Does a company that sells motor vehicles only for resale (never at retail) have to file transaction reporting returns and risk the $100 Uniform Penalty and Interest Act penalty for not filing them?

Plain-English summary

The Illinois Department of Revenue ruled that a motor-vehicle rental company (referred to as COMPANY1) does not owe the $100 Uniform Penalty and Interest Act penalty for failing to file transaction reporting returns (Form ST-556 or ST-556-LSE) when it sells vehicles to an affiliated dealership.

Illinois law imposes a $100 penalty under 35 ILCS 735/3-3(a-15) when a "retailer" fails to file a transaction reporting return required by 35 ILCS 120/3 for a sale of titled/registered property (like a motor vehicle) that generates no tax due. But that penalty only applies to a "retailer selling this kind of tangible personal property" -- meaning someone registered with the Department as a retailer of titled and registered property who makes retail sales of it.

COMPANY1 only sells vehicles for resale to a related dealership (never directly to the public), is not registered with the Department as a retailer, and administers a separate tax (the Automobile Renting Occupation and Use Tax) on its rental business instead. Citing Dearborn Wholesale Grocers, Inc. v. Whitler, 82 Ill.2d 471 (1980), the Department confirmed that a company selling titled/registered property exclusively for resale is not a "retailer" required to file transaction reporting returns at all -- so there is no filing obligation to fail, and no $100 penalty applies.

What this means for you

Motor vehicle dealers and affiliated rental/leasing companies

If your company sells vehicles only for resale (for example, an affiliated rental fleet selling used vehicles back to a dealership) and never makes retail sales of titled/registered property, you are not a "retailer" for purposes of the transaction reporting return requirement, and the $100 non-filing penalty under 35 ILCS 735/3-3(a-15) should not apply to those wholesale sales.

Businesses that sell both retail and wholesale

The ruling warns that the moment a company makes any retail sale of titled/registered property, it becomes a retailer required to report all of its sales of that property on transaction reporting returns -- including sales for resale. Mixing even occasional retail sales into an otherwise wholesale-only vehicle business can trigger the filing requirement (and the $100 penalty exposure) for every sale.

Accountants and tax professionals

The ruling turns on the statutory phrase "retailer selling this kind of tangible personal property" in 35 ILCS 120/3, which the Department reads to require actual retail sales activity and Department registration as a retailer of titled/registered property -- not merely selling such property in any capacity. This tracks the Department's earlier GIL ST-17-0001, referenced in the taxpayer's request, and the Dearborn Wholesale Grocers precedent.

Common questions

Q: Does the $100 penalty under the Uniform Penalty and Interest Act apply to every unfiled zero-liability sale of a motor vehicle?
A: No. It applies only when the seller is a "retailer selling this kind of tangible personal property" under 35 ILCS 120/3 -- i.e., a company registered with the Department as a retailer of titled/registered property that also makes retail sales of it. A company that sells such property exclusively for resale is not a "retailer" for this purpose and has no return to file.

Q: What forms does this penalty relate to?
A: Form ST-556 (Sales Tax Transaction Return) and Form ST-556-LSE (Transaction Return for Leases), the transaction reporting returns required under 35 ILCS 120/3 for sales of titled/registered property such as motor vehicles.

Q: Why wasn't COMPANY1 considered a "retailer" here?
A: It was not registered with the Department as a retailer of titled/registered property, and it made no retail sales of motor vehicles -- all its vehicle sales were wholesale sales for resale to an affiliated dealership. Under Dearborn Wholesale Grocers, Inc. v. Whitler, 82 Ill.2d 471 (1980), a seller of titled/registered property exclusively for resale is not a "retailer" required to file transaction reporting returns.

Q: Would the answer change if COMPANY1 also made retail sales of vehicles?
A: Yes. The Department was clear that if a company makes any retail sales of titled and registered property in Illinois, all of its sales of that property -- including sales for resale -- must be reported on transaction reporting returns, and failing to do so can trigger the $100 penalty.

Q: Can another taxpayer rely on this ruling?
A: No. This is a Private Letter Ruling, binding on the Department only as to COMPANY1 and only to the extent the facts it provided were complete and accurate. Other taxpayers with similar facts should request their own ruling or consult a licensed Illinois tax professional.

