A small van-rental business collects Illinois's Automobile Renting Tax from its customers, but the dealers it buys vehicles from won't honor a sales-tax exemption on those purchases -- is the business actually exempt from Retailers' Occupation Tax and Use Tax when it buys vehicles for its rental fleet?

Plain-English summary

A small van-rental business (referred to here as COMPANY1, doing business as COMPANY2) wrote to the Illinois Department of Revenue explaining that it rents vans to customers for periods of less than 30 days and collects Illinois's Motor Vehicle Renting Tax on those rentals. The company's problem was on the purchasing side: when it buys the vehicles it needs for its rental fleet, the dealers it buys from won't let it claim a sales-tax exemption on the purchase -- even though the company believed it qualified for one under "SST-556 Section 5, E" (an Illinois sales-tax exemption certificate provision) -- because the dealers were worried the Department might later come back and hold the dealer liable for the unpaid tax. The company asked the Department for a letter confirming that it and its d/b/a fall under that exempt status, since it already pays the Automobile Renting Tax to the State.

The Department responded with a GIL rather than a binding ruling, laying out the relevant framework in two parts. First, it described the Automobile Renting Occupation and Use Tax Act itself: persons engaged in the business of renting automobiles in Illinois under lease terms of one year or less owe the Automobile Renting Occupation Tax ("AROT") at 5% of gross receipts from that business (35 ILCS 155/1 et seq., 155/3; 86 Ill. Adm. Code 180.101 et seq.). A "rentor" is any person or entity engaged in the business of renting or leasing automobiles to users, and "renting" is any transfer of possession or the right to possession of an automobile to a user for valuable consideration for a period of one year or less (35 ILCS 155/2). A corresponding Automobile Renting Use Tax ("ARUT") is imposed on the privilege of using a rented automobile in Illinois under a lease of one year or less (35 ILCS 155/4), and a rentor who collects ARUT from a rentee can offset what it must remit by any AROT it pays on the same rental transaction (86 Ill. Adm. Code 190.115(b)). The Department also noted that municipalities, counties, and certain special districts (including the Metropolitan Pier and Exposition Authority) are separately authorized to impose their own automobile renting occupation and use taxes, collected and administered by the Department under the same general rules as the state-level tax (65 ILCS 5/8-11-7, 8-11-8; 55 ILCS 5/5-1032, 5-1033; 70 ILCS 210/13(d), (e); 70 ILCS 3610/5.02; 70 ILCS 3615/4.03.1).

Second, the Department turned to the actual question the company raised: taxation of the vehicle purchase itself. Illinois's Retailers' Occupation Tax and Use Tax together make up what's commonly called "sales tax" (35 ILCS 120/2; 35 ILCS 105/3), and normally a dealer's sale of a motor vehicle would be subject to those taxes. But both Acts carve out an exemption for "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); 35 ILCS 105/3-5(5)). The Department explained that this exemption is available only for a vehicle that will be used exclusively for AROT-taxable automobile renting -- it is not available for a vehicle used substantially for personal or other non-exempt purposes -- and cited a prior Private Letter Ruling, ST-22-0002 (February 1, 2022), for that limitation. The Department closed by reminding the company that retailers must keep complete books and records distinguishing taxable from nontaxable receipts (86 Ill. Adm. Code 130.801(b), (c)).

Notably, the Department did not issue the letter the company actually asked for -- a definitive statement that "COMPANY1 and COMPANY2" fall under the exempt status. Instead, consistent with GIL practice, it described the legal framework and the exclusive-use condition without expressly confirming that this particular company's vehicle purchases satisfy it.

What this means for you

Van and car rental businesses buying vehicles for their fleet

If you operate a short-term (one-year-or-less) vehicle rental business and pay Illinois's Automobile Renting Occupation Tax on your rental receipts, this GIL confirms the legal basis for the exemption you can point to when buying fleet vehicles: 35 ILCS 120/2-5(5) and 35 ILCS 105/3-5(5) exempt a motor vehicle sale from Retailers' Occupation Tax and Use Tax if the vehicle will be used for automobile renting as defined in the Automobile Renting Occupation and Use Tax Act. The catch, per the Department's citation to PLR ST-22-0002, is that the exemption requires exclusive use for automobile renting -- a vehicle used substantially for personal or other non-exempt purposes doesn't qualify. This GIL does not, however, resolve a dealer's practical reluctance to honor the exemption certificate at the point of sale; that is a dealer-relations and documentation issue, not something this letter forces the dealer to do.

Dealers selling vehicles to rental companies

The exemption is real and is grounded in statute, but a dealer that sells a vehicle exempt from Retailers' Occupation Tax is taking the purchaser's representation that the vehicle will be used exclusively for automobile renting. Because this exemption depends on the buyer's actual use of the vehicle, dealers understandably want assurance (such as a properly completed exemption certificate) before forgoing the tax collection, since misuse of the exemption could create exposure.

