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When are out-of-staters not tax exempt? When they’re Illinoisans

November 17, 2010
By Dennis M. O’Keefe, CATA General Counsel

The Illinois Department of Revenue recently examined records of area dealers and determined that, although the purchaser or lessee provided an out-of-state address on the bill of sale, the out-of-state purchaser exemption did not apply because the purchaser is an Illinois resident. Residency was determined using other information available to the revenue department.


It is important to note that the exemption is for sales sold to an out-of-state purchaser, not merely sold out of state. To qualify for the exemption, the purchaser must not be an Illinois resident and must intend to title and/or register the item in another state. Unless both criteria are met, the exemption is invalid. 


The transactions mentioned above that were reviewed by the revenue department involved vehicle leases. In the cases, the Department of Revenue charged back the captive lease company for the leases that were denied the exemption. In turn, the lease company charged the lessees, i.e. the customers (if they don’t get the money from the customer, they probably would go against the dealer per their agreement).


In the case of vehicle sales transactions, the Department most likely would seek payment directly from the dealer, who then would be left to his own devices to try to recoup from his customers. 


The best advice in transactions with out-of-staters is to be extremely careful in dealing with a customer who is entitled to this exemption. Remember, to be tax-exempt, the customer cannot be an Illinois resident and must intend to take title and to register the item in another state.