OAK BROOK, IL – After waging a 20-year battle, Illinois new-car dealers win legislative approval for the state to reduce the sales tax collected on new vehicle leases as much as 50%.
Prior to Jan. 1, a lessee paid tax on the entire purchase price of a vehicle when entering into a lease. Effective this month, customers who lease a vehicle pay taxes only on money due at lease inception and on monthly lease payments.
Because most vehicles have a residual value of 50% or more, this change reduces the taxes owed by new lessees by 50%, according to Dave Sloan, president of the Chicago Automobile Trade Assn. which spearheaded the campaign to change the tax policy.
“In the last 20 years we twice got the Illinois House and Senate to pass a bill to reduce lease taxes, but both times the governor vetoed the legislation” because the state feared a loss in revenue, Sloan says.
“The CATA, along with the Illinois Auto Dealers Assn., worked to show the Illinois Department of Revenue that changing the way the state collects tax on vehicle leases would not only be good for the consumer, but would result in more leasing and more revenue for the state.”
Nationally, CATA says the number of new-vehicle owners that are leasing has grown to 26%, a figure that has doubled over the past five years. Illinois has lagged well behind at just 14%. Leasing rates in Chicago are among the lowest for any metropolitan market in the U.S., versus the New York metro lease rate of 50% and Cleveland-area lease rate of 48%.
“The Chicago metro market has never had good lease penetration because of the way the state taxed vehicle leases,” CATA Chairman Colin Wickstrom says.
Sloan says while many people assume new-vehicle leasing is limited to luxury brands, Experian Information Solutions data shows each of the top 10 lease vehicles is priced below $25,000.
“In the past, if consumers didn’t lease they often ended up extending the monthly payments on the new-car purchase in order to lower the monthly payment and as a result we saw 72- and even 84-month loans,’ Sloan says. ‟Cars have gotten more expensive with all the new technology they offer and we wanted to take the opportunity to make the new car more affordable by lowering the monthly payments.
“The change in the way vehicle leases are taxed in Illinois should make leasing a much more attractive option for new-car shoppers.”
