Navigating the complexities of automobile sales tax can be challenging, and Illinois presents a particularly intricate system. This guide provides a comprehensive overview of the Illinois Automobile Sales Tax, breaking down the various components, rules, and regulations that dealers and purchasers need to understand.
Illinois Statewide Sales Tax Rate
The base sales tax rate across Illinois is 6.25%. This is collected by the Illinois Department of Revenue, with a portion, specifically 1.25%, being allocated back to the local governments where the vehicle purchase occurred. However, it’s important to note that the actual sales tax rate can fluctuate throughout the state due to additional local taxes imposed by various taxing bodies that adhere to the state’s tax structure. These additional taxes are also administered by the state, adding layers to the overall Illinois automobile sales tax landscape.
Local and Home Rule Use Taxes
Beyond the statewide rate, Illinois allows for local and home rule use taxes, which can significantly impact the final sales tax amount.
Chicago Home Rule Use Tax
If a vehicle sale originates from a location within Cook, DuPage, Kane, Lake, McHenry, or Will County, and the purchaser’s address, as indicated on Form ST-556, is within the city limits of Chicago, an additional 1.25% home rule use tax applies. This Chicago Home Rule Use Tax is added to the standard rate. To calculate the correct tax, you must add 1.25% (.0125) to your preprinted tax rate on Form ST-556 and multiply this combined rate by the taxable amount. It’s crucial to use the combined rate preprinted on the ST-556 form carefully, ensuring you do not mistakenly add the 1.25% again, as it’s already included in the combined rate provided. The Chicago Home Rule Use Tax should not be reported on Line 5 of Form ST-556.
Other Home Rule Use Taxes
It’s important to note that the Chicago Home Rule Use Tax is specifically reported on Form ST-556. For other home rule units of local government outside of Chicago, use taxes collected should not be reported on this form. If a dealer is required to register with a home rule unit to collect its use tax, they should use the forms provided by that specific unit. In cases where registration is not required, the home rule unit may directly bill the customer. Dealers should contact the relevant local home rule unit for specific instructions on tax administration in these situations.
Regional Transportation Authority (RTA) Use Tax
Adding another layer of complexity to Illinois automobile sales tax are Regional Transportation Authority (RTA) use taxes and Metro-East Mass Transit District (MED) use taxes. These are local use taxes that may apply depending on the location of the seller and the purchaser’s address.
RTA Tax outside Cook County
For vehicle sales originating outside of Cook, DuPage, Kane, Lake, McHenry, or Will County, if the customer’s address on Form ST-556 falls within DuPage, Kane, Lake, McHenry, or Will County, an additional 0.75% Regional Transportation Authority (RTA) Use Tax is levied. To collect this tax, multiply the taxable amount by 0.75% (.0075) and report the result on Line 5 of Form ST-556, specifying the county where the vehicle will be titled or registered on Line 5a.
Cook County Use Tax
Similarly, if the sale occurs outside Cook, DuPage, Kane, Lake, McHenry, or Will County, but the customer’s address is within Cook County, a 1% Cook County Use Tax is added. Calculate this by multiplying the taxable amount by 1% (.01), reporting it on Line 5, and indicating “Cook County” on Line 5a.
RTA Tax within Cook/DuPage/Kane/Lake/McHenry/Will Counties
Crucially, if the vehicle sale originates from and the customer’s address is within Cook, DuPage, Kane, Lake, McHenry, or Will County, no additional Regional Transportation Authority Use Tax is due. The sales tax rate already imposed in these counties covers the RTA tax obligation.
Metro-East Mass Transit District (MED) Use Tax
The Metro-East Mass Transit District (MED) Use Tax applies under specific circumstances. If a customer’s address on Form ST-556 is within the MED townships in Madison or St. Clair counties, and the sale is made from a location outside these townships or counties, a 0.5% MED Use Tax is applicable. To collect this, multiply the taxable amount by 0.5%. Report the result on Line 5, but note that if the calculated tax exceeds $20, the amount is capped at $20 and should be entered on line 7a instead. Specify the county (“Madison County” or “St. Clair County”) on Line 5a, the customer’s city on Line 5b, and township on Line 5c. If this tax is not collected by the dealer, the Metro-East Transit District will bill the customer directly.
Exemptions and Special Cases
Illinois automobile sales tax law includes several exemptions and special cases that can affect tax obligations.
