Does an out-of-state buyer get a trade-in credit on an Illinois vehicle purchase, and at what rate is the sale taxed if the buyer's home state doesn't offer Illinois a reciprocal exemption?

Plain-English summary

An organization that annually publishes multistate guidance on motor vehicle sales and use tax rules -- used by both the organization itself and by dealers in its home state who sell vehicles to Illinois residents -- asked the Illinois Department of Revenue to confirm or update the Illinois-specific portion of its publication for the coming year, including any changes affecting a particular state (redacted in the ruling simply as "STATE").

The Department declined to bless or endorse any outside publication -- it can't approve materials other than its own -- but offered its own current guidance on the two topics the survey touched on:

Trade-in credits. For a DEALER's retail sale of a motor vehicle subject to Retailers' Occupation Tax, Illinois lets the dealer reduce the taxable selling price by the value of a like-kind trade-in. But that credit is specifically tied to retail sales -- it does NOT apply to a private-party (non-dealer) vehicle sale, which instead falls under Illinois's separate Private Party Vehicle Use Tax, a flat use tax on non-retail vehicle transactions between individuals.

Reciprocal exemption and tax rate for out-of-state buyers. Illinois generally exempts from tax a vehicle sold in Illinois to a nonresident who won't title it in Illinois, as long as the sale comes with a drive-away permit or the buyer has out-of-state plates to transfer. But that exemption doesn't apply if the buyer's home state doesn't offer Illinois a matching ("reciprocal") exemption for its own residents. In that non-reciprocal situation, Illinois still taxes the sale -- but NOT automatically at Illinois's full 6.25% rate. Instead, the tax is imposed at the OTHER state's own sales tax rate, capped at whatever Illinois's rate would otherwise be. In the specific example addressed in this letter, the redacted "STATE" is a non-reciprocal state with its own 6% rate (per Illinois's Publication ST-58, the official Reciprocal/Non-Reciprocal Vehicle Tax Rate Chart) -- so a dealer sale in Illinois to a resident of that state is taxed at 6%, not the higher 6.25% Illinois rate.

What this means for you

Illinois car dealers selling to out-of-state residents

Check Publication ST-58 (the Department's official Reciprocal/Non-Reciprocal Vehicle Tax Rate Chart) before assuming your out-of-state buyer's sale is either fully exempt or taxed at Illinois's standard 6.25% rate -- a non-reciprocal buyer's home state may set a LOWER rate that Illinois then uses instead, capped at 6.25%.

Dealers structuring trade-in deals

The trade-in credit that reduces a vehicle's taxable price is a retail-sale concept -- don't assume it carries over to a private-party sale, which is taxed under the separate Private Party Vehicle Use Tax without a trade-in reduction.

Trade associations and publishers compiling multistate vehicle tax guides

The Department will explain its own rules but won't formally approve or endorse a third party's published summary -- always verify your compiled guidance directly against current Illinois statutes, regulations, and Department publications like ST-58 rather than relying on the Department's sign-off.

Common questions

Q: Does a trade-in reduce the taxable price on every Illinois vehicle sale? A: No. The trade-in credit applies to a dealer's retail sale of a vehicle. It does not apply to a private-party (non-dealer) vehicle sale, which is taxed instead under the separate Private Party Vehicle Use Tax.

Q: If my home state doesn't give Illinois residents a reciprocal exemption, does Illinois tax my vehicle purchase at the full 6.25% rate? A: Not necessarily. Illinois instead taxes the sale at YOUR home state's own tax rate, capped at whatever Illinois's rate would otherwise be (currently 6.25%) -- so if your state's rate is lower, that lower rate applies.

Q: Where can I check whether a state is reciprocal or non-reciprocal for Illinois vehicle sales? A: Illinois Publication ST-58, the Reciprocal/Non-Reciprocal Vehicle Tax Rate Chart, is the Department's official reference for this.

Q: Will the Illinois Department of Revenue formally approve an outside organization's published vehicle tax guide? A: No. The Department states it cannot approve publications other than its own, and instead directs businesses to consult Illinois statutes, administrative rules, and Department publications directly.

Citations and references

Statutes:

• 35 ILCS 120/1 (definition of "gross receipts")
• 35 ILCS 120/2-5(25), 120/2-5(25-5) (nonresident drive-away exemption; non-reciprocal state tax-rate cap)
• 35 ILCS 120/2-10 (Retailers' Occupation Tax measured by gross receipts)
• 35 ILCS 105/2, 105/3-10 (Use Tax Act -- "selling price" definition, trade-in exclusion)
• 625 ILCS 5/3-1001 et seq. (Private Party Vehicle Use Tax)

Regulations:

• 86 Ill. Adm. Code 130.425 (dealer trade-in credit)
• 86 Ill. Adm. Code 151.101 et seq. (private-party vehicle sales)

Source

• Landing page: Illinois 2025 Sales Tax Letter Rulings
• Original PDF: ST25-0055-GIL.pdf

Original ruling text

ST 25-0055-GIL

10/24/2025

MOTOR VEHICLES

This letter responds to a survey concerning taxation of vehicles. (This is a GIL.) October 24, 2025 NAME1 COMPANY EMAIL1 Dear NAME1: This letter is in response to your letter dated October 3, 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 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 COMPANY 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 COMPANY as well as to motor vehicle dealers within STATE who sell vehicles to residents of your state. To ensure our COMPANY continues to use and distribute accurate information, we are requesting that your agency review the specific information related to your

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October 24, 2025
state and let us know of any changes in writing that occurred in the past year or will occur for 2026. A copy of our publication, PUBLICATION), is attached for your convenience. This request is for the state of Illinois and has been sent to NAME2, NAME3, and NAME4 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, 2025. 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 105/3-10. The Retailers’ Occupation Tax Act and Use Tax Act defines “selling price” or the “amount of sale,” in

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October 24, 2025
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 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. 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. 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. 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 3603 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 nonreciprocal 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 6%, 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 6%.

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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, assign NAME5 (EMAIL2) as the designated contact regarding sales and use tax imposed on motor vehicles. Very truly yours,

George L. Encarnacion, Jr.
Associate Counsel
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