Illinois State and Local Tax Updates September 2020

Taxpayer’s software sale is taxable, unless they receive a resale certificate from the purchaser

In a private letter ruling, the Illinois Dept. of Revenue determined that software sold by a taxpayer is taxable, unless they receive a resale certificate from the purchaser. The taxpayer is involved in creating business value for clients while solving problems through technology. The taxpayer enters into third party agreements with distributors who can remarket the programs and wants to know if its software transfers are exempt from the Retailers’ Occupation Tax. The department noted that for a sale to qualify as a sale for resale, the taxpayer must have a valid certificate of resale from the purchaser. (No. ST 20-0002-PLR)

Taxpayer was eligible for a production-related tangible personal property exemption

The Illinois Dept. of Revenue issued a private letter ruling determining that a taxpayer was eligible for a production-related tangible personal property exemption. The taxpayer manufactures electric adventure vehicles and asked whether the exemption applied to preproduction vehicles. The department noted that vehicles required to be titled or registered aren’t considered production related and wouldn’t qualify for the exemption. However, the taxpayer clarified that its vehicles will not be titled and registered. Tangible personal property purchased to produce the preproduction vehicles qualify for the manufacturing and assembling machinery and equipment exemption. (No. ST 20-0001-PLR)

Illinois reverses decision of Property Tax Appeal Board

An Illinois appellate court reversed a decision of the Property Tax Appeal Board (PTAB), finding that the PTAB improperly applied the income capitalization approach. This led to an incorrect property tax assessment as the rents charged didn’t accurately reflect the income earning potential of the property. The taxpayer appealed the property tax assessment of its supportive living facility to the PTAB which resulted in a reduced assessment. The court noted that the property tax code requires valuations to be made using the “income capitalization approach,” but that the initial analysis understated the capacity of the supportive living facility to earn income. (Dkt. No. 3-18-0384)

Illinois amends Retailers’ Occupation Tax and Use Tax regulations

The Illinois Dept. of Revenue has amended the Retailers’ Occupation Tax and Use Tax regulations to reflect legislative changes that impose a $10,000 limit on a trade-in credit for a motor vehicle of the first division. According to the new regs, $10,000 is the maximum credit a retailer may take on a return to reduce the taxable selling price of a vehicle when he or she accepts the trade-in, regardless of the value. The term “selling price” includes the portion of the value of or credit given for traded-in motor vehicles of the first division. This doesn’t prohibit the retailers from reducing the price of the vehicle being sold, it only limits the credit given for the traded-in vehicle.

Illinois amends amnesty program regulations

The Illinois Dept. of Revenue has amended, as of Aug. 6, 2020, certain regulations to reflect the amnesty program which applied to payments of contested and uncontested tax liabilities received by the department from Oct. 1, 2019, through Nov. 15, 2019.

IL upholds appliance and installation sales exemption status

An Illinois Appellate Court affirmed a lower court by holding that a taxpayer’s appliance and installation sales weren’t exempt from the retail occupancy tax. The taxpayer believes that installed appliances become permanently affixed to real estate. However, the court noted that the taxpayer still sells appliances to people who don’t choose to have them installed, which under the “substance of the transaction test” is evidence that the taxpayer is a retailer and not a construction contractor. The installation service option is merely incidental to the sale; thus, the taxpayer is engaged in the occupation of selling at retail. (Dkt. No. 1-19-1680)

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