Accountants and tax professionals

This is a GIL, not a PLR -- it explains the exemption's legal framework (the AROT/ARUT statutes and the ROT/Use Tax exemption) but does not certify that any particular client's vehicles or rental business actually qualify. A client that wants a binding, taxpayer-specific determination needs to request a PLR under 2 Ill. Adm. Code 1200.110. Also flag the recordkeeping requirement: retailers must maintain books and records that clearly distinguish taxable from nontaxable (exempt) receipts. 86 Ill. Adm. Code 130.801(b), (c).

Common questions

Q: Are vehicles bought for a short-term rental fleet exempt from Illinois sales tax?
A: Generally yes. The Retailers' Occupation Tax Act and Use Tax Act exempt the sale of a motor vehicle used for automobile renting as defined in the Automobile Renting Occupation and Use Tax Act. 35 ILCS 120/2-5(5); 35 ILCS 105/3-5(5).

Q: Is there a catch to that exemption?
A: Yes. Per Private Letter Ruling ST-22-0002 (February 1, 2022), cited in this GIL, the exemption applies only if the vehicle is used exclusively for automobile renting -- it is not available for a vehicle used substantially for personal or other non-exempt purposes.

Q: Does this GIL confirm that this specific rental company's vehicle purchases are exempt?
A: Not expressly. The company asked the Department to confirm that it and its d/b/a fall under the exempt status. The Department instead issued a GIL describing the applicable statutes and the exclusive-use condition, without stating in so many words that this taxpayer's purchases meet that condition.

Q: What tax does the rental company itself pay on its rental receipts?
A: The Automobile Renting Occupation Tax, at 5% of gross receipts from the rental business (35 ILCS 155/3), plus the corresponding Automobile Renting Use Tax that may be collected from the renting customer (35 ILCS 155/4), with a credit mechanism so the rentor isn't effectively taxed twice on the same transaction (86 Ill. Adm. Code 190.115(b)).

Q: Can a business rely on this GIL to force a dealer to honor the exemption?
A: No. A GIL is not a statement of Department policy and is not binding on the Department, even as to the taxpayer who requested it. It states the general legal framework; it does not resolve disputes with a specific dealer or guarantee a specific outcome for the requesting company.

Citations and references

Statutes:

• 35 ILCS 155/1 et seq. (Automobile Renting Occupation and Use Tax Act)
• 35 ILCS 155/2 (definitions of "rentor," "renting," "gross receipts")
• 35 ILCS 155/3 (Automobile Renting Occupation Tax, 5% of gross receipts)
• 35 ILCS 155/4 (Automobile Renting Use Tax)
• 35 ILCS 120/2-5(5) (Retailers' Occupation Tax Act exemption for vehicles used for automobile renting)
• 35 ILCS 105/3-5(5) (Use Tax Act exemption for vehicles used for automobile renting)
• 65 ILCS 5/8-11-7; 65 ILCS 5/8-11-8 (municipal automobile renting occupation and use taxes)
• 55 ILCS 5/5-1032; 55 ILCS 5/5-1033 (county automobile renting occupation and use taxes)
• 70 ILCS 210/13(d), (e) (Metropolitan Pier and Exposition Authority automobile renting tax)
• 70 ILCS 3610/5.02; 70 ILCS 3615/4.03.1 (other special district automobile renting taxes)

Regulations:

• 86 Ill. Adm. Code 180.101 et seq. (Automobile Renting Occupation Tax regulations)
• 86 Ill. Adm. Code 180.115 (who is "engaged in the business" of renting automobiles)
• 86 Ill. Adm. Code 190.101 et seq. (Automobile Renting Use Tax regulations)
• 86 Ill. Adm. Code 190.115(b) (AROT credit against ARUT remittance)
• 86 Ill. Adm. Code 130.801(b), (c) (retailer recordkeeping requirements)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Related ruling cited in this GIL:

• Private Letter Ruling ST-22-0002 (February 1, 2022) -- exemption requires exclusive use for automobile renting, not substantial personal or other non-exempt use.

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-23-0015-GIL.pdf

• 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-23-0015-GIL.pdf

Original ruling text

ST-23-0015-GIL 05/26/2023 AUTOMOBILE RENTING TAX
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 155/1 et seq., is
exempt from tax under the Retailers’ Occupation Tax Act and Use Tax Act. 35
ILCS 120/2-5(5); 35 ILCS 105/3-5(5). (This is a GIL).
May 26, 2023

COMPANY1
d/b/a COMPANY2
ADDRESS
Dear NAME:
This letter is in response to your letter dated December 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:
Dear Illinois Department of Revenue Legal Service office,
We are a small rental van business located in CITY IL. Our company
name is COMPANY1. Our DBA is COMPANY2. Our EIN Is ##-#######
and our IBA is ####-####.
We are in the business of renting vans for less that [sic] 30-day period. We
collect the Motor Vehicle Renting Tax from our customers for the State of
Illinois.
Unfortunately, company's [sic] that we buy vehicles from will not allow us
to not pay Sales Tax on the vehicles we need for the business, even
though SST-556 Section 5, E allows us to be tax exempt. Some dealers
are afraid that this will come back months later and they will have to pay
the sales tax.

