The statewide sales tax rate is 6.25% collected by the Illinois Department of Revenue with 1.25% being returned to local governments where the goods were purchased. Actual tax rates throughout the state vary because, in addition to state taxes, the several local taxing bodies that follow the state tax structure have imposed other taxes that are administered by the state:
Chicago Home Rule Use Tax: If you sell an item from a location in Cook, DuPage, Kane, Lake, McHenry, or Will County and your customer’s address on Form ST-556, Section 1, is within the corporate limits of the city of Chicago, your customer owes an additional 1.25% home rule use (sales) tax. To figure the correct tax due, add 1.25% (.0125) to your rate (preprinted in Section 6 on Line 4), and multiply the combined rate by the amount subject to tax on Line 3. Write the result on Line 4. Note: This combined rate is also preprinted on your ST-556 return below Line 4. Do not add 1.25% to this rate; the combined rate already includes the 1.25% rate. Do not use Line 5 to report the Chicago Home Rule Use Tax.
Other home rule use taxes: You must not report on Form ST-556 the use tax you collect for home rule units of local government other than Chicago. However, if you are required to be registered with a home rule unit of local government to collect its home rule use tax, you should report the tax using whatever form the home rule unit provides. If you are not required to be so registered, the home rule unit may bill your customer directly. You should contact the appropriate home rule unit of local government for instructions on how the tax is administered.
Collecting Local Use Taxes: Your customer may be liable for additional local use taxes, such as Regional Transportation Authority (RTA), and Metro-East Mass Transit District (MED) use taxes, which are not included in the rate at which you are required to collect tax because your business is not located in one of these districts. If you are not required to collect these taxes but choose to do so, you will need to determine your customer’s tax rate.
Regional Transportation Authority Use Tax: If you sell an item from a location outside Cook, DuPage, Kane, Lake, McHenry, or Will County and your customer’s address on Form ST-556, Section 1, is within DuPage, Kane, Lake, McHenry, or Will County, your customer owes an additional 0.75 percent Regional Transportation Authority (RTA) Use Tax. To collect this tax from your customer, you should multiply the amount in Section 6, Line 3, by 0.75% (.0075), and write the result in Line 5 along with the name of the county in which the item will be titled or registered in Line 5a.
If you sell an item from a location outside Cook, DuPage, Kane, Lake, McHenry, or Will County and your customer’s address on Form ST-556, Section 1, is within Cook County, your customer owes an additional 1% Cook County Use Tax. To collect this tax from your customer, you should multiply the amount in Section 6, Line 3, by 1% (.01) and write the result in Line 5 and “Cook County” in Line 5a.
If you sell an item from a location within Cook, DuPage, Kane, Lake, McHenry, or Will County and your customer’s address on Form ST-556, Section 1, is within any of these counties, your customer does not owe an additional Regional Transportation Authority Use Tax. Your customer’s obligation to pay this tax is satisfied through the sales tax rate imposed in these counties.
Collecting the Metro-East Mass Transit District Use Tax: If your customer’s address on Form ST-556, Section 1, is within any of the Metro-East Mass Transit District (MED) townships in Madison or St. Clair counties and you are making a sale from a location outside these townships or counties, your customer owes an additional 0.5 percent Metro-East Mass Transit District Use Tax. If you collect this tax from your customer, you should multiply the amount in Section 6, Line 3, by 0.5 percent and write the result in Line 5. However, if the amount is greater than $20, enter $20 on line 7a. Write the appropriate county — “Madison County” or “St. Clair County” — in Line 5a, the customer’s city in Line 5b, and the customer’s township in Line 5c. If you do not collect this tax from your customer, he or she will be billed by the Metro-East Transit District.
In most cases, a dealer who has sold a vehicle to a non-resident of Illinois, where the Illinois title and license will not be applied for, is a tax-exempt sale provided the dealer issues a drive-away decal permit. Otherwise proper identification information must be recorded for that vehicle as provided under the Illinois Vehicle Code.
