How did Illinois tax retail and private-party vehicle transfers, military purchases, trade-ins, and motor-vehicle leases in 2011?

Plain-English summary

This GIL answered a multistate survey about vehicle taxation and long-term leases. It described Illinois's rules as of 2011 and did not approve the private publication that requested them.

Retail and private-party transfers

Retail sales of automobiles, trucks, motor homes, mobile homes, trailers, boats, motorcycles, and off-road vehicles were subject to Retailers' Occupation Tax and Use Tax. The GIL stated a 6.25% Illinois state rate, plus possible local taxes.

The occasional-sale rule did not eliminate separate taxes on private-party transfers. Vehicle Use Tax applied to motor vehicles, Watercraft Use Tax to certain watercraft, and Aircraft Use Tax to aircraft.

Like-kind trade-in allowances were available in retail transactions. They were not authorized for nonretail Vehicle, Watercraft, or Aircraft Use Tax transactions.

Illinois could recognize properly due sales or use tax paid to another state under the credit provisions cited in the letter.

Military buyers

Military personnel were not generally exempt from Illinois tax.

A military member whose home state of record was not Illinois could be treated as a nonresident for the drive-away exemption. The retailer had to follow the permit procedures and obtain the required purchaser certification. The letter separately pointed to nonresident exemption rules for a vehicle bought overseas and later brought into Illinois.

Leases and short-term automobile rentals

Under the rules described, Illinois generally imposed no tax on receipts from a true motor-vehicle lease lasting more than one year. The lessor was the end user and owed Use Tax on its cost price. The GIL said there was no prorated refund merely because the vehicle later left Illinois.

Automobiles rented for one year or less instead fell under the Automobile Renting Occupation and Use Tax. The 2011 GIL stated a 5% tax on gross receipts and allowed vehicles acquired for those rentals to be purchased without Retailers' Occupation or Use Tax.

What this means for you

Vehicle dealers

Distinguish retail sales from private-party transfers, document like-kind trade-ins, and follow the exact drive-away certification procedure for qualifying nonresident buyers.

Lessors and rental companies

Lease duration changed the 2011 framework. More-than-one-year true leases put Use Tax on the lessor's cost, while rentals of one year or less used the separate receipts tax.

Common questions

Q: Did an occasional private vehicle sale escape all Illinois transfer tax?
A: No. A separate Vehicle, Watercraft, or Aircraft Use Tax could apply.

Q: Were military purchasers automatically exempt?
A: No. The GIL said military personnel were not generally exempt.

Q: Was a trade-in allowance available in a private-party transfer?
A: No under the nonretail transfer taxes discussed.

Q: Are the 6.25% and 5% rates current?
A: This page reports the rates stated in the 2011 GIL. Verify current law and rates.

Citations and references

• 35 ILCS 120/2 and 2-10; 35 ILCS 105/3 and 3-10 — retail sales and use taxes and the 2011 state rate.
• 86 Ill. Adm. Code 130.110; 151.101, 152.101, and 153.101 et seq. — occasional sales and private-transfer taxes.
• 35 ILCS 105/3-55(d) and 86 Ill. Adm. Code 150.310(a)(3) — credit for qualifying tax paid to another state.
• 86 Ill. Adm. Code 130.605, 150.310, and 150.315 — drive-away and nonresident rules.
• 86 Ill. Adm. Code 130.220 — lessor as end user under a true lease.
• 35 ILCS 155/1 et seq. and 86 Ill. Adm. Code 180.101, 180.120, and 180.125 — automobile rentals of one year or less.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0076.pdf

Original ruling text

ST 11-0076-GIL 09/15/2011 MOTOR VEHICLES
This letter responds to a survey concerning taxation of vehicles and updates answers to a
previous survey. See 86 Ill. Adm. Code 130.605, 150.310, 150.315, 151.101 et seq., and
180.101 et seq. (This is a GIL.)

