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Proposed Illinois Lease Tax Changes

Illinois taxes on leased vehicles to change?

May 10, 2013

Illinois could be on the path of joining 47 other states in basing sales tax owed on leased new vehicles on the monthly payment instead of the vehicle’s selling price.

Brian Hamer, director of the Illinois Revenue Department, indicated to officials of the CATA and the Illinois Automobile Dealers Association, who are advocating the change, that Illinois should align its tax computation with most other states. State lawmakers said they would not advance legislation to make the change without Hamer’s blessing; on Wednesday, he declared the department’s position to be neutral.

Hamer said he would not support a bill that reduces tax collection, but language for an amendment to be inserted into pending legislation projects revenue increases of $14 million to $28 million, based on forecasts of increased leasing activity following the change. Lease transactions in Illinois currently are about half the number in nearby states.

The best scenario would find the legislation containing the amendment clearing the General Assembly before its scheduled May 31 adjournment and continuing to Gov. Pat Quinn for final consideration. The bill had not been identified at this newsletter’s deadline

The dealer associations have made several runs at the taxation change on long-term leases (more than one year), but revenue officials always focused on near-term shortfalls in tax collection over long-term gains. Immediate gains would be seen in the current structure, under which dealers could not offer advance trade-in credits to their lease customers.

Nevertheless, consumers would enjoy lower monthly payments on leased vehicles which, in turn, would lead to increased leasing activity.

Several CATA directors on May 7 traveled to Springfield to attend the IADA’s annual legislative conference and meet with leaders of the General Assembly’s two chambers, including Senate President John Cullerton (D-Chicago) and Senate Republican Leader Christine Radogno (Lemont); Rep. Tom Cross of Oswego, the House Republican leader; Illinois Treasurer Dan Rutherford; and an aide to Quinn. They all indicated support for the taxation change.

At the same time, and in an unrelated matter, the CATA visitors tried to disarm a motion to eliminate all trade-in credits available to consumers who trade in the vehicles they own. The idea comes from the revenue department, which reportedly was instructed by Quinn to develop a laundry list of revenue-producers for the General Assembly to consider.

But the legislators whom the CATA officials met did not seem warm to the idea. Quinn’s aide added that the change could not happen without a revamp of the state’s tax code.

Another laundry list suggestion is to eliminate the 1.75 percent Retailers Collection Allowance, which is offered to businesses for serving as the state’s tax collector and remitter. That suggestion is commonly floated in budget negotiation in the final days of a legislative session.