We’ve said before that use tax tends to be the tax that sneaks up on people. Income tax, property tax and sales tax all tend to be direct. They’re hard to miss. Use tax, which exists to more or less pick up what sales tax drops, is technically two taxes in Illinois, the Retailer’s Use Tax and the Service Use Tax (sometimes abbreviated RUT and SUT). The basic rule is this. Use tax is owed on goods and services you use in Illinois and for which you paid less than the applicable Illinois sales tax rate (6.25% for general purchases). You owe use tax equal to the difference.
Where things can get tricky is when you try to define just what exactly qualifies as “use.” Here are three examples that we have seen in our practice.
Example #1. A pleasure boat is bought outside Illinois, in a state that does not have sales tax. The owner, an Illinois resident, moors the boat at an Illinois dock. Depending on how long the boat is tied up, the Department of Revenue might hit the owner with a use tax bill.
Example #2. An antique airplane is bought out of Illinois. As part of a tour of airshows and museum exhibits, it lands in Illinois. Again a use tax bill could be generated if the airplane stays physically in Illinois long enough.
Example #3. A vehicle is purchased out of state. Its owner did not pay sales tax on the initial purchase. The owner then stores the vehicle in Illinois but doesn’t drive it. If the term of that storage is short enough, the owner can avoid incurring use tax. Keep in state too long and IDOR may come kncoking.
The bottom line is that use tax pitfalls often show up in unexpected places. While some cases are clear–for example, you buy a pair of shoes online and are not charged sales tax and since you live in Illinois and wear the shoes, you owe use tax on the purchase–many are not. Especially in the case of big ticket items like cars, boats or airplanes, the possible tax savings from avoiding a use tax bill could be significant.
Horowitz Law Offices represents clients seeking to determine whether a use tax liability exists and defend taxpayers from use tax assessments made by the Illinois Department of Revenue.
You are welcome to ask questions at 312 787 5533 or firstname.lastname@example.org.