1) Except as otherwise provided in this
subsection (a) and in subsection (c) of this Section, tangible personal
property purchased by a retailer for resale, and used by the retailer or his or
her agents prior to its ultimate sale at retail, is exempt from Use Tax,
provided that the tangible personal property is of the same general type of
property sold by that retailer and is carried as inventory on the books of the
retailer or is otherwise available for sale during the interim use period.
Beginning July 1, 2008, the following provisions apply to persons claiming the
interim use exemption:
A) The interim use
exemption may not be claimed for any item if any of the following circumstances
exist:
i) title to the item is held by any
party other than the retailer, except that title may be held by the retailer,
the manufacturer of the item, or a captive finance company;
ii) the retailer elects to claim an Internal
Revenue Code section 179 deduction on the item as a depreciable business asset;
or
iii) if the item is leased by
the retailer, the aggregate gross receipts received from all leasing of the
item by the retailer exceeds the retailer's selling price of the
item.
B) Safe Harbor
Rule. For items that are not excluded from the exemption under subsection
(a)(1)(A), interim use will be deemed to occur if the retailer satisfies all of
requirements of subsections (a)(1)(B)(i) through (vi):
i) The item is one of the following:
* listed in the retailer's records as part of
inventory;
* not depreciated by the retailer under Internal Revenue Code
section 167; or
* otherwise shown by the retailer's records, documents, or
operations as available for sale during the interim use period.
ii) The period of use or lease of
the item by the retailer is less than 24 months.
iii) The item is of the same general type of
property sold by the retailer.
iv)
The item is ultimately sold by the retailer.
v) If the retailer receives revenues from the
lease of the same general type of property as the item for which interim use is
claimed, then the annual total of such lease revenues must be less than the
annual total of the sales revenues received from the property.
vi) If the item is leased under a lease
agreement for more than 30 days, the lease agreement must contain a provision
that, if the retailer locates a buyer for the item, the lease may be terminated
within 7 days or the lessee may receive comparable property substituted by the
retailer for the item within 7 days.
C) If the item is not excluded from the
exemption under subsection (a)(1)(A) and does not fall under the safe harbor
provisions of subsection (a)(1)(B) and, if the item is leased, the retailer is
primarily a retailer as provided by subsection (a)(3), then the Department
shall review all applicable and available facts to determine if the interim use
exemption applies, including, but not limited to:
i) The retail sales history or records of the
type of items in question.
ii)
Inventory records.
iii) Advertising
of the item and, if the item is a vehicle, any advertisements on the vehicle
and at the location of the vehicle.
iv) Manufacturer's contract terms,
conditions, discounts and rebates.
v) Length and location of use or lease prior
to sale.
vi) Whether depreciation
under Internal Revenue Code section 167 was taken by the retailer.
vii) Ownership and control documents,
including but not limited to books, records, titles and insurance
documents.
viii) If the item is
leased, whether the contracts signed by lessee indicate the vehicle is
available for recall, substitution allowance and sale during the lease
period.
D) For purposes
of this subsection (a)(1), the term "captive finance company" means a wholly
owned subsidiary of a manufacturing company that finances wholesale or retail
purchases from that manufacturing company.
2) To the extent provided by and limited
under subsections (a) and (c), the leasing of tangible personal property by
persons who are primarily engaged in the business of selling such property at
retail is within the interim use exemption if the property is available for
sale during the lease period. Except as to motor vehicles described in
subsection (a)(4), the interim use exemption is not available to persons who
purchase tangible personal property with the intent to engage in the business
of leasing that property and who sell the property only as an incident to their
leasing activity. Persons who are primarily engaged in the business of leasing
motor vehicles may not claim an interim use exemption when purchasing motor
vehicles for use in their business even though the lessors are subject to
Retailers' Occupation Tax on the sale of used motor vehicles pursuant to
35 ILCS
120/1c. Motor vehicles of the first division, as
defined in Section 1-146 of the Illinois Vehicle Code [625 ILCS 5/1-146 ],
are exempt from Use Tax if the vehicles purchased are to be rented under lease
terms of one year or less. (See
35 ILCS
105/3-5(10).)
3) In determining whether a taxpayer is
"primarily" a retailer, the Department will examine only the activities of his
Illinois operations. In addition, the Department will examine the activities of
divisions of a corporate entity that are not separately registered with the
Department. If divisions of a corporate entity are separately registered,
however, their activities will not be examined in making this
determination.
4) To the extent
provided by and limited under subsection (a), the leasing of motor vehicles by
motor vehicle dealers is within the interim use exemption if the leased motor
vehicles are available for sale during the lease period. For example, many
times motor vehicle dealers enter into leases of motor vehicles with lessees
and simultaneously sell both those motor vehicles and leases to third parties.
If a motor vehicle dealer enters into a lease of a motor vehicle with a lessee
and simultaneously sells that motor vehicle to a third party, the interim use
exemption is available to the dealer in regard to the purchase of the motor
vehicle when it was purchased by the dealer for lease, provided that the motor
vehicle is available for sale during the lease period. However, the dealer's
sale of the motor vehicle, with or without the lease, to the third party is
taxable and the third party incurs a Use Tax liability.
5) Until June 30, 2008, the leasing of motor
vehicles by motor vehicle manufacturers to their employees is within the
interim use exemption if the leased motor vehicles are carried as inventory on
the books of the manufacturers or are otherwise available for sale during the
lease period. Beginning on July 1, 2008 and thereafter, a manufacturer may
claim the interim use exemption for tangible personal property leased to its
employees, or otherwise used by its employees, only when the manufacturer is
registered as a retailer and the use of that property would qualify under all
of the requirements of this subsection (a) and subsection (c).