Does Illinois's Automobile Renting Occupation and Use Tax apply to the rental of watercraft (boats)?

Plain-English summary

A local government that owns a marina asked the Illinois Department of Revenue whether it owes the state's Automobile Renting Occupation and Use Tax on the fees it charges to rent out four watercraft registered with the Illinois Department of Natural Resources (IDNR). The rentals are short (up to four hours, never overnight), and the local government had already been paying the Rental Tax on the gross receipts from these rentals, but it questioned whether the tax actually applied to boats at all.

The Department agreed with the taxpayer: a boat is not an "automobile" for purposes of this tax, so gross receipts from renting the watercraft are not subject to the Automobile Renting Occupation and Use Tax. The Act taxes gross receipts from renting "automobiles," and the Act defines "automobile" by reference to "motor vehicle[s]" of the first or second division under the Illinois Vehicle Code. The Vehicle Code in turn defines "vehicle" as a device that is "transported or drawn upon a highway," and "highway" means a public way used for vehicular travel. Because watercraft operate on water rather than a highway, and because boat titles are registered with IDNR rather than the Secretary of State (as the Vehicle Code's title provisions require), a boat simply does not meet the Vehicle Code's definition of "vehicle" -- and if it isn't a vehicle, it can't be a "motor vehicle" or an "automobile" under the Rental Tax.

The Department also noted that recent legislation (Article 75 of Public Act 103-592) extending the Retailers' Occupation Tax Act to leases and rentals expressly excludes boats, reinforcing that boats are meant to be treated differently from cars, trucks, and other rental vehicles for Illinois tax purposes. The ruling additionally confirms the mechanics of the Rental Tax itself: it's a 5% tax on gross receipts from renting automobiles under terms of one year or less, and a taxpayer that overpaid the tax on boat rentals can file a claim for credit under 86 Ill. Adm. Code 180.145, but only after showing it either bore the tax itself or unconditionally refunded any tax collected from customers.

What this means for you

Marinas, local governments, and other watercraft-rental operators

If you rent out boats, jet skis, or other watercraft in Illinois, this ruling confirms those rentals are not subject to the state's Automobile Renting Occupation and Use Tax, because watercraft don't meet the legal definition of "vehicle" that the tax's "automobile" definition depends on. That's true regardless of whether the rental is short-term, and it doesn't matter that the watercraft is licensed and registered -- registration with IDNR under the Boat Registration and Safety Act is a different system from Secretary of State vehicle titling under the Vehicle Code.

Businesses that previously paid the tax on boat rentals

If, like the taxpayer here, you've been remitting Automobile Renting Tax on watercraft rental receipts, you may be able to recover amounts paid that weren't actually owed. The ruling points to 86 Ill. Adm. Code 180.145 (incorporating 86 Ill. Adm. Code 130.1501) for filing a claim for credit, but stresses that credit is only available if you can show you bore the economic burden of the tax yourself, or that you've unconditionally repaid any tax you collected from renters.

Businesses renting actual automobiles, trucks, or qualifying vehicles

This ruling doesn't change anything for traditional rental-car, truck, motorcycle, motor-home, or qualifying-van businesses -- those remain squarely within the Rental Tax's definition of "automobile" because they involve motor vehicles of the first or second division under the Vehicle Code.

Common questions

Q: Does the Automobile Renting Tax apply to boat or watercraft rentals?
A: No. The Department concluded a boat does not meet the Vehicle Code's definition of "vehicle" (something transported or drawn upon a highway), so it cannot be a "motor vehicle" or "automobile" for Rental Tax purposes, even though it is self-propelled and titled with a state agency (IDNR rather than the Secretary of State).

Q: Does it matter that the watercraft is registered with the state?
A: No -- what matters is which agency and which statute the registration is under. Vehicle Code title registration (Secretary of State, 625 ILCS 5/3-101) is what ties into the Rental Tax's "automobile" definition. IDNR registration under the Boat Registration and Safety Act is a separate system and doesn't make a boat a "vehicle" under the Vehicle Code.

Q: What is the Automobile Renting Tax, and what rate applies to rentals that ARE covered?
A: It's a 5% tax on the gross receipts a business collects from renting automobiles (first- or second-division motor vehicles, such as cars, SUVs, motorcycles, qualifying vans, and qualifying motor homes) for terms of one year or less, under 35 ILCS 155/1 et seq. and 86 Ill. Adm. Code 180.101.

