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Vehicle sales tax exemption ends for Indianans

November 22, 2010

Michael Silver & Company The Illinois Department of Revenue this month changed its law that exempts sales tax for any vehicles and trailers sold to nonresidents of the state. An "out-of-state buyer" exemption no longer exists for residents of states that do not give Illinois residents a similar exemption on motor vehicles and trailers. Effective Feb. 1, those states are Arizona, California, Florida, Hawaii, Indiana, Massachusetts, Michigan, South Carolina and Vermont. Since state laws are subject to change, Illinois will publish any changes made each year on January 1 and July 1. Before finalizing a vehicle sale to a non-Illinoisan, a dealer must first determine whether the buyer's home state is still exempt under Illinois law. If the state is no longer exempt, sales tax must be charged to the nonresident using the sales tax rate for his or her resident state. The various state sales tax rates appear on the Illinois Revenue Department's Web site at bulletins/2005/states.pdf If sales tax must be collected, mark Section 5 Box A of the Form ST-556, and print "out-of-state buyer" and the drive-away permit number or license plate number on the line provided. Also, write the two-letter state abbreviation and complete Lines 1 and 2 of Section 6. Cross through the preprinted tax rate in Section 6 on Line 4 and write the nonresident's state sales tax rate. Use that rate to determine the amount of sales tax to be charged to the customer. For example, Indiana is one of the states that does not provide a recipro- cal exemption to Illinois residents. Therefore, in a sale to an Indiana resident, the dealership must collect sales tax from that customer at a rate of 6 percent. When the customer applies for title in Indiana, his home state will give him credit for the sales tax paid to Illinois. For more information, refer to the revenue department's Informational Bulletin FY 2005-13, posted at bulletins/2005/Fy200513.pdf, or call the article authors at 847-982-0333.