After I returned a used vehicle to the dealership and canceled my loan, can the Illinois Department of Revenue force the dealer to file a claim for credit to get back the sales tax I paid, so I can get my money back from the dealer?

Plain-English summary

A consumer bought a used vehicle, later discovered it had unrepaired collision damage, and returned it to the dealership, which agreed to buy it back and cancel the loan. The dealership told the buyer that before the loan contract could be canceled, the buyer had to pay the dealership the sales tax portion separately, because the dealer said it would not get that money back from the state once paid. The buyer asked the Department to force the dealer to either prove that requirement or refund the tax.

The Department explained the actual mechanics: motor vehicle retailers don't file monthly sales tax returns like most sellers. Instead, they remit Retailers' Occupation Tax (sales tax) transaction-by-transaction, due within 20 days of delivering the vehicle (86 Ill. Adm. Code 130.540). Because of that transaction-based system, a motor vehicle dealer cannot simply deduct a refunded sale from a later monthly return the way other retailers can under 86 Ill. Adm. Code 130.401(b). Instead, the dealer must affirmatively file a "claim for credit" with the Department under 86 Ill. Adm. Code 130.1501, and to do so, the dealer must first prove to the Department that it has unconditionally repaid the tax to the purchaser.

The key holding: the Department has no authority to compel the seller to file that claim for credit. Whether the dealer files the claim (and, in turn, whether it refunds the purchaser's sales tax) is a private business matter between the buyer and the dealer, not something Illinois tax law requires or that the Department can enforce. If the dealer won't cooperate, the purchaser's only recourse is to treat the amount owed as an ordinary debt and pursue collection like any other debt.

What this means for you

Consumers who returned a vehicle

If a dealership won't refund sales tax after you return/cancel a vehicle purchase, don't expect the Illinois Department of Revenue to intervene or order the dealer to act. The Department can't compel the dealer to file the claim for credit that would let the dealer recover the tax it remitted — and by extension, refund you. Your remedy is to pursue the dealer directly (small claims court, consumer protection complaint, or other civil action) to collect what you're owed, the same as collecting any other debt.

Motor vehicle dealers

Unlike most retailers, you don't deduct returned-vehicle refunds on a routine monthly sales tax return. Because you remit tax transaction-by-transaction within 20 days of delivery (86 Ill. Adm. Code 130.540), recovering tax you already paid on a since-returned/rescinded sale requires you to affirmatively file a claim for credit under 86 Ill. Adm. Code 130.1501, and you must first prove to the Department you already unconditionally repaid the tax to the customer. Filing that claim is optional as far as the Department's authority goes — it's a business decision, not a legal mandate.

Accountants and tax professionals

This GIL is a good citation for explaining why the ordinary returned-merchandise deduction under 86 Ill. Adm. Code 130.401(b) doesn't work the same way for motor vehicle sales: the transaction-based remittance system under 86 Ill. Adm. Code 130.1501 requires a dealer-initiated claim for credit, and the Department has confirmed it cannot force a dealer to file one on a customer's behalf.

Common questions

Q: Can the Illinois Department of Revenue make a car dealer refund my sales tax after I returned the vehicle?
A: No. The Department has no authority to compel a motor vehicle seller to file a claim for credit for tax paid on a returned vehicle. That's a private business matter between the purchaser and the dealer.

Q: Why can't the dealer just deduct the refund on its next sales tax return, like other retailers do?
A: Because motor vehicle retailers don't file monthly sales tax returns for vehicle sales; they remit tax transaction-by-transaction within 20 days of delivery under 86 Ill. Adm. Code 130.540. That makes the ordinary deduction under 86 Ill. Adm. Code 130.401(b) unavailable to them, so recovering previously remitted tax instead requires filing a claim for credit under 86 Ill. Adm. Code 130.1501.

Q: What does a dealer have to prove before it can file that claim for credit?
A: If the dealer collected tax from the purchaser, it must first prove to the Department that it has unconditionally repaid the tax to the purchaser before the Department will process the claim for credit.

Q: If the dealer refuses to file the claim for credit, what can the purchaser do?
A: The purchaser must enforce the right to collect the tax the same way they would any other debt owed to them — the Department will not step in to order the dealer to act.