Citations and references

• 35 ILCS 735/3-3(a-15) (Uniform Penalty and Interest Act -- $100 penalty for failure to file a zero-liability transaction reporting return)
• 35 ILCS 120/3 (Retailers' Occupation Tax Act -- transaction reporting return requirement for sales of titled/registered property)
• 35 ILCS 105/9 (Use Tax Act -- transaction reporting return requirement)
• 35 ILCS 120/2-5(5) (Retailers' Occupation Tax Act -- exemption for vehicles purchased for rental use)
• 35 ILCS 155/1 et seq. (Automobile Renting Occupation and Use Tax Act)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• Dearborn Wholesale Grocers, Inc. v. Whitler, 82 Ill.2d 471 (1980)
• Illinois GIL ST-17-0001 (referenced by the taxpayer as a comparable prior information letter)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2023.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2023/st23-0005-plr.pdf

Original ruling text

ST-23-0005-PLR 08/02/2023 PENALTIES
This letter discusses application of the $100 Uniform Penalty and Interest Act
penalty for failure to file zero liability transaction reporting returns (e.g., ST-556
and ST-556-LSE). See 35 ILCS 735/3-3(a-15) and 35 ILCS 120/3. (This is a
PLR.)
August 2, 2023

NAME
TAXPAYER REPRESENTATIVE
ADDRESS
Dear NAME:
This letter is in response to your letter dated April 4, 2023, 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.
Review of your request disclosed that all the information described in paragraphs
1 through 8 of Section 1200.110 appears to be contained in your request. This Private
Letter Ruling will bind the Department only with respect to COMPANY1, for the issue or
issues presented in this ruling, and is subject to the provisions of subsection (e) of
Section 1200.110 governing expiration of Private Letter Rulings. Issuance of this ruling
is conditioned upon the understanding that neither COMPANY1, nor a related taxpayer
is currently under audit or involved in litigation concerning the issues that are the subject
of this ruling request. In your letter you have stated and made inquiry as follows:
As counsel for and on behalf of COMPANY1 (hereinafter referred to as the
"Company" and/or "COMPANY1"), and pursuant to Ill. Admin. Code tit. 2,
§ 1200.110, I am respectfully requesting a private letter ruling regarding
the applicability of a $100 non-filing penalty for failure to file a transaction
reporting return under Section 735/3-3(a-15) of the Uniform Penalty and
Interest Act ("UPIA"). Please find below the information necessary for the
Department of Revenue ("Department") to issue a ruling regarding this
issue.

TAXPAYER REPRESENTATIVE/ NAME
PAGE 2
August 2, 2023
Neither the Company nor any related taxpayer is currently under audit by
the Department regarding this issue, nor is this issue pending in litigation
in which the Company or any related taxpayer is a named party. To the
best of our knowledge, this issue has not been adequately addressed by
Illinois case law or the Department's regulations. Furthermore, to the best
of our knowledge, the Department has not previously ruled on this issue or
a similar issue for the Company or a predecessor, nor has this issue or a
similar issue been previously submitted to the Department and withdrawn
before a letter ruling was issued.
The tax periods at issue are MONTH YEAR through present.
I.

Statement of Facts

COMPANY1 d/b/a COMPANY2 (the "Dealership") is an automobile
dealership that maintains its principal office in CITY, Illinois, that sells
PRODUCT vehicles to retail purchasers. In addition to motor vehicle
sales, the Dealership offers maintenance and repair services to
customers.
When a customer has their vehicle serviced by the Dealership, the
customer has the ability to rent a motor vehicle from COMPANY1. Motor
vehicles that are rented by COMPANY1 are always for periods of one year
or less, in accordance with the Automobile Renting Occupation and Use
Tax Act ("AROT"), 35 ILCS 155/1 et seq.
COMPANY1 purchases motor vehicles from the Dealership. COMPANY1
does not pay Illinois sales tax when it purchases motor vehicles because it
claims Illinois' "sold for rental use" exemption. See 35 ILCS 120/2-5(5)
(Illinois exempts motor vehicles purchased for automobile renting, as
defined in the AROT).
COMPANY1 is registered for and administers Illinois' AROT. COMPANY1
is not registered with the Department as a retailer.
If the Dealership has a customer who desires to purchase a motor vehicle
that is not in the Dealership's inventory, but COMPANY1 owns that vehicle
type, the Dealership may purchase the motor vehicle from COMPANY1.
The sale transaction from COMPANY1 to the Dealership would be a tax
exempt purchase for resale by the Dealership.
COMPANY1'S policies and procedures are to sell motor vehicles only to a
person, such as the Dealership, who can properly claim "resale" on its
purchase. Because all of COMPANY1'S sales are wholesale sales,

TAXPAYER REPRESENTATIVE/ NAME
PAGE 3
August 2, 2023
COMPANY1 does not prepare and file a transaction reporting return when
it sells a motor vehicle to the Dealership.
II.

Ruling Requested

Company hereby requests a ruling from the Department stating that the
Company is not liable for the failure-to-file penalty imposed by 35 ILCS
735/3-3(a-15) if COMPANY1 does not file a transaction reporting return
when it sells a motor vehicle to the Dealership, provided that COMPANY1
does not make any retail sales of motor vehicles.
III.

