An Illinois resident taxpayer purchased a boat from an individual who lives in Kentucky in 2011. The taxpayer completed the Aircraft/Watercraft Use Tax Transaction Report (IL Form RUT-75) and filed it with the Department of Revenue, claiming that the boat was exempt from watercraft use tax. But the Department determined that tax was owed and assessed tax, penalties, and interest on the boat purchase. The taxpayer protested, and in a recent decision that can be accessed here, the Illinois Department of Revenue Office of Administrative Hearings sided with the taxpayer.

The Watercraft Use Tax does not apply if the transaction fits within certain exceptions to the Illinois Use Tax Act.  See 35 Ill. Comp. Stat. 158/15-10. Under Illinois use tax law, tax does not apply if property is acquired outside the state, brought into the state and stored temporarily, and then used solely outside the state.  35 Ill. Comp. Stat. 105/3-55(e). In this case, after purchasing the boat in Kentucky, the taxpayer brought it into Illinois only to perform maintenance on it, clean it, and title it, and then the taxpayer took the boat back into Kentucky, where it was kept permanently.