What was new trade and tax laws

ILLINOIS IMPOSING CAR TRADE-IN TAX ON JAN. 1; DEALERS CALL IT DOUBLE TAXATION

Joe Barnas

Writer

Joe Barnas

/ BUDGET + TAX

JULY 31, 2019

Illinois imposing car trade-in tax on Jan. 1; Dealers call it double taxation

The state collects no sales tax on trade-in value, but that changes next year. Car dealers call the $60 million to be collected ‘double taxation’ because trade-ins were taxed when purchased.

Car dealers may have a busy New Year’s Eve if Illinoisans try to beat a significant sales tax expansion on vehicle trade-ins that starts in 2020.

The state currently collects no sales tax on a car’s trade-in value, which acts as credit toward a new vehicle purchase. By law, sales tax only applies to the difference between trade-in value and the new vehicle’s purchase price.

That changes Jan. 1. Under Senate Bill 690, signed June 28 by Gov. J.B. Pritzker, state and local sales tax will be applied to any trade-in value above $10,000. The new tax is expected to cost Illinoisans $60 million a year – which was earmarked not for roads, but for vertical infrastructure such as new state buildings and renovations.

The least a driver looking to trade-in will face is 6.25% in sales tax, the state’s rate. Municipalities often add their own sales tax, averaging 2.49%. Statewide the average combined state and local sales tax is 8.74%, but it ranges as high as 10.25% in Chicago.

Take, for example, an Illinoisan buying a new vehicle for $35,000 – about the average cost in 2018 – and trading in her car valued at $20,000. Currently, she would only pay sales tax on the difference, or $15,000. The average sales tax on this transaction would be roughly $1,311.

In 2020, trade-in credit above $10,000 will be taxed in addition to the difference between the new and used car prices. In this example, the $20,000 trade-in will not be taxed on the first $10,000 in value, but the remaining $10,000 gets taxed along with the $15,000 difference between the new and used car values. So sales taxes will be applied to $25,000 of the transaction, which will cost her $2,185.

So the same car deal will cost her an extra $874 in sales taxes if she waits until Jan. 1.

Explanation:

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