How does Illinois tax motor vehicle sales with respect to trade-in credits, private-party (non-retail) sales, and sales to nonresidents from states without a reciprocal tax exemption?

Plain-English summary

This letter is Illinois's response to another state revenue department that maintains a multistate reference publication on motor-vehicle taxation and, each year, asks Illinois to confirm or update its entry. The requesting agency's letter (quoted in the ruling with its own template placeholders such as STATE, DEPARTMENT, and PRODUCT, since the same form letter goes out to many states) asked Illinois to review and update information about (1) vehicles sold in the requester's state to Illinois residents and licensed in Illinois, and (2) vehicles sold in Illinois to residents of the requester's state. Illinois declined to approve any outside publication, but restated its own current rules on three points:

1. Trade-in credits. When a dealer sells a motor vehicle subject to Retailers' Occupation Tax, the value of a like-kind trade-in reduces the taxable selling price under 86 Ill. Adm. Code 130.425. A $10,000 cap on this trade-in deduction, added by P.A. 101-31, applied only from January 1, 2020 through December 31, 2021; P.A. 102-353 removed that cap entirely for sales on or after January 1, 2022, so there is currently no dollar limit on the trade-in credit. No trade-in credit is allowed, however, if the vehicle is sold for the purpose of a simultaneous long-term (over one year) lease under the "selling price" definition in P.A. 98-628, or if the sale is a private-party (non-retail) transaction taxed under 625 ILCS 5/3-1001 et seq.
2. Private Party Vehicle Use Tax. Private-party, non-retail motor vehicle sales ("occasional or isolated sales") are not subject to Retailers' Occupation Tax at all; instead they're subject to the separate Private Party Vehicle Use Tax under 625 ILCS 5/3-1001 et seq. P.A. 102-353 modified this tax's rates effective January 1, 2022.
3. Reciprocal exemption for nonresident buyers. A motor vehicle sold in Illinois to a nonresident is normally exempt from Retailers' Occupation Tax under 35 ILCS 120/2-5(25) if it won't be titled in Illinois. But 35 ILCS 120/2-5(25-5) strips that exemption away if the buyer's home state does not offer a reciprocal exemption to Illinois residents buying vehicles there. In that case, Illinois instead taxes the sale at the buyer's home state's own tax rate, capped at Illinois's 6.25% Retailers' Occupation Tax rate. Illinois Publication ST-58 (the Reciprocal – Non-Reciprocal Vehicle Tax Rate Chart) is where Illinois tracks which states are reciprocal and what rate applies to each non-reciprocal state; the letter's redacted "%%%" figure is where that specific state's rate would have appeared.

What this means for you

Motor vehicle dealers in Illinois

When you take a trade-in on a retail vehicle sale, you can deduct its full value (no cap) from the taxable selling price under current law, as long as the trade-in is of like kind and character to the vehicle sold. That trade-in credit disappears if the sale is really a simultaneous long-term lease (over one year) structured under the P.A. 98-628 selling-price rules, and it never applies to private-party sales, which fall outside Retailers' Occupation Tax altogether.

Private-party buyers and sellers

If you buy or sell a vehicle directly between individuals rather than through a licensed dealer, the transaction is not subject to Illinois Retailers' Occupation Tax or its trade-in rules. It is instead subject to the Private Party Vehicle Use Tax under 625 ILCS 5/3-1001 et seq., whose rate schedule was updated by P.A. 102-353 for sales on or after January 1, 2022.

Dealers selling to out-of-state (nonresident) buyers

A sale to a nonresident who will title the vehicle elsewhere can be exempt from Illinois tax, but only if that buyer's home state gives Illinois residents the same courtesy. If it doesn't, you must charge Illinois Retailers' Occupation Tax at the nonresident's home-state rate instead (never more than Illinois's own 6.25% rate). Check Illinois Publication ST-58 for the current reciprocal/non-reciprocal status and rate for the buyer's state before assuming the sale is exempt.

