How does Illinois tax the sale of motor vehicles, including trade-ins, private-party sales, and sales to nonresidents?

Plain-English summary

Florida's Department of Revenue asked Illinois to confirm how Illinois taxes motor vehicle sales — both vehicles sold in Illinois to residents of other states, and vehicles brought into Illinois to be titled here — so Florida could keep its own multistate reference chart current. Illinois responded with a General Information Letter (GIL) laying out the state's general framework rather than approving any outside publication.

In Illinois, retail sales of tangible personal property (including vehicles) are taxed under the Retailers' Occupation Tax Act, with a matching Use Tax on the buyer's side; together these make up what's commonly called Illinois "sales tax." For a retail vehicle sale, a dealer can reduce the taxable selling price with a trade-in credit if the traded-in vehicle is of like kind and character to the one being sold — unless the deal is really a long-term lease (over one year) using the special "selling price" definition from P.A. 98-628, in which case no trade-in credit applies.

Private-party (non-retail) vehicle sales are handled differently: they're subject to a separate Private Party Vehicle Use Tax under 625 ILCS 5/3-1001 et seq., and no trade-in credit is available for those transactions.

The letter also addresses nonresident purchasers. Illinois exempts a vehicle sold in Illinois to a nonresident (even if delivered here) if it won't be titled in Illinois and the buyer gets a drive-away permit or transfers home-state plates. But that exemption doesn't apply if the buyer's home state won't give Illinois a reciprocal exemption in the reverse situation. Since Illinois's own publication (ST-58) lists Florida as a nonreciprocal state, Illinois instead taxes vehicles sold to Florida residents at Florida's 6% rate (capped at Illinois's 6.25% Retailers' Occupation Tax rate) rather than exempting the sale outright.

What this means for you

Vehicle dealers and sellers

If you sell a vehicle at retail and accept a like-kind trade-in, you can generally reduce the taxable selling price by the trade-in's value under 86 Ill. Adm. Code 130.425. That trade-in credit disappears if the sale is structured as a long-term lease under the P.A. 98-628 selling-price rules, or if the transaction is a private-party sale subject to the separate Private Party Vehicle Use Tax rather than the Retailers' Occupation Tax.

Sellers dealing with out-of-state (nonresident) buyers

A sale to a nonresident who won't title the vehicle in Illinois can be exempt from Retailers' Occupation Tax if the buyer gets a drive-away permit or transfers home-state plates. But check whether the buyer's home state is "reciprocal" — Illinois publishes a chart (ST-58) of nonreciprocal states. If the buyer's home state doesn't extend Illinois residents a matching exemption, Illinois taxes the sale at the home state's rate, capped at Illinois's own Retailers' Occupation Tax rate.

Private-party buyers and sellers

If you buy or sell a vehicle in a private transaction (not through a retailer), the transaction is taxed under the separate Private Party Vehicle Use Tax (625 ILCS 5/3-1001 et seq.), not the Retailers' Occupation Tax, and no trade-in credit is available. Rates changed effective January 1, 2022 under Public Act 102-353; check the Department's current rate chart (Form RUT-5).

Common questions

Q: Does Illinois let me deduct my trade-in from the taxable price of a new vehicle?
A: Generally yes, for a retail sale where the trade-in is of like kind and character to the vehicle purchased (86 Ill. Adm. Code 130.425) — unless the deal is a long-term lease under the P.A. 98-628 selling-price rules, or the sale is a private-party transaction, in which case no trade-in credit applies.

Q: I'm buying a car directly from another individual, not a dealer. What tax applies?
A: Private-party (non-retail) vehicle sales are subject to the separate Private Party Vehicle Use Tax under 625 ILCS 5/3-1001 et seq., not the Retailers' Occupation Tax, and no trade-in credit is allowed.

Q: If I sell a vehicle in Illinois to an out-of-state resident, is the sale automatically tax-exempt?
A: Not automatically. It can be exempt under 35 ILCS 120/2-5(25) if the vehicle won't be titled in Illinois and the buyer obtains a drive-away permit or transfers home-state plates. But under 35 ILCS 120/2-5(25-5), the exemption doesn't apply if the buyer's home state doesn't offer Illinois a reciprocal exemption.

