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Adjust to recent Illinois sales tax law changes

November 23, 2010

Effective July 1, there are several changes to the Illinois sales tax law that affect retail vehicle dealers. Insurance replacement exemption Under prior law, if an insurance company purchased an automobile to settle a total loss insurance claim, the settlement amount was exempt from sales/use tax. This deduction on Form ST-556 has been repealed. The Illinois Department of Revenue is revising Form ST-556 to incorporate this change. In the interim, you must discontinue taking this deduction. If you have taken this deduction on a sale that occurred on or after July 1, 2003, you should consider amending the return to remove the deduction. Insurance companies no longer need to complete Form RVT-7. This form now is obsolete. Rolling stock exemption limited The ability to use the rolling stock exemption for motor vehicles had been substantially restricted. Effective July 1, 2003, the only motor vehicles that qualify for the exemption from sales and use tax are those that make 51 percent or more of their pickups and deliveries across state lines. The statutory language uses the term "trips," not mileage. Each trip is counted and used in the fractional denominator in determining the percentage of interstate usage. Trips that are between points within Illinois are excluded from the numerator. As a retailer, you need to continue to obtain Form RUT-7 (Rolling Stock Certification) from the purchaser to in order to take the rolling stock exemption on Form ST-556. Commercial Distribution Fee exemption There is a new fee, the Commercial Distribution Fee, for certain vehicles with a gross weight in excess of 8,000 pounds. The secretary of state administers this fee Vehicles subject to this fee are exempt from sales/use tax. The exemption is to be taken on Line 5, Box G, of ST-556. The description should read "CDF sales tax exemption." You must also obtain Form CDF-7: Commercial Distribution Fee Sales Tax Exemption Certification from your customer. This form should be kept in your records as support for the exemption. Other Law Changes The state has also made several changes to income tax law that will affect retail dealers. Beginning in 2004, the $1,000 corporate exemption has been eliminated. The replacement tax credit for the purchase of capital assets, along with the training expense credit, has also been repealed. The Illinois Revenue Department will run a tax amnesty program Oct. 1-Nov. 15. The program will cover most types of taxes that would have been due from July 1, 1983, through June 30, 2002. All related penalties and interest would be waived. Any tax owed after the amnesty period may be subject to penalties and interest applied at 200 percent. For more details, call the authors of this article at 847-982-0333.