Q: Can a business get back tax it already paid on boat rentals?
A: The ruling says a taxpayer that paid tax not actually due (by mistake of fact or error of law) may file a claim for credit under 86 Ill. Adm. Code 180.145 (incorporating 86 Ill. Adm. Code 130.1501), but only if it shows it bore the burden of the tax itself or unconditionally repaid any tax collected from customers.

Q: Can other taxpayers rely on this ruling?
A: No. This is a Private Letter Ruling binding on the Department only as to the specific local government that requested it, and only to the extent its stated facts are correct and complete. It expires after 10 years under 2 Ill. Adm. Code 1200.110(e), or sooner if the law or facts change. Other taxpayers with similar facts can look to it for the Department's reasoning, but cannot rely on it directly.

Citations and references

Statutes and rules:

• 35 ILCS 155/1 et seq. (Automobile Renting Occupation and Use Tax Act)
• 35 ILCS 155/2 (definition of "automobile")
• 35 ILCS 155/3 (5% tax on gross receipts from automobile rentals)
• 86 Ill. Adm. Code 180.101 (imposition of the tax)
• 86 Ill. Adm. Code 180.120(a) (definition of "gross receipts")
• 86 Ill. Adm. Code 180.125 (excluded charges)
• 86 Ill. Adm. Code 180.145 and 86 Ill. Adm. Code 130.1501 (claims for credit)
• 625 ILCS 5/1-146 (Vehicle Code "motor vehicle" and first/second division)
• 625 ILCS 5/1-217 (Vehicle Code "vehicle")
• 625 ILCS 5/1-126 (Vehicle Code "highway")
• 625 ILCS 5/1-124.5 (Gross Vehicle Weight Rating)
• 625 ILCS 5/3-101 (certificate of title requirement)
• 625 ILCS 45/1-2 (Boat Registration and Safety Act definition of watercraft)
• 2 Ill. Adm. Code 1200.110 (PLR procedures, binding effect, and expiration)
• Public Act 103-592, Article 75 (Retailers' Occupation Tax Act leases/rentals; boats excluded)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2025.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2025/st25-0002-plr.pdf

Original ruling text

ST 25-0002-PLR

5/19/2025

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 forth at 35 ILCS 155/1 et seq. See 86 Ill. Adm. Code 180.101. (This
is a PLR.)

May 19, 2025
NAME, TITLE
LOCAL GOVERNMENT
ADDRESS
Dear NAME:
This letter is in response to your letter dated February 10, 2025, 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 https://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 the Wauconda Park District, 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 the Wauconda Park District, 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:
My name is NAME, and I am the TITLE of the LOCAL GOVERNMENT (“LOCAL
GOVERNMENT”). I am writing this letter requesting a private letter ruling from
the Illinois Department of Revenue (the “Department”) concerning the
applicability of the Automobile Rental Tax (“Rental Tax”) to the LOCAL

LOCAL GOVERNMENT
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May 19, 2025
GOVERNMENT’S rental to customers of certain watercraft that are registered
with the Illinois Department of Natural Resources (“IDNR”).
The issue this letter seeks to resolve is whether or not IDNR registered
watercraft are considered “automobiles” under the Rental Tax?
To the best of the LOCAL GOVERNMENT’S knowledge:
1)
this issue is not a part of a Department audit of the LOCAL
GOVERNMENT ;
2)
the LOCAL GOVERNMENT is not involved in litigation where the
Department is a name plaintiff or defendant;
3)
there is no dispositive case law or regulation on this issue;
4)
the Department has not previously ruled on the same or similar
issue for the LOCAL GOVERNMENT; and
5)
The LOCAL GOVERNMENT has not previously requested a letter
from the Department on this issue.
The relevant tax period at issue is DATE to the present.
The statement of facts for this issue are as follows:
The LOCAL GOVERNMENT owns four watercraft: 1) WATERCRAFT 1; 2)
WATERCRAFT 2; 3) WATERCRAFT 3; and 4) WATERCRAFT 4. All of these
watercrafts have certificates of title registered with IDNR, and those titles are
provided with this letter.
In DATE, the LOCAL GOVERNMENT purchased a marina, MARINA, and certain
personal property including the aforementioned watercraft. Since then, the
LOCAL GOVERNMENT has offered customers the opportunity to rent the
above-described watercraft, for a fee, to use on LAKE. The business reason
the LOCAL GOVERNMENT offers such rentals is to enhance recreational
opportunities to residents and guests. An incidental reason is to produce
revenue. The customers complete a rental agreement, a copy of which is
attached to this letter, that requires them to provide certain personal
information, sign a waiver of liability, and to provide the LOCAL GOVERNMENT
a security deposit for the rental of the watercraft. These rentals last up to four
hours and only occur on the LOCAL GOVERNMENT’S normal business days
and business hours. These rentals never last overnight. No training is required
to rent the watercraft, but the customer must be 21 years old or older.
The Rental Tax imposes a 5% tax of the gross receipts received on persons
engaged in the business of renting automobiles. 35 ILCS 155/3 (emphasis

