The answers by the Department of Revenue to the questions are not to be relied upon by taxpayers in lieu of a Private Letter Ruling and are not the kind of written
information upon which a taxpayer may rely to request an abatement under the Taxpayer Bill of Rights. Where a conflict appears to exist between these answers
and a form, instruction, regulation or bulletin issued by the Department, taxpayers are advised to follow the form, instruction, regulation or bulletin, contact the
Department’s Business Hotline at (217)-524-4772, or seek a Private Letter Ruling.
In examining the law, previous guidance from the Department, and current practices of
various counties, it is apparent that taxpayers are receiving inconsistent and conflicting
interpretations of the statute as it applies to the ground lease issue.
The Illinois Real Estate Transfer Tax Law, 35 ILCS 200/31-10 provides that the tax is
imposed “on the privilege of transferring a beneficial interest in real property located in
Section 31-5 (2) defines "beneficial interest as "the lessee interest in a ground lease
(including any interest of the lessee in the related improvements) that provides for a term
of 30 or more years when all options to renew or extend are included, whether or not any
portion of the term has expired.”"
Reading these provisions together the Department concludes that the tax applies to the
transfer of a ground lease--not to the issuance or creation of a ground lease.
The Department has not found any indication from the legislative history of the Law
indicating any intention to expand the scope of the transfer tax to include lease
This interpretation of the Law makes applying the tax in its intended way straightforward
and easy to administer. The tax rate is applied to the consideration paid by the new
lessee to the prior lessee. In contrast, taxing the consideration to be paid over the lease
term by a lessee at the time it enters into a 30-year ground lease is virtually impossible
since in many cases the future lease payments are not known because the rent is subject
to adjustments or other formulae. Any interpretation of the Law to include the creation of
ground leases raises the additional question of whether the stream of payments, even if
knowable, should be discounted to reflect the time value of money and if so how to
determine the appropriate discount factor.
Based on the reasoning stated above, the Department hereby advises that the Illinois
Real Estate Transfer Tax does not apply to the issuance or creation of ground leases.
The Department is considering holding forums on the state Real Estate Transfer tax
in late 2007. The purpose of such meetings would be to receive input from county
officials and practitioners about issues that need rules or clarifying interpretations. The
only other issue that seems to generate a reasonable number of inquiries relates to
situations where the “controlling interest” needs to be determined. The existing rules
contain several examples but there are factual situations that sometimes do not perfectly
fit the examples.
3. Aircraft Use Tax: In the responses to last year's Practitioners Meeting, the Department
stated that the transfer of an airplane which occurred through a merger was exempt from Aircraft
Use Tax. Will the Department publish this position in a regulation or information bulletin? There
could be some confusion on this issue because it is not directly addressed in ST 05-0106-GIL,
which involves a merger of LLCs. Several earlier letter rulings state that the Motor Vehicle Use
Tax [which is very similar to the Aircraft Use Tax] is triggered by a merger. See, e.g., ST 99-
0001-PLR, ST 96-0556-GIL and ST 91-0251.
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