Sales to Non-Illinois Residents
Generally, a vehicle sale to a non-Illinois resident is tax-exempt if the Illinois title and license are not applied for, and the dealer issues a drive-away decal permit. Without the decal, proper identification information must be recorded as per the Illinois Vehicle Code.
Sales to Out-of-State Customers
Some states impose their own sales taxes on vehicles purchased by their residents from out-of-state dealers. When selling to a customer who will title the vehicle in one of these states, Illinois dealers must charge either the foreign state’s tax rate or the Illinois sales tax rate of 6.25%, whichever is lower. The Illinois Department of Revenue provides a regularly updated list of these states and their respective tax rates on their website, ensuring dealers have access to the most current information. It is crucial to consult this list, updated in January and July each year, to ensure compliance.
Sales to Foreign Country Residents
Sales to residents of foreign countries, excluding Canada and Mexico, are generally taxable unless specific conditions are met. Exemptions apply if the seller is contractually obligated to deliver the vehicle outside Illinois, and it is not to be returned, or if delivery outside Illinois is required via a carrier. For carrier delivery, the seller must be listed as the consignor or shipper on the bill of lading to qualify for the exemption.
Documentary Service (DOC) Fees
Documentary fees, often charged by car dealers for preparing sales paperwork, are considered part of the gross receipts from the vehicle sale and are subject to Illinois Retailers Occupation Tax. This was affirmed by the Illinois Supreme Court, meaning these fees are taxable even if listed separately. While dealers can charge DOC fees, Illinois law sets limits on the maximum amount. Initially capped at $58.48, legislation increased this to $150 in 2008, with annual Consumer Price Index (CPI) increases. Further legislation in 2020 raised the maximum DOC fee to $300, with subsequent annual CPI adjustments. The law mandates that retail installment contracts must include a notice informing buyers that the DOC fee is not an official fee, is not legally required, but may be charged for document handling and related services. The notice also states the base DOC fee and its annual adjustment mechanism. It’s important to note that dealerships operating under a Consent Decree related to documentary fees may have additional requirements beyond these legal limits.
Courtesy Delivery
A courtesy delivery is not classified as a sale. It occurs when a dealer delivers a vehicle to a buyer on behalf of the selling dealer. For it to be a courtesy delivery, the vehicle must originate from the selling dealer’s inventory. If the selling dealer is in Illinois and the buyer’s titling and registration address is also in Illinois, the selling dealer is responsible for filing Form ST-556 and paying any due sales tax. The delivering dealer in a courtesy delivery scenario is not responsible for reporting the sale. Conversely, if an Illinois dealer is making a courtesy delivery for an out-of-state selling dealer, they are not responsible for reporting the sale on Form ST-556. In this case, the buyer is required to file Form RUT-25, Use Tax Transaction Return, and pay any applicable use tax. Incorrectly reporting tax by the delivering dealer can lead to complications, including the selling dealer being incorrectly billed and requiring credit claims, and potential discrepancies in local tax allocations.
Rebates and Incentives
The Illinois Department of Revenue has specific rules regarding rebates and incentives and their impact on Illinois automobile sales tax.
Manufacturer Rebates
Manufacturer rebates offered directly to customers are not considered reductions in the vehicle purchase price for sales tax purposes. Therefore, dealers cannot reduce the taxable amount by the value of manufacturer rebates. Any rebate or incentive for which the dealer will be reimbursed, such as through a manufacturer’s program, must be included in the total price and is subject to Retailers’ Occupation Tax.
Dealer Incentives
Discounts or incentives offered by the dealer that are not reimbursed, however, should not be included in the total price and are not subject to Retailers’ Occupation Tax. The Department of Revenue has observed issues with incorrect rebate reporting on sales tax returns and has clarified that rebates should not be subtracted from the selling price or added to trade-in values before sales tax calculation.
Factory Employee Discounts
Factory employee discounts, such as “A” plans or “X” plans, are considered taxable rebates by the Illinois Department of Revenue. Dealers have been audited and penalized for failing to include these discounts in the total taxable price on Form ST-556.
Dealer Incentives (Legal Case)
A 2004 Illinois Appellate Court case, Ogden Chrysler Plymouth, Inc. v. Bower, addressed factory incentive programs. The court ruled that factory incentive payments, even when dealers offer vehicles at fixed prices to employees in exchange for these payments, are part of the gross receipts and are subject to sales tax. Following this, the Department of Revenue initially took the stance that all factory incentives were taxable. However, starting July 1, 2008, they revised their policy. Now, factory incentive payments are taxable only if they are conditional on a specific sale. Incentives based on broader criteria, such as sales targets, customer satisfaction scores, or facility improvements, are not subject to sales tax. The specific administrative rule regarding dealer incentives is available on the Illinois General Assembly website.
