Understanding Lease Tax Calculations (in Illinois)

Hi everyone!

I’m trying to get a grip on Illinois lease tax. As of 1/1/2015, the tax should be only on the lease cost (previously it was on the entire purchase price).

Most lease calculators online (including this one) just add tax to the monthly payments. However, I’m getting quotes from a dealer on a lease deal where the tax is being calculated in total, and then rolled into the capitalized cost. Therefore, they’re also issuing a finance charge on the sales tax. Is this the correct way to calculate it?

Appreciate any help from people familiar with IL leasing. Thanks!

Bumping this topic. I also am quite confused on this. Have the same concerns and questions as the OP. any help would be appreciated.

@ralphsaphony could you offer any insight?

In IL the customer only pays tax on down payment and on monthly payment!

For example: A 36 month lease for $400/Mo Pre-tax in suburban cook county would be $400*8.25% = $33/Mo~
Total sales tax = $1188 (add this to your initial cap cost)

However if you’re in Chicago proper, then its a 9.5% + an additional 8% usage tax which is insane but to be expected because its Chicago.

Be careful when getting quotes dealers will sometimes add numbers for financing in the same area they provide a sales price breakdown for your lease and that could be causing the confusion.

When I completed my lease, the tax amount was added to the cap cost and thus increased the payments by the tax split over 36 months, but also a small finance charge on the tax itself. This amount is not simply $monthly*tax_rate, as you are technically financing the tax payment as well.

I tried to drill in on this with the dealer, but multiple in the area did the same thing from quotes. I’m not sure if this is actually how it’s supposed to be done to the letter of the law, or if it’s how the 3 dealers I got quotes from operated.

Did you calculate the tax on any down payment as well as any rebate or subsidy ? That gets added to the tax on the monthly payments.

Usually the only thing you don’t pay sales tax on is a discount off list price of the car from the dealer. Manufacturer subsidies and rebates gets taxed.

Hi @ralphsaphony!

Just coming across this thread as I’m looking into leasing here (at least trying to …).

You mentioned the extra 8% tax added by the city of Chicago on top of the 9.5%. Would you be able to shed light on where/how this tax is added?

From my understanding so far, in Chicago you get taxed on your trade in, then on the monthly payment. So if my trade in is 2,000, and my monthly payment is $300, what is the tax on it per month with the 8% added?

Thanks a lot in advance !

Lets start with Illinois first then move to Chicago.

Illinois taxes you on any rebates and cap cost reductions (i.e. money down and trades) plus your monthly payment. If you are in Chicago, it is 9.5% (this is separate from the Chicago lease tax). So in your scenario, you have about $200 in sales tax on the trade and $30/mo for the payment. So your total payment is $335/mo (200/36 + 30 +300).

Now Chicago will charge an additional 9% lease tax on that $335. So your new payment is $365.

Sorry for the late reply. Essentially what @wam22 said BUT to my knowledge state and local sales tax will be applied to any trade-in value above $10,000, your vehicle should not be taxed if it is being valued at $2k.

I think part of the confusion comes when people think they are being taxed on their trade. Essentially you are just losing tax savings on any amount above $10,000. The state isn’t charging extra taxes on the trade in if it is worth more.

Also there are not tax savings for leases in Illinois, even if the car you are trading in was not leased. Only way you can get a tax savings for a trade-in is cash, finance, or owners choice.

Slipped my mind, my mistake - you are correct sir! Thank you!

Does anyone know what the tax rate would be if I live in IL but obtain my leased vehicle from out of state? Do they use the rate of my home county?

It’s based on your registration address.

Got it, thanks!

I came across this in the context of the following offer I got. Am I correct in my reading of this thread that something with the quoted $5119 “Tax on Collected Items” is off there.

You live in Chicago, where you get taxed upfront and monthly. Home of the 20% lease tax rate.

Dont lease if you live in Chicago.

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But why is the 9% Chicago tax applied to the full Vehicle Selling Price + Fees, not just the lease payments?

The total tax payments upfront and over the 36 month term comes out to $6593 on total payments of $29361 without tax. That’s an effective 29% tax rate.

In the City there is state tax of 9.5% (I think, could be more now) of the initial lease payment as a monthly tax…and then another additional 9% of that lease payment adding to the monthly payment…so it is like tax on tax…a non starter but plenty of people in Chicago are clueless or don’t care and just pay it.

The Illinois Department of Revenue has clarified the proper calculation of the Chicago Personal Property Lease Transaction Tax (Chicago Lease Tax). Dealers who are responsible for collecting the Chicago Lease Tax from lease customers are not required to apply the Tax Reimbursement Calculation formula to the Chicago Lease Tax. A Chicago Dealer that leases a vehicle to a Chicago resident at a lease contract amount of $20,000 would calculate State and City of Chicago taxes as follows:

The State Tax (including Cook County Tax) is calculated by applying the Tax Reimbursement Calculation Formula as follows:

(1) 1.00
(2) 0.095 (State: 0.0725, Chicago: 0.0125, Cook County: 0.01)
(3) 0.905
(4) 1.105
(5) $20,000
(6) $22,100
(7) $2,100 State Tax

After the State tax is calculated and added to the payment, the Chicago Lease Tax of 9% is applied to the lease payment. Because the Chicago Lease Tax is a tax on the customer rather than on the dealer, no additional tax calculations are necessary. The State will not tax any reimbursement to the dealer for the Chicago Lease Tax.

Sorry if I’m being dense, but I still don’t follow. To start, not sure what (1), (3), and (4) are supposed to represent. I understand (2) 0.095 is the sum of state + chicago + county tax which is 9.5%

Isn’t 9.5% State Tax on $20,000 = $1,900?

I do see (4)'s value of 1.105 * $20,000 equals $22,100 but where does 1.105 come from?

Would appreciate any clarification. Thanks!

I forget where I got that but bottom line is if you lease in the city you pay 9.5% tax on monthly lease payment amount plus another 9% use tax on top of that payment per the below.

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