Certain states impose their own sales taxes on out-of-state customers. If you sell a vehicle to a customer who will title it in one of those states, then you must charge the customer Illinois sales tax at the foreign state`s tax rate or at 6.25%, whichever is less. A list of all the states for which you must collect sales tax and the rate you must charge can be found on the Illinois Department of Revenue`s website at: http://tax.illinois.gov/Publications/Sales/rntrrc/ST-58.pdf. The list is updated every January and July, so it is important to make sure that you are using the most current list.
Additionally, a vehicle that is sold to a resident of a foreign county, other that Canada or Mexico, is taxable unless (1) the seller is obligated under the terms of the agreement with the purchaser to deliver the vehicle to a point outside of Illinois and the vehicle is not to be returned to Illinois or (2) the terms of the agreement require the seller to deliver the vehicle to a point outside of Illinois by means of a carrier. In the case of delivery by a carrier, the seller must be shown as the consignor or the shipper on the bill of lading or the exemption will not apply.
Drive-away decals are available from the Secretary of State`s office for a fee of $10.00. The permit is good for 30 days. Every drive-away decal permit issued shall be firmly attached to the inside windshield of the motor vehicle in such a manner that it cannot be removed without being destroyed. Dealers are required to keep the necessary records of the drive-away decal number or proper information on the individual who purchases.
If the dealer does not use the drive-away decal, the dealer must indicate either the purchaser`s out-of-state license plate number, along with the name of the state of residence, or the drive-away decal number in the appropriate area of the ST-556 sales tax form.
The Illinois Supreme Court has ruled that documentary fees charged by car dealers to prepare various papers on car sales are subject to Retailers Occupation Tax as part of the gross receipts of the sale of the car. Documentary fees are not excludable even as separately stated charges. The ruling does not prohibit the dealer from charging such fees. These fees can be changed within limits set by Illinois law.
Legislation that was signed into law in 1991 caps the maximum amount dealers may be charged by a seller for a Documentary Service (DOC) Fee. Legislation sponsored by IADA increases the maximum amount of the Documentary Service (DOC) Fee that dealers may charge to buyers from $58.48 to $150 beginning January 1, 2008, with annual CPI increases thereafter. Follow-up legislation increased the Doc Fee again, effective January 1, 2020 to $300.
The law states that a seller in a retail installment contract may add a “DOC Fee” for processing documents and performing services related to the closing of a sale. IADA urges you to characterize the DOC Fee as reimbursement for the cost of complying with State and federal law (such as making warranty disclosures or complying with credit reporting rules) rather than for the cost of completing paperwork.
The maximum amount that dealers may charge will begin at $300 (2020) and shall increase annually, equal to the percentage of change in the Bureau of Labor Statistics Consumer Price Index. The allowable documentary service fee for 2020 is $300.
Every retail installment sales contract under the Act shall include a notice containing the following information:
“DOCUMENTARY FEE. A DOCUMENT SERVICE FEE IS NOT AN OFFICIAL FEE. A DOCUMENTARY FEE IS NOT REQUIRED BY LAW, BUT MAY BE CHARGED TO BUYERS FOR HANDLING DOCUMENTS AND PERFORMING SERVICES RELATED TO CLOSING OF A SALE. THE BASE DOCUMENTARY FEE BEGINNING JANUARY 1, 2020, WAS $300. THE MAXIMUM AMOUNT THAT MAY BE CHARGED FOR A DOCUMENTARY FEE IS THE BASE DOCUMENTARY FEE OF $300 WHICH SHALL BE SUBJECT TO AN ANNUAL RATE ADJUSTMENT EQUAL TO THE PERCENTAGE OF CHANGE IN THE BUREAU OF LABOR STATISTICS CONSUMER PRICE INDEX. THIS NOTICE IS REQUIRED BY LAW.”