Replacement Vehicle Tax
It’s important to note that the Replacement Vehicle Tax in Illinois was repealed effective July 1, 2003. Consequently, when an insured person purchases a motor vehicle from a dealer, sales tax is due on the vehicle’s total price.
Federal Taxes
While not directly part of Illinois automobile sales tax, certain federal taxes are relevant to vehicle sales.
Gas Guzzler Tax
The federal gas guzzler tax, introduced in 1978, applies to automobiles, both domestic and imported, that fail to meet specific fuel economy standards. This tax is levied on passenger vehicles (6,000 lbs or less unloaded gross vehicle weight) and increases progressively based on fuel economy ratings. However, dealers are not responsible for collecting the Gas Guzzler Tax.
Federal Highway Use Tax
The federal highway use tax requires proof of payment for registration of heavy trucks (declared gross vehicle weight of 55,000 pounds or more). While dealers are not liable for paying this tax, they should be aware of potential issues with trade-in heavy-duty trucks on which the tax has not been paid. Reselling such a truck may prevent the purchaser from registering it until the tax is settled. Dealers are advised to check for proof of tax payment before accepting heavy-duty truck trade-ins to avoid future complications and inform potential buyers about any outstanding tax obligations.
Private Party Vehicle Use Tax
Illinois imposes a Private Party Vehicle Use Tax on vehicles purchased from private parties, whether within or outside Illinois, if the vehicle will be titled to an Illinois address. This applies to individuals moving into Illinois with privately purchased vehicles. Taxable vehicles include cars, trucks, vans, motorcycles, motor homes, ATVs, and buses, but excludes trailers, snowmobiles, and mobile homes.
Exceptions and Rates
An exemption exists for out-of-state residents (individuals only) who used the vehicle outside Illinois for at least three months, provided they submit the out-of-state ownership document with their Illinois title/registration application. A reduced $15 exception tax applies to transfers between immediate family members (spouse, parent, brother, sister, child) or estate gifts to beneficiaries other than surviving spouses. This also requires the surrendered title to be in the name of the qualifying family member. Motorcycles and ATVs are subject to a $25 tax.
The tax calculation depends on the vehicle’s selling price. For vehicles under $15,000, the tax is based on the model year, following a tiered schedule. For vehicles priced at $15,000 or more, the tax is based on the selling price, also using tiered brackets. “Selling price” is defined as the total consideration, excluding trade-in allowances.
Ozone-Depleting Chemicals (ODCs) Tax
Illinois also deals with environmental taxes related to ozone-depleting chemicals (ODCs). A floor stocks tax is imposed annually on January 1st on ODCs held for sale or use in manufacturing by anyone other than the manufacturer or importer. This tax applies if, on January 1st, you hold:
- At least 400 pounds of taxable ODCs (excluding halons and methyl chloroform).
- At least 50 pounds of taxable halons.
- At least 1,000 pounds of taxable methyl chloroform.
Those liable must inventory their taxable ODCs as of January 1st and pay the floor stocks tax by June 30th each year, reporting it on IRS Form 6627 and Form 720.
Trade-In Credits
Illinois law allows for trade-in credits to reduce the taxable sales price of a vehicle.
Valuation of Traded-in Vehicles
The taxable selling price excludes the “value of or credit given” for traded-in property of like kind. The “value” of a trade-in is the assigned amount, regardless of any outstanding debt on it. The “credit given” is the value minus any cash payments received by the purchaser or title holder. The “trade-in credit” equals the “credit given.”
Use of Trade-in Credits
Dealers can reduce gross receipts by the trade-in credit when an individual trades a vehicle they own for a new or used vehicle, or when a third party trades a vehicle they own on behalf of the purchaser with written authorization. However, trade-in credits cannot be applied if the dealer owns the trade-in vehicle, if the trade-in was from a prior sale not contractually linked as an advance trade-in, or if the third party offering the trade-in would not qualify for an isolated sale exemption if they sold the vehicle outright.
