Can an Illinois retailer exclude used gaming hardware or software traded toward a new item?

Plain-English summary

Illinois excluded trade-in value from taxable gross receipts only when the property accepted was of like kind and character to the property sold. The traded item also had to be taken as all or part of the consideration for the new sale.

The retailer could accept multiple traded items toward one or more new items. Illinois required sufficient books and records but no special trade-in certificate. The requester proposed old-system-for-new-system and old-game-for-new-game examples; the Department supplied the rule but said a GIL could not give a specific answer.

What this means for you

Record the item received, its value, the item sold, and why they are of like kind and character.

Common questions

Q: Can several items be traded toward one purchase?
A: Yes, if all qualification requirements are met.

Q: Is a special trade-in certificate required?
A: No, but sufficient books and records are required.

Citations and references

• 86 Ill. Adm. Code 130.101, 130.401, and 130.425
• 2 Ill. Adm. Code 1200.120 (GILs)

Subject

Trade-Ins

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2010.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2010/st-10-0072.pdf

Original ruling text

ST 10-0072-GIL 08/11/2010 TRADE-INS
In order to properly take a trade-in deduction, the item being traded-in must be of like kind and
character as that which is being sold. See 86 Ill. Adm. Code 130.425. (This is a GIL.)

August 11, 2010

Dear Xxxxx:
This letter is in response to your letter dated June 14, 2010, in which you request 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:
This letter is to request a formal written opinion on the taxability of exchanging gaming
hardware and software (i.e. XBox gaming systems and games) and using that
exchange towards the purchase of new gaming hardware or software. The sales
scenario is as follows:
The customer would bring us their used piece of gaming software or hardware which we
would value. That dollar value would then be applied towards the purchase of a new
piece of gaming hardware or software (see the examples below).
SCENARIO 1
New XBOX 360 System

$499.00

Used XBOX

-$100.00

Amount owed by customer $399.00
SCENARIO 2
New XBOX 360 Game

$50.00

Used XBOX game value

-$15.00

Amount owed by customer $35.00
Illinois Department of Revenue Regulations section 130.101 imposes a tax on the sale
of tangible personal property:
The Retailers' Occupation Tax Act (the Act) [35 ILCS 120] imposes a tax
upon person engaged in this State in the business of selling tangible
personal property to purchasers for use or consumption. The tax is
measured by the seller’s gross receipts from such sales made in the
course of such business.
Illinois Department of Revenue Regulations section 130.425(d) provides (regarding the
taxability of trade-ins):
(d) The real test is whether the retail sale of the traded-in tangible
personal property by the person who accepts it in trade would be subject
to the Retailers' Occupation Tax, or whether such sale would be exempt
as an isolated or occasional sale. In the former event, the tangible
personal property qualifies for the trade-in exemption. In the latter event,
it does not.”
Illinois Department of Revenue section 130.425(e) further provides:
(e) The value of tangible personal property taken by a seller in trade as all
or a part of the consideration for a sale, where the item that is traded-in is
of like kind and character as that which is being sold, shall not be
considered to be ‘gross receipts’ subject to the Retailers' Occupation Tax
and need not be included in the seller’s return, or may be deducted in the
return from gross receipts if included in gross receipts as reported in the
return.
Based on the law cited above, it is our understanding that sales tax would be computed
on the amount after the discount is taken ($399.00 and $35.00 in the scenarios above).
We respectfully request your assistance in confirming the accuracy of our analysis.

DEPARTMENT’S RESPONSE:
Although we cannot give you a specific answer in the form of a General Information Letter, we
hope you find the following helpful.
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. The tax is
measured by the seller’s gross receipts from such sales made in the course of such business. See 86
Ill. Adm. Code 130.101 which can be found on the Department’s website. “Gross receipts” are
considered to mean all the consideration actually received by the seller, except traded-in tangible
personal property. See 86 Ill. Adm. Code 130.401 and 130.425 which can also be found on the
Department’s website. The tangible personal property must be taken by the seller in trade as all or
part of the consideration for a sale. See Section 130.425(e).

No specific certification is required to document a trade-in. However, the retailer must maintain
sufficient books and records to document such trade-ins. A purchaser may trade-in more than one
item toward the purchase of another item or items from a retailer. Please note, though, that the item
or items to be traded-in must be of like kind and character as that which is being sold. See Section
130.425.
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,

Debra M. Boggess
Associate Counsel
DMB:msk