Please note that if your dealership is operating under a Consent Decree related to documentary fees, the Consent Decree may have requirements in addition to those set forth in the above law.
A courtesy delivery is not a sale. A courtesy delivery occurs when an item is delivered to a buyer by a dealer other than the selling dealer. The delivering dealer delivers the item as a courtesy to the buyer. To be a courtesy delivery, the item that is delivered must originate from the selling dealer’s inventory.
If you are a selling dealer located in Illinois and the buyer’s address for titling and registration purposes is in Illinois, you are responsible for filing the ST-556 return and paying any sales tax due. The delivering dealer making the courtesy delivery is not responsible for reporting the sale.
If you are an Illinois dealer making a courtesy delivery on behalf of an out-of-state selling dealer, you are not responsible for reporting the sale on your ST-556 return. In this case, the buyer must file Form RUT-25, Use Tax Transaction Return, and pay any use tax due.
If the delivering dealer reports the tax, the selling dealer may be billed for tax, penalty, and interest for not reporting the transaction on an ST-556 return even though the tax is reported and paid on the delivering dealer’s ST-556 return. The delivering dealer will have to file a claim for credit to recover the tax paid. The customer may pay too much or too little sales tax because sales tax rates may differ between the selling dealer’s location and the delivering dealer’s location. Furthermore, the local government where the selling dealer is located will not receive its tax allocation, while the local government where the delivering dealer is located will receive more allocation than is due. Adjustments to these payments will have to be made.
Manufacturer rebates to customers are not considered as a reduction of the purchase price of a vehicle by the Illinois Department of Revenue, and do not entitle the purchaser to reduced tax liability. This means that selling dealers cannot take the amount of the rebate into consideration in determining the customer`s tax liability on the purchase.
Any rebate or incentive for which a dealer will be reimbursed, (e.g., a manufacturer`s rebate program), must be included in the total price and is subject to Retailers` Occupation Tax. A discount or incentive offered by the dealer that will not be reimbursed should not be included in the total price and will not be subject to Retailers` Occupation Tax.
The Illinois Department of Revenue has commented that it has observed problems with the way rebates are being reported on some sales tax returns submitted by new car dealers. Illinois Department of Revenue auditors have found that some rebates are either being subtracted out of the total selling price of a vehicle or added to the trade-in value before the sales tax is calculated.
As for factory employee discounts (i.e. “A” plans “X” plans, green sheets etc,) the Department of Revenue considers such discounts to be taxable rebates and has audited and penalized dealers in audits for failing to include the discount in the total price on the ST-556.
In 2004, in the case of Ogden Chrysler Plymouth, Inc. v. Bower, the Illinois Appellate Court reviewed a factory incentive program that required participating dealers to offer vehicles to employees at a fixed price in exchange for a factory incentive payment equal to a percentage of the purchase price. The court held that the incentive payments were part of the gross receipts from the sales of the vehicles and were subject to sales tax.
After that decision, the Department of Revenue took the position that all factory incentives are subject to sales tax. Beginning July 1, 2008, however, the Department of Revenue adopted a proposal that would subject a factory incentive payment to sales tax only if the payment is conditioned on a specific sale. For sales made on or after July 1, 2008, payments that are not conditioned on more than a specific sale, such as on attaining a sales target, achieving a certain customer satisfaction score, or expending a minimum amount on facility improvements or advertising, are not subject to sales tax. The administrative rule concerning the taxation of dealer incentives can be found at: http://www.ilga.gov/commission/jcar/admincode/086/086001300S21250R.html.
REPLACEMENT VEHICLE TAX
Effective July 1, 2003, the Replacement Vehicle Tax law was repealed. Consequently, when an insured person purchases a motor vehicle from a dealer, sales tax is due on the total price of the motor vehicle sold.
FEDERAL GAS GUZZLER TAX
The federal gas guzzler tax was enacted in 1978 during a national energy crisis. The excess tax was imposed on all automobiles, both domestic and imported, that do not meet statutorily specified fuel economy standards.
