What does Illinois Private Letter Ruling ST 18-0013-PLR conclude about Automobile Renting Tax?

Plain-English summary

The Illinois Department of Revenue ruled that a company operating a web-based mobile app that leases used vehicles to customers is subject to the state's Automobile Renting Occupation and Use Tax ("ART"), not the Retailers' Occupation Tax or Use Tax, on the gross receipts it collects from those leases.

Under the company's model, a customer applies through the app, the company then buys the requested vehicle from a dealer, titles it in the company's name, and registers it to the customer. The lease agreement had an initial stated term of 45 days that automatically renewed monthly, could be cancelled by the customer on 5 days' notice, and ran for a maximum of six years if never cancelled. Under Illinois law, "renting" of a first division automobile for ART purposes is any transfer of possession for a period of one year or less, and the Department looks at whether the lease's stated term ever legally binds the customer to more than a year -- not at how long the arrangement might run in the aggregate through renewals. Because the customer here was never contractually locked in beyond the initial 45 days (and could always exit on 5 days' notice), the lease qualified as a rental of one year or less.

That classification matters because ART and the sales/use tax system are mutually exclusive for a rentor's vehicles: a company that rents automobiles under one-year-or-less terms owes 5% ART on its rental gross receipts (plus possible local ART and, in Cook County, the Metropolitan Pier and Exposition Authority tax), but does not owe Retailers' Occupation Tax on those rental receipts, and does not owe Use Tax when it purchases the vehicles it will rent out, provided it properly certifies its rentor status to the selling dealer. The Department applied the same one-year-binding-term test it had used in earlier letter rulings involving government and other lessees, confirming that the length of the stated, binding term -- not the availability of renewal options -- controls.

What this means for you

Vehicle leasing and car-sharing companies

If your business leases vehicles to Illinois customers under agreements that never contractually bind the customer beyond one year -- even if the arrangement can run much longer through renewals the customer chooses to accept -- your gross receipts from those leases are likely subject to ART rather than Retailers' Occupation Tax. You would register as a rentor, collect and remit the 5% state ART (plus applicable local ART) using Form ART-1, and give proper certification to the dealer so your vehicle purchases for rental are exempt from Use Tax.

Accountants and tax professionals

The key test is whether the lease's stated initial term legally binds the lessee for more than one year, examined independently rather than by aggregating all possible renewal periods. This ruling reaffirms the standard set out in earlier PLRs (e.g., ST 92-0172-PLR) and GIL ST 02-0106-GIL: a lease that never binds the lessee beyond 12 months at any point is ART-eligible even if renewal options could extend it for years. Watch for agreements with early-termination rights (like the 5-days'-notice provision here), which reinforce that the customer is never locked in long-term.

Businesses considering reliance on this ruling

This is a private letter ruling addressed to one specific, unnamed company based on the facts it submitted -- it does not create a general rule other taxpayers can cite. If your lease terms, termination rights, or business model differ, the analysis could come out differently, and you should not assume this ruling covers your situation without your own written guidance from the Department.

Common questions

Q: Does a lease with renewal options automatically become subject to ART, or can it be treated as longer-term?
A: The Department looks only at whether the stated, binding term itself exceeds one year -- not at the total time a lease might run through renewals the customer chooses to accept. A lease that never contractually binds the customer beyond one year is treated as an ART-taxable rental, regardless of how long it might ultimately continue.

Q: If a company's vehicle leases are subject to ART, does it still owe sales or use tax on the vehicles?
A: No. The ruling confirms that rentors under one-year-or-less lease terms incur neither Use Tax on the vehicle's purchase price nor Retailers' Occupation Tax on rental receipts; instead they owe only ART on gross rental receipts, so long as the rentor properly certifies its status to the selling dealer.

Q: Can another company rely on this PLR for its own vehicle-leasing app?
A: No. This ruling is a Private Letter Ruling that binds the Department only as to the taxpayer who requested it (referred to here as "COMPANY"), and only to the extent the facts it described were correct and complete. Other businesses -- even with similar app-based leasing models -- cannot rely on it and would need to request their own ruling or consult a tax professional to confirm how ART applies to their specific lease terms.

Q: How long does this ruling remain binding, even for the taxpayer who received it?
A: Per 2 Ill. Adm. Code 1200.110(e), the ruling text notes it is revoked and ceases to bind the Department 10 years after the date of the letter (December 27, 2018), or earlier if there is a pertinent change in statutory law, case law, rules, or in the facts on which it was based.

