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Aggregate tax on rentals: confusion

November 17, 2010

Dealers no longer may mark Exemption 5E, sold for rental use, on Illinois Form ST-556 for vehicles sold to be rented for one year or less. Retailers are liable for a Retailers’ Occupation Tax on the vehicle selling price, under a change effective Sept. 1.


Retailers are not authorized to collect sales tax from the purchaser. However, retailers can charge a "reimbursement" amount equal to the sales tax. If the reimbursement is not collected, the dealership would effectively absorb the new tax. 

To collect a reimbursement, the dealer must separately state the amount as "reimbursement" on the invoice or other purchase contract. The Illinois Revenue Department reviews the change in a new informational bulletin, FY 2008-01.


Dealers who rent vehicles for terms of one year or less should consult with a tax advisor about the new tax implications for those vehicles. It is possible the dealer would be responsible for tax on the value of any such vehicle.