SPRINGFIELD – Beginning New Year’s Day it became a lot more expensive for Illinoisans to trade in a car and this has auto dealers, particularly in border areas, bracing for lost business.
“Maybe a tax like this would make sense in someplace like Hawaii, where there aren’t any neighboring states. But for a state like Illinois in the middle of the country it makes no sense at all,” said Jamie Auffenberg, who owns auto dealerships in Belleville and O’Fallon.
Here’s how the new tax works.
Let’s say you’re trading in a car valued at $20,000 to buy a new vehicle for $35,000. Right now, you’d pay sales tax on the difference between the trade-in and the new car: $15,000. Applying Illinois’ average state and local sales tax rate of 8.74%, the sales tax on this deal is $1,311.
The sales tax bill on that same transaction will go up nearly $900 this year.
Under the new law, a maximum of $10,000 in trade-in value will be exempt from the sales tax. So, in our example, instead of paying sales tax on $15,000, you’d have to pay sales tax on $25,000.
It’s a basic law of economics that when something becomes more expensive, demand for it goes down.
So, under this new tax regime, fewer cars will likely be sold. This means auto dealers will earn less, employ fewer people and pay less in income taxes.