Does Illinois sales tax apply when a nonresident buys a vehicle from an Illinois dealer and has it titled in another state?

Plain-English summary

An individual with ties to two states bought a vehicle from an Illinois dealership, had the dealership collect Illinois sales tax, and then had the vehicle shipped to a friend's home in one of those states (State1) to be titled there, while maintaining a residence in the other state (State2). When the buyer went to title the car in State1, that state's DMV would not credit the Illinois tax already paid, so the buyer paid tax again and asked Illinois to refund the amount the dealership had collected.

The Department explained that Illinois generally taxes retail sales of tangible personal property occurring in Illinois, but there is an exemption for a vehicle sold to a nonresident who will title it elsewhere, so long as the retailer documents the buyer's nonresidency and the buyer's titling state offers a reciprocal exemption for Illinois residents buying there. If the titling state does not offer reciprocity, the Illinois exemption does not apply. In this case, the state where the buyer actually titled the vehicle (State1) was a reciprocal state, and evidence showed the vehicle went directly there without first entering the buyer's other state of residence (State2, a non-reciprocal state) — so the sale qualified for the exemption.

However, the Department could not give the buyer a refund directly. Because the dealership, not the buyer, paid the tax over to the Department, only the dealership has legal standing to file a claim for credit for an overpayment. Whether the dealership then refunds the buyer is a private matter between them that the Department has no authority to compel.

What this means for you

Vehicle buyers moving across state lines

If you buy a vehicle in Illinois but intend to title and use it in another state, tell the dealer clearly, and confirm before you finalize the sale whether your titling state has a reciprocal sales-tax exemption agreement with Illinois. If it doesn't, the Illinois exemption will not apply no matter where the car ends up. Also be careful about your state of residence: if the vehicle passes through or is used in a non-reciprocal state you're tied to before being titled in the reciprocal state, that can undermine the exemption.

Illinois vehicle dealers

To support a nonresident exemption under 86 Ill. Adm. Code 130.605(b)(1), keep the documentary proof of nonresidency required by 130.605(b)(1)(A)(i) or (ii), and verify that the buyer's titling state grants reciprocity to Illinois residents. If you mistakenly collect tax on an exempt sale, you (the retailer) are the one who must file the claim for credit with the Department under 86 Ill. Adm. Code 130.1501 — the customer cannot do it directly, though you may choose to refund the customer once you receive credit.

Accountants and tax professionals

This GIL is a useful illustration of the interaction between the nonresident vehicle exemption, the reciprocity carve-out in 130.605(b)(1)(C), and the standing rules for refund claims in 130.1501. Note that reciprocity is determined state-by-state and can change, so confirm current reciprocity status for the specific destination state before advising on an exemption.

Common questions

Q: Is a vehicle sold to an out-of-state buyer automatically exempt from Illinois sales tax?
A: No. It is only exempt if the retailer documents the buyer's nonresidency as required by 86 Ill. Adm. Code 130.605(b)(1)(A), and the state where the vehicle will be titled offers a reciprocal exemption to Illinois residents buying vehicles there. If the titling state does not offer reciprocity, the sale remains taxable in Illinois.

Q: The buyer in this case had residences in two states — why wasn't the sale automatically taxable?
A: Because the vehicle was titled in the reciprocal state (State1) and the evidence showed it went there directly, never entering the non-reciprocal state (State2) first. The Department treated proof that the vehicle was titled in, and never left, the reciprocal state as the critical facts supporting the exemption.

Q: If a dealership wrongly collects Illinois sales tax on an exempt sale, can the buyer ask Illinois for a refund?
A: No. Under 86 Ill. Adm. Code 130.1501, only the retailer that remitted the tax has standing to file a claim for credit with the Department. The buyer must seek reimbursement from the dealership directly; the Department cannot force the dealership to refund the customer.

Q: What is the legal basis for Illinois taxing a sale like this in the first place?
A: The Retailers' Occupation Tax Act (35 ILCS 120/2) taxes retail sales of tangible personal property in Illinois, and the Use Tax Act (35 ILCS 105/3) taxes the privilege of using property purchased at retail. Together these make up what's commonly called Illinois "sales tax," and they apply to a vehicle sale unless a specific exemption, like the nonresident/reciprocity exemption, applies.

Q: Does this letter decide whether this particular buyer gets a refund?
A: No. This is a General Information Letter, which only directs taxpayers to the relevant rules; it is not a binding determination on the facts of any one case. A binding Private Letter Ruling requires following the separate procedure in 2 Ill. Adm. Code 1200.110.

