Are the Illinois sales/use tax rules on titling and registering vehicles, watercraft, and aircraft (as summarized in a national Title and Registration Textbook) still accurate, and what should be updated for 2023?

Plain-English summary

This GIL is unusual: the requester was not asking about their own tax situation, but was updating a national "Title and Registration Textbook" used by government offices (state DMVs and similar agencies) across the country, and wrote to the Illinois Department of Revenue on July 13, 2022 to confirm whether Illinois' entry in that textbook was still accurate for 2023 or needed changes. The submitted draft summarized Illinois sales/use tax rules on titling and registering vehicles (including the 6.25% state rate, local tax add-ons, out-of-state purchase credits, military non-exemption, the 3-month prior-titling exemption for people moving into Illinois, Vehicle Use Tax on private-party transfers via Form RUT-50, the $25/$15 flat taxes on certain motorcycle/ATV and family transfers, aircraft/watercraft use tax, trade-in credit caps, leased-vehicle use tax, and rental-vehicle Automobile Renting Tax treatment).

The Department opened by stating it "cannot approve third-party publications" and directed the requester to the Illinois Compiled Statutes, Administrative Code, and the Department's own publications as the authoritative sources. It nonetheless offered corrections "in the interest of limiting the dissemination of incorrect or incomplete information." The central substantive update: Public Acts 101-0031 and 101-0604 amended the Retailers' Occupation Tax Act and created the Leveling the Playing Field for Illinois Retail Act, implemented through 86 Ill. Adm. Code Part 131. Effective February 1, 2022, sales of tangible personal property that must be titled or registered in Illinois -- including motor vehicles, watercraft, aircraft, and trailers -- made by remote retailers or over a marketplace to Illinois purchasers became subject to Part 131's state and local retailers' occupation tax framework, with sourcing tied to the delivery/possession location. Part 131 does not apply when an out-of-state seller ships or delivers the titled/registered item itself using its own delivery vehicle (86 Ill. Adm. Code 131.110(e)). Qualifying remote retailers and marketplace facilitators must file Form ST-556 (or ST-556-LSE for simultaneous leases) rather than being handled solely through the individual buyer's use tax return.

Beyond that headline update, the Department proposed a series of specific line edits to the textbook's existing language: adding "governmental body" to the list of exempt purchasers for interstate-carrier/charitable/religious/educational vehicle sales (citing 35 ILCS 105/3-5(27)); broadening the private-party vehicle use tax language from "an individual other than a retailer" to "a private party," while keeping the $15,000 threshold and the $25 motorcycle/ATV and $15 family-transfer flat taxes (citing 625 ILCS 5/3-1001 et seq. and 86 Ill. Adm. Code 151.101 et seq.); similarly broadening the aircraft/watercraft use tax language to cover gifts and non-retail purchases, not just sales, at the 6.25% rate (citing 35 ILCS 157/10-1 et seq. and 86 Ill. Adm. Code 152.101 et seq.); correcting an internal date reference from "January 1, 2015" back to "January 1, 2016" for when leased-vehicle selling price is based on the lease contract amount; and adding "home rule" before "municipalities" in the description of municipal/county use tax on vehicles. The Department also suggested using "occupation and use tax" or "sales tax" consistently rather than mixing terminology, quoting the Illinois Supreme Court's description in Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 362 (2009), that the Retailers' Occupation Tax Act and Use Tax Act are "complementary, interlocking statutes that comprise the taxation scheme commonly referred to as the Illinois 'sales tax.'" The trade-in credit cap history (capped at $10,000 starting January 1, 2020, then eliminated entirely effective January 1, 2022) was left as accurate and not flagged for correction.

What this means for you

DMV, title, and registration professionals (and publishers of multi-state reference materials)

If you maintain or rely on a multi-state summary of vehicle/watercraft/aircraft titling and use tax rules, treat this GIL as a checklist of specific 2023-era corrections for Illinois, not as a substitute for the underlying statutes and regulations. In particular, make sure your materials reflect that remote retailers and marketplace facilitators selling titled/registered property (vehicles, watercraft, aircraft, trailers) into Illinois have been subject to Part 131's state/local retailers' occupation tax regime since February 1, 2022, unless the out-of-state seller itself delivers the item using its own vehicle.

Vehicle, watercraft, and aircraft dealers, lessors, and remote sellers

If you sell property that must be titled or registered in Illinois to Illinois purchasers -- whether directly, as a remote retailer, or over a marketplace -- confirm whether Part 131 applies to you and whether you (or your marketplace facilitator) need to file Form ST-556 or ST-556-LSE. The Department also flagged that the private-party use tax and aircraft/watercraft use tax rules extend to gifts and non-sale transfers, not only cash sales, so review transactions involving gifts or trades accordingly.

