Illinois Discusses Changes to “”Selling Price”” for Leased Motor Vehicles

Illinois has issued a bulletin to explain changes affecting the basis for determining the “selling price” for certain motor vehicles sold in order to be leased for a period longer than one year, for sales and use tax purposes. Public Act 98-628 amends the Retailers’ Occupation Tax Act and the Use Tax Act to provide for an alternate method of determining the selling price subject to sales and use taxes for certain motor vehicles sold for the purposes of being leased. The changes are effective January 1, 2015. The alternate selling price (i.e., the amount due at lease signing, plus the total amount of payments over the term of the lease) must be used when a qualifying motor vehicle is sold for the purpose of being leased under a fixed-term lease contract for a period of more than one year. This new alternative selling price does not apply if there is a month to month provision. The alternate selling price on motor vehicles that qualify must be used, and the following conditions will apply when the alternate selling price is used:

• The trade-in credit is not allowed to reduce the selling price;
• Credit for tax paid on a previously leased motor vehicle cannot be used against the tax liability when it is sold at the end of the lease; and
• Additional charges at the end of the lease must be reported by the leasing company on a new form using the same taxable location and rate as the original return that reported the transaction.

To accommodate the changes, the Department of Revenue has created new returns to report all lease transactions and revised existing returns to remove their prior applicability for lease transactions. (Information Bulletin FY 15-03, Illinois Department of Revenue, December 2014)