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Sales tax sought on dealer cash

November 17, 2010

As the Illinois Revenue Department widens its net in search of tax money, the matter of dealer cash is back in the cross hairs.


The department has proposed changes to the Illinois code on retailers’ occupation tax, to extract sales tax from certain rebates and dealer incentives. The regulations allow for such tax to be passed on to the customer. 

The CATA will distribute that proposal shortly to dealer members. The proposal suggests the changes could occur later this year.


A major obstacle to meeting the changes involves developing a method to accurately calculate taxes for stair-step programs and lump-sum payments. For example, a manufacturer pays cash incentives to a dealer who sells 15 units of one model in a month. How would tax be determined for a dealer who sells a 16th unit, only to see two deals later unravel? 

"This would be very problematic to administer on a busy Saturday afternoon," said CATA Chairman Mark Scarpelli. "The 14th buyer and the 15th buyer would be taxed differently."


No other state is believed to tax dealer cash, but the Illinois Revenue Department’s rules appear to be written more broadly than those in other states. 

To diffuse opponents of the changes, the department indicated it would exempt dealers from retroactive liability if there is no opposition to the proposal.


An Illinois Appellate Court ruled he state can pursue taxes on all the money a dealer receives tied to a sale—from the purchaser and the manufacturer. Hold back would not be taxed.