Illinois Sales Tax on Car Leases

Another new wrinkle in Illinois for 2015 is that trading in a vehicle no longer affects sales tax on a lease. Since an exchange reduces capitalized costs, it also reduces the applicable sales tax. This provision ends with the new legislation because cap costs are no longer imposed. Starting Jan. 1, Illinois law will change so that sales tax applies to the down payment and monthly lease payments. If the deposit is $2,000, the tax is $165. If the monthly payment is $300, the sales tax is $24.75 each month. The total tax for a 36-month lease would be $1,056, which is $1,419 less than under the current formula. In addition, in addition to sales tax, Chicago levies an 8% user tax on leased vehicles. The combined cost of these taxes helped reduce leasing to about 8 percent of new vehicles registered in the city in 2013, which is even lower than the Illinois national average of 14 percent, according to data from Polk, an auto data research firm. The Illinois sales tax rate varies by region — we went with 8.25%, the rate in Cook County which includes Chicago. Interest rates in Chicago are even higher at 9.5%.

Here is an example to show you what the difference would be between 2014 and 2015 for a 36-month lease: Who taxes a rented car? People are often confused as to who pays the tax on a rented car – technically, these vehicles do not belong to the person who rents them, but to the financial company. That`s why the tax for most leases is covered in your monthly rent, so you don`t have to worry. Calculating the taxes on your lease is simple. As with any other sales tax, simply multiply your state tax rate by the sum of your monthly payments. If your taxes are included in the monthly payments, divide them by the number of months you hold the lease to find out how much tax you will pay each month. Merchants may also charge a documentation fee or “documentation fee” that covers the costs incurred by the merchant in preparing and filing the purchase contract, VAT documents, etc. These fees are separate from the taxes and DMV fees listed above. Leasing as a percentage of new car sales has nearly doubled nationally over the past five years, but Illinois has been well below this growth spurt due to sales tax laws that make leasing less attractive than in other states. Before 1. In January 2015, Illinois taxed the full capitalized cost of a leased vehicle, even if it was a long-term lease and not a purchase. For example, if you leased a $30,000 vehicle, the 8.25% car sales tax for Cook County residents would be an additional $2475 that could be paid in advance or included in the monthly lease payment. Peter Sander, president of the Illinois Automobile Dealers Association, couldn`t estimate how much leasing would increase in Illinois because of the new tax law, but he said it would encourage more consumers to rent if revenue from vehicle sales and sales tax increased.

A rented vehicle is counted in the same way as a vehicle sold and is registered in the name of the renter, just like a purchased vehicle. The customer pays down payment taxes and sales tax on each monthly payment, which is about $1,056 When you decide to rent a car in Illinois, you pay sales tax on the cost of your new or used car – the key factor is that you only owe taxes on the part of the car you`re renting – your monthly payment – and not on the total value of the vehicle. Many dealers offer cash incentives or manufacturer discounts on a vehicle`s badge price to encourage sales. For example, a $1,000 cash discount can be offered for a $10,000 car, which means the expenses for the buyer are $9,000. Vehicle purchases are among the largest current sales in Illinois, which means they can result in a high sales tax bill. This page covers the most important aspects of the Illinois sales tax related to the purchase of vehicles. For leased or leased vehicles, see Taxation of leasing and rentals. Currently, Illinois taxes the entire capitalized cost of the vehicle (the “price” negotiated in the lease) – even if it is a long-term lease rather than a purchase.

For a resident of a Cook County suburb who rents a $30,000 car, the 8.25% auto sales tax would be $2,475. The tax can be paid in advance or included in the monthly rental payment. In addition to national and local sales taxes, there are a number of additional taxes and fees that car buyers in Illinois may encounter. These fees are separate from sales tax and may be collected by the Illinois Department of Motor Vehicles rather than the Illinois Department of Revenue. The personal property rental transaction tax applies to businesses or individuals who are either landlords or tenants of personal property used in Chicago. 9% of revenue or fees for all leases, including renting a computer to enter, modify, or retrieve data provided by the customer Tax rates vary by county, and in the city of Chicago, the sales tax is 9.5%, so the impact of the law varies by location. Leasing is sometimes presented as “off-balance sheet financing”. Although an operating lease is not a loan, it is a payment obligation and creates a cash flow obligation. The Farm Financial Standards Council does not recommend that capital leases be reported as a liability on your balance sheet. Similarly, leased equipment should not be reported as an asset. However, it is a good idea to add a footnote to the balance sheet that explains the terms of the lease. Illinois Rental Sales Tax Ansari Tax 312-265-5626 The Illinois Rental Act has changed so that sales tax applies to the down payment and monthly lease payments.

If the deposit is $2,000, the tax is $165. If the monthly payment is $300, the sales tax is $24.75 each month. The total tax for a 36-month lease would be $1,056, which is $1,419 less than under the current formula. What they gave you before is now canceled on a car lease: Another new wrinkle in Illinois for 2015 is that trading a vehicle no longer affects sales tax on a lease. Since an exchange reduces capitalized costs, it also reduces the applicable sales tax. This provision ends with the new legislation because cap costs are no longer imposed. With the changes in Illinois, Texas will be the only state that still taxes the capitalized cost of a leased vehicle. In other states, only monthly lease payments are generally taxed, as in the new Illinois law. There are two general types of rental plans available. The main factor that distinguishes these plans is how they are treated for tax purposes. An operating lease (or actual lease) requires a series of regular payments, usually annual or semi-annual, over a period of several years.

At the end of the lease term, you have the option to purchase the machine at a price approximately equal to the market value. The price of the option can be set when signing the lease or may depend on the cumulative use and condition of the machine at the end of the lease. Alternatively, the machine can be returned to the dealer or leasing company or the lease agreement can be extended. Lease payments are shown on your tax return as ordinary expenses. If the call option is exercised, the machine will be placed on your depreciation plan with an initial basis equal to the purchase price used. Finance leases A finance lease is treated by the IRS as a conditional purchase agreement. You are considered the owner of the machine, so it will be included in your depreciation plan. Payments to the leasing company must be divided into interest and principal, with interest being tax deductible. Many finance leases are essentially installment loans with lump sum payments after three to five years. The difference is that at the end of the rental period, you have the choice to return the machine to the dealer (and give up ownership) or make the payment for the balloon (and take possession of it).

.