Relevant Authorities

The Uniform Penalty and Interest Act, as amended by P.A. 98-425
(effective August 16, 2013), imposed a $100 penalty for failure to file a
transaction reporting return on or before the due date as required by
Section 3 of the Retailers' Occupation Tax Act ("ROT") (35 ILCS 120/3)
and Section 9 of the Use Tax Act ("UT") (35 ILCS 105/9). This penalty
was imposed regardless of whether the return reported any tax due. P.A.
99-335 (effective August 10, 2015) amended the provisions of P.A. 98-425
to impose the $100 penalty for failure to file a transaction reporting return
on or before the due date as required by Section 3 of the ROT Act and
Section 9 of the UT Act only if there is no tax due. 35 ILCS 735/3-3(a-15).
After amendment by P.A. 99-335, the provision reads:
"A penalty of $100 shall be imposed for failure to file a
transaction reporting return required by Section 3 of the
Retailers' Occupation Tax Act and Section 9 of the Use Tax
Act on or before the date a return is required to be filed;
provided, however, that this penalty shall be imposed only if
the return when properly prepared and filed would not result
in the imposition of a tax. If such a transaction reporting
return would result in the imposition of a tax when properly
prepared and filed, then that return is subject to the
provisions of subsection (a-10)."
This provision requires the Department to impose this $100 penalty for
each instance in which a retailer makes a sale for which no tax is due but
fails to properly report that sale to the Department using Form ST-556,
Sales Tax Transaction Return or Form ST-556-LSE, Transaction Return
for Leases (with regard to sales for lease).
The Uniform Penalty and Interest Act's $100 penalty provision is triggered
by a failure to file a transaction reporting return "required by Section 3 of
the Retailers' Occupation Tax Act." Section 3 of the ROT Act provides

TAXPAYER REPRESENTATIVE/ NAME
PAGE 4
August 2, 2023
that " ... with respect to motor vehicles ... that are required to be registered
with an agency of this State, every retailer selling this kind of tangible
personal property shall file, with the Department, upon a form to be
prescribed and supplied by the Department, a separate return for each
such item of tangible personal property which the retailer sells…" 35 ILCS
120/3 (emphasis added).
A person who sells only titled and registered property exclusively for
resale is not considered to be a "retailer" required to report and pay tax
using transaction reporting returns. See, Dearborn Wholesale Grocers,
Inc. v. Whitler, 82 Ill.2d 471 (1980). Further, if a person sells merchandise
at retail other than titled and registered property (e.g., a person required to
file Form ST-1, Sales and Use Tax and E911 Surcharge Returns), and
such person also sells titled and registered property exclusively for resale,
then that person would not be a "retailer selling this kind of tangible
personal property" (i.e., a retailer of motor vehicles that are required to be
registered with an agency of the State) and, accordingly, would not be
required to report and pay tax using transaction reporting returns.
Accordingly, if a company sells motor vehicles exclusively for resale and
not at retail and it sells no other tangible personal property, then the sales
of motor vehicles for resale are not required to be reported on transaction
reporting returns and, as such, no penalty is imposed under the UPIA for
failure to file transaction reporting returns. Further, if a company sells
merchandise at retail other than titled and registered property (i.e., a
company that is registered to file, and does file, Form ST-1, Sales and
Use Tax and E911 Surcharge Returns), and also sells titled and registered
property exclusively for resale (i.e., no retail sales of titled and registered
property), then the sales of motor vehicles for resale are not required to be
reported on transaction reporting returns and, as such, no penalty is
imposed under the UPIA for failure to file transaction reporting returns.
IV.

Analysis

For purposes of the $100 penalty for failure to file zero liability transaction
reporting returns, COMPANY1 maintains, and we concur, that
COMPANY1 is not a "retailer selling this kind of tangible personal
property" (i.e., motor vehicles ... that are required to be registered with an
agency of this State) because it is not registered with the Illinois
Department of Revenue as a retailer of titled and registered property, and
it does not make retail sales of titled and registered property. As such,
COMPANY1 is not required to report and pay tax using transaction
reporting returns.

TAXPAYER REPRESENTATIVE/ NAME
PAGE 5
August 2, 2023
For the reasons discussed above, we respectfully request the Department
to issue a private letter ruling to COMPANY1 that it is not liable for the
$100 penalty imposed by 35 ILCS 735/3-3(a-15) if it does not file
transaction reporting returns. We note that COMPANY1’S facts are
comparable to those set forth in the Department's information letter GIL
ST-17-0001.