Citations and references

Statutes and regulations:

• 35 ILCS 155/1 et seq. (Automobile Renting Occupation and Use Tax Act)
• 35 ILCS 155/2 (definitions of "renting," "rentee," "gross receipts")
• 35 ILCS 155/3 (5% tax on rentors' gross receipts; registration requirement)
• 35 ILCS 120/2-5(5) (Retailers' Occupation Tax Act exemption for vehicles used for automobile renting)
• 86 Ill. Adm. Code 180.101, 180.115, 180.120, 180.125, 180.140 (ART rules: definitions, registration, gross receipts, Form ART-1)
• 86 Ill. Adm. Code 130.220, 130.2010(c) (Retailers' Occupation Tax exemption for vehicles purchased for rental)
• 2 Ill. Adm. Code 1200.110 (PLR procedure, binding effect, and expiration)
• 55 ILCS 5/5-1032 - 5/5-1033; 65 ILCS 5/8-11-7 - 5/8-11-8; 70 ILCS 210/13 (local ART rates and Cook County MPEA tax)

Related Department guidance cited in this ruling:

• Private Letter Ruling No. ST 92-0172-PLR (Mar. 27, 1992)
• General Information Letter ST 02-0106-GIL (May 3, 2002)
• Private Letter Ruling No. ST 02-0030-PLR (Dec. 17, 2002)
• Private Letter Ruling No. ST 03-0027-PLR (Nov. 19, 2003)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2018.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2018/st-18-0013-plr.pdf

Original ruling text

ST 18-0013-PLR 12/27/2018 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.)
December 27, 2018
Dear Xxx
This letter is in response to your letter dated November 28, 2018, 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.
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 COMPANY, 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 COMPANY 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:
Pursuant to 2 III. Admin. Code § 1200.110, COMPANY by its undersigned counsel
requests that the Illinois Department of Revenue (the “Department”) issue a private letter ruling
confirming that the gross receipts derived by COMPANY pursuant to its motor vehicle lease
agreements are subject to Illinois state and local automobile renting occupation taxes.
A power of attorney executed by COMPANY in connection with this request is attached
hereto as Exhibit A. To the best of the knowledge of both the COMPANY and its undersigned
counsel the Department has not previously ruled on the same or a similar issue for COMPANY
or a predecessor, nor has COMPANY or its representatives previously submitted the same or a
similar issue to the Department but withdrew it before a letter ruling was issued.
I.

Factual Background

COMPANY provides a service using a web-based mobile application that allows
customers to lease used vehicles on flexible terms without an extended fixed term by assisting
each customer with finding vehicles at nearby vehicle dealers for use based on the customer’s
desired periodic payment. All these vehicles are first division automobiles for purposes of Illinois
law.

ST 0013-PLR
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December 27, 2018
Each customer submits information to COMPANY and COMPANY reviews and approves
the customer’s application and the customer enters into a COMPANY Agreement that governs
the terms of service and the customer’s use of the vehicle. Once the customer selects the
vehicle, COMPANY purchases the vehicle from the dealer, titles the vehicle in its own name,
and registers the vehicle in the name of the customer.
Under the COMPANY Agreement, the customer’s lease of the desired vehicle has an
initial term of 45 days with an option to renew on a monthly basis. The customer may terminate
the agreement by returning the vehicle to COMPANY upon five days’ notice to COMPANY
except in the case of a termination due to default, conversion, destruction, total loss seizure, or
upon reaching a maximum term of six years. Following an initial “Start Payment,” payments are
due periodically on a monthly basis or, in the case of a customer who will operate the vehicle as
part of a ridesharing network, a weekly basis. Payments include not only access to and use of
the identified vehicle but also routine maintenance, roadside assistance, a limited warranty, and,
at the customer’s option and for an additional amount, valid insurance with legally-sufficient
coverage. All payments are made directly to COMPANY by the customer via the COMPANY
mobile application. A copy of a model COMPANY Agree is attached hereto as Exhibit B.
COMPANY engages in the business of renting its vehicles from its business location in
Illinois and is registered with the Department as Illinois Account ID ### and for state and local
automobile rental occupation taxes with purchaser’s account ID no. ###.
II.