The present gas guzzler tax on passenger vehicles (6,000 lbs or less unloaded gross vehicle weight) doubled.
|If the fuel economy of the model type in which the automobile falls is:||The Tax is:|
|At least 22.5||$0|
|At least 21.5 but less than 22.5||$1000|
|At least 20.5 but less than 21.5||$1300|
|At least 19.5 but less than 20.5||$1700|
|At least 18.5 but less than 19.5||$2100|
|At least 17.5 but less than 18.5||$2600|
|At least 16.5 but less than 17.5||$3000|
|At least 15.5 but less than 16.5||$3700|
|At least 14.5 but less than 15.5||$4500|
|At least 13.5 but less than 14.5||$5400|
|At least 12.5 but less than 13.5||$6400|
|Less than 12.5||$7700|
Dealers are not responsible for collecting the Gas Guzzler Tax.
FEDERAL HIGHWAY USE TAX
Effective October 1, 1985, all states came into compliance with the proof of payment provision of the federal highway use tax. This means that before a truck with a declared gross vehicle weight of 55,000 pounds or more can be registered, the State Highway Department must be given proof that the federal highway use tax has been paid.
Although dealers are not liable for the payment of the use tax, there is a possible problem that you need to be aware of. If you take a trade-in heavy duty truck on which the tax has not been paid, and then resell the truck, the purchaser will not be able to register the truck until the tax has been paid. For this reason, it is advisable to require proof of the tax payment before accepting the trade-in. If the tax has not been paid, you may choose to consider this fact when negotiating the value of the trade-in. You will also be able to advise the next purchaser of the trade-in of the fact that the tax has not been paid and will be payable prior to registration. This may create a point of negotiation with the customer, but it could save you from having to deal with an irate purchaser later on.
PRIVATE PARTY VEHICLE USE TAX
Any person who purchases or acquires by gift or transfer a motor vehicle from a private party within or outside Illinois and the vehicle will be titled to an Illinois address must pay a vehicle use tax. This includes persons who move into Illinois with a motor vehicle previously purchased or acquired by gift or transfer from a private party. Motor vehicles that must be reported include cars, trucks, vans, motorcycles, motor homes, ATVs, and buses. Trailers, snowmobiles, and mobile homes are not subject to this tax.
Exceptions: An exemption applies if the person was an out-of-state resident (individuals only), and used the motor vehicle outside of Illinois for at least three months. The appropriate surrendered document (proof of ownership) of the motor vehicle that was used outside of Illinois for at least three months must be submitted with the Illinois application for title and/or registration.
A $15 exception tax applies if the relationship between the purchaser (or transferee) and seller (or transferor) qualifies as one of the following immediate family members: Spouse, Parent, Brother, Sister, or Child. The $15 exception tax also applies if the vehicle is an estate gift to a beneficiary other than a surviving spouse. The surrendered title must be in the name of the qualifying immediate family member who is selling, transferring, or giving the motor vehicle Step relations do not qualify for this exception. Finally only a $25 tax applies to motorcycles and ATVs.
Purchase price is the value given for a motor vehicle and may be in the form of money, credit, property, or service. When there is no stated purchase price, such as a gift or even trade, fair market value should be used. If the purchase price of the motor vehicle is less than $15,000, Table A applies; if $15,000 or more, Table B applies.
Vehicle selling price under $15,000 tax based on model year (see chart below).
1 or current year
11 or older
Vehicle selling price $15,000 or more – tax based on selling price (see chart below).
|$15,000 to 19,999||$750|
|$20,000 to 24,999||$1000|
|$25,000 to 29,999||$1250|
|$30,000 and over||$1500|
*Selling price is defined as the purchase price (Total consideration paid whether in money or otherwise) not including a trade-in allowance.