Accountants and tax professionals

This GIL is not a ruling on any particular taxpayer's facts -- it is the Department annotating someone else's reference publication. Rely on the statutes and regulations the Department cites (35 ILCS 105/3-5(27); 35 ILCS 120/1, 2(a)-(c); 35 ILCS 157/10-1 et seq.; 625 ILCS 5/3-1001 et seq.; 86 Ill. Adm. Code 131.101 et seq., 151.101 et seq., 152.101 et seq.) directly, and treat the Department's proposed line-edits as evidence of where the textbook's prior language had drifted from current law (the Leveling the Playing Field Act changes in particular), not as a comprehensive restatement of all titling/registration tax rules.

Common questions

Q: Did the Department approve or certify the Title and Registration Textbook?
A: No. The Department expressly stated it "cannot approve third-party publications" and pointed the requester to the Illinois Compiled Statutes, Administrative Code, and the Department's own publications as the authoritative sources, while still offering corrections informally.

Q: What is the single biggest substantive change the Department flagged?
A: The Leveling the Playing Field for Illinois Retail Act (Public Acts 101-0031 and 101-0604, implemented as 86 Ill. Adm. Code Part 131). Effective February 1, 2022, sales of titled/registered property (motor vehicles, watercraft, aircraft, trailers) made by remote retailers or over a marketplace to Illinois purchasers are subject to state and local retailers' occupation tax under Part 131, unless the out-of-state seller delivers the item itself using its own delivery vehicle.

Q: Does this change how an individual buying a vehicle from a private party in Illinois is taxed?
A: Not according to this GIL -- the Department's suggested edit to that section was mainly to broaden "an individual other than a retailer" to "a private party" (covering gifts and non-sale transfers too), while keeping the same $15,000 selling-price threshold and the $25 motorcycle/ATV and $15 family-transfer flat taxes under 625 ILCS 5/3-1001 et seq.

Q: Is the trade-in credit cap still $10,000?
A: No -- and the Department did not ask for that history to be corrected because it was already accurate: the $10,000 cap on trade-in credit for first-division motor vehicles applied only from January 1, 2020 until it was eliminated effective January 1, 2022.

Q: Can a taxpayer rely on this GIL as binding guidance for their own transaction?
A: No. It is a General Information Letter responding to a textbook-update inquiry, not a Private Letter Ruling on a specific taxpayer's facts. It is not a statement of Department policy and is not binding on the Department.

Citations and references

Statutes:

• 35 ILCS 105/3-5(27) (Use Tax Act exemption for interstate carriers, governmental bodies, and certain charitable/religious/educational organizations)
• 35 ILCS 120/1 (Retailers' Occupation Tax Act "selling price" definition; remote retailer/marketplace facilitator definitions)
• 35 ILCS 120/2(a)-(c) (tax remittance threshold test for remote retailers and marketplace facilitators)
• 35 ILCS 157/10-1 et seq. (Watercraft Use Tax Act)
• 625 ILCS 5/3-1001 et seq. (Vehicle Use Tax)

Regulations:

• 86 Ill. Adm. Code 131.101 et seq. (Leveling the Playing Field for Illinois Retail Act rules, Part 131)
• 86 Ill. Adm. Code 131.105 (remote retailer and marketplace facilitator definitions)
• 86 Ill. Adm. Code 131.110(e) (Part 131 inapplicable to seller-delivered titled/registered property)
• 86 Ill. Adm. Code 131.115, 131.130, 131.135 (tax remittance threshold and marketplace facilitator rules)
• 86 Ill. Adm. Code 151.101 et seq. (Vehicle Use Tax regulations)
• 86 Ill. Adm. Code 152.101 et seq. (Aircraft/Watercraft Use Tax regulations)

Case law:

• Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 362 (2009) (Retailers' Occupation Tax Act and Use Tax Act are "complementary, interlocking statutes" comprising the Illinois "sales tax")

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2023.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2023/ST-23-0010-GIL.pdf

Original ruling text

ST-23-0010-GIL 05/05/2023 MISCELLANEOUS
This letter responds to an annual survey. (This is a GIL.)
May 5, 2023
NAME
ADDRESS

