How does Illinois tax the sale of motor vehicles, including trade-ins, private-party sales, and sales to nonresidents such as Florida residents?

Plain-English summary

This GIL began as a survey, not a taxpayer inquiry: the Florida Department of Revenue wrote to Illinois asking it to confirm and update Florida's own annual publication on motor vehicle sales tax rates by state (used by Florida car dealers who sell to residents of other states, and by Florida itself for vehicles brought in from elsewhere). Illinois responded with a GIL rather than approving any outside publication, explaining that it cannot endorse publications other than its own, and instead laid out Illinois's own rules on vehicle taxation.

Illinois taxes retail sales of tangible personal property, including motor vehicles, under the Retailers' Occupation Tax Act (86 Ill. Adm. Code 130.101), paired with a Use Tax on the buyer's side (86 Ill. Adm. Code 150.101) — together these make up what's commonly called Illinois "sales tax." For a retail vehicle sale, the dealer can reduce the taxable selling price with a trade-in credit if the traded-in vehicle is of like kind and character to the vehicle being sold (86 Ill. Adm. Code 130.425), unless the vehicle is sold for the purpose of a simultaneous long-term lease (over one year) using the special "selling price" definition from P.A. 98-628, in which case no trade-in credit is allowed. The letter also notes that Public Act 102-353 removed, effective for sales on or after January 1, 2022, a $10,000 cap on the trade-in deduction that Public Act 101-31 had added and that applied from January 1, 2020 through December 31, 2021.

Private-party (non-retail) vehicle sales are taxed differently: they fall under the separate Private Party Vehicle Use Tax (625 ILCS 5/3-1001 et seq.), and no trade-in credit is available for those sales. Public Act 102-353 also modified the Private Party Vehicle Use Tax rates effective January 1, 2022.

Finally, the letter addresses nonresident purchasers. Under 35 ILCS 120/2-5(25), a motor vehicle sold in Illinois to a nonresident is exempt from Retailers' Occupation Tax even if delivered in Illinois, as long as the vehicle won't be titled in Illinois and either a drive-away permit is issued under Section 3-603 of the Illinois Vehicle Code, or the nonresident buyer has home-state plates to transfer. But under 35 ILCS 120/2-5(25-5), that exemption doesn't apply if the buyer's home state doesn't offer Illinois a reciprocal exemption for the mirror-image sale. Illinois's own Publication ST-58 (Reciprocal - Non-Reciprocal Vehicle Tax Rate Chart) lists Florida as a non-reciprocal state, so sales of motor vehicles to Florida residents who take delivery in Illinois are instead taxed at Florida's 6% state sales tax rate, capped at the 6.25% rate under Illinois's own Retailers' Occupation Tax Act.

What this means for you

Vehicle dealers and sellers

If you sell a vehicle at retail and take a like-kind trade-in, you can generally reduce the taxable selling price by the trade-in's value under 86 Ill. Adm. Code 130.425, and (for sales on or after January 1, 2022) there is no longer a $10,000 cap on that deduction. That trade-in credit disappears if the deal is really a long-term lease (over a year) using the special P.A. 98-628 "selling price" definition, or if the transaction is a private-party sale under the separate Private Party Vehicle Use Tax rather than the Retailers' Occupation Tax.

Sellers dealing with nonresident buyers, including Florida residents

A sale to a nonresident who won't title the vehicle in Illinois can be exempt from Retailers' Occupation Tax under 35 ILCS 120/2-5(25) if a drive-away permit is issued or the buyer transfers home-state plates. But check whether the buyer's home state is "reciprocal" per Illinois's Publication ST-58. Because Florida is listed as non-reciprocal, a sale to a Florida resident who takes delivery in Illinois is not exempt — instead it's taxed at Florida's 6% rate, capped at Illinois's own 6.25% Retailers' Occupation Tax rate.

Private-party buyers and sellers

If you buy or sell a vehicle in a private (non-retail) transaction, it's taxed under the separate Private Party Vehicle Use Tax (625 ILCS 5/3-1001 et seq., and 86 Ill. Adm. Code 151.101 et seq.), not the Retailers' Occupation Tax, and no trade-in credit applies. Rates under this tax were modified effective January 1, 2022 by Public Act 102-353.

Other states' revenue departments and multistate compliance staff

This letter is itself Illinois's answer to another state's revenue department (Florida's) trying to keep a multistate vehicle-tax reference chart current. It confirms that Illinois will not "approve" an outside state's publication, but will point to its own statutes, regulations, and publications (like ST-58) as the authoritative source for how Illinois taxes vehicle sales involving nonresidents.