Environmental taxes are imposed on the sale or use of ozone-depleting chemicals (ODCs) and imported products containing or manufactured with these chemicals. In addition, a floor stocks tax is imposed on ODCs held on January 1 by any person (other than the manufacturer or importer of the ODCs) for sale or for use in further manufacturing. The person holding title (as determined under local law) to the ODC is liable for the tax, whether or not delivery has been made.These chemicals are taxable without regard to the type or size of storage container in which the ODCs are held. The tax may apply to an ODC whether it is in a 14-ounce can or a 30-pound tank.
You are liable for the floor stocks tax if you hold any of the following on January 1.
- At least 400 pounds of ODCs subject to tax and not described in item (2) or (3).
- At least 50 pounds of ODCs that are halons subject to tax.
- At least 1,000 pounds of ODCs that are methyl chloroform subject to tax.
If you are liable for the tax, prepare an inventory on January 1 of the taxable ODCs held on that date for sale or for use in further manufacturing. You must pay for this floor stocks tax by June 30th of each year. Report this tax on Form 6627 and Form 720 for the second calendar quarter. For the tax rates, see the Form 6627 instructions. Figure the environmental tax on IRS Form 6627. Enter the tax on the appropriate lines of IRS Form 720. Attach Form 6627 to Form 720 as a supporting schedule. Follow the instructions for the forms and file by the deadlines set forth in the instructions. The floor stock tax is imposed on your inventory as of the first of each year and is increased each year.
On December 31, 2002, the federal luxury tax was phased out.
The following information was taken from the Illinois Department of Revenue rules(http://www.ilga.gov/commission/jcar/admincode/086/086001300D04550R.html ). The Department has a handy ST-556 (ST-9) which discusses the use of trade-in credits and leasing in an easy-to-read question and answer format.
Advance Trade Credit means a trade-in credit earned as the result of the trade-in of a vehicle on the future purchase of a vehicle where the purchaser is contractually obligated to make a purchase within 9 months after the advance trade.
Dealer Credit means an advance trade credit maintained on the books of the dealer where the purchaser is contractually obligated to make a purchase within 9 months after the advance trade. Lease means a true lease of a vehicle for a term of more than one year.
Valuation of Traded-in Vehicles: The selling price of a vehicle does not include 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. The value of a traded-in vehicle is the amount of value assigned to the vehicle without regard for outstanding debt owed on the traded-in vehicle by any party
The amount of credit given for a traded-in vehicle is the value assigned to the vehicle, reduced by any cash payments received by the purchaser or title holder of the traded-in vehicle. The reduction of the value by offsetting cash payments results in the actual credit given for the traded-in vehicle. Where cash payment is made to the purchaser or the title holder of the traded-in vehicle, the trade-in credit is equal to the actual credit given for the vehicle.
With $3,000 Lien
With $2,000 Cash Back to Purchaser
Use of Trade-in Credits
A dealer may reduce his gross receipts by the value of or credit given for a traded-in motor vehicle where:
- An individual trades a motor vehicle he owns on the purchase of a new or used motor vehicle; or
- A purchaser trades a motor vehicle owned by a third party where the third party assigns the vehicle to the dealer and provides written authorization for the trade to the dealer, for the benefit of the other purchaser. The written authorization provided by the third party should be specific to the immediate transaction, identifying the vehicle to be purchased by the other purchaser. A third party trade-in authorization may not be used in conjunction with an advance trade transaction;
A dealer may not reduce his gross receipts by the value of or credit given for a traded-in motor vehicle where:
- The dealer is the owner (meaning the dealer holds either title or certificate of origin) of the traded-in motor vehicle;
- The trade-in vehicle was disposed of in a sales transaction predating the trade but was not identified by contract or written agreement as an advance trade-in vehicle as required in subsection (d) of this Section; or
- The party holding title and offering the vehicle or vehicles for trade on behalf of another purchaser or lessor, as described in subsection (c)(1)(C) of this Section, would not be entitled to the isolated or occasional sale exemption if such vehicle or vehicles were sold by that party, rather than traded.