Dear NAME:
This letter is in response to your letter dated July 13, 2022, 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:
We are updating the information in the Title and Registration Textbook
which is used by government offices throughout the country…..would you
like any changes made to the information below for 2023 or is it correct as
displayed?
SALES OR USE TAX APPLICABLE TO TITLING — NOTE: Updates
may be implemented. State tax rate is 6.25% with some locally imposed
taxes. RESIDENTS who purchase a new or used vehicle from out-of-state
dealers, lending institutions, or leasing companies pay state tax of 6.25%
but may include LOCAL TAXES depending on location in the state, on the
net price after trade-in allowance, with CREDIT for sales or use taxes paid
to other state. MILITARY PERSONNEL ARE NOT EXEMPT from sales
taxes. Individuals moving into Illinois are EXEMPT from the USE TAX if
vehicle was purchased AND titled in another state for at least 3 months
prior to moving into Illinois. With some exceptions, NON-RESIDENTS who
purchase a vehicle in Illinois for registration in another state are not
subject to tax if not titled in Illinois. Nonresidents are not entitled to this
exemption if the vehicle will be titled in a state that does not give Illinois
residents an exemption on their purchases in that state of vehicles that will

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be titled in Illinois (i.e. if there is no reciprocal exemption). Purchaser must
acquire or affix driveaway permit or purchaser must affix non-Illinois
license plates to remove from Illinois. Vehicles sold to an INTERSTATE
CARRIER to be used for hire, a corporation, society, association,
foundation, or institution organized and operated exclusively for charitable,
religious, or educational purposes, with an active identification number
issued by the Department are EXEMPT. The sale or transfer of a vehicle
from an individual other than a retailer is subject to VEHICLE USE TAX
(Form RUT-50) on the model year if the selling price was less than
$15,000, and on the selling price if $15,000 or more. The VEHICLE USE
TAX on sales or transfers of motorcycles and ATVs is $25.00, and the tax
is $15.00 when the sale or transfer of any motor vehicle is between
spouse, parent, brother, sister, or child. Effective September 1, 2021, a
$15.00 tax liability applies when a transfer is from one spouse to the other
spouse in a dissolution of marriage and the transfer is made no later than
90 days from the date of a final, non-appealable order of dissolution of
marriage. The Illinois Department of Revenue collects Chicago and Cook
County’s Local Vehicle Use Tax on non-retail transactions on Form RUT50 as well. TAX EXEMPT when transferring to a surviving spouse. NOTE:
There are NO USE TAXES on PRIVATE PARTY TRANSFERS on mobile
homes, trailers, and snowmobiles. You need a use permit. The sale or
transfer of an airplane or boat between an individual other than a retailer is
subject to the AIRCRAFT/WATERCRAFT USE TAX at the rate of 6.25%
with no locally imposed taxes. The tax is based on the selling price or fair
market value of the airplane or boat, whichever is greater. TAX EXEMPT
when sold to an EXEMPT ORGANIZATION, INTERSTATE CARRIER for
hire, SURVIVING SPOUSE, or use in PRODUCTION AGRICULTURE.
When a customer receives more than one vehicle from a dealer for their
trade-in, and no money changes hands (even trade), a completed tax form
is required with every Application for Title, regardless of whether taxes are
due or not. The net purchase price is defined as the actual purchase price
less the trade-in value(s). If the net purchase price is zero or less, then the
tax due is zero. However, beginning January 1, 2020, for purposes of
calculating sales and use tax, the trade-in credit claimed for each first
division motor vehicle being traded in cannot exceed $10,000. Effective
January 1, 2022, the $10,000 trade-in cap is eliminated. To receive
assistance with tax computation and for updates please contact the Illinois
Department of Revenue at (800) 732-8866 or (217) 782-3336. By mail
contact Illinois Department of Revenue, Sales and Use Taxes, 101 W.
Jefferson Street, Springfield, IL 62702 and on the Internet
www.tax.illinois.gov. NOTE: Updates may be implemented, for details
please contact the state.
SALES OR USE TAX APPLICABLE TO REGISTRATION — None. For
information please contact the Illinois Department of Revenue at (800)

