Illinois Tax – What is New for Dealers?

By Judy Mason, CPA, CVA - Partner 
September 2019

Illinois Announces a Tax Amnesty Program

Illinois enacted two tax amnesty programs that will be available from October 1, 2019 through November 15, 2019. This is the first tax amnesty Illinois has offered since 2010. Under both programs, the Illinois Department of Revenue waives applicable interest and penalties.

  • The general tax amnesty applies to all taxes due to the State of Illinois for any tax period ending after June 30, 2011 and before July 1, 2018.
  • The other tax amnesty applies to franchise tax and license fees taxes due for any tax period ending after March 15, 2008 and on or before June 30, 2019.

Regulations have not yet been issued regarding how amnesty is to be claimed, which forms to use, how payment is to be made, etc. For prior amnesty programs, taxpayers were required to file delinquent and/or amended tax returns, including making the applicable payment, within the short amnesty period.

If you are currently under audit for sales or income tax or are delinquent with your Illinois tax filings, you may be able to participate in the amnesty program and eliminate interest and penalties associated with a liability.

Illinois Limits Trade-In Credit for Sales Tax

Beginning January 1, 2020, the trade-in credit for purposes of calculating sales tax will be limited to $10,000. Both car dealers and shoppers likely will feel pain, thanks to this change.

For example, someone buying a car for $60,000 who receives a $40,000 of trade-in value today, pays sales tax on $20,000. Beginning January 1, 2020, the sales tax will instead be calculated on $50,000 ($60,000 - $10,000). Assuming a 7.25% sales tax rate, the additional tax paid is $2,175, a significant increase in the cost of the vehicle.

There are estimates that this limit in trade-in value will generate an additional $40 million in state revenue. The $10,000 is hardcoded into the law change, meaning that as the value of vehicles rise, the trade-in offset will stay the same, and sales tax costs per vehicle will continue to increase over time.

Determining the Sales Tax on Lease Transactions

On January 1, 2015, Illinois changed sales tax calculated for leased vehicle transactions. Beginning on that date, the “alternate selling price” was to be used for qualifying motor vehicles being leased under a fixed-term lease contract with a term greater than one year.

On August 13, 2019, the Illinois Department of Revenue issued a Compliance Alert clarifying how to calculate the “alternate selling price.” It includes the amount due at signing, plus the total monthly payments charged during the lease term.

Lessors generally require the lessee to reimburse the lessor for sales tax charged on the contract. This reimbursement, along with finance charges on the reimbursement, is to be included in the “alternate selling price” for which tax is calculated.

Excluded is the disposition fee because it is only charged if the lessee does not purchase the vehicle at the end of the lease. Also excluded is Chicago’s Personal Property Lease Transaction Tax.

The origin of this notice appears to be based on issues the Illinois Department of Revenue is currently finding as it audits automobile dealers that include periods after January 1, 2015. Whether or not under audit, dealers should review how their software is calculating the selling price to ensure it includes all the lease payments along with the tax and finance charge on the tax.

MichaelSilver has served the unique needs of privately-held automobile and truck dealerships since the firm was founded in 1944. The MichaelSilver Automobile and Truck Dealership team is dedicated to serving dealerships in a variety of areas including accounting and assurance, tax advising, and compliance. Should you have any questions about your Illinois taxes, please contact us at 847.982.0333.

Judy Mason, CPA, CVA, Partner, has over 20 years of tax, accounting, business consulting, and compliance experience, serving closely-held and start-up businesses, entrepreneurial and family-owned companies, their owners and families. Her expertise is in federal, state and local taxation. Judy has a broad depth of expertise in state and local tax research, planning, and compliance matters for entities and individuals with multi-state businesses and/or investments. She has successfully managed a broad range of federal income, and state sales and use tax audits for entities and individuals. As a Certified Valuation Analyst (CVA), Judy prepares business valuations used for various purposes such as estate and gift planning, business succession, buy/sell agreements and litigation support.