Statement of Applicable Laws

Persons who are engaged in the business of renting first division automobiles in Illinois
under rental terms of one year or less are designated as rentors subject to state and local
automobile renting occupation and use taxes (collectively, “ART”). 35 ILCS 155/3 provides in
relevant part that ART “is imposed upon persons engaged in this State in the business of renting
automobiles in Illinois at the rate of 5% of the gross receipts received from such business.”1
Every person engaged in the business of renting automobiles in Illinois is required to register
with the Department. 35 ILCS § 155/3; see also 86 Ill. Admin Code § 180.115.
The “gross receipts” subject to ART is defined as the “total rental price”, which is in turn
defined generally to include all “consideration for renting or leasing an automobile valued in
money, whether received in money or otherwise” but excluding “compensation paid to a rentor
by a rentee in consideration of the waiver by the rentor of any right of action or claim against the
rentee for loss or damage to the automobile rented and also does not include a separately stated
charge for insurance or recovery of refueling costs or other separately stated charges that are
not for the use of tangible personal property.” 35 ILCS § 155/2; see also 86 Ill. Admin. Code §§
180.120 – 180.125. ART on the taxable “gross receipts” is collected from rentees by the rentor
and remitted to the Department on a monthly basis with Form ART-1, Automobile Renting
Occupation and Use Tax Return on or before the twentieth day of the following month. See 86
Ill. Admin. Code § 180.140.
1

In addition to the 5% state ART rate, a 1% local ART rate may be imposed by either a city or, outside a city, a county with respect to
its unincorporated areas, although in Cook County an additional 6% Metropolitan Pier and Exposition Authority tax applies. See 55
ILCS §§ 5/5-1032 – 5/5-1033; 65 ILCS §§ 5/8-11-7 – 5/8-11-8; 70 ILCS § 210/13.

ST 0013-PLR
Page 3
December 27, 2018
Renting” of first division automobiles subject to ART is defined as “any transfer of the
possession or right to possession of an automobile to a user for a valuable consideration for a
period of one year or less.” 35 ILCS § 155/2 (emphasis added); 86 Ill. Admin. Code §
180.101(a) (same). Accordingly, the “rentee” of such an automobile is defined similarly as “any
user to whom the possession, or the right to possession, of an automobile is transferred for a
valuable consideration for a period of one year or less, whether paid for by the ‘rentee’ or by
someone else.” Id.
Automobiles purchased by rentors for purpose of renting are exempt from retailers’
occupation and use taxes due upon purchases of motor vehicles, including motor vehicles
purchased for lease. The sale of tangible personal property, including motor vehicles, to a
purchaser who will act as a lessor of such property is a sale at retail and is generally subject to
retailers’ occupation tax. 86 Ill. Admin. Code § 130.220(a). However, an exemption from retailers’
occupation and use taxes exists for any “sale of an automobile to an automobile rentor for use
as a rental automobile under lease terms of one (1) year or less, provided the lessor gives proper
certification to the seller.” 86 Ill. Admin. Code § 130.220(b). The Department’s regulation
summarizes this treatment at 86 Ill. Admin. Code § 130.2010 (c) as follows:
Rentors of automobiles under lease terms of one year or less incur neither
Use Tax liability on the cost price of the vehicle(s), nor Retailers’ Occupation
Tax liability on rental receipts. Persons engaged in this State in the business
of renting automobiles in Illinois under lease terms of one year or less incur
liability under the Automobile Renting Occupation and Use Tax Act [35 ILCS
155]. The Automobile Renting Occupation Tax rules are found at 86 Ill.
Adm. Code 180.
The Department examines whether a lease term is of one year or less for purposes of
ART by examining the initial stated term independently rather than the possible aggregate term
including all renewal and extension options granted to the lessee. For example, the Department
opined in Private Letter Ruling No. ST 92-0172-PLR (Mar. 27, 1992) under the following
circumstances, in relevant part and with emphasis added:
Your customer will lease the automobiles to the federal government . . . and
the lease of each automobile will be for a lease term of 12 months. Each
lease will also contain a renewal option in favor of the lessee for two
separate additional 12 month periods. As we understand that, the lease of
each automobile is for a 12 month term and at the expiration of that initial
12 month term, the lessee will have the option to renew for another 12
months. At the expiration of that second 12 month term, the lessee will have
the option to renew for another 12 months. In any event, the lessee is never
bound to a lease term of longer than 12 months for any automobile.
So long as the lease term for each automobile never binds the lessee
for a period longer than one year, your customer’s leasing activity is
subject to the provisions of the Automobile Renting Occupation Tax.

ST 0013-PLR
Page 4
December 27, 2018
See also General Information Letter ST 02-0106-GIL (May 3, 2002) (applying the standard set
forth by Private Letter Ruling No. ST 92-0172-PLR and determining that ART does not apply
where “the lease agreement ‘binds’ the parties to a lease term of greater than one year”); Private
Letter Ruling No. ST 02-0030-PLR (Dec. 17, 2002) (same); Private Letter Ruling No. ST 030027-PLR (Nov. 19, 2003) (same).
III.