Advance Trade-Ins
Transactions can be classified as advance trade-ins if the purchaser is contractually obligated to buy a vehicle from the dealer within 9 months of the trade-in. Advance trade credits expire after 9 months and are non-transferable. The purchase obligation documents need not specify the exact vehicle details, only the purchase commitment within the timeframe. Advance trade-in credit can be given as dealer credit or cash without affecting its application to a future vehicle purchase, as long as the purchase obligation is met. Proper documentation is crucial for advance trade-ins, including contracts, bills of sale, and sales/use tax returns.
Deferred Trade-Ins
Trade-in credits cannot be applied retroactively. If a trade-in is not documented at the time of sale on the sales or use tax return, it cannot be claimed later through amendments.
Multiple and Split Trade-In Transactions
Illinois law accommodates multiple trade-ins (more than one vehicle traded for a single purchase) and split trade-ins (one vehicle traded for multiple purchases) within a single transaction. Combined transactions involving multiple/split and advance trade-ins are permissible if all vehicle transfers are recorded as one transaction and the purchase obligation is in place.
Documentation of Trade-in Credits
Dealers and purchasers must maintain detailed records of trade-in credit transactions, available for Department of Revenue inspection. For third-party trade-ins (excluding advance trade-ins), written authorization from the vehicle owner is required, specific to the transaction and vehicle being purchased.
ST-556 and ST-556-LSE Return Forms
Form ST-556 and ST-556-LSE are crucial for reporting Illinois automobile sales tax. The Department of Revenue provides resources like “ST-9 A Guide for Reporting Sales Using Form ST-556” (currently under revision) to assist with proper completion.
Due Date
ST-556 and ST-556-LSE returns are due by the 20th day following the vehicle delivery date.
Documentary Service Fees (Reporting)
Documentary service fees, being taxable, must be included in the vehicle’s total price on Form ST-556 and ST-556-LSE, specifically in Section 6, Line 1.
Goodwill Repairs
Goodwill repairs, performed by a dealer at no charge without warranty obligation, have use tax implications for the dealer based on the cost of parts used. If a dealer subcontracts goodwill repairs to a registered serviceperson, service tax rules apply, depending on whether the serviceperson is “de minimus” (having limited sales of tangible personal property).
Maintenance Agreements and Extended Warranties
Maintenance agreements and extended warranties are considered taxable services in Illinois. Repairs made under these agreements are subject to service tax because these agreements are sold separately from the vehicle and not included in the initial retail price.
Service Taxes
Retailers providing services where merchandise is transferred as part of the service, and who are not “de minimus,” must report and pay Service Occupation Tax on their selling price using Form ST-1. A retailer is “de minimus” if their annual cost price of transferred tangible personal property is less than 35% of their total gross service receipts. However, most dealerships are not de minimus. “De minimus” retailers can choose to pay Service Occupation Tax on their cost price instead of selling price. For non-de minimus retailers, the taxable “selling price” is either the separately stated merchandise charge or 50% of the total charge if merchandise is not separately stated. Sublet repairs between registered servicepersons can be tax-free as sales for resale, with the primary serviceperson (e.g., the dealer) determining the Service Occupation Tax due.
Tire User Fee
Illinois imposes a Tire User Fee on the retail sale of new and used tires for vehicles used on highways, aircraft, and certain equipment. The fee is currently $2.50 per tire. Exemptions include tires for vehicles not used on highways (like race cars or forklifts), tires sold with a vehicle, mail-order tires, and reprocessed tires. The fee must be collected from the purchaser, stated separately from the tire price, and is not subject to sales tax. Form ST-8, Tire User Fee Return, is filed quarterly. Dealers can remit the tire user fee to their tire suppliers if the supplier is a registered tire retailer and agrees to collect and remit the fee. In this case, the supplier must provide a receipt showing the tire tax collected from the dealer and must accept used tires for recycling from the dealer’s customers. Dealers remitting fees to suppliers must keep records of payment receipts to avoid direct liability for the fee.
Department of Revenue Resources
The Illinois Department of Revenue website offers valuable resources for navigating Illinois automobile sales tax:
- Revenue Publications List (including the ST-556 manual): https://www2.illinois.gov/rev/research/publications/Pages/default.aspx
- Sales Tax Rate Finder: https://www.revenue.state.il.us/app/trii/
- Taxpayer Answer Center: https://idor.custhelp.com/app/home
Understanding Illinois automobile sales tax requires careful attention to detail and awareness of various state and local regulations. Utilizing the resources provided by the Illinois Department of Revenue and staying informed about updates are crucial for compliance and accurate tax handling in automobile sales.