Q: Is Florida a reciprocal state for this purpose?
A: According to the letter, Illinois's Publication ST-58 lists Florida as nonreciprocal, so sales to Florida residents taking delivery in Illinois are taxed at Florida's 6% state rate, capped at Illinois's 6.25% Retailers' Occupation Tax rate.

Q: Is this letter binding guidance I can rely on?
A: No. It's a General Information Letter, which only points to relevant statutes, rules, and publications; it is not a statement of Department policy and is not binding on the Department. For a binding answer to your specific facts, you'd need a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Citations and references

Statutes and rules:

• 35 ILCS 120/2-10; 35 ILCS 120/1 (Retailers' Occupation Tax measured by gross receipts / selling price)
• 35 ILCS 105/3-10; 35 ILCS 105/2 (Use Tax on selling price)
• 35 ILCS 120/2-5(25) and (25-5) (nonresident sale exemption and reciprocal-state limitation)
• 625 ILCS 5/3-1001 et seq. (Private Party Vehicle Use Tax)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax); 130.425 (trade-in credit)
• 86 Ill. Adm. Code 150.101 (Use Tax)
• 86 Ill. Adm. Code 151.101 et seq. (private party motor vehicle transactions)
• 2 Ill. Adm. Code 1200.110 (PLR procedure); 1200.120 (GIL procedure)
• Public Act 98-628 (selling price definition for certain long-term leases); Public Act 102-353 (2022 Private Vehicle Use Tax rate changes)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2024.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2024/ST24-0034-GIL.pdf

Original ruling text

ST 24-0034-GIL 10/21/2024 MOTOR VEHICLES
This letter responds to a survey concerning taxation of vehicles. (This is a GIL.)
October 21, 2024
NAME1
COMPANY
EMAIL1
Dear NAME1:
This letter is in response to your letter dated October 3, 2024, 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
https://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:
Each year, the Florida Department of Revenue publishes information
regarding the taxability of the sale or transfer of motor vehicles that are:
•
•

sold in Florida to residents of another state and licensed in the purchaser’s
home state; and
purchased in another state and brought into Florida to be licensed in
Florida.

This information is beneficial to our Department as well as to motor vehicle
dealers within Florida who sell vehicles to residents of your state. To ensure
our Department continues to use and distribute accurate information, we are
requesting that your agency review the specific information related to your
state and let us know of any changes in writing that occurred in the past year
or will occur for 2025.

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October 21, 2024
A copy of our publication, Motor Vehicle Sales Tax Rates by State as of
December 27, 2023 (TIP-23A01-26), is attached for your convenience.
This request is for the state of Illinois and has been sent to NAME2, NAME3,
and NAME4 as the designated contact(s) regarding sales and use tax imposed
on motor vehicles. If a contact needs to be updated, added, or removed for
your state, please include the new contact information in your response.
If you have any questions, please let me know and I will refer them to our sales
tax coordinator for response.
Please reply to this email with any updates and/or comments by November 1,
2024. Thank you for your assistance.
DEPARTMENT’S RESPONSE:
The Department cannot approve publications other than those issued by the Illinois
Department of Revenue. We advise you to consult Illinois statutes and administrative rules,
as well as Department publications on these matters. In the interest of limiting the
dissemination of incomplete information, we offer the following additional guidance and
suggestions.
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 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 86 Ill. Adm. Code 150.101. These taxes comprise what is
commonly known as “sales” tax in Illinois. If the purchases occur in Illinois, the purchasers
must pay Use Tax to the retailer at the time of purchase. The retailers are then allowed to
retain the amount of Use Tax paid to reimburse themselves for the Retailers’ Occupation Tax
liability incurred on those sales.
Trade-in Credits
Retailers’ Occupation Tax is measured by gross receipts from the sale of tangible
personal property to end-users. See 35 ILCS 120/2-10. “Gross receipts” is defined as “the
total selling price or the amount of such sales.” See 35 ILCS 120/1. Use Tax is imposed on
“the selling price . . . of the tangible personal property.” See 35 ILCS 105/3-10. The Retailers’
Occupation Tax Act and Use Tax Act defines “selling price” or the “amount of sale,” in
relevant part, as “the consideration for a sale valued in money whether received in money
or otherwise, including cash, credits, property, other than as hereinafter provided, and