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732-8866 or (217) 782-3336. By mail contact Illinois Department of
Revenue, Sales and Use Taxes, 101 W. Jefferson Street, Springfield, IL
62702 and on the Internet www.tax.illinois.gov. NOTE: Updates may be
implemented, for details please contact the state.
LEASED VEHICLES ─ TAXES — All vehicles brought into Illinois to be
titled and registered require an Illinois Use Tax Transaction Return (Form
RUT-25) to be filed within 30 days of bringing the vehicle into the state.
(Note: Taxes on vehicles purchased from an Illinois dealer are generally
handled directly by the dealer.) For LEASED VEHICLES (periods of more
than one year): Lessor is considered user of the vehicle and incurs Illinois
Use Tax liability when vehicle is brought into the state. Effective January
1, 2016, the taxable “selling price” of motor vehicles of the first division
and certain motor vehicles of the second division sold for the purpose of
leasing the vehicles for a defined period of more than one year is based
on the amount of the lease contract, with no credit for trade-ins. See the
definition of “selling price” at 35 ILCS 120/1. The Illinois Use Tax is due
upfront at the time of applying for title and registration and is based on
address of lessee where vehicle will be titled and registered. The STATE
TAX rate is 6.25% but may include LOCAL TAXES up to 7.25%
depending on location in the state. For a sale of a leased vehicle a Bill of
Sale or other specific proof of the purchase price must be submitted with
the Use Tax Return. Trade-in deduction (except in cases where the
taxable selling price is the amount of the lease contract) and/or credit for
sales tax previously paid in another state is allowed to reduce Illinois Use
Tax but only if clearly and separately stated on the Bill of Sale or other
proof of purchase and limited to $10,000 for each first division motor
vehicle traded in. Effective January 1, 2022, the $10,000 trade-in cap is
eliminated. For RENTAL VEHICLES (one year or less): Rentor is
considered user of vehicle. If rentor is currently registered to collect
AUTOMOBILE RENTING TAX in Illinois, vehicle is exempt from up front
Illinois Use Tax, however a Use Tax Return is still required when applying
for title and registration. Rentor pays Automobile Renting Tax each month
based on receipts received from renting. AUTOMOBILE RENTING TAX
rate is 5% STATE, 1% LOCAL (if applicable), and 6% METROPOLITAN
PIER AND EXPOSITION AUTHORITY (if applicable). No PERSONAL
PROPERTY TAXES. MUNICIPAL OR COUNTY USE TAX on vehicles
imposed by certain municipalities or by Cook County, which, except for
Chicago in some cases, are administered and collected by the
municipality or county. The Illinois Department of Revenue administers
collections of state taxes on vehicles. NOTE: Updates may be
implemented please contact Taxpayer Assistance at (800) 732-8866 or
(217) 782-3336. The issuance of titles and registrations of vehicles are
administered by the Office of the Secretary of State. For more information,
call (217) 782-6387.

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DEPARTMENT’S RESPONSE:
The Department cannot approve third-party publications. You should consult the
Illinois Compiled Statutes, Administrative Code, and Department’s publications for
information on these matters. However, in the interest of limiting the dissemination of
incorrect or incomplete information, see the below listed suggestions. Before getting
into the suggestions, please note that there was a change in the law which is applicable
to certain retailers and lessors of tangible personal property that is required to be
licensed or titled in Illinois.
Leveling the Playing Field for Illinois Retail Act
Public Acts 101-0031 and 101-0604 amended the Retailers’ Occupation Tax Act
and enacted the Leveling the Playing Field for Illinois Retail Act to implement a series of
structural changes to the Illinois sales tax laws. The changes are intended to "level the
playing field" between Illinois-based retailers and remote retailers by imposing State and
local retailers' occupation taxes on Illinois retailers, remote retailers and marketplace
facilitators alike. 86 Ill. Adm. Code 131.101. To implement the changes the
Department promulgated administrative rules Part 131 in the Administrative Code. 86
Ill. Adm. Code 131.101 et seq.
According to Sections 131.110(e) and 131.130(c), beginning February 1, 2022,
sales of tangible personal property that is required to be titled or registered with an
agency of the State of Illinois, including motor vehicles, watercraft, aircraft, and trailers,
that are made:
1)
2)

by remote retailers to purchasers in Illinois are subject to the provisions of
Part 131;
over a marketplace to purchasers in Illinois are subject to the provisions of
Part 131.

