When the final results are in, car dealerships in Illinois likely noticed a spike in revenue during December 2019 by customers looking to avoid increased Illinois sales tax. This increase is a result of a new Illinois sales tax law that is set to go into effect January 1, 2020. The tax law that was signed by Gov. J.B. Pritzker on June 28th caps the sales tax deduction on the trade-in value of vehicles. Previously, Illinois had no cap on the sales tax deduction allowable on vehicles that are traded in as a part of the purchase of a new vehicle. State officials estimate that the change in Illinois tax law will generate roughly $60 million in additional revenue on an annual basis. Proceeds will go to funding roads and vertical infrastructure projects under the Rebuild Illinois Capital Plan.
Here a comparison that illustrates the difference between trading in a vehicle prior to and after January 1, 2020. Let’s say the vehicle you plan to trade-in has a value of $15,000 and the sticker price on the new vehicle you are purchasing is $35,000. Quick math tell you that you would owe the dealership the difference of $20,000. Under the old Illinois sales tax law, you would pay sales tax on the difference between the trade-in and new vehicle price – in this example $20,000. Beginning January 1, 2020 a maximum of $10,000 of the trade-in value of the old vehicle is exempt from Illinois sales tax. Therefore, sales tax is owed on $25,000 instead. With the average Illinois sales tax rate being approximately 8.75%, this change could mean thousands of dollars in additional sales taxes being owed on the purchase of a new vehicle.
Thinking of finding loopholes to get around paying the increased sales tax? Think again. Officials have evaluated nearly every possible avenue of avoiding this particular tax. For example, even if you were to go outside the state, to trade in your vehicle, the new sales tax rules would still apply when you register the vehicle. With this being the 20th newly imposed tax in three weeks time span within the state of Illinois, residents could soon begin to search for gaps within the various tax provisions. For the state, it could backfire in a reduction in overall consumer spending.
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