Determination of "Selling Price" or "Amount of Sale" when Certain Motor Vehicles are Sold for Lease

TITLE 86: REVENUE CHAPTER I: DEPARTMENT OF REVENUE PART 130 RETAILERS' OCCUPATION TAX SECTION 130.454 DETERMINATION OF "SELLING PRICE" OR "AMOUNT OF SALE" WHEN CERTAIN MOTOR VEHICLES ARE SOLD FOR LEASE Section 130.454  Determination of "Selling Price" or "Amount of Sale" when Certain Motor Vehicles are Sold for Lease a) The provisions of this Section , which provides only for an alternative meaning of "selling price" with respect to the sale of certain motor vehicles incident to the contemporaneous lease of those motor vehicles , are not changed by the tax on leases implemented under Article 75 of Public Act 103-592. b)         Alternative selling price for certain leased motor vehicles. Notwithstanding any law to the contrary, for certain motor vehicles described in this subsection sold on or after January 1, 2015, for the purpose of contemporaneously leasing the motor vehicle, the "selling price" or "amount of sale" will be determined based on the consideration received by the lessor pursuant to the lease contract, including amounts due at lease signing and all monthly or other regular payments charged over the term of the lease.  Also included in the selling price is any amount received by the lessor from the lessee for the leased vehicle that is not calculated at the time the lease is executed, including, but not limited to, excess mileage charges and charges for excess wear and tear. For this Section to apply to the determination of the "selling price" or "amount of sale", the motor vehicle must: 1)         be sold for the purpose of leasing the vehicle for a defined period that is longer than one year; and 2) be a motor vehicle, as defined in Section 1-146 of the Vehicle Code [625 ILCS 5/1-146], that is either: A)        a motor vehicle of the first division [625 ILCS 5/1-217]; or B) a motor vehicle of the second division [625 ILCS 5/1-217] that: i)          is a self-contained motor vehicle designed or permanently converted to provide living quarters for recreational, camping, or travel use, with direct walk-through access to the living quarters from the driver's seat; ii)         is of the van configuration designed for the transportation of not less than 7 nor more than 16 passengers; or iii)        has a gross vehicle weight rating of 8,000 pounds or less. c)         Lessor assumes the liability for reporting and paying tax for lease receipts not calculated at the time of sale. For sales that occur in Illinois, with respect to any amount received by the lessor from the lessee for the leased vehicle that is not calculated at the time the lease is executed, the lessor who purchased the motor vehicle does not incur the tax imposed by the Use Tax Act on those amounts, and the retailer who makes the retail sale of the motor vehicle to the lessor is not required to collect the tax imposed by the Use Tax Act or to pay the tax imposed by the Act on those amounts. 1) The lessor who purchased the motor vehicle , however, assumes the liability for reporting and paying the tax on those amounts directly to the Department in the same form ( State and local retailers' occupation taxes, if applicable) in which the retailer would have reported and paid such tax if the retailer had accounted for the tax to the Department. 2) For amounts received by the lessor from the lessee that are not calculated at the time the lease is executed, the lessor must file the return and pay the tax to the Department by the due date otherwise required by the Act for returns other than transaction returns. 3) If the retailer is entitled under the Act to a discount for collecting and remitting the tax imposed under the Act to the Department with respect to the sale of the motor vehicle to the lessor, then the right to the discount provided in the Act shall be transferred to the lessor with respect to the tax paid by the lessor for any amount received by the lessor from the lessee for the leased vehicle that is not calculated at the time the lease is executed; provided that the discount is only allowed if the return is timely filed and for amounts timely paid. d)         No trade-in credit. The "selling price" of a motor vehicle that is sold on or after January 1, 2015 for the purpose of leasing for a defined period of longer than one year shall not be reduced by the value of or credit given for traded-in tangible personal property owned by the lessor, nor shall it be reduced by the value of or credit given for traded-in tangible personal property owned by the lessee, regardless of whether the trade-in value thereof is assigned by the lessee to the lessor. e)         Sale occurs at time of delivery. In the case of a motor vehicle that is sold for the purpose of leasing for a defined period of longer than one year, the sale occurs at the time of the delivery of the vehicle, regardless of the due date of any lease payments. f)          No credit for Use Tax paid on purchase when vehicle sold at end of lease. A lessor who incurs a Retailers' Occupation Tax liability on the sale of a motor vehicle coming off lease may not take a credit against that liability for the Use Tax the lessor paid upon the purchase of the motor vehicle (or for any tax the lessor paid with respect to any amount received by the lessor from the lessee for the leased vehicle that was not calculated at the time the lease was executed) if the selling price of the motor vehicle at the time of purchase was calculated using the definition of "selling price" as defined in this Section . g)         Electronic filing and payment mandate. Notwithstanding any other provision of the Act to the contrary, lessors shall file all returns and make all payments required under this Section to the Department by electronic means in the manner and form as required by the Department. h) This Section does not apply to leases of motor vehicles for which, at the time the lease is entered into, the term of the lease is not a defined period, including leases with a defined initial period with the option to continue the lease on a month-to-month or other basis beyond the initial defined period. [35 ILCS 120/1] i)          Calculation of tax.  The Retailers' Occupation Tax is imposed on the "selling price" which, under this Section, is defined as the consideration received by the lessor pursuant to the lease contract .  Therefore, if the retailer and lessor choose to include in the lease contract a reimbursement for the tax they owe, the reimbursement becomes part of the statutory "selling price" that is subject to tax, since it is consideration received under the lease contract.  The tax owed equals the amount of the lease contract multiplied by the tax rate.  Therefore, the only way to both pay the correct amount of tax and collect reimbursement from the lessee for the tax owed by retailer (Retailers' Occupation Tax) and lessor (Use Tax), is to use an algorithm when constructing the lease contract.  See Illustration E.