Did Illinois Watercraft Use Tax apply to a private-party boat purchase, and could IDOR remove a late-payment penalty?

Plain-English summary

A person bought a boat from a private party, learned during registration that Illinois tax was due, paid it, and then received a late-payment penalty. The buyer argued that the tax was unknown and the payment was made as soon as requested.

IDOR explained that an ordinary isolated or occasional sale could avoid Retailers' Occupation Tax and corresponding Use Tax, but specialized statutes applied to aircraft, watercraft, and vehicles. The Watercraft Use Tax covered watercraft acquired by gift, transfer, or nonretail purchase and contained no occasional-sale exemption.

The tax was 6.25% of purchase price, not less than fair market value unless the purchaser documented a reasonable different value.

Only the Board of Appeals could waive penalty or interest. Reasonable cause required ordinary business care and prudence plus inability to file on time; merely not knowing the tax was due generally did not qualify. The taxpayer could petition on Form BOA-1.

What this means for you

A private-party boat sale is not tax-free merely because an ordinary occasional sale might be. Pay attention to the separate Watercraft Use Tax and its filing deadline. Penalty relief is discretionary and handled through the Board of Appeals.

Common questions

Did private-party status eliminate the boat tax? No.

Could IDOR Legal Services waive the penalty? No.

Was ignorance of the tax generally reasonable cause? No.

Citations and references

• 35 ILCS 158/15-1 et seq. and 158/15-15.
• 86 Ill. Adm. Code 153.110.
• 86 Ill. Adm. Code 130.110 and 150.101(d).
• 86 Ill. Adm. Code 210.120.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2015.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2015/st-15-0055-gil.pdf

Original ruling text

ST-15-0055 GIL – August 27, 2015 - MISCELLANEOUS
Only the Board of Appeals has the authority to abate penalty and interest. (See
86 Ill. Adm. Code 210.120.) (This is a GIL.)

August 27, 2015

Dear Mr. XXXX:
This letter is in response to your Consumer Complaint dated July 27, 2015, 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:
I filed to have a boat I purchased registered with IL DNC. They returned my
application after a month and stated I needed to file to pay taxes. I paid the taxes and
refiled for registration. In July the IL IRS sends me a bill for a penalty of $42 on a tax of
$106 that I paid to them for the boat sales tax.
I would like to have the penalty removed. I was not aware that I needed to pay
taxes on my boat, I did not have to do so the last time I purchased a boat from a private
party. I paid the tax as soon as I was made aware that it was due. I am an honest
citizen who tried to do the right thing. I already paid 5% income taxes on the money I
earned to buy the boat. Then I paid 6.25% sales tax on the purchase price of the boat.
Now I am being penalized an additional 3% for being 30 days late on a tax I did not
even know I owed. I paid the tax before the IRS requested it, and as soon as I could.
The penalty as a afterthought it[sic] not warranted. There was no intent to defraud or
deny the tax due.
DEPARTMENT’S RESPONSE:
Sales Tax:

The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling at retail 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 the 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 their Retailers' Occupation Tax liability incurred on those sales. If the purchases occur
outside Illinois, purchasers must self assess their Use Tax liability and remit it directly to the
Department.
A person does not incur Retailers' Occupation Tax liability on the gross receipts from an
isolated or occasional sale. See 86 Ill. Adm. Code 130.110 regarding "Occasional Sales."
Consequently, the purchaser of that tangible personal property does not incur a corresponding Use
Tax liability on that purchase. See 86 Ill. Adm. Code 150.101(d). As a general proposition, the
occasional sale exemption is only available when a person (as defined in Section 1 of the Retailers’
Occupation Tax Act, 35 ILCS 120/1) purchases an item and then, after using the item, disposes of it
by selling it. See 86 Ill. Adm. Code 130.110. However, the sale will not qualify as an isolated or
occasional sale if the person holds himself out as being engaged in the retail sale of that item or
similar type of tangible personal property.
Even though a purchaser may not incur a Use Tax liability on a purchase of tangible personal
property in an occasional sale transaction, the purchaser of specific types of tangible personal
property may still incur a tax liability in this State under the Aircraft Use Tax Law (35 ILCS 157/10-1
et. seq.), Watercraft Use Tax Law (35 ILCS 158/15-1 et. seq.), or Vehicle Use Tax (625 ILCS 3/31001 et. seq.).
The Watercraft Use Tax is a privilege tax imposed on the privilege of using, in this State,
watercraft acquired by gift, transfer, or non-retail purchase after September 1, 2004. Typically, this
tax is incurred when someone buys a watercraft from a private party (a non-retail transaction). The
tax is imposed on the use of watercraft in this State regardless of whether the watercraft is actually
registered under the Boat Registration and Safety Act. The rate of tax is 6.25% of the purchase price
for each watercraft that is subject to tax under the Law. 35 ILCS 158/15-15. However, the purchase
price shall not be less than the fair market value of the watercraft on the date the watercraft is
purchased or the date the watercraft is brought into the State, whichever is later, unless the
purchaser can document that a different value is reasonable. See 86 Ill. Adm. Code 153.110. The
Watercraft Use Tax does not contain an exemption for isolated or occasional sales.
Board of Appeals:
Only the Board of Appeals has the authority to abate penalty and interest. Title 86, Section
210.120 of the Illinois Administrative Code governs abatement of penalty and interest. (See 86 Ill.
Adm. Code 210.120.) That Section reads as follows:
“Section 210.120 Waiver of Penalty and Interest

a)

A petition for abatement of a penalty or interest may be filed only in cases where the
Department has no other established procedure of determination of the issue.

b)

The Board may waive penalty or interest only in the following situations:
1)

A late filing due to Reasonable Cause; or

2)

Unreasonable delays caused by the Department in any process under the control
of the Department; or

3)

A timely payment has been made to the Department by a person other than the
person who is actually liable for the tax; or

4)

The Board has taken special jurisdiction over a case pursuant to Section
210.130; or

5)

Where otherwise provided for by statute.

c)

If the taxpayer exercised ordinary business care and prudence and was nevertheless
unable to file the return within the prescribed time, the delay is due to a reasonable
cause.

d)

The Board may consider taxpayer's compliance history including previous tax violations
with the Department in considering taxpayer's petition for relief based on reasonable
cause.”

Reasonable cause for the late filing of tax has been found where the late filing is due to some
unavoidable circumstance--such as the death of an accountant. Generally, a statement that the
taxpayer did not know the tax was due does not constitute reasonable cause for the purpose of
abating penalty.
Notwithstanding, taxpayers can petition the Board of Appeals to abate or reduce some of the
interest if they desire to do so. The Board of Appeal Petition (BOA-1) is available on our website at
www.tax.illinois.gov. Also available on our website are the Illinois Administrative Code Sections
210.101 through 210.135 which are the regulations relating to the Board of Appeals. 86 Ill. Adm.
Code 210.101 – 210.135.
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:mdb

Cc: Illinois Attorney General – Consumer Protection Division