LOCAL GOVERNMENT
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May 19, 2025
added). Since DATE, the LOCAL GOVERNMENT has been paying the Rental
Tax to the Department for gross receipts generated from the rental of its
watercraft on LAKE. There is no dispute the LOCAL GOVERNMENT is in the
business of renting its watercraft. The question this letter seeks to resolve is
whether the LOCAL GOVERNMENT’S registered watercraft are “automobiles”
subject to the Rental Tax.
Under the Rental Tax, “automobile” means:
(1) any motor vehicle of the first division, or (2) a motor vehicle
of the second division which: (A) is a self-contained motor
vehicle designed or permanently converted to provide living
quarters for recreational, camping or travel use, with direct walk
through access to the living quarters from the driver’s seat; (B)
is of the van configuration designed for the transportation of not
less than 7 nor more than 16 passengers as defined in Section
1-146 of the Illinois Vehicle Code [625 ILCS 5/1-146]; or (C) has
a Gross Vehicle Weight Rating, as defined in Section 1-124.5 of
the Illinois Vehicle Code [625 ILCS 5/1-124.5], of 8,000 pounds
or less. 35 ILCS 155/2
This issue then hinges upon whether the LOCAL GOVERNMENT’S watercraft
are “any motor vehicle” of the first or second division described above.
It is the LOCAL GOVERNMENT’S opinion that the Rental Tax does not apply to
the LOCAL GOVERNMENT’S rental of its registered watercraft because the
watercraft are not motor vehicles of the first or second division. The LOCAL
GOVERNMENT believes this because the main statutory provision that
defines motor vehicles of the first and second division, the Vehicle Code, does
not apply to vehicles that neither move on land nor are registered with the
Secretary of State.
Authorities in favor of the LOCAL GOVERNMENT’S position include the
following:
•

Courts must interpret statutes under their plain language. The
fundamental objective of statutory construction is to ascertain and
give effect to the intent of the legislature. The most reliable indicator of
legislative intent is the statutory language, given its plain and ordinary
meaning. A court will not depart from the plain statutory language by
reading into it exceptions, limitations, or conditions that conflict with

LOCAL GOVERNMENT
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May 19, 2025
the expressed intent of the legislature. USF Holland, Inc. v. Radogno,
Cameli, & Hoag, P.C., 2014 IL App (1st) 131727, 58
•

The Vehicle Code defines the term “vehicle” as “every device, in, upon
or by which any person or property is or may be transported or drawn
upon a highway or requiring a certificate of title under Section 3101(d) [625 ILCS 5/3-101] of [the Vehicle Code], except devices
moved by human power, devices used exclusively upon stationary rails
or tracks, and snowmobiles as defined in the Snowmobile Registration
and Safety Act.” 625 ILCS 5/1-217 (emphasis added).

•

The above definition raises two points. First, watercraft is defined in the
Boat Registration and Safety Act which means watercraft used or
capable of being used as a means of transportation on water, not a
highway. 625 ILCS 45/1-2. Second, the Vehicle Code requires
certification of title to be registered with the Illinois Secretary of State.
625 ILCS 5/3-101. However, watercraft title registration is conducted
by the IDNR, not the Secretary of State. IDNR Illinois Registered
Watercraft,
https://dnr.illinois.gov/boating/illinoisregistered.html.
(last accessed February 10, 2025 10:16 am). Taking these two points
together, under the Vehicle Code, a watercraft is not a vehicle at all.