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October 21, 2024
services, but not including the value of or credit given for traded-in tangible personal
property where the item that is traded-in is of like kind and character as that which is being
sold . . . .” See 35 ILCS 105/2 and 35 ILCS 120/1.
With respect to trade-in credits, for the sale of a motor vehicle subject to Retailers’
Occupation Tax, the retailer is allowed to accept a trade-in to reduce the taxable selling
price in accordance with 86 Ill. Adm. Code 130.425. If, however, the motor vehicle is sold
for the purpose of simultaneously leasing it for a defined period that is longer than one year,
and the transaction otherwise qualifies to use the “selling price” as defined in P.A. 98-628,
then no trade-in credit is allowed. For a sale of a motor vehicle between private parties that
is subject to tax under 625 ILCS 5/3-1001 et seq. (i.e., a non-retail transaction), a trade-in
credit is not allowed. See 86 Ill. Adm. Code 151.101 et seq.
Private Party Sales (Non-Retail Sales)
With respect to “Occasional or Isolated Sales,” the State of Illinois imposes a vehicle
use tax on private party (non-retail) transactions involving motor vehicles (commonly
referred to as the “Private Party Vehicle Use Tax” or “Private Vehicle Use Tax”). See 625 ILCS
5/3-1001 et seq. We note that effective January 1, 2022, Public Act 102-353 modified the
Private Vehicle Use Tax rates. The 2024 Chart can be accessed here: https://tax.illinois.gov/
content/dam/soi/en/web/tax/forms/sales/documents/vehicleusetax/rut-5.pdf
Sale of Vehicle to Resident of Non-Reciprocal State
Item (25) of Section 2-5 of the Retailers’ Occupation Tax Act provides an exemption
from the tax for “. . . a motor vehicle sold in this State to a nonresident even though the motor
vehicle is delivered to the nonresident in this State, if the motor vehicle is not to be titled in
this State, and if a drive-away permit is issued to the motor vehicle as provided in Section 3603 of the Illinois Vehicle Code or if the nonresident purchaser has vehicle registration
plates to transfer to the motor vehicle upon returning to his or her home state.” (35 ILCS
120/2-5(25)).
Item (25-5) of Section 2-5 of the Retailers’ Occupation Tax Act provides in part that
“[t]he exemption under item (25) 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 that
state to an Illinois resident but titled in Illinois.” 35 ILCS 120/2-5(25-5). Publication ST-58,
Reciprocal – Non-Reciprocal Vehicle Tax Rate Chart indicates that Florida is a nonreciprocal state for purposes of item (25-5). The chart can be accessed here:
https://tax.illinois.gov/content/dam/soi/en/web/tax/research/taxrates/documents/rntrrc/
st-58.pdf Item (25-5) goes on to provide that “[t]he tax collected under this Act on the sale
of a motor vehicle in this State to a resident of another state that does not allow a reciprocal
exemption shall be imposed at a rate equal to the state’s rate of tax on taxable property in

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October 21, 2024
the state in which the purchaser is a resident, except that the tax shall not exceed the tax
that would otherwise be imposed under this Act.” The State sales tax rate in Florida is 6%,
which is less than the 6.25% rate under the Retailers’ Occupation Tax Act. Therefore, sales
of motor vehicles to residents of Florida who take delivery in Illinois are subject to Illinois
Retailers’ Occupation Tax at the rate of 6%.

I hope this information is helpful. If you require additional information, please visit
our website at https://tax.illinois.gov/ or contact the Department’s Taxpayer Information
Division at 800-732-8866. For future inquiries, please replace NAME4 as a designated
contact regarding sales and use tax imposed on motor vehicles with NAME5, EMAIL2.
Very truly yours,

Kimberly A. Rossini
Associate Counsel
KAR:sce