A transaction may constitute an advance trade-in if, at the time the vehicle is traded to the dealer, the purchaser becomes contractually obligated to purchase one or more vehicles from the dealer within 9 months after the date of the advance trade-in transaction. Advance trade credits not used within the time specified expire and may not be used subsequent to the 9 month credit period. Advance trade credits are non-transferable.
In order to apply the trade-in credit toward the purchase price of a vehicle, the documents recording the purchaser`s contractual obligation to purchase need not specify the make, model or purchase price of a vehicle to be purchased, only that the purchaser is under an obligation to purchase within the specified amount of time.
Advance trade-in credit given by the dealer to the purchaser in the amount of the value of or credit given for a traded-in vehicle at the time of the advance trade-in may be in the form of dealer credit or cash, and will not affect the purchaser`s ability to apply the advance trade credit toward the purchase of one or more vehicles, so long as the purchaser is contractually obligated to purchase a vehicle from the dealer within the time specified. In completing the transaction, the purchaser may pay the dealer cash or other consideration for the purchase price of a vehicle or vehicles purchased.
Documentation evidencing an advance trade-in transaction must include the following: the contract establishing the value of or credit given for a traded-in vehicle, the obligation to purchase a vehicle, and the date of expiration of the advance trade-in credit; the bill of sale for the traded-in vehicle; and the appropriate sales or use tax return evidencing the purchase of the new or used vehicle and recording the application of the advance trade-in credit. Advance trade-in transactions may not be structured so that the purchaser is not the owner of the automobile offered for trade. IADA sells forms to reflect the advanced trade-in credit.
No trade-in credit may be used in a transaction where the sales or use tax return does not reflect that a trade was offered at the time of the sales transaction. The appropriate sales or use tax return cannot be amended to reflect the value of or credit given for a vehicle offered for trade subsequent to the completion of the sales transaction. (Section 1 of the Act)
Multiple and Split Trade-in Transactions
Multiple Trade-In Transactions: A purchaser may utilize a trade-in credit when trading in more than one vehicle to a dealer on the purchase of a single new or used vehicle. The dealer may use the cumulative trade-in credits from the traded-in vehicles to reduce gross receipts from the sale of the newly purchased vehicle so long as the trade-ins and sale are recorded as a single transaction.
Split Trade-In Transactions: A purchaser may utilize a trade-in credit when trading in a single vehicle to a dealer on the purchase of more than one new vehicle. The dealer may split the amount of the trade-in credit from the traded-in vehicle, and apply it toward the purchase price of one or more new vehicles so long as the trade-in and purchases are recorded as a single transaction. The amount of trade-in credit to be applied to each new vehicle will be determined by the dealer and purchaser.
Combined Transactions: A multiple trade-in transaction or split trade-in transaction may only be used in conjunction with an advance trade-in transaction if the transfer of all vehicles involved in the trade are recorded as a single transaction and the purchaser is contractually obligated to purchase a vehicle from the dealer within the specified period of time.
Documentation of Trade-in Credits
Documentation and records evidencing a trade-in credit utilized for a particular transaction must be retained by the dealer and the purchaser and shall be made available to the Department for inspection or audit. With the exception of advance trade-in transactions, where a vehicle is offered for trade by a person other than the purchaser for the benefit of the purchaser, the owner of the vehicle must give written authorization that the vehicle is being offered for trade for the benefit of the purchaser. The written authorization must be specific to the transaction and must identify the vehicle for which the owner`s vehicle is being traded. IADA sells advanced trade-in credit forms.
ST-556 AND ST-556-LSE RETURN FORMS
The Department of Revenue has created a very helpful publication (ST-9 A Guide for Reporting Sales Using Form ST-556) that discusses many aspects of the ST 556. Currently the ST-9 Guide is undergoing revision and is not available. Following are a few topics that address the ST-556.
Due Date: ST-556 and ST-556-LSE returns are due by the 20th day after the delivery date.
