Section 153.101  Definitions

 

As used in this Part, the terms listed below are defined as follows:

 

"Department" means the Department of Revenue.

 

"Immediate family member" means a spouse, mother, father, brother, sister, or child of the transferor.

 

"Personal watercraft" means a vessel that uses an inboard motor powering a water jet pump as its primary source of motor power and that is designed to be operated by a person sitting, standing, or kneeling on the vessel, rather than the conventional manner of sitting or standing inside the vessel, and includes vessels that are similar in appearance and operation but are powered by an outboard or propeller drive motor.  (Section 1-2 of the Boat Registration and Safety Act [625 ILCS 45/1-2])  An example of a personal watercraft is a jet ski.

 

"Purchase price" means the reasonable consideration paid for a watercraft valued in money whether received in money or otherwise, including, but not limited to, cash, credits, property, and services, and including the value of any motor sold with, or in conjunction with, the watercraft.  Except in the case of transfers between immediate family members, reasonable consideration ordinarily means the fair market value on the date the watercraft or the share of the watercraft was acquired or the date the watercraft was brought into this State, whichever is later, unless the taxpayer can demonstrate that a different value is reasonable.  In the case of transfers between immediate family members, reasonable consideration ordinarily means the consideration actually paid, unless it appears from the facts and circumstances that the primary motivation of the transfer was the avoidance of tax.  [35 ILCS 158/15-5]

 

"Watercraft" means Class 2, Class 3, and Class 4 watercraft, as defined in Section 3-2 of the Boat Registration and Safety Act [625 ILCS 45/3-2] and personal watercraft, as defined in Section 1-2 of the Boat Registration and Safety Act [625 ILCS 45/1-2].  [35 ILCS 158/15-5] Section 3-2 of the Boat Registration and Safety Act defines these terms as follows:

 

"Class 2" watercraft means all watercraft 16 feet or more but less than 26 feet in length, except canoes and kayaks. 

 

"Class 3" watercraft means all watercraft 26 feet or more but less than 40 feet in length. 

 

"Class 4" watercraft means all watercraft 40 feet or more in length. 

 

Section 153.105  Nature of the Watercraft Use Tax

 

The Watercraft Use Tax is a privilege tax imposed on the privilege of using, in this State, watercraft acquired by gift, transfer, or non-retail purchase after September 1, 2004.  The tax is imposed on the use of watercraft in this State regardless of whether the watercraft is actually registered under the Boat Registration and Safety Act.  No trade-in credit will be allowed in a non-retail purchase transaction.  Examples:

 

a)         An Illinois resident purchases an 18-foot boat from an individual (non-retailer) in Missouri on October 1, 2004 for $5,000, and brings the boat into Illinois on October 5, 2004.  The fair market value of the boat at the time of purchase is $5,000.  Watercraft Use Tax is due on the $5,000 purchase price of the boat.  However, if the Illinois resident had purchased the boat from a non-retailer in Missouri on August 5, 2004 and brought the boat into Illinois on October 5, 2004, the purchase would not be subject to the tax imposed by this Part.

 

b)         A Chicago resident is given a used 20-foot boat and a motor on September 2, 2004 by his neighbor.  Watercraft Use Tax is due on the fair market value of the boat, including the motor.

 

c)         A person living in Joliet, Illinois purchases a jet ski from his neighbor for $3,000 on October 5, 2004.  As part of the deal, he trades his $2,000 pontoon boat for the jet ski and pays $1,000 cash.  The fair market value of the jet ski is $3,000.  The purchaser of the jet ski owes Watercraft Use Tax on the entire $3,000 purchase price, and is not allowed to claim a trade-in credit.  The purchaser of the pontoon boat also owes Watercraft Use Tax on the entire $2,000 purchase price, and may not claim a trade-in credit.

 

d)         Three people each agree to purchase an undivided 1/3-share interest in a $100,000 yacht from an individual (non-retailer) to be used in Illinois.  At the time of the purchase, the fair market value of the yacht is $100,000.  Each individual shareholder incurs Watercraft Use Tax on his or her individual share.  However, each shareholder is jointly and severally liable for the total taxes due on the entire $100,000 purchase price of the yacht.  See Section 153.110(c) of this Part.

 

e)         Corporation XYZ purchases a yacht for $75,000 from an individual (non-retailer) for use in Illinois by giving consideration in the form of $25,000 cash and $50,000 in XYZ stock.  The fair market value of the yacht is $100,000.  Watercraft Use Tax is incurred on the $100,000 amount, unless the corporation can demonstrate that a different value is reasonable.

 

Section 153.110  Basis and Rate of the Tax

 

a)         Non-Retail Sales of Watercraft

The rate of tax is 6.25% of the purchase price for each watercraft that is subject to tax under the Law  [35 ILCS 158/15-15].  However, the purchase price shall not be less than the fair market value of the watercraft on the date the watercraft is purchased or the date the watercraft is brought into the State, whichever is later, unless the purchaser can document that a different value is reasonable.  In the case of transfers between immediate family members, purchase price ordinarily means the consideration actually paid, unless it appears from the facts and circumstances that the primary motivation of the transfer was the avoidance of tax.  Examples:

 

1)         An Illinois resident buys a 20-foot pontoon boat valued at $20,000 from an individual (non-retailer) in Wisconsin for $5,000 on September 5, 2004.  On September 25, 2004, she brings the pontoon boat into Illinois for use at her lake home.  Watercraft Use Tax is due on the fair market value of the watercraft ($20,000) on September 25, 2004 when the watercraft entered the State, unless she can document that the $5,000 she paid was reasonable.