September 15, 2011

Dear Xxxxx:
This letter is in response to your e-mail dated July 25, 2011 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:
Each year the ABC requests that your agency complete the attached questionnaires
concerning the taxability of various types of motor vehicle transactions within your state.
The information we obtain from your response to these questionnaires is beneficial to
our Department and to those motor vehicle dealers within our state that make sales to
residents of your state.
So that our Department may continue to use and distribute accurate information about
the taxability of motor vehicles in your state, we would greatly appreciate your
cooperation in completing the attached questionnaires. Please complete the
questionnaires even if there have been no changes in your state’s tax laws or policies.
A copy of the document that we generated from the information we received from your
agency last year is attached to this e-mail. Your agency may also want to review this
document to note any changes that have occurred from last year to this year.
Thank you very much for your assistance.

DEPARTMENT’S RESPONSE:

The Department cannot approve publications other than those issued by the Department of
Revenue. However, we hope the following information will provide sufficient guidance to answer your
questions and update our answers to last year’s survey questions.
The first part of your questionnaire asks for a response to its questions for 8 different types of
vehicles: automobiles, trucks, motor homes, mobile homes, trailers, boats, motorcycles, and off-road
vehicles.
1.

“Is this item taxed under your sales or use tax statutes? YES or NO”

The Retailers' Occupation Tax Act imposes a tax upon persons engaged in the business of
selling at retail tangible personal property. (35 ILCS 120/2) The Use Tax Act imposes a tax upon the
privilege of using in this State tangible personal property purchased at retail from a retailer. (35 ILCS
105/3) Each of the items listed in your questionnaire is subject to the Retailers’ Occupation Tax and
the Use Tax.
2.

“If YES, at what rate?”

The State rate of tax imposed under the Retailers’ Occupation Tax Act (35 ILCS 120/2-10) and
the Use Tax Act (35 ILCS 105/3-10) is 6.25%. Additional taxes may be imposed by units of local
government.
3.

“If NO, is this item taxed under another section of your statutes? YES or NO”
Not applicable.

4.

“If YES, please explain.”
Not applicable.

5.

“Does your state exempt occasional or isolated sales between individuals of
motor vehicles? YES or NO”

The Retailers’ Occupation Tax Act does contain an occasional sale provision, which is
discussed at 86 Ill. Adm. Code 130.110. However, the Vehicle Use Tax is imposed on transfers of
motor vehicles between private parties (See 86 Ill. Adm. Code 151.101 et seq.), the Watercraft Use
Tax is imposed on transfers of certain watercraft between private parties (See 86 Ill. Adm. Code
153.101 et seq.), and the Aircraft Use Tax is imposed on transfers of aircraft between private parties
(See 86 Ill. Adm. Code 152.101 et seq.). These taxes imposed on transfers between private parties
(non-retailers) do not exempt isolated or occasional sales.
6.

“Do your statutes provide for a maximum amount of tax or tax rate? YES or NO”

The State rate of tax imposed under the Retailers’ Occupation Tax Act and the Use Tax Act is
6.25%. Additional taxes may be imposed by units of local government. Some local taxes have rate
caps, some do not. The rate of tax imposed under the Watercraft Use Tax Law and the Aircraft Use
Tax Law is 6.25%. For maximum rates under the Vehicle Use Tax, see 86 Ill. Adm. Code 151.101 et
seq.
7.

“Do your statutes provide for tax computation after trade-in allowance? YES or
NO”

Yes, in retail transactions where the item that is traded-in is of like kind and character as that
which is being sold. No, in non-retail transactions. For example, no trade-in allowance is authorized
under the Vehicle Use Tax, the Watercraft Use Tax, or the Aircraft Use Tax.
8.

“If a resident of your state purchases and takes possession of a new or used
motor vehicle in Florida, to be licensed within 45 days in your state, and pays
sales tax to Florida at the rate applicable in your state, not to exceed 6%, would
your state recognize sales tax paid in Florida as being lawfully imposed? (SEE s.
212.08(10)(a), F.S., on the second page.)”
See 35 ILCS 105/3-55(d).

9.

“Are the sales of motor vehicles to military personnel who are residents of your
state exempt? YES or NO”
Please note that military personnel are not generally exempt from taxation in Illinois.

10.

“If yes, please explain and/or list statutory or regulatory reference.”
Not applicable.

11.

