Car dealerships may see a flood of trade-ins within the next few weeks. On January 1st, Illinois will be imposing a new trade-in tax on used vehicles being traded in at dealerships. 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.
Under Senate Bill 690 signed into law by Governor J.B. Pritzker on June 28th, state and local sales tax will be applied to any trade-in value above $10,000. The tax money has been earmarked in the new Illinois budget 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. Statewide the average combined state and local sales tax is approximately 8.75%. Drivers who have trade-ins valued above $10,000 will be taxed again when they go to trade in the vehicle according to the new law. The trade-in tax also applies to out-of-state vehicle purchases. In other words, you cannot cross state lines to dodge the tax, as the Secretary of State will collect the fee at registration in the State of Illinois.
The trade in tax is one of 20 new taxes coming to Illinoisans in less than 3 weeks.