COPMANY1 d/b/a COMPANY2/NAME
Page 2
May 26, 2023
Please give us a letter that COMPANY1 and COMPANY2 falls under the
exempt status under the SST-556 and we do not have to pay the sales tax
because are paying motor vehicle renting tax to the State of Illinois.
DEPARTMENT’S RESPONSE:
Automobile Renting Occupation and Use 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 Tax
set forth in Section 3 of the Automobile Renting Occupation and Use Tax Act (“Act”).
See 35 ILCS 155/1 et seq.; 86 Ill. Adm. Code 180.101 et seq. Section 180.115 of the
Department’s administrative rules for the Automobile Renting Occupation Tax provides
that “[a]ny person who habitually engages in renting automobiles under lease terms of
one year or less, or who, in any manner or at any time, advertises, solicits, offers for
rent or holds himself out to the public to be a rentor of automobiles under lease terms of
one year or less is engaged in the business that is taxed by the Act, provided that such
person is engaged in such business in this State.” 86 Ill. Adm. Code 180.115. The
Act defines “rentor” as “any person, firm, corporation or association engaged in the
business of renting or leasing automobiles to users.” 35 ILCS 155/2. 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.” 35 ILCS 155/2. This
tax is imposed at the rate of 5% of the gross receipts from such business. 35 ILCS
155/3. “Gross receipts” from the renting of tangible personal property or “rent,” means
the total rental price or leasing price. 35 ILCS 155/2; see also, 86 Ill. Adm. Code
180.120 and 180.125.
A corresponding Automobile Renting Use Tax is imposed upon the privilege of
using in Illinois an automobile rented from an automobile rentor under a lease term of
one year or less. 35 ILCS 155/4; 86 Ill. Adm. Code 190.101(a). The Act defines
“rentee” 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
....”
35 ILCS 155/2. The rentor must remit the Automobile Renting Use Tax he
collects to the Department, but first reduces what he must remit in this connection by
the Automobile Renting Occupation Tax, if any, which he is required to pay and does
pay to the Department in connection with the same automobile rental transaction. 86 Ill.
Adm. Code 190.115(b).
In addition to State Automobile Renting Occupation and Use Taxes,
municipalities and counties are authorized to impose automobile renting occupation and
use taxes that are collected and administered by the Illinois Department of Revenue.
See 65 ILCS 5/8-11-7; 65 ILCS 5/8-11-8; 55 ILCS 5/5-1032; 55 ICLS 5/5-1033. Certain
special districts are also authorized to impose automobile renting occupation and use
taxes that are collected and administered by the Department. See e.g., 70 ILCS

COPMANY1 d/b/a COMPANY2/NAME
Page 3
May 26, 2023
210/13(d), (e); 70 ILCS 3610/5.02; 70 ILCS 3615/4.03.1. Please note that, currently,
the Metropolitan Pier and Exposition Authority is the only special district imposing such
a tax. These municipal, county, and special district automobile renting occupation and
use taxes are generally subject to the same conditions, restrictions, limitations,
penalties and definitions of terms, and employ the same modes of procedure, as are
prescribed in the Automobile Renting Occupation and Use Tax Act. See e.g., 55 ICLS
5/5-1032, 5-1033; 70 ILCS 210/13(d), (e); 65 ILCS 5/8-11-7, 8-11-8. In addition,
municipal, county, and special district automobile renting occupation tax statutes
authorize persons subject to the tax (i.e., “rentors”) to reimburse themselves for their tax
liability by collecting it from the rentee. See e.g., 70 ILCS 210/13(e); 65 ILCS 5/8-11-8;
55 ICLS 5/5-1033.
Retailers’ Occupation and Use Tax
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. 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. 35 ILCS 105/3; 86 Ill. Adm. Code
150.101. These taxes comprise what is commonly known as “sales tax” in Illinois.
The Retailers’ Occupation Tax Act and the Use Tax Act provide 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), 35 ILCS
105/3-5(5). This exemption is available for a motor vehicle that will be used exclusively
for automobile renting, as defined in the Automobile Renting Occupation and Use Tax
Act. This exemption is not available for a motor vehicle that will be used substantially
for personal or other non-exempt purposes. See Private Letter Ruling ST-22-0002
(February 1, 2022).
Retailers must maintain complete books and records covering receipts from all
sales and distinguishing taxable from nontaxable receipts.
86 Ill. Adm. Code
130.801(b).
The books and records must clearly indicate and explain all the
information, deductions as well as gross receipts, required for tax returns. 86 Ill. Adm.
Code 130.801(c). For more information regarding book and records requirements refer
to 86 Ill. Adm. Code 130, Subpart H.
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

COPMANY1 d/b/a COMPANY2/NAME
Page 4
May 26, 2023
Associate Counsel
KK:dlb