New Law: Lower Lease Taxes In Illinois

Leasing just became less expense for consumers in Illinois. A new law went into effect yesterday which lowered the tax rate of leased vehicles by as much as 50 percent. This means that residents of the Prairie state may suddenly see vehicle leases as a more attractive option as they move into 2015.

Consumers in Illinois will now pay taxes only on the money due at the lease inception and on their lease payments. An example given by the Chicago Tribune was for a $30,000 leased vehicle for a suburban Cook County Illinois resident. Prior to Jan 1, 2015 the taxes that individual would have to pay would be 8.25 percent sales tax, or $2,475. That amount could be paid upfront or rolled into lease payments. Now that the new law with lower taxes is in effect, the consumer only pays taxes on the down payment and monthly lease payments.

Under the new law, that same consumer would pay $1,056 in taxes compared to $2,475, a savings of $1,419. The Tribune also pointed out that the new tax rates will vary by county and the city of Chicago tax rate is 9.5 percent. The “windy city” also adds an 8 percent tax on top of the sales tax. The heavy taxation on leases could explain why only 8 percent of vehicles registered in Chicago are leases. Despite the higher rates in the state’s largest city, the rest of Illinois will see lower taxes. Peter Sander, President of the Illinois Automobile Dealers Association, told the Chicago Tribune, “It’s a win for the state, it’s a win for dealers and it’s a win for consumers because it will be easier for them to get into a new vehicle more often if they choose to lease.”

Illinois will have lower sales tax rates, however trade-ins on leases will no longer impact the taxation on the lease. Previously, a trade-in would lower the capitalized cost, and thus the tax. That all ended on January 1st. Now that Illinois has passed and enacted new legislation in relation to vehicle leases, they are more in line with the rest of the nation. Texas is now the only state to tax the capitalized cost of a leased vehicle.

The news for Illinois comes at a time when leases are rising. GM Financial reported that almost half of their auto loan originations in the third quarter of 2014 were leases. That equaled out to $1.4 billion dollars in leases, a large increase over the $577 million from the third quarter of 2013. The automotive financing wing of Ford also reported a notable increase in leases during the same period.

If you were to see new legislation in your state, which could save the customers tax payments, would you market to that? In the era of the informed consumer, how do you think dealers would deal with new dealership legislation today verses twenty years ago? Have you seen an uptick in customers vying for leases verses purchasing a vehicle?