Citations and references

• 86 Ill. Adm. Code 130.1501 (procedure for a motor vehicle retailer's claim for credit or refund of previously remitted tax)
• 86 Ill. Adm. Code 130.401(b) (general rule allowing sellers to deduct refunded returned-merchandise receipts on their sales tax return)
• 86 Ill. Adm. Code 130.540 (motor vehicle retailers remit tax transaction-by-transaction, due within 20 days of delivery)

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/st22-0016-gil.pdf

Original ruling text

ST-22-0016-GIL 07/06/2022 MOTOR VEHICLES
The Department has no authority to compel the seller to file a claim for credit.
Whether the seller files a claim for credit with the Department is a private
business matter. See 86 Ill. Adm. Code 130.1501. (This is a GIL.)
July 6, 2022
NAME/ADDRESS
Dear Mr. XXX:
This letter is in response to your letter 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.
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 am writing this letter to you because I purchased a used PRODUCT
at the COMPANY in March 20##. The vehicle was a PRODUCT
MODEL. After I had driven the PRODUCT for about 1 1/2 months, the
radiator hose had burst. I took it to my mechanic, and found out there
was collision damage that was not properly fixed. It was one of the
reasons the hose had burst. Once I heard this, I took it back to the
dealership to permanently return the PRODUCT, and cancel my
contract. After a few days of me returning the PRODUCT, the
dealership agreed to buy back the PRODUCT. However, I was told
that I had to pay them for the sales tax before they could cancel the
loan contract. The dealership owner said that he was only responsible
to pay the loan portion of the contract to pay the bank, but I had to pay
the sales tax portion to him. He said it is because once the vehicle is
bought, and after so many days, he pays the sales tax. He included
that once the sales tax is paid, he will not get the money back from the
government. This did not make sense to me then, and it still does not
make sense now.

NAME
Page 2
July 6, 2022
After days of going round and round about the sales tax, I asked him if
he could provide me with the law or statute that mandates me to pay
the sales tax of the returned vehicle. To this day, he has not provided
me with any substantial evidence that proves I had to pay the sales
tax. I reached out to the IDOR via email, and was told the answer I am
looking needed to come from your department.
With that said, it would be greatly appreciated if you can provide me
with some legal information in writing that binds me as the party
responsible for paying the sales tax on the returned vehicle to legally
cancel my loan contract. Again, I was told the only way I could cancel
my contract was to pay the dealership the sales tax first.
Any information you can provide would be greatly appreciated.
DEPARTMENT’S RESPONSE:
You have described a returned merchandise situation. The general rule relating
to this situation is set out in the Department's administrative rules at 86 Ill. Adm. Code
130.401(b). This rule provides that:
“Any seller may deduct from his gross receipts any refunds made by him during
the preceding return period to purchasers, on account of tangible personal
property returned to the seller, in case the seller had theretofore included the
receipts from the sale of such tangible personal property in a return made by him,
and had paid the tax imposed by the Retailers' Occupation Tax Act with respect
to such receipts. However, if the seller collected the Use Tax on such a sale, he
should refund such tax to his customer to whom he makes a refund of the selling
price.”
This general rule regarding refunding tax to customers pertains to all sellers of
tangible personal property, including retailers of motor vehicles. Because retailers of
motor vehicles do not pay Retailers’ Occupation Tax (“sales tax”) to the Department on
retail sales of motor vehicles with monthly returns, but remit the tax to the Department
on a transaction by transaction basis, which transaction return is due not later than 20
days after delivery of the vehicle (see 86 Ill. Adm. Code 130.540), they are unable to
take a deduction on the returns that they file with the Department as provided in Section
130.401(b). Instead, for a motor vehicle retailer to get back the tax monies it paid to the
Department on a sale it must file a claim for credit with the Department on any
transaction for which it is seeking a credit or refund. This procedure is described at 86
Ill. Adm. Code 130.1501. To file this claim, however, if a seller has collected tax from a
purchaser, it must first prove to the Department that it has unconditionally repaid the
taxes to the purchaser. Please note that the Department has no authority to compel the
seller to file a claim for credit. As this regulation explains, this procedure is a matter of

NAME
Page 3
July 6, 2022
business between the purchaser and the retailer – the motor vehicle retailer is not
required by the tax laws to file a claim for credit.
If a motor vehicle retailer does not agree to file a claim for credit on a given
transaction, the purchaser must enforce his or her right to collect the taxes as he or she
would any other debt owed to him or her.
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,

Samuel J. Moore
Associate Counsel
SJM:rkn