Common questions

Q: Can I deduct my trade-in from the taxable price when I buy a vehicle from a dealer in Illinois?
A: Generally yes, if the trade-in is of like kind and character to the vehicle purchased (86 Ill. Adm. Code 130.425), and there is no cap on that deduction for sales occurring on or after January 1, 2022 (Public Act 102-353 removed the $10,000 cap that Public Act 101-31 had imposed from 2020-2021). No trade-in credit applies if the sale is really a long-term lease structured under the P.A. 98-628 "selling price" definition, or if it's a private-party sale.

Q: I'm buying or selling a car directly with another individual, not through a dealer. What tax applies?
A: That's a private-party (non-retail) transaction, taxed under the separate Private Party Vehicle Use Tax (625 ILCS 5/3-1001 et seq.), not the Retailers' Occupation Tax, and no trade-in credit is allowed.

Q: Does Illinois tax a vehicle sold to a Florida resident who picks it up in Illinois?
A: Normally a sale to a nonresident who won't title the vehicle in Illinois (and who gets a drive-away permit or transfers home-state plates) is exempt under 35 ILCS 120/2-5(25). But because Illinois treats Florida as a non-reciprocal state under Publication ST-58, that exemption doesn't apply to Florida residents; instead the sale is taxed at Florida's 6% rate, capped at Illinois's 6.25% Retailers' Occupation Tax rate, per 35 ILCS 120/2-5(25-5).

Q: Why did Illinois respond with a GIL instead of approving Florida's rate chart?
A: The Department explained it cannot approve or vouch for publications other than its own; a GIL merely directs the requester to the relevant Illinois statutes, regulations, and Department publications rather than certifying someone else's summary.

Citations and references

Statutes:

• 35 ILCS 120/2-10 (Retailers' Occupation Tax measured by gross receipts)
• 35 ILCS 120/1 (definition of "gross receipts"/"selling price")
• 35 ILCS 105/310 (Use Tax imposed on selling price)
• 35 ILCS 105/2 (Use Tax Act definition of "selling price")
• 35 ILCS 120/2-5(25) (nonresident motor vehicle sale exemption)
• 35 ILCS 120/2-5(25-5) (reciprocal-exemption limitation for nonreciprocal states)
• 625 ILCS 5/3-1001 et seq. (Private Party Vehicle Use Tax)
• 625 ILCS 5/3-603 of the Illinois Vehicle Code (drive-away permit)
• P.A. 98-628 (special "selling price" definition disallowing trade-in credit on long-term-lease sales)
• Public Act 101-31 ($10,000 trade-in deduction cap, 1/1/2020-12/31/2021)
• Public Act 102-353 (removed the $10,000 trade-in cap effective 1/1/2022; also modified Private Party Vehicle Use Tax rates)

Regulations:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax)
• 86 Ill. Adm. Code 150.101 (Use Tax)
• 86 Ill. Adm. Code 130.425 (trade-in credit)
• 86 Ill. Adm. Code 151.101 et seq. (private party motor vehicle transactions)

Department publications referenced:

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

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/st23-0032-gil.pdf

Original ruling text

ST-23-0032-GIL 11/01/2023 MOTOR VEHICLES
This letter responds to a survey concerning taxation of vehicles. (This is a GIL.)
November 1, 2023
NAME
E-MAIL
Dear NAME:
This letter is in response to your letter dated October 2, 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.
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:
Good afternoon,
Each year, the Florida Department of Revenue publishes information
regarding the taxability of the sale or transfer of motor vehicles that are:
•
•

sold in Florida to residents of another state and licensed in the
purchaser’s home state; and
purchased in another state and brought into Florida to be licensed
in Florida.

This information is beneficial to our Department as well as to motor vehicle
dealers within Florida 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 2024.
A copy of our publication, Motor Vehicle Sales Tax Rates by State as of
January 18, 2023 (TIP-23A01-01), is attached for your convenience.

Florida Department of Revenue/NAME
Page 2
November 1, 2023
This request is for the state of Illinois and has been sent to ATTORNEY1,
ATTORNEY2, and ATTORNEY3 as the designated contact(s) regarding
sales and use tax imposed on motor vehicles. If a contact needs to be
updated, added, or 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, 2023. Thank you for your assistance.
DEPARTMENT’S RESPONSE:
The Department cannot approve publications other than those issued by the
Illinois 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

Florida Department of Revenue/NAME
Page 3
November 1, 2023
$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.
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 2023).
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
Florida 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 Florida is 6%, which
is less than the 6.25% rate under the Retailers’ Occupation Tax Act. Therefore, sales of

Florida Department of Revenue/NAME
Page 4
November 1, 2023
motor vehicles to residents of Florida who take delivery in Illinois are subject to Illinois
Retailers’ Occupation Tax at the rate of 6%.
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. For future inquiries, please replace Richard
Wolters as a designated contact regarding sales and use tax imposed on motor vehicles
with Alexis Overstreet, [email protected].
Very truly yours,
Kimberly A. Rossini
Associate Counsel
KAR:dlb