DEPARTMENT’S RESPONSE:
The Uniform Penalty and Interest Act, as amended by P.A. 98-425 (effective
August 16, 2013), imposed a $100 penalty for failure to file a transaction reporting
return on or before the due date as required by Section 3 of the Retailers’ Occupation
Tax Act (35 ILCS 120/3) and Section 9 of the Use Tax Act (35 ILCS 105/9). This
penalty was imposed regardless of whether the return reported any tax due. P.A. 99335 (effective August 10, 2015) amended the provisions of P.A. 98-425 to impose the
$100 penalty for failure to file a transaction reporting return on or before the due date as
required by Section 3 of the Retailers’ Occupation Tax Act and Section 9 of the Use Tax
Act only if there is no tax due. 35 ILCS 735/3-3(a-15). After amendment by P.A. 99335, the provision reads:
(a-15) A penalty of $100 shall be imposed for failure to file a
transaction reporting return required by Section 3 of the Retailers'
Occupation Tax Act and Section 9 of the Use Tax Act on or before the
date a return is required to be filed; provided, however, that this penalty
shall be imposed only if the return when properly prepared and filed would
not result in the imposition of a tax. 35 ILCS 735/3-3(a-15).
This provision requires the Department to impose this $100 penalty for each
instance in which a retailer makes a sale for which no tax is due but fails to properly
report that sale to the Department using Form ST-556, Sales Tax Transaction Return or
Form ST-556-LSE, Transaction Return for Leases (with regard to sales for lease).
The Uniform Penalty and Interest Act’s $100 penalty provision is triggered by a
failure to file a transaction reporting return “required by Section 3 of the Retailers’
Occupation Tax Act.” Section 3 of the Retailers’ Occupation Tax Act provides that “...
with respect to motor vehicles … that are required to be registered with an agency of
this State, every retailer selling this kind of tangible personal property shall file, with the
Department, upon a form to be prescribed and supplied by the Department, a separate
return for each such item of tangible personal property which the retailer sells….” 35
ILCS 120/3. For purposes of this $100 penalty for failure to file zero liability transaction
reporting returns, it is the Department’s position that a “retailer selling this kind of
tangible personal property” means a person registered with the Illinois Department of
Revenue as a retailer of titled and registered property who is required to report and pay
tax using transaction reporting returns (e.g., ST-556 and ST-556-LSE). A person who

TAXPAYER REPRESENTATIVE/ NAME
PAGE 6
August 2, 2023
sells only titled and registered property exclusively for resale is not considered to be a
retailer required to report and pay tax using transaction reporting returns. See Dearborn
Wholesale Grocers, Inc. v. Whitler, 82 Ill.2d 471 (1980). In addition, it is the
Department’s position that a person who sells merchandise at retail other than titled and
registered property (i.e., a person required to file Form ST-1, Sales and Use Tax and
E911 Surcharge Returns) and who also sells titled and registered property exclusively
for resale is not considered to be a retailer required to report and pay tax using
transaction reporting returns.
This means that, if, for example, a company sells motor vehicles exclusively for
resale and not at retail and it sells no other tangible personal property, then the sales of
motor vehicles for resale are not required to be reported on transaction reporting returns
and no penalty is imposed under the Uniform Penalty and Interest Act for failure to file
transaction reporting returns. This also means that, if, for example, a company sells
merchandise at retail other than titled and registered property (i.e., a company that is
registered to and does file Form ST-1, Sales and Use Tax and E911 Surcharge
Returns) and also sells titled and registered property exclusively for resale (i.e., no retail
sales of titled and registered property), then the sales of motor vehicles for resale are
not required to be reported on transaction reporting returns and no penalty is imposed
under the Uniform Penalty and Interest Act for failure to file transaction reporting
returns.
It is important to note, however, that if a company makes any retail sales of titled
and registered property in Illinois, then all sales of titled and registered property in
Illinois must be reported on transaction reporting returns, including sales for resale.
This results from the requirement in the Retailers’ Occupation Tax Act that “… retailers
selling this kind of tangible personal property shall file, with the Department, upon a
form to be prescribed and supplied by the Department, a separate return for each such
item of tangible personal property which the retailer sells….” 35 ILCS 120/3. Failure of
these retailers to file returns reporting sales for resale is subject to the $100 penalty
imposed under subsection (a-15) of Section 3 of the Uniform Penalty and Interest Act.
Based on the facts contained in your letter, COMPANY1 is not liable for the $100
penalty imposed by 35 ILCS 735/3-3(a-15) if it does not file transaction reporting returns
when it sells a motor vehicle for resale to the Dealership, as long as COMPANY1 does
not make any retail sales of motor vehicles.
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,

TAXPAYER REPRESENTATIVE/ NAME
PAGE 7
August 2, 2023
Samuel J. Moore
Chairman, Private Letter Ruling Committee
SJM:RSW:dlb