 

2)         A person living in Champaign, Illinois sells his $10,000 fishing boat to his son for $8,000.  The taxable purchase price for this sale between immediate family members will ordinarily be the $8,000 actually paid, unless the Department determines the primary motivation of the sale was the avoidance of tax.

 

b)         Gifts and Other Transfers of Watercraft

For purposes of calculating the tax due when a watercraft is acquired by gift or transfer, the tax shall be imposed on the fair market value of the watercraft on the date the watercraft is acquired or the date the watercraft is brought into the State, whichever is later.  In the case of gifts between immediate family members, no tax is due unless it appears from the facts and circumstances that the primary motivation of the transfer was the avoidance of tax. Examples:

 

1)         A woman living in Carbondale decides to give her 18-foot johnboat to her fiancé.  Her fiancé incurs Watercraft Use Tax based on the fair market value of the johnboat.

 

2)         Dad gives his jet ski to his daughter.  No tax is due unless it appears that the primary motivation for the gift was the avoidance of tax.

 

3)         A woman wants to purchase a 35-foot boat that she finds for sale in California. In order to avoid the Watercraft Use Tax, she convinces her sister, who lives in California, to purchase the boat for her for $50,000.  She claims that her sister "sold" the boat to her for $500 so she can use the boat in Illinois.  The primary motivation under this set of facts and circumstances would be viewed as the avoidance of tax, and Watercraft Use Tax would be owed on the fair market value ($50,000) of the boat.

 

4)         The XYZ partnership, owner of a 24-foot sailboat, is dissolved.  All ownership of the sailboat is transferred to partner X following the dissolution.  Partner X must pay Watercraft Use Tax on the fair market value of the sailboat.

 

c)         Transfers of Fractional Shares of Watercraft

When an ownership share of a watercraft is acquired, the tax is imposed on the purchase price of that share. All owners are jointly and severally liable for any tax due as a result of the purchase, gift, or transfer of an ownership share of the watercraft.  [35 ILCS 158/15-5]  In the case of ownership shares sold between immediate family members, purchase price ordinarily means the consideration actually paid, unless it appears from the facts and circumstances that the primary motivation of the selling of the shares was the avoidance of tax.  In the case of a share of a watercraft acquired by gift between family members, no tax is due unless it appears from the facts and circumstances that the primary motivation of the share transfer was the avoidance of tax. Examples:

 

1)         An Illinois resident owns a 1/10 undivided interest share in a $10,000 houseboat.  She sells her 1/10 share of the houseboat to her neighbor for $1,000.  Watercraft Use Tax is due on the purchase price of the 1/10 share ($1,000).  However, each of the remaining undivided owners is also responsible for the total amount of taxes due as a result of the sale of the 1/10 share on the $1,000 purchase price.

 

2)         A Springfield resident purchases a ˝ share of a 20-foot sailboat with a fair market value of $10,000.  He files a return listing the value of his ˝ share of the sailboat as $1,000.  The Department will use the $10,000 fair market value of the sailboat to determine his ˝ share interest ($5,000), if he cannot demonstrate that the $1,000 value is reasonable.

 

d)         Credit for Taxes Paid

The Watercraft Use Tax does not apply to the use of watercraft acquired outside this State and brought into this State by a person who has already paid a tax in another state in respect to the sale, purchase, or use of the watercraft, to the extent of the amount of tax properly due and paid in the other state  [35 ILCS 105/3-55(d)].  (See 35 ILCS 158/15-10.)  For purposes of this subsection, the term "state" is limited to a state, territory or possession of the United States, the District of Columbia, or the Commonwealth of Puerto Rico. Examples:

 

1)         A resident of Illinois who is on vacation in Nevada buys an 18-foot fishing boat from an individual in Nevada, and pays the proper amount of Nevada tax.  She later moves her boat to Illinois.  She can receive a credit for taxes properly due and paid in Nevada up to the amount of Watercraft Use Tax due on the boat in Illinois.

 

2)         While vacationing in Europe, an Illinois resident buys a 35-foot sea cruiser with an extra motor from an individual in Europe and pays European taxes.  Upon returning home to Illinois with his boat, he must pay Watercraft Use Tax on the purchase price of $50,000, which is the fair market value of the boat, including the motor.  He will not get a credit for taxes paid in another country.

 

e)         Determinations of Reasonable Value

The purchase price shall not be less than the fair market value of the watercraft on the date the watercraft is purchased or the date the watercraft is brought into the State, whichever is later, unless the purchaser can document that a different value is reasonable.  To determine if a purchase price, other than fair market value, is reasonable, the Department shall consider any information provided by the taxpayer, including but not limited to:

 

1)         date and location of sale;

 

2)         condition of the watercraft and any motor sold in conjunction with the watercraft;

 

3)         type and make of watercraft;

 

4)         evidence of similar sales; and

 

5)         whether such watercraft was purchased as a result of an estate sale or auction open to the general public.

