Surprises in Illinois tax amnesty program

By Robert A. McKenzie & Edward A. Snyder, Arnstein & Lehr

Some aircraft owners are going to get an unpleasant surprise in 2011: The new Illinois Use Tax Amnesty program does not apply to all aircraft purchases. In Illinois, the purchase of an aircraft by an Illinois resident is taxed in one of three ways, depending on from whom the aircraft is purchased. Aircraft purchased from Illinois dealers/manufacturers (“retailers”) are subject to tax under the Retailers’ Occupation (Sales) Tax Act. Aircraft purchased from out-of-state retailers are subject to tax under the Use Tax Act. However, aircraft purchased from non-retailers, regardless of location, are subject to tax under the Aircraft Use Tax Law.

The 2011 Illinois Use Tax Amnesty program covers only aircraft purchased from out-of-state retailers, i.e., those subject to tax under the Use Tax Act, not the Aircraft Use Tax Law, and it covers only individual owners, not businesses.

Since 1955 the State of Illinois has required individuals and companies that purchase from out-of-state retailers to pay a Use Tax on items that they use or consume, such as aircraft, unless the out-of-state retailers collected a sales tax equal to, or greater than, the Illinois Use Tax. For years, many Illinois aircraft owners have ignored, or been unaware of, their obligations under the Use Tax Act and the Aircraft Use Tax Law. But, the Illinois Department of Revenue (IDOR) has been quietly enforcing such taxes, using information from the FAA’s aircraft registration records and out-of-state agencies. More recently, IDOR began to rely on flight plan information to target aircraft based in Illinois.

On Jan. 1, 2011, the State of Illinois initiated the Use Tax Amnesty program, which permits some individual aircraft owners to pay their Use Tax obligations without penalty or interest. Unfortunately, businesses are not eligible to participate.

Generally, to participate in the amnesty program, qualifying aircraft owners must have purchased their aircraft from an out-of-state retailer and owe tax under the Use Tax Act, not the Aircraft Use Tax Law, after June 30, 2004, and before Jan. 1, 2011. To participate, aircraft owners must submit full payment of all eligible Use Taxes, not just the Use Tax on their aircraft, no later than Oct. 15, 2011. According to IDOR’s website, amnesty participants must also prepare and file an Illinois Use Tax Return, Form ST-44, for each year for which they “have a use tax liability and write ‘Amnesty’ in red on the top of each form.”

We believe that aircraft owners should attach a completed RUT-25 Vehicle Use Tax Transaction Return with respect to any aircraft purchase to ensure that the Use Tax is properly calculated and to obtain proper credit for any trade-in.

For more information: legalnews.arnstein.com/aviation/

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