E Tax Reimbursement Calculation Worksheet

TITLE 86: REVENUE CHAPTER I: DEPARTMENT OF REVENUE PART 130 RETAILERS' OCCUPATION TAX SECTION 130.ILLUSTRATION E: TAX REIMBURSEMENT CALCULATION WORKSHEET Section 130.ILLUSTRATION E:   Tax Reimbursement Calculation Worksheet P.A. 98-628: Public Act 98-628 (effective January 1, 2015) amended the Retailers' Occupation Tax Act and the Use Tax Act to provide for an alternate method of determining the selling price ("alternate selling price") subject to sales and use taxes for certain motor vehicles that are leased at the time of sale.  This alternate selling price must be used when a qualifying motor vehicle is sold for the purpose of being contemporaneously leased under a fixed-term lease contract for a period of more than one year.  See 86 Ill. Adm. Code 130.454 and Informational Bulletin FY 2015-03 "Leased Motor Vehicle Changes and New Reporting Requirements" for more information on which motor vehicles and which leases are subject to the alternate selling price.  The alternate selling price for these leased motor vehicles is the consideration received by the lessor (i.e., leasing company) 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. TAX REIMBURSEMENT: In these transactions, the person selling the motor vehicle, (e.g., a motor vehicle dealership) owes Retailers' Occupation Tax.  The person purchasing the motor vehicle (i.e., the leasing company) owes Use Tax.  It is customary, however, for vehicle lease contracts to require lessees (i.e., "lease customers") to reimburse any sales taxes owed.  If this reimbursement of tax is included in the lease contract, then, under the statute, it becomes part of the selling price subject to tax.  In addition, if the lease contract includes finance charges on the tax reimbursement, these finance charges also become part of the selling price subject to tax.  It is important to remember that, in these transactions, the tax is based on the amount due under the lease contract . So, whatever amounts are included in the lease contract become part of the "selling price" on which tax must be calculated. CALCULATING TAX WHEN INCLUDED IN LEASE CONTRACT: If the lease contract includes a reimbursement of tax and also includes finance charges on that reimbursement, retailers will have to compute the total amount due under the lease in a way that ensures the proper amount of tax is paid. Regardless of how the lease payment amounts are arrived at to recover tax, the retailer is required to remit tax based on the full amount due under the lease contract, including any increase resulting from a reimbursement of tax and finance charges on that reimbursement.  One way to compute this mathematically is to use the example below.  Whether the retailer uses this method or uses another method to compute tax owed, the retailer must always be sure to remit tax on the total consideration received by the lessor pursuant to the lease contract, however the payments were computed. Tax Reimbursement Calculation Worksheet Example: A lease contract for the sale of a qualifying motor vehicle reflects the following terms: An amount due at signing of $5,000. Before calculating the reimbursement of tax, the dealer determines that the lease customer will owe a payment of $700 each month for the next 36 months (i.e., $25,200). The lease contract requires the lease customer to reimburse the tax owed by the dealer and leasing company. The combined tax rate is 7.25% (state and local taxes). 1. Enter 1.00……………………………………………………………………… 1.00 2. Enter the combined state and local tax rate as a decimal……………………… 0.0725 3. Subtract line 2 from line 1……………………………………………………... 0.9275 4. Divide line 1 by line 3 and round the total to 4 decimal places……………….. 1.0782 5. Enter the total taxable amount of the lease……………………………………. $30,200 6. Multiply line 5 by the percentage on line 4…………………………………… $32,562 7. Multiply line 6 by the tax rate decimal on line 2……………………………… $  2,361 The amount on line 7 is the sales tax due if the lessor is not charging interest or a finance charge on the amount of the sales tax reimbursement it charges the lessee.  If the lessor chooses to charge interest or a finance charge on the sales tax reimbursement, continue with line 8. 8. Enter the total amount of the interest or finance charge the dealer will charge on the amount on line 7*……………………………………………… $     225 9. Enter the amount from line 5…………..……………….…………………….. $30,200 10. Add lines 8 and 9……………………………………………………………... $30,425 11. Enter the amount from line 4………………………………...……………….. 1.0782 12. Multiply line 10 by line 11……………...……………………………………. $32,804 13. Multiply line 12 by the tax rate decimal on line 2……….…………………… $  2,378 The amount on line 13 of the above worksheet is the sales tax due when interest or a finance charge is imposed on sales tax reimbursement the lessor charges to the lessee. * (For example, the interest on a tax reimbursement of $2,361 at 6% interest for 36 months would equal $225).