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Vehicle tax changes usher in Illinois's new year

November 23, 2010
Several tax changes took effect at the Illinois Revenue Department July 1, the start of the state's fiscal year. Among them: certain vehicles that weigh at least 8,000 pounds can be exempt from sales tax; rolling stock exemptions have changed; and the replacement vehicle tax is repealed. The new Commercial Distribution Fee adds 36 percent to the price of a D class (8,001-12,000 pounds) vehicle registration fee. That plate fee is $138 beginning each July 1, then decreases Oct. 1, Jan. 1 and April 1. With rounding, the CDF this quarter is $50. Therefore, the Commercial Distribution Fee this quarter is $188. The upside: A CDF sales tax exemption is granted to certain second division motor vehicles and trailers if the CDF administered by the secretary of state is paid. Such a transaction includes applying for a "D" through "Z" class license plate. Illinois dealers would report any CDF sales tax exemption on Form ST- 556 and on Form CDF-7, an example of which is included in this newsletter. Dealers retain the CDF-7; they don't submit it. Important, a purchase qualifies for the CDF sales tax exemption only if the CDF is paid for and if it is a second division motor vehicle or trailer with a gross vehicle weight of more than 8,000 pounds. The Illinois Vehicle Code divides all vehicles into two divisions. First Divi- sion vehicles are those which are designed to carry up to 10 persons. Second Division vehicles are (a) designed to carry more than 10 persons, (b) designed or used for living quarters, and (c) designed for pulling or carrying property, freight or cargo; or are vehicles of the First Division that are remodeled for use as a Second Division vehicle. Generally, all trucks-pickups, commercial vehicles, commercial vans, cargo vans and tractors-are Second Division vehicles. The revised "rolling stock" exemption applies to items that are purchased by interstate carriers for hire to be used as rolling stock in interstate commerce. A person or business claiming the rolling stock exemption must complete the Revenue Department's Form RUT-7.(See example in this newsletter.) To qualify for the exemption, at least 51 percent of a motor vehicle's total trips in each consecutive 12-month pe riod must (a) carry persons or property for hire, and (b) either cross the Illinois border or occur outside Illinois.Interstate carriers must document every trip, something not necessary before, to prove they meet the 51-percent threshold.  The first 12-month qualifying period for the use of a motor vehicle begins on the date of registration or titling with an Illinois agency, whichever occurs later. The vehicle must continue to be used in a qualifying manner for each consecutive 12-month period. A motor vehicle that a company uses to transport its own people or its own goods that it sells or delivers-even if the vehicle crosses state lines-is not rolling stock. Vehicles which seldom or never leave Illinois no longer qualify for the rolling stock exemption. To document tax-exempt purchases of rolling stock items, dealers must keep records of the purchaser's name and address and ICC number, an identification or description of the item(s) purchased, a statement that the purchaser is buying the item(s) for use as rolling stock in interstate commerce for hire, and the purchaser's signature and date of signing. If a vehicle qualifies for the new rolling stock exemptions, any repair and replacement parts for that vehicle also are exempt from tax. Also effective July 1, the Replacement Vehicle Tax and sales and use tax exemptions related to the tax are repealed. If a passenger car is purchased in Illinois on behalf of an insured person as part of a total loss claim, sales tax or use tax, whichever is applicable, now must be paid on the full purchase price. As a result of the repeal, Form RVT-7 now is obsolete. Another change effective July 1: The Tire User Fee increases from $1 to $2.50 (as reported in the June 9 edition of this newsletter). The increase appliesto new and used tires that are sold and delivered in Illinois at retail. The new rate will be reflected on the Illinois Revenue Department's preprinted forms for the July-September liability period. Those completed forms must be submitted by Oct. 30.