Documentary Service Fees: Receipts collected as document fees are subject to tax and should be included on the ST-556 and ST-556-LSE tax return as part of the vehicle`s total price in Section 6, Line 1.
Goodwill repairs are repairs made by a seller for no charge that a seller is not obligated to make. If the seller makes the goodwill repair himself, no service situation exists. This is so because the seller makes the repair for no charge and cannot be said to be making a sale of service. Rather, in this situation, the seller is using repair parts to maintain the goodwill of a customer. For that reason, the seller making the goodwill repair himself incurs a Use Tax liability based on his cost price of all tangible personal property used in making the repair, including the repair parts transferred to the customer. If the seller pays another person to make the goodwill repair, a service situation exists in which the person making the repairs is the serviceman and the seller is the service customer. In this situation, the tax liabilities depend on the nature of the serviceman.
If the serviceman is de minimus and is not required to be registered under Section 2a of the Retailers` Occupation Tax Act, the serviceman incurs a Use Tax liability based upon his or her cost price of parts transferred in making the repair. In this situation, the seller (as the service customer) incurs no tax liability and the serviceman cannot charge “tax” to the seller.
If the serviceman is de minimus and is required to be registered under Section 2a or is de minimus and is registered under the Service Occupation Tax Act, the serviceman incurs a Service Occupation Tax liability based upon his or her cost price of the part transferred incident to the repair. In this situation, the seller (as the service customer) incurs a Service Use Tax liability that is to be collected by the serviceman. The serviceman may show this Service Use Tax as a separate item on his or her billing to the seller (the service customer) but is not required to do so unless the seller (as service customer) request that it be shown.
If the serviceman incurs Service Occupation Tax on his or her selling price and separately states the selling price of the parts transferred in making a repair, the tax is based on the separately stated selling price of the parts (but not less than the serviceman`s cost price of those parts). If the serviceman incurs Service Occupation Tax on his or her selling price and does not separately state the selling price of the parts, then the tax is incurred on 50% of the serviceman`s entire service billing (but not less than the serviceman`s cost price of the parts transferred). In these situations, the seller (as the service customer) incurs a Service Use Tax liability that is to be collected by the serviceman. The serviceman may show this Service Use Tax as a separate item on his or her billing to the seller (as the service customer) but is not required to do so unless the seller (as the service customer) requests that it be so shown.
Repairs made by a seller (e.g., retailer or manufacturer) who is not obligated to make the repair under a warranty included in the retail selling price of the item result in tax liability. The following situations are examples.
1) Maintenance Agreements: Maintenance agreements are contracts to provide repairs for a particular item within a stated time period and for a pre-determined fee. The party agreeing to provide service under a maintenance agreement may or may not be a seller of the item. However, the maintenance agreement is not included in the retail selling price of the item covered by the maintenance agreement and, for that reason, the selling price of the maintenance agreement is not subject to Retailers’ Occupation Tax and Use Tax liability when the item is sold at retail. Consequently, repairs made under a maintenance agreement result in tax liability
2) Extended Warranties: Extended warranties are contracts to provide repairs for a particular item for a stated period of time after a manufacturer’s express warranty has expired. An extended warranty is not included in the selling price of the item covered by the extended warranty and, for that reason, the selling price of the extended warranty is not subject to Retailers’ Occupation Tax and Use Tax liability when the item is sold at retail. Consequently, repairs made under an extended warranty result in tax liability. Extended warranties are a form of maintenance agreement and are subject to tax just as maintenance agreements are subject to tax
Retailers who have sales of service in which merchandise is transferred as part of providing their service and who are not “de minimus” must report and pay Service Occupation Tax on their selling price using Form ST-1, Sales and Use Tax Return. A retailer who makes a sale of service is de minimus if his or her aggregate annual cost price of tangible personal property transferred as an incident to the sale of service is less than 35% of the aggregate annual total gross receipts from all sales of service. However, retailers whose are de minimus may pay Service Occupation Tax on their cost price (rather than the selling price) of merchandise transferred as part of providing their service. Most dealers are not de minimus. This tax must be reported and paid on the retailer’s Form ST-1. However, retailers can choose to charge and pay Service Occupation Tax on their selling price even though they may be de minimus.