Legal Analysis

The gross receipts derived by COMPANY pursuant to its motor vehicle lease agreements
with Illinois lessees are subject to ART because the COMPANY Agreement has a stated term
of 45 days and never binds the lessee for a period of longer than one year.
Paragraph 1 of the COMPANY Agreement, titled “Monthly Use Agreement”, states a term
of the Agreement providing use of a first division automobile for a [sic] 45 days with options
granted to the customer to extend the term thereafter until and/or unless certain contingencies
arise:
This Agreement is between you and COMPANY, and not the dealership
delivering the COMPANY Vehicle. This Agreement runs for a period of 45
days from the first date above and automatically renews on a monthly basis,
unless cancelled under paragraph 9 or until you return the COMPANY
Vehicle on 5 days’ notice to us. This Agreement ends: (i) when you return
the COMPANY Vehicle as described in paragraph 5; (ii) when we terminate
the Agreement under paragraph 11; (iii) after you reach a maximum use
period of six (6) years; or (iv) if the COMPANY Vehicle is stolen, destroyed,
involved in a total loss or seized by the government as described in
paragraph 5.
Paragraph 5 of the COMPANY Agreement allows a customer to return the automobile to
COMPANY for any reason upon 5 days’ notice to COMPANY. The COMPANY Agreement will
terminate and no longer bind the customer on the later of 5 days from the notice date or the date
of physical return of the automobile to COMPANY. The customer’s only residual obligation is
payment for the accrued portion of the periodic payment and any outstanding amounts owing to
COMPANY. Alternatively, Paragraph 11 of the COMPANY Agreement allows COMPANY to
terminate the agreement and/or take other actions if the customer breaches any of its contractual
obligations to COMPANY.
These clear and straightforward provisions providing for an initial term of 45 days with
customer renewal options thereafter constitute a transfer of the possession or right to possession
of an automobile to a user for a valuable consideration for a period of one year or less. The
customer is never bound-neither at lease signing nor at any point thereafter-to the COMPANY
Agreement for more than one year. Indeed, the value proposition of COMPANY subscriptionbased motor vehicle leasing business model is that the terms evidenced in the COMPANY
Agreement are more flexible than conventional leases where the lessee is contractually
obligated to a term of greater than one year. COMPANY leases of first class automobiles are
therefore subject to ART on the gross receipts derived by COMPANY under the COMPANY

ST 0013-PLR
Page 5
December 27, 2018
Agreement and are not subject to retailers’ occupation or use taxes upon COMPANY purchases
of such automobiles for lease.
IV.

Requested Ruling

COMPANY by its undersigned counsel requests that the Department issue a private letter
ruling confirming the analysis set forth above and concluding that the gross receipts derived by
COMPANY pursuant to its motor vehicle lease agreements with Illinois lessees are subject [sic]
ART.
V.

Conclusion
We appreciate the Department’s attention to this request for private letter ruling.

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 set forth at 35 ILCS
155/1 et seq. See 86 Ill. Adm. Code 180.101. The Act defines “renting” as “any transfer of the
possession or right to possession of an automobile to a user for a valuable consideration for a period
of one year or less.” See 35 ILCS 155/2. 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. The Retailers’
Occupation Tax Act provides an exemption from tax for the sale of “[a] motor vehicle that is used for
automobile renting, as defined in the Automobile Renting Occupation and Use Tax Act.” (35 ILCS
120/2-5(5)).
Based upon the facts provided in your letter (and the model COMPANY Agreement attached),
leases of these first division automobiles by COMPANY under the COMPANY Agreement are subject
to the Automobile Renting Occupation and Use Tax. The Agreement provides that:
“This Agreement runs for a period of 45 days from the first date above and automatically
renews on a monthly basis, unless cancelled under paragraph 9 or until you return the
COMPANY Vehicle on 5 days’ notice to us.”
By these terms, these first division automobiles are rented for a period of one year or less. As a
result, the gross receipts from the rentals are subject to the Automobile Renting Occupation and Use
Tax. Therefore, no Retailers’ Occupation Tax or Use Tax is incurred when COMPANY purchases these
first division motor vehicles to be leased under the model COMPANY Agreement attached.
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 earlier if there is a pertinent change in
statutory law, case law, rules or in the factual representations recited in this ruling.

ST 0013-PLR
Page 6
December 27, 2018

I hope this information is helpful. If you have further questions concerning this Private Letter
Ruling, you may contact me at (217) 782-2844. If you have further questions related to the Illinois sales
tax laws, please visit our website at www.tax.illinois.gov or contact the Department’s Taxpayer
Information Division at (217) 782-3336.
Very truly yours,

Richard S. Wolters
Chairman, Private Letter Ruling Committee
RSW:SJM:bkl