Illinois Trade-In Tax
Upcoming legislative changes to the Retailers’ Occupation Tax Act and the Use Tax Act in the state of Illinois have some significant implications when it comes to trading in your vehicle. These changes redefine the “selling price” subject to Sales and Use Taxes for sales and purchases of motor vehicles when a customer trades in a first division motor vehicle. Joe Rizza Auto Group wants to help Illinois residents prepare for this situation and provide helpful tips on how to act before the changes go into effect on January 1, 2020.
What is the new definition of “selling price”?
P.A. 101-0031 provides that, for sales and purchases of motor vehicles, “selling” price includes the value of or credit given for traded-in first division motor vehicles exceeding $10,000. While trade-in credit for a first division motor vehicle can exceed $10,000 to reduce the cost of the motor vehicle being purchased, for purposes of calculating Sales Tax or Use Tax due, the credit you can claim for a first division motor vehicle being trade in cannot exceed $10,000.
What motor vehicles are subject to the $10,000 trade-in credit limit?
P.A. 101-0031 imposes the trade-in credit limit on first division motor vehicles. The Illinois Vehicle Code provides that motor vehicles are divided into two divisions:
First Division: Those motor vehicles which are designed for carrying not more than 10 persons.
Second Division: Those motor vehicles which are designed for carrying more than 10 persons, those motor vehicles designed or used for living quarters, those motor vehicles which are designed for pulling or carrying freight, cargo or implements of husbandry, and those motor vehicles of the First Division remodeled for use and used as motor vehicles of the Second Division.
See 625 ILCS 5/1-146. First division motor vehicles generally consist of most standard passenger vehicles and include motorcycles. Pickup trucks are second division motor vehicles and, therefore, are not subjected to the trade-in credit limit.
Trade-In Tax Changes FAQ
Are only Illinois residents affected by this change?
Yes. Other state residents such as Indiana residents will not be impacted by this new $10,000 cap. As a general rule, trade-in taxes apply only to the state in which you reside.
When do these changes take effect?
Illinois residents will be impacted by these changes beginning on January 1, 2020. If you’ve been considering trading in your current vehicle on a new or pre-owned model, it’s important to do so before these changes are implemented on January 1st.
Are pickup trucks exempt from the new $10,000 tax cap?
Yes. Pickup trucks are considered second division motor vehicles and are not subject to the trade-in credit limit. Models like the Chevrolet Colorado, GMC Sierra, and Ford Super Duty will not have a $10,000 tax cap when trading in your vehicle.
*Individual tax situations may vary. The information presented was accurate at time of publishing. State/Federal rules and tax guidelines are subject to change. Consult your tax advisor for complete details on rules applicable to your individual situation.