Several area dealers have called the Illinois Revenue Department recently with misunderstandings about how to treat customers who desire partial or full cash payment for their traded-in vehicles. Important, the relevant tax code has not changed in more than a decade.
The recent callers inquired about whether cash back can be extended when a lien is involved (yes), and whether the cash back should be treated as income (no).
The amount of credit given for a traded-in vehicle is the value assigned to the vehicle, reduced by any cash payments received by the purchaser or title holder of the trade-in. Any cash payments reduce the trade-in value.
On a trade-in valued at $10,000, even if a $3,000 lien exists on the vehicle, the trade-in credit still would be $10,000. However, if the customer with that $10,000 vehicle requests $2,000 cash back, the trade-in credit would be reduced to $8,000.
Customers who desire cash back would face a higher sales tax because the trade-in credit does less to reduce the transaction price. Also, any cash back they receive is not considered to be income. Full details on trade-ins are in a Revenue Department publication, ST-9, at www.tax.illinois.gov/