Illinois will soon tax trade-in car value, even for out-of-state purchases

By Cole Lauterbach | The Center Square
Jul 11, 2019

Due to a new broadening of the sales tax, Illinois residents won’t get as much back in value when they trade in their cars for new ones.

Beginning in 2020, a new law signed by Gov. J.B. Pritzker will apply Illinois’ sales tax to any traded-in vehicle’s worth over $10,000. That means trading in a $30,000 car for one worth $60,000 will cost the customer an extra $1,200 in additional sales taxes. 

Pete Sander, president of the Illinois Automobile Dealers Association, said it could mean Illinois residents put off getting a new car or won't be able to afford as much car as before.

“There’s no question that it could have a large impact on the industry,” he said, adding that a tax on the trade-in value of a car amounts to taxing the vehicle twice because it was taxed once at the original purchase. 

Some Illinoisans may look to buy a car in another state, but Sander said it’s not something they can bypass at an out-of-state dealer. 

“According to the tax code, there’s a provision that the state can collect that in [the registration change] and you’d be required to pay that tax but that might happen thirty or sixty days after the sale,” he said. 

The association hopes to negotiate a better deal with lawmakers in the coming veto session. 

The tax, Sander predicted, will mainly affect luxury cars, but it will affect more mid-level family cars over time as inflation eventually increases the cost of vehicles.

According to financial site Zacks.com, 42 of 50 states offer some sort of credit for the value of the traded-in car, most exempt the net cost of the trade-ins, as Illinois will do until 2020.