Part 131 does not apply when an out-of-state seller ships or delivers titled or
registered items to purchasers in Illinois using its own delivery vehicle. 86 Ill. Adm.
Code 131.110(e). For sales made by a marketplace facilitator on behalf of marketplace
sellers, taxes under Part 131 apply at the location to which the titled or registered item is
shipped or delivered, or the location in Illinois where the purchaser takes possession of
the titled or registered item. 86 Ill. Adm. Code 131.130(c). For sales made by
marketplace facilitators themselves, see Section 131.130(g). 86 Ill. Adm. Code
131.130(c).
For definitions of a remote retailer and marketplace facilitator refer to 35 ILCS
120/1 and 86 Ill. Adm. Code 131.105. For the tax remittance threshold test refer to 35
ILCS 120/2(a)-(c) and 86 Ill. Adm. Code 131.115, 135. Remote retailers and

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marketplace facilitators who meet the tax remittance threshold for filing must file Form
ST-556, Sales Tax Transaction Return, for sales of property that must be titled or
registered, or Form ST-556-LSE, Transaction Return for Leases, for sales of property
that must be titled or registered and that is simultaneously being leased as part of the
transaction.
For more information regarding the compliance requirements for remote retailers
and marketplace facilitators, visit the Department’s Leveling the Playing Field for Illinois
Retail Act Resource Page.
Proposed Suggestions
In the section titled “Sales or Use Tax Applicable To Titling” consider inserting the
underlined text and removing the stricken language as follows:
▪

“Vehicles sold to an INTERSTATE CARRIER to be used for hire, governmental
body, a corporation, society, association, foundation, or institution organized and
operated exclusively for charitable, religious, or educational purposes, with an
active identification number issued by the Department are EXEMPT.” Refer to 35
ILCS 105/3-5(27).

▪

“The gift, sale or transfer, or purchase of a vehicle from a private party an
individual other than a retailer is subject to PRIVATE PARTY VEHICLE USE TAX
(Form RUT-50) on the model year if the selling price was less than $15,000, and
on the selling price if $15,000 or more. The PRIVATE PARTY VEHICLE USE
TAX on gifts, sale or transfers, or purchases of motorcycles and ATVs is $25.00,
and the tax is $15.00 on motor vehicles when the gift, sale or transfer, or
purchase of any motor vehicle is between spouse, parent, brother, sister, or
child.” Refer to 625 ILCS 5/3-1001 et seq., and 86 Ill. Adm. Code 151.101 et
seq.

▪

“The gift, sale or transfer, or non-retail purchase of an airplane or boat between
an individual other than a retailer is subject to the AIRCRAFT/ or WATERCRAFT
USE TAX, respectively, at the rate of 6.25% with no locally imposed taxes. The
tax is based on the selling price or fair market value of the airplane or boat,
whichever is greater. TAX EXEMPT when sold to purchased from a non-retailer
for use by an EXEMPT ORGANIZATION, or INTERSTATE CARRIER for hire,; is
given to a SURVIVING SPOUSE,; or is used in PRODUCTION AGRICULTURE.”
Refer to 35 ILCS 157/10-1 et seq., and 86 Ill. Adm. Code 152.101 et seq.

▪

“However, beginning January 1, 2020, for purposes of calculating sales and use
tax, the trade-in credit claimed for each first division motor vehicle being traded in
cannot exceed $10,000. Effective January 1, 2022, the $10,000 trade-in cap is
eliminated.”

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In the section titled “Leased Vehicles” consider inserting the underlined text and
removing the stricken language as follows:
▪

“Effective January 1, 2015 2016, the taxable “selling price” of motor vehicles of
the first division and certain motor vehicles of the second division sold for the
purpose of leasing the vehicles for a defined period of more than one year . . . .”

▪

“Trade-in deduction (except, effective January 1, 2015, in cases where the
taxable selling price is the amount of the lease contract) and/or credit for sales
tax previously paid in another state is allowed to reduce Illinois Use Tax but only
if clearly and separately stated on the Bill of Sale or other proof of purchase and
limited to $10,000 for each first division motor vehicle traded in. Effective January
1, 2022, the $10,000 trade-in cap is eliminated.”

▪

“MUNICIPAL OR COUNTY USE TAX on vehicles imposed by certain home rule
municipalities or by Cook County, which, except for Chicago in some cases, are
administered and collected by the municipality or county.”

With respect to the entire document, consider adjusting terminology to eliminate
confusion with respect to occupation and use taxes. “ROTA [“Retailers’ Occupation Tax
Act”] and the Use Tax Act are complementary, interlocking statutes that comprise the
taxation scheme commonly referred to as the Illinois ‘sales tax’." Kean v. Wal-Mart
Stores, Inc., 235 Ill. 2d 351, 362 (2009). Since “sales tax” comprises of both occupation
and use tax, consider rephasing, where appropriate, to either “occupation and use tax”
or “sales tax”.
With respect to the entire document, consider incorporating pertinent information from
the Leveling the Playing Field for Illinois Retail Act and 86 Ill. Adm. Code 131.101 et
seq.
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,

Katarzyna Kowalska
Associate Counsel

KK:rkn