LOUISVILLE…State Rep. Darren Bailey (R-Xenia) is working on legislation to repeal a new law that will to go into effect January 1, 2020 and will limit the amount of the ‘Trade-In Vehicle Credit’ in Illinois.
“I am hearing from many in my district who are being hit with higher driver’s license fees and vehicle and trailer tag fees and I’m hearing from auto dealers who are predicting that people will start buying their vehicles outside of Illinois to avoid higher sales taxes. This is just one more way for the Chicago special interests to drain more money from hard-working people in our area,” said Rep. Bailey.
Under current law, the value of a trade-in vehicle is exempted from Illinois’ State and local sales tax. This means that if someone goes to a dealer and trades in a vehicle for a credit of $6,000, and buys a new vehicle for $30,000, they will pay sales tax only upon the $24,000 difference between the price of the new vehicle and the credit offered for the trade-in.
Beginning in the new year, any person trading in a motor vehicle of the ‘First Division’ (i.e., a passenger vehicle, B-trucks, SUV’s and mini-vans that carry not more than 10 people) shall only be allowed a maximum trade-in credit of $10,000. In the event that a ‘First Division’ vehicle trade-in exceeds more than $10,000, the buyer will not be able to deduct more than the $10,000 off the purchase price of a new vehicle.
“Legislation is already being drafted to repeal this bad idea that is essentially a double tax on the same item,” added Rep. Darren Bailey. “I will continue to work to reform our state budgeting process and oppose tax and fee increases on our families, farmers and businesses.”
The trade-in credit being capped at $10,000 is something dealers say will hurt car sales. The initial estimates are that car buyers are on the hook for an estimated $40 million extra in sales taxes under the new law. The tax is based on the city where the car buyer lives. The least a buyer can pay is 6.25%. Some communities in Illinois car buyers pay 9.5% in sales taxes.
Private car sales are taxed differently depending on the age and price of the car. Any sale under $15,000 is taxed by the model year of the car, so the newer the car, the higher the tax owed on it ranging between $390 for a 2018 model to $25 for any car made in 2008 or earlier. The additional revenue generated is purportedly going toward the state's $45 billion "Rebuild Illinois" capital improvement plan that Gov. J.B. Pritzker signed into law late last month.
And for those who do buy cars with a lesser trade-in credit value next year, they're also likely to get hit with a higher "doc fee" from dealerships since the state increased the maximum paperwork processing fee to $300 as well. Currently, the maximum fee amount is $179.81.