“If a nonresident military member, who is stationed in your state, purchases and
takes possession of a motor vehicle in your state but chooses to title/register the
vehicle in his/her home state of record, is the motor vehicle subject to your
state’s sales tax? YES or NO”

The retailer does not incur Retailers’ Occupation Tax if the drive-away permit procedures
found at 86 Ill. Adm. Code 130.605(b)(1) are followed. For purposes of the drive-away permit
exemption, Illinois considers a member of the military whose home state of record is not Illinois to be
a nonresident. To document eligibility for the drive-away permit exemption, the retailer must have the
purchaser sign a certification that states: “I, (purchaser), under applicable penalties, including
penalties for perjury and fraud, state that I am not an Illinois resident. I understand that if I am a
resident of Illinois or use the motor vehicle in Illinois for 30 or more days in a calendar year, I am also
liable for tax, penalty and interest on this purchase." (See 86 Ill. Adm. Code 130.605(b)(1)(A)(ii) and
86 Ill. Adm. Code 150.310(a)(7))
12.

“If a nonresident military member is stationed overseas, purchases a motor
vehicle while overseas but is subsequently assigned to duty in your state, is the
motor vehicle subject to your state’s use tax if the nonresident military member
chooses to title/register the vehicle in his/her home state of record, YES or NO”
See 35 ILCS 105/3-70 and 86 Ill. Adm. Code 150.315 concerning nonresident exemptions.

The second part of your questionnaire concerns only the "long-term" lease of motor vehicles.
THE FOLLOWING QUESTIONS PERTAIN TO THE LONG-TERM LEASE OF MOTOR
VEHICLES. PLEASE ADD ADDITIONAL COMMENTS AS NEEDED:
1.

“Is the long-term lease (12 months or more) of a motor vehicle taxed under your
sales or use tax laws or statutes? YES or NO”

Except as noted below, the State of Illinois imposes no tax on rental receipts. Consequently,
lessees incur no tax liability. Lessors of tangible personal property under true leases in Illinois are
deemed end users of the property to be leased. See 86 Ill. Adm. Code 130.220. As end users of
tangible personal property located in Illinois, lessors owe Use Tax on their cost price of such property.
There is an exception to this rule for automobiles leased under terms of one year or less, which are
subject to the Automobile Renting Occupation and Use Tax found at 35 ILCS 155/1 et seq. and 86 Ill.
Adm. Code 180.101. This tax is imposed at the rate of 5% of the gross receipts from such business.
"Gross receipts" from the renting of tangible personal property or "rent," means the total rental price
or leasing price. See also, 86 Ill. Adm. Code 180.120 and 180.125. When automobiles are purchased
to be used as rental cars for terms of one year or less, they may be purchased without paying
Retailers' Occupation Tax or Use Tax.
2.

“If YES, at what rate?”
See answer to question 1 above.

3.

“If NO, is the long-term lease of a motor vehicle taxed under another section of
your statutes?
YES or NO
If yes, please explain.”
See answer to question 1 above.

4.

“If the long-term lease of a motor vehicle is subject to sales tax, is the tax
required to be paid ‘up front’ on the lease? YES or NO
If YES, is the tax lawfully imposed on the lessor or lessee?”

As indicated in the answer to question 1 above, the lease payments on the lease of a motor
vehicle for more than one year are not subject to tax in Illinois. However, when the lessor purchases
the motor vehicle to lease it for a period greater than one year, the lessor owes Use Tax on its cost
price of such property.
5.

“If the tax is required to be paid ‘up front’, and the vehicle leaves your state, is
there a prorated credit or refund allowed for taxes previously paid? YES or NO”

No. The tax paid "up front" in this instance is a Use Tax owed by the lessor who is leasing the
motor vehicle for a period greater than one year.
6.

“If a vehicle that was leased in another state is brought into your state, are the
subsequent rental payments subject to sales or use tax? YES or NO”

No. The State of Illinois imposes no tax on rental receipts from the lease of a motor vehicle for
more than one year. Consequently, lessees incur no tax liability. However, prior to registering the
vehicle, Illinois Use tax must be paid on the motor vehicle. Illinois will give credit for sales or use
taxes properly due and paid in another state. See 86 Ill. Adm. Code 150.310(a)(3).
7.

“If YES, is credit given for tax previously paid to another state on rental
payments? YES or NO”
See answer to question 6 above.

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.
Sincerely,

Samuel J. Moore
Associate Counsel
SJM:msk