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CATA monitoring trade-in credits

November 18, 2010
By Dennis O’Keefe, CATA legal counsel

Tax auditors for the Illinois Department of Revenue have identified a recurring issue with dealerships involving tax credits on advance trades. The department has ruled that a third party trade-in cannot be used to offset the purchase where the trade-in and the purchase do not occur at the same time (i.e. an advance trade). 

This issue has been magnified because several captive credit companies lately have created a titling entity to facilitate lease securitization financing. 


One local Ford dealer has had a hearing with the revenue department and awaits a determination thereon. The Department of Revenue has argued that the "holder" of most of the ST-566s is Cab West, LLC, and that some of the trades applied against these leases are in the name of Ford Motor Credit Co. Inasmuch as the purchaser of the replacement vehicle is technically not the same party that owns or is trading in the leased vehicle, the trade-in credits were disallowed. This is notwithstanding the fact that Cab West, LLC is merely a titling entity and a wholly owned subsidiary of Ford Motor Credit Co., for which Ford Motor Credit Co. is the only beneficiary. 


The CATA is informed that Ford Motor Credit Co. has provided legal assistance to the dealer to contest the Department’s position. However, it appears that other manufacturers have created similar titling entities, and their dealers could also be at risk. This issue would appear to exist for a certain period of time, for, as in the Ford case referred to above, once the traded-in vehicles are all Cab West vehicles, the issue would disappear.  

The CATA is closely monitoring this case, and hopes that the Department of Revenue will see that its preliminary position is at best based upon a technicality, which should not dictate the result. Nevertheless, the CATA wants to alert all dealers to the issue, and recommends that they consult with their individual attorneys as to how to proceed.