Affordability, an issue for car buyers nationwide, is becoming even more complex for consumers at the state level.
Starting next year, customers returning to the vehicle market in Illinois will find the advantage of a vehicle trade-in diminished.
A new law, titled Leveling the Playing Field for Illinois Retail Act, will apply Illinois' sales tax to the value of vehicle trade-ins over $10,000 rather than having car buyers pay sales tax on the difference between the value of the new car and the trade-in vehicle.
For example, a customer trading in a $30,000 vehicle for one valued at $50,000 is taxed only on the $20,000 difference. Under the new law, that customer will now be charged sales tax on the $40,000 value outside of the $10,000 tax exemption.
The additional tax is one change among many in a sweeping plan to eke out $45 billion from consumers in the state to bolster public services and improve infrastructure. Additional expenses on car buyers include doubling the document fee to $300, increasing the annual vehicle registration fee $50 beginning with 2021 registrations, and raising the motor fuel tax, according to a statement from the office of Gov. J.B. Pritzker.
Additional charges to customers, who are already facing higher transaction prices and interest rates when they return to the dealership, will likely force them to postpone purchases or switch to less expensive options. Auto loan amounts, interest rates and monthly payments have been consistently rising as automaker incentives such as 0 percent financing rates all but evaporate from the market.
Meanwhile, the sales tax credit cap will likely have an impact in F&I offices. According to Larry Doll, legal counsel for the Illinois Automobile Dealers Association, customers could be pushed into leasing, or opt out of F&I products such as service contracts or GAP coverage.
"It's hard to quantify, but you've got to think it'll have a negative effect," he told Automotive News.
Rising interest rates and transaction prices over the past two years have produced an inhospitable shopping climate for new-vehicle buyers. Affordability remains a concern for many shoppers nationwide, and dealers should be cognizant of state-level fees that strain consumers' wallets. Another regulatory-driven expense could be enough to turn customers away.