Multistate tax administrators and researchers

This GIL illustrates how Illinois responds to other states' periodic surveys used to compile multistate vehicle-tax reference charts: Illinois will not "approve" another state's publication, but will restate its own current statutory and regulatory rules for that state to use. The letter itself contains unfilled template placeholders (STATE, DEPARTMENT, PRODUCT, %%%) because it is a form response sent to many requesting states, not a ruling about one taxpayer's facts.

Common questions

Q: Is there still a cap on the trade-in credit for buying a new vehicle in Illinois?
A: No. A $10,000 cap applied only to sales between January 1, 2020 and December 31, 2021 under P.A. 101-31. P.A. 102-353 removed that cap for sales on or after January 1, 2022, so the full value of a like-kind trade-in can now be deducted from the taxable selling price.

Q: Can I get a trade-in credit if I'm leasing my next vehicle long-term instead of buying it outright?
A: Not if the vehicle is sold for the purpose of a simultaneous lease longer than one year and the transaction qualifies for the "selling price" definition under P.A. 98-628 — in that case, no trade-in credit is allowed.

Q: What tax applies if I sell my car directly to another individual rather than through a dealer?
A: That's a private-party (non-retail) sale, taxed under the Private Party Vehicle Use Tax (625 ILCS 5/3-1001 et seq.) rather than Retailers' Occupation Tax, and no trade-in credit applies to it. P.A. 102-353 updated this tax's rates effective January 1, 2022.

Q: If I'm a nonresident buying a car in Illinois to take home, will I owe Illinois sales tax?
A: It depends on whether your home state gives Illinois residents a reciprocal exemption for vehicles they buy there. If your state does, the Illinois sale is exempt under 35 ILCS 120/2-5(25). If your state does not offer that reciprocity, 35 ILCS 120/2-5(25-5) requires Illinois to instead tax the sale at your home state's own rate, capped at Illinois's 6.25% rate. Check Illinois Publication ST-58 for the current chart.

Q: Why does this letter have blanks like "STATE," "DEPARTMENT," and "%%%" in it?
A: This GIL is Illinois's boilerplate response to an annual survey sent out by another state's tax department to maintain a multistate motor-vehicle tax reference publication. The version released publicly has the requesting state's identifying details and rate redacted/templated because the same reply format is used for many different states.

Citations and references

Statutes:

• 35 ILCS 120/2-10 (Retailers' Occupation Tax measured by gross receipts)
• 35 ILCS 120/1 (definitions of "gross receipts" and "selling price")
• 35 ILCS 105/2 (Use Tax Act "selling price" definition and trade-in exclusion)
• 35 ILCS 105/3-10 (Use Tax imposed on selling price)
• 625 ILCS 5/3-1001 et seq. (Private Party Vehicle Use Tax on non-retail vehicle sales)
• 35 ILCS 120/2-5(25) (exemption for vehicles sold to nonresidents)
• 35 ILCS 120/2-5(25-5) (limits the nonresident exemption to reciprocal states; sets the substitute tax rate)

Regulations:

• 86 Ill. Adm. Code 130.425 (trade-in allowance for motor vehicle sales)
• 86 Ill. Adm. Code 151.101 et seq. (occasional/isolated sales, Use Tax)

Public Acts:

• P.A. 101-31 ($10,000 trade-in credit cap, in effect Jan. 1, 2020 - Dec. 31, 2021)
• P.A. 102-353 (removed the trade-in cap effective Jan. 1, 2022; modified Private Party Vehicle Use Tax rates)
• P.A. 98-628 ("selling price" definition for vehicles sold for simultaneous long-term lease)

Department publications:

• Illinois Publication ST-58, Reciprocal – Non-Reciprocal Vehicle Tax Rate Chart

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/st22-0021-gil.pdf

Original ruling text

ST-22-0021-GIL 10/04/2022 MOTOR VEHICLES
This letter responds to a survey concerning taxation of vehicles. (This is a GIL. )
October 4, 2022