•

IDOR’s own advice on who must register for the Rental Tax suggests
watercraft are not an intended term encompassed by the Rental Tax.
IDOR’s guidance states a taxpayer must register if they “lease or rent
automobiles, pickup trucks, sport utility vehicles (SUVs), motorcycles
and motor-driven cycles, qualifying motor homes or recreational
vehicles, or qualifying vans for periods of one year or less.” IDOR
Automobile
Renting
Occupation
&
Use
Taxes,
https://tax.illinois.gov/research/taxinformation/sales/auto.html (last
accessed February 6, 2025, 4:52 pm). While IDOR’s published answers
to frequently asked questions is not legal precedent, watercraft are an
entirely different class of vehicle than those listed. If watercraft were
currently subject to the Rental Tax, surely IDOR would have listed such
vehicles as being subject to the Rental Tax.

In sum, the authorities supporting the LOCAL GOVERNMENT’S interpretation
of the issue state (a) the plain language of the Rental Tax applies to
automobiles, (b) watercraft do not fall within the definition of vehicle as
defined by the Vehicle Code, and (c) conditions should not be read into the
plain language of the Rental Tax to include watercraft where they are not
explicitly listed.

LOCAL GOVERNMENT
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May 19, 2025
Authorities against the LOCAL GOVERNMENT’S position include the
following:
•

Tax exemptions are strictly construed, and courts must resolve any
doubts regarding an exemption’s applicability in favor of taxation.
Under Illinois law, taxation is the rule. The party seeking tax exemption
bears the burden of proving the right to exemption, and in determining
whether the property is subject to the exemption, the court must
construe all facts and debatable questions in favor of taxation. This
standard applied by courts places the burden on the LOCAL
GOVERNMENT to prove the Rental Tax does not apply and creates a
presumption towards taxation. Safety-Kleen Sys. V. Dep’t of Revenue,
2020 IL App (1st) 191078, ¶ 18.

•

The Vehicle Code defines “motor vehicle” as every vehicle which is
self-propelled and every vehicle which is propelled by electric power
obtained from overhead trolley wires, but not operated upon rails,
except for vehicles moved solely by human power, motorized
wheelchairs, low-speed electric bicycles, and low-speed gas bicycles.
625 ILCS 5/1-146. First division motor vehicles are designed to carry
not more than 10 persons and second division moto vehicles are
designed to carry more than 10 persons including those that are
designed for living quarters and carrying cargo. Id.

•

The Rental Tax defines automobile as “any” motor vehicle of the first or
second division (as described in preceding paragraphs). The LOCAL
GOVERNMENT’S watercraft are propelled by motor. In that sense, they
are self-propelled. If watercraft are determined to be motor vehicles,
then they would likely qualify as automobiles under the Rental Tax and
be subject to taxation. While the LOCAL GOVERNMENT’S argument,
described above, is that watercraft are not vehicles under the Vehicle
Code at all, there is an absence of statutory law, case law, or
Department regulations that affirmatively state the LOCAL
GOVERNMENT’S position. This letter is meant for the Department to
either affirm or deny the LOCAL GOVERNMENT’S position.

Other than the LOCAL GOVERNMENT’S taxpayer ID and private information
redactable under 7(1)(b) of the Freedom of Information Act, there are no trade
secrets contained in this letter.
Thank you, and I look forward to the Department’s response.

