   Generally, the Department does not consider receipts from the sale of membership fees
   to be gross receipts from the sale of tangible personal property. Rather, a membership

COMPANY/NAME
Page 4
July 13, 2022
fee is considered an intangible, which is not subject to the Retailers' Occupation Tax Act
or the Use Tax Act. 86 Ill. Adm. Code 130.401(d). This is the case when the sale of
membership rights does not include the transfer of tangible personal property.
However, if the membership charge entitles the customer to receive an item of tangible
personal property or to receive a service and tangible personal property is transferred
incident to that service, then that charge may result in either Retailers’ Occupation Tax
liability, Service Occupation Tax liability or Use Tax liability, depending upon the
serviceman’s activities. See 86 Ill. Adm. Code 140.101.
Persons who are engaged in the business of renting automobiles in Illinois under
rental terms of one year or less are subject to the Automobile Renting Occupation and
Use Tax (ART). 35 ILCS 155/1 et seq. See also 86 Ill. Adm. Code 180.101. This tax is
imposed at the rate of 5% of the gross receipts from such business. “Gross receipts”
from the renting of tangible personal property or “rent,” means all consideration received
by a rentor as the rental price for the rental of automobiles under lease terms of one
year or less. See 86 Ill. Adm. Code 180.120 and 180.125. The Act defines “renting” as
“any transfer of the possession or right to possession of an automobile to a user for a
valuable consideration for a period of one year or less.” 35 ILCS 155/2. Certain
charges, though, are not subject to tax and are listed in Section 180.125 of the
Department’s regulations. Gross receipts on which ART must be computed do not
include certain separately stated charges added to rentees’ billings, such as receipts
from rentees in consideration of waivers of claims for loss or damage to automobiles
rented or receipts from any other separately stated charges which are not for the use of
the tangible personal property. See 86 Ill. Adm. Code 180.125(a).
It appears many of the items in your letter involve charges for the use of the
vehicle or tangible personal property used by a rentee in connection with the rental of a
vehicle and are taxable under ART. However, without reviewing the contracts, we
cannot provide you guidance concerning the specific costs associated with the other
fees and charges you may assess for the vehicle rental.
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,

Thomas Grudichak
Associate Counsel