Citations and references

Statutes and rules:

• 35 ILCS 120/2 (Retailers' Occupation Tax Act — tax on retail sales of tangible personal property)
• 35 ILCS 105/3 (Use Tax Act — tax on the privilege of using property purchased at retail)
• 86 Ill. Adm. Code 130.101 (general application of Retailers' Occupation Tax)
• 86 Ill. Adm. Code 150.101 (general application of Use Tax)
• 86 Ill. Adm. Code 130.605(b)(1) (nonresident vehicle purchase exemption; documentation and reciprocity requirements)
• 86 Ill. Adm. Code 130.605(b)(1)(C) (exemption denied if titling state lacks reciprocity)
• 86 Ill. Adm. Code 130.1501 (retailer standing to claim credit for overpaid tax)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2022.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2022/st22-0009-gil-.pdf

Original ruling text

ST-22-0009 06/07/2022 INTERSTATE COMMERCE
Sales of motor vehicles made into interstate commerce, per the provisions of 86
Ill. Adm. Code 130.605(b)(1), are not subject to Retailers' Occupation Tax. (86 Ill.
Adm. Code 130.605) (This is a GIL)
June 7, 2022
NAME
ADDRESS
Dear NAME:
This letter is in response to your letter dated January 20, 2022, in which you
requested information. The Department issues two types of letter rulings. Private Letter
Rulings (“PLRs”) are issued at the discretion of 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 purchased a YEAR VEHICLE Vin################## from
DEALERSHIP of Chicago on October 21, 2021. When I purchased the
vehicle, I advised the salesman and the finance department that I had
dual residency in STATE1 and STATE2. At the time of the transaction, I
was at my residence in STATE2 so all of the documents that needed wet
signatures were sent to that address. I advised the dealership that the
vehicle would be sent directly from their location to STATE1. The
dealership issued me a drive away temporary tag. I then planned for the
vehicle to be picked up by COMPANY and delivered to my friend's home
in STATE1 because I would not be available to accept delivery. As you'll
be able to see on the paperwork that will be in this packet, the dealership
charged me sales tax.
When I took all of the paperwork from the dealership to the DMV in
STATE1, they proceeded to tell me that the tax paid to the dealership
would not apply to the taxes that I needed to pay STATE1. I was confused
as to why this would happen, but they explained to me that if I wanted to

NAME
Page 2
June 7, 2022
title and register the vehicle in STATE1, I would have to pay sales tax to
STATE1. I paid the monies to the DMV and then I immediately reached
out to the dealership for clarification. The dealership explained that
because I had a home in STATE2 that I was required to pay the Illinois
sales tax since STATE2 isn't a state with reciprocity.
Once the dealership refused to refund me the unjustly collected sales
tax, I contacted the State of Illinois Department of Revenue. I emailed
and spoke with EMPLOYEE, who is in the DIVISION at the Illinois
Department of Revenue. He advised me that he had never been
presented with a situation with these variables and that my best option
would be to reach out to the State of Illinois and request a PLR, private
letter ruling. I will supply all the paperwork that I have from the
dealership and from the STATE1 DMV. I hope that after your
commission reviews the documentation you will rule in my favor to refund
the taxes collected by DEALERSHIP. I want to make sure that the
commission understands that the vehicle never entered the State of
STATE2. The vehicle is and always will be at my home in STATE1. The
purpose of an AWD vehicle is not necessary for STATE2 road conditions.
Please let me know if you require any further documentation or
information. If necessary, I will be willing to provide you with a sworn
statement under penalty of perjury.
DEPARTMENT’S RESPONSE:
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 35 ILCS 120/2; 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 35 ILCS 105/3; 86 Ill. Adm.
Code 150.101. These taxes comprise what is commonly known as "sales" tax in Illinois.
Thus, when tangible personal property is located in this State at the time of its sale and
then delivered in Illinois to the purchaser, the seller is taxable if the sale is at retail.
There is an exemption from sales tax for the purchase of a vehicle in Illinois by a
nonresident when the vehicle will not be titled in this State. See 86 Ill. Adm. Code
130.605(b)(1). To claim the exemption, the retailer must keep documentary evidence
that the purchaser is not a resident of Illinois. The documentation required to prove
non-residency is specified in 86 Ill. Adm. Code 130.605(b)(1)(A)(i) and (ii). If the
retailer meets the document requirements of either subsection (b)(1)(A)(i), or (ii) then,
absent fraud, the Department shall pursue any claim that the exemption does not apply
solely against the vehicle purchaser. Id. at (iv). However, the exemption under 86 Ill.
Adm. Code 130.605(b)(1) 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

NAME
Page 3
June 7, 2022
that state to an Illinois resident when the vehicle will be titled in Illinois. Id. at (b)(1)(C).
Even though North Carolina is a reciprocal state, Florida is not. A retailer is not required
to honor a purchaser's claim of an exemption if the retailer is not convinced that the
retail sale qualifies.
In your letter you stated, “The dealership explained that because I had a home in
STATE2 that I was required to pay the Illinois sales tax since STATE2 isn't a state with
reciprocity.” Proof that the purchaser is a resident of STATE1, that the vehicle was
titled in STATE1, which is a reciprocal state, as well as the fact the vehicle did not enter
STATE2 before the vehicle was titled, are critical factors to evidence the sale is exempt
from Illinois sales tax. Since the dealership paid the sales tax directly to the Department,
the dealership is the only party with standing to file a claim regarding an overpayment of
the tax. See 86 Ill. Adm. Code 130.1501. A retailer's determination as to whether it will
make a refund of the amount of the tax to a customer and file a claim for credit with the
Department is a matter between the retailer and its customer. The Department has no
authority to compel a retailer to refund taxes to a customer and file a claim for credit.
We 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,
Tom Grudichak
Associate Counsel
TG:rkn