LOCAL GOVERNMENT
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May 19, 2025
DEPARTMENT’S RESPONSE:
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. 35 ILCS 155/1 et seq. See 86 Ill. Adm. Code 180.101. This tax is imposed at the rate of
5% of the gross receipts from such business. “Gross receipts” means all consideration
received by a rentor as the rental price for the rental of automobiles under lease terms of
one year or less. Where a rentor receives the rental price in installment payments, the rentor
shall include the amounts of such payments only as and when the payments are received
by the rentor. 86 Ill. Adm. Code 180.120(a). Certain separately stated charges, though, are
not subject to tax and are listed in Section 180.125 of the Department’s regulations.
The tax applies to automobiles, defined in Section 2 of the Act as follows:
“Automobile” means (1) any motor vehicle of the first division, or (2) a motor
vehicle of the second division which: (A) is a self-contained motor vehicle
designed or permanently converted to provide living quarters for recreational,
camping or travel use, with direct walk through access to the living quarters
from the driver’s seat; (B) is of the van configuration designed for the
transportation of not less than 7 nor more than 16 passengers, as defined in
Section 1-146 of the Illinois Vehicle Code; or (C) has a Gross Vehicle Weight
Rating, as defined in Section 1-124.5 of the Illinois Vehicle Code, of 8,000
pounds or less. 35 ILCS 155/2.
Section 1-146 of the Illinois Vehicle Code defines the term “motor vehicle” as:
Every vehicle which is self-propelled and every vehicle which is propelled by
electric power obtained from overhead trolley wires, but not operated upon
rails, except for vehicles moved solely by human power, motorized
wheelchairs, low-speed electric bicycles, and low-speed gas bicycles. For
this Act, motor vehicles are divided into two divisions:
First Division: Those motor vehicles which are designed for the carrying
of not more than 10 persons.
Second Division: Those motor vehicles which are designed for carrying
more than 10 persons, those motor vehicles designed or used for living
quarters, those motor vehicles which are designed for pulling or carrying
freight, cargo or implements of husbandry, and those motor vehicles of the
First Division remodelled for use and used as motor vehicles of the Second
Division. 625 ILCS 5/1-146.

LOCAL GOVERNMENT
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May 19, 2025
Section 1-217 of the Illinois Vehicle Code defines the term “vehicle” in relevant part as:
Every device, in, upon or by which any person or property is or may be
transported or drawn upon a highway . . ., except devices moved by human
power, devices used exclusively upon stationary rails or tracks, and
snowmobiles as defined in the Snowmobile Registration and Safety Act. 625
ILCS 5/1-217.
Section 1-126 of the Illinois Vehicle Code defines the term “highway” as:
The entire width between the boundary lines of every way publicly maintained
when any part thereof is open to the use of the public for purposes of vehicular
travel or located on public school property. 625 ILCS 5/1-126.
A boat does not meet the definition of “automobile” under the Automobile Renting
Occupation and Use Tax Act since it is not a “vehicle” because it is not “transported or
drawn upon a highway” as provided in the incorporated provisions of the Illinois Vehicle
Code. Therefore, gross receipts from the rental of a boat are not subject to the Automobile
Renting Occupation and Use Tax Act.
We note also that boats are excluded from recent legislation (see Article 75 of Public
Act 103-592) imposing Retailers’ Occupation Tax Act on the gross receipts from leases and
rentals.
With respect to taxes previously paid, if a taxpayer pays an amount of tax under the
Automobile Retailing Occupation and Use Tax Act that is not due, either as a result of a
mistake of fact or an error of law, the taxpayer may file a claim for credit with the
Department. See 86 Ill. Adm. Code 130.1501 as incorporated into the Automobile Renting
Occupation and Use Tax administrative rules at 86 Ill. Adm. Code 180.145. Please note that
only persons who have actually paid tax to the Department can file a claim for credit. No
credit shall be given to the taxpayer unless the taxpayer shows that he or she has borne the
burden of the tax or has unconditionally repaid the amount of the tax to the purchaser from
whom it was collected. In other words, if a rentor has collected tax from a customer, the
rentor must show that it has unconditionally refunded the tax to the customer before credit
will be allowed.
The factual representations upon which this ruling is based are subject to review by
the Department during the course of any audit, investigation, or hearing and this ruling shall
bind the Department only if the factual representations recited in this ruling are correct and
complete. This Private Letter Ruling is revoked and will cease to bind the Department 10
years after the date of this letter under the provisions of 2 Ill. Adm. Code 1200.110(e) or

LOCAL GOVERNMENT
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May 19, 2025
earlier if there is a pertinent change in statutory law, case law, rules or in the factual
representations recited in this ruling.
I hope this information is helpful. If you have further questions concerning this
Private Letter Ruling, you may contact me at (217) 782-7055. If you have further questions
related to the Illinois sales tax laws, please visit our website at https://tax.illinois.gov/ or
contact the Department’s Taxpayer Information Division at (800) 732-8866.
Very truly yours,

Samuel J. Moore
Chairman, Private Letter Ruling Committee
SJM:sce