If you are not de minimus, your “selling price” is either the charge for merchandise when it is separately stated from the charge for service or 50% of the total charge when the charge for merchandise is not separately stated.
Sublet repairs: Sales of service by a registered serviceperson to another registered serviceperson (e. g.,radiator repair service [secondary serviceperson] to an auto dealer [primary serviceperson]) can be made tax free as sales for resale. The Service Occupation Tax due will be determined by the primary serviceperson (auto dealer.)
If the dealer is de minimus and does not charge SOT on sales of service, tax should be paid to the sub-serviceperson on either the separately stated charge for parts or 50% of the total bill. This establishes a tax paid cost and no additional tax is due on what the dealership charges the customer. If the sub-serviceperson does not charge the dealership a tax, Use tax is due from the dealership on either the separately stated charge for parts or on 50% of the total bill from the sub-serviceperson. As most dealers are not de minimus and charge SOT on repairs, they should give the sub-serviceperson a certificate of resale to purchase the service tax-free. The dealer should charge the customer SOT on either its separately stated charge for parts or 50% of the total bill to the customer.
The Statutory reference is: 35 ILCS 105/1-105/22.
Any person who sells or delivers tires at retail in Illinois must collect the Tire User Fee. However, IADA passed legislation which creates an exemption for dealers from the used tire provisions of the Illinois Environmental Protection.
The fee is imposed on
- new and used tires for vehicles in which persons or property may be transported or drawn upon a highway, as defined in the Illinois Vehicle Code, Section 1-217;
- special mobile equipment (such as street sweepers, road construction and maintenance machinery); and
- implements of husbandry (farm wagons and combines).
The following exemptions are allowed:
- Tires that are placed on a vehicle that is not transported or drawn upon a highway (e.g., race cars, fork lifts, all-terrain vehicles, and lawn and garden tractors)
- Tires sold with a vehicle
- Tires sold through the mail
- Reprocessed tires
A “reprocessed tire” is a used tire that has been recapped, retreaded, or regrooved and that has not been placed on a vehicle wheel rim. Used tires sold at retail that have not been “reprocessed” are not exempt.
The rate is $2.50 per tire sold or delivered at retail. Form ST-8, Tire User Fee, is due quarterly, on or before the last day of the month following the quarter for which the return is filed. The fee must be collected from the purchaser by adding it to the selling price of the tire. Additionally, the fee must be stated as a separate item, apart from the selling price of the tire. The fee is not considered part of the gross receipts, and thus sales tax should not be charged on the fee.
The IADA passed exemption provides that instead of filing returns (and registering as tire retailers) dealers can remit the tire user fee to their suppliers of tires, provided the supplier is a registered retailer of tires and arranges to collect and remit the fee. The tire supplier who supplies tires to dealers is liable for the tax on all tires sold to the dealer and must provide the dealer with a receipt that separately reflects the tire tax collected from the dealer on each transaction. The tire supplier must also accept used tires for recycling from the dealer`s customers.
Dealers who have an arrangement with their tire suppliers should maintain in their books evidence, such as receipts, that the user fee was paid to the tire supplier and that the supplier agreed to remit the fee to the Department of Revenue for each tire sold. Otherwise, the dealer will be directly liable for the fee for all tires sold at retail. Dealers paying the fee to their suppliers are not entitled to the per tire collection allowance. Statutory Reference 415 ILCS 5/55.8-10
Department of Revenue information:
The following are useful links on the Department of Revenue’s website:
Sales Tax Rate Finder: https://www.revenue.state.il.us/app/trii/
Taxpayer Answer Center: https://idor.custhelp.com/app/home
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