 

f)         Determination of Purchase Price

For the purpose of assisting in determining the validity of the purchase price reported on returns filed with the Department, the Department may furnish the following information to persons with whom the Department has contracted for service related to making that determination:

 

1)         the purchase price stated on the return;

 

2)         the watercraft identification number;

 

3)         the year, the make, and the model name or number of the watercraft;

 

4)         the purchase date; and

 

5)         the hours of operation.  [35 ILCS 158/15-30]

 

Section 153.115  Nontaxable Transactions

 

The tax imposed by the Watercraft Use Tax Law does not apply if:

 

a)         the use of the watercraft is otherwise taxed under the Use Tax Act;

 

b)         the watercraft is bought and used by a governmental agency or a society, association, foundation, or institution organized and operated exclusively for charitable, religious, or educational purposes and that entity has been issued an exemption identification number that is active under Section 1g of the Retailers' Occupation Tax Act;

 

c)         the transfer is a gift to a beneficiary in the administration of an estate and the beneficiary is a surviving spouse; or

 

d)         the watercraft is exempted from the numbering provisions of Section 3-12 of the Boat Registration and Safety Act [625 ILCS 45/3-12].  [35 ILCS 158/15-10]  However, Watercraft Use Tax will become due on any watercraft that is exempted from the numbering provisions of paragraphs A, B, C, F, and G of Section 3-12 of the Boat Registration and Safety Act if that watercraft is used upon the waters of this State over 30 accumulated days in any calendar year.  The following are the watercraft referred to in paragraphs A, B, C, F, and G of Section 3-12 of the Boat Registration and Safety Act to which the 30-day rule applies:

 

1)         A watercraft that has a valid marine document issued by the United States Coast Guard.

 

2)         A watercraft already covered by a number in full force and effect that has been awarded to it pursuant to Federal law or a Federally approved numbering system of another State.

 

3)         A watercraft from a country other than the United States temporarily using the waters of this State.

 

4)         A watercraft that belongs to a class of boats that has been exempted from numbering by the Department of Natural Resources after that agency has found that an agency of the federal Government has a numbering system applicable to the class of watercraft to which the watercraft in question belongs and would be exempt from numbering if it were subject to the Federal law.

 

5)         A watercraft that is competing in any race approved by the Department of Natural Resources under the provisions of Section 5-15 of the Boat Registration and Safety Act or a watercraft that is designed and intended solely for racing while engaged in navigation that is incidental to preparation of the watercraft for the race.  Preparation of the watercraft for the race may be accomplished only after obtaining the written authorization of the Department of Natural Resources.

 

Example: 

 

A watercraft that has a valid marine document issued by the United States Coast Guard and is used upon the waters of this State for 35 days in a calendar year is subject to Watercraft Use Tax.  The tax applies even though the watercraft is not required to be registered under the Boat Registration and Safety Act until it has been used upon the waters of this State for more than 60 days in a calendar year.  See subsection (d).

 

e)         Other common exemptions:

 

1)         A tugboat qualifying for the rolling stock exemption is purchased for use upon the waters in Illinois.  No Watercraft Use Tax would be incurred on the purchase.

 

2)         A person purchases a 17-foot johnboat from an individual (non-retailer) to be used primarily in the raising of catfish for retail sale on a commercial catfish farm in Illinois.  No Watercraft Use Tax is due on the purchase, because the johnboat is used primarily in production agriculture.

 

Section 153.120  Returns and Payment

 

a)         The purchaser, transferee, or donee shall file with the Department a return signed by the purchaser, transferee, or donee on a form prescribed by the Department.  The return shall contain a verification in substantially the following form and such other information as the Department may reasonably require:

 

VERIFICATION

 

I declare that I have examined this return and, to the best of my knowledge, it is true, correct, and complete.  I understand that the penalty for willfully filing a false return is a fine not to exceed $1,000 or imprisonment in a penal institution other than the penitentiary not to exceed one year, or both a fine and imprisonment.  [35 ILCS 158/15-20(a)]

 

b)         The return and payment from the purchaser, transferee, or donee shall be submitted to the Department within 30 days after the date of purchase, donation, or other transfer or the date the watercraft is brought into this State, whichever is later.  Payment of tax is a condition to securing certificate of title for the watercraft from the Department of Natural Resources.  When a purchaser, transferee, or donee pays the tax imposed by Section 15-10 of the Law, the Department (upon request therefor from the purchaser, transferee, or donee) shall issue an appropriate receipt to the purchaser, transferee, or donee showing that he or she has paid the tax to the Department.  The receipt shall be sufficient to relieve the purchaser, transferee, or donee from further liability for the tax to which the receipt may refer.  [35 ILCS 158/15-20(b)]

 

c)         Any person required to file a return under the Law who willfully files a false or incomplete return is guilty of a Class A misdemeanor.  [35 ILCS 158/15-25]