NAME/ADDRESS
Dear Mr. XXX:
This letter is in response to your letter dated September 30, 2022, 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 DEPARTMENT publishes information regarding the
taxability of the sale or transfer of motor vehicles that are:
•
•

sold in STATE to residents of another state and licensed in the
purchaser’s home state; and
purchased in another state and brought into STATE to be licensed
in 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. To
ensure our Department continues to use and distribute accurate
information, we are requesting that your agency review the specific
information related to your state and let us know of any changes in writing
that occurred in the past year or will occur for 2023.
A copy of our publication, PRODUCT, is attached for your convenience.
This request is for the state of (state name) and has been sent to (name
or names) as the designated contact(s) regarding sales and use tax
imposed on PRODUCT. If a contact needs to be updated, added, or

DEPARTMENT/ NAME
Page 2
October 4, 2022
removed for your state, please include the new contact information in your
response.
If you have any questions, please let me know and I will refer them to our
sales tax coordinator for response.
Please reply to this email with any updates and/or comments by
November 1, 2022. Thank you for your assistance.
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. 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.
Trade-in Credits
Retailers' Occupation Tax is measured by gross receipts from the sale of tangible
personal property to end-users. See 35 ILCS 120/2-10. “Gross receipts” is defined as
“the total selling price or the amount of such sales.” See 35 ILCS 120/1. Use Tax is
imposed on “the selling price . . . of the tangible personal property.” See 35 ILCS 105/310. The Retailers’ Occupation Tax Act and Use Tax Act defines “selling price” or the
“amount of sale,” in relevant part, as “the consideration for a sale valued in money
whether received in money or otherwise, including cash, credits, property, other than as
hereinafter provided, and services, but prior to January 1, 2020 and beginning again on
January 1, 2022, not including the value of or credit given for traded-in tangible personal
property where the item that is traded-in is of like kind and character as that which is
being sold . . . .” See 35 ILCS 105/2 and 35 ILCS 120/1, emphasis added. We note,
that for sales that occur on or after January 1, 2022, Public Act 102-353, removed the
$10,000 cap on the deduction that may be taken for trade-ins when calculating tax that
was added by Public Act 101-31 and was in effect from January 1, 2020 through
December 31, 2021.

DEPARTMENT/ NAME
Page 3
October 4, 2022
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, then no trade-in credit is allowed. For a sale of a
motor vehicle between private parties that is 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.
Private Party Sales (Non-Retail Sales)
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. We note that effective January 1, 2022, Public
Act 102-353 modified the Private Vehicle Use Tax rates (please see the included Chart
for 2022).
Sale of Vehicle to Resident of Non-Reciprocal State
Item (25) of Section 2-5 of the Retailers’ Occupation Tax Act provides an
exemption from the tax for “. . . a motor vehicle sold in this State to a nonresident even
though the motor vehicle is delivered to the nonresident in this State, if the motor
vehicle is not to be titled in this State, and if a drive-away permit is issued to the motor
vehicle as provided in Section 3-603 of the Illinois Vehicle Code or if the nonresident
purchaser has vehicle registration plates to transfer to the motor vehicle upon returning
to his or her home state.” (35 ILCS 120/2-5(25)).
Item (25-5) of Section 2-5 of the Retailers’ Occupation Tax Act provides in part
that “[t]he exemption under item (25) does not apply if the state in which the motor
vehicle will be titled does not allow a reciprocal exemption for a motor vehicle sold and
delivered in that state to an Illinois resident but titled in Illinois.” (35 ILCS 120/2-5(25-5))
Publication ST-58, Reciprocal – Non-Reciprocal Vehicle Tax Rate Chart indicates that
STATE is a non-reciprocal state for purposes of item (25-5). Item (25-5) goes on to
provide that “[t]he tax collected under this Act on the sale of a motor vehicle in this State
to a resident of another state that does not allow a reciprocal exemption shall be
imposed at a rate equal to the state's rate of tax on taxable property in the state in which
the purchaser is a resident, except that the tax shall not exceed the tax that would
otherwise be imposed under this Act.” The State sales tax rate in STATE is %%%,
which is less than the 6.25% rate under the Retailers’ Occupation Tax Act. Therefore,
sales of motor vehicles to residents of STATE who take delivery in Illinois are subject to
Illinois Retailers’ Occupation Tax at the rate of %%%.

DEPARTMENT/ NAME
Page 4
October 4, 2022
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,

Kimberly Rossini
Associate Counsel
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