Is the CARS rebate being taxed

Edited to remove incorrect information. I stand (sit, really) corrected and apologize for passing on unverified and incorrect information my (unnamed and evidently uninformed) dealer gave me.

 

It all depends on the state you live in/make the purchase. The FAQ on the cars.gov website even makes that point:

CARS.gov - Car Allowance Rebate System - Helpful Q&As for Consumers

Best thing to do is consult a tax advisor or someone you know/trust locally that can answer your question.

That being said, I did see a Toyota dealership from Southern California posting here that the $4500 was taken out of the price of the vehicle 'before' taxes are applied, per California state tax law. As always, consult someone in the know before trusting anything posted on forums when it comes to taxes; that's one thing you don't want to mess with if you can avoid it ;-)

 

My MA dealer told me this afternoon that the sales tax is calc'd after the rebate is applied. He had to redo the paperwork to reflect this change as we'd expected it would be before the rebate. I'm picking up my car in the morning!

 

Here's what I found on the NYS tax website: Will it be treated as a rebate as the name states or is it a trade in value?.....

Question: [FONT=Arial, Helvetica]I am purchasing an automobile for which there is a manufacturer’s rebate. Is New York State and local sales tax computed on the cost of the vehicle before or after the rebate is deducted?[/FONT]


Answer: [FONT=Arial, Helvetica]New York State and local sales tax is computed on the sales price prior to deducting the manufacturer’s rebate. Even though the price paid by the consumer is reduced by the amount of the rebate, the selling price paid to the retailer is not. In effect, the manufacturer is subsidizing the consumer’s purchase.

[/FONT]
Question : [FONT=Arial, Helvetica]If I trade-in property towards the purchase of a taxable item or service, do I pay sales tax on the original sale price of the item or service, or the price reduced by the value of the trade in?[/FONT]


Answer : [FONT=Arial, Helvetica]If a vendor of taxable property or services accepts tangible personal property in part payment of the purchase price, and the vendor intends to resell the item accepted in part payment, then you would have to pay sales tax on the net price due (full sale price less value of trade-in).[/FONT]

 

According to Mass. tax website:

Working Draft Directive 09-XX: Motor Vehicles Purchased with a CARS Rebate

Generally, the sales price subject to tax of tangible personal property sold is "the total amount paid by a purchaser to a vendor as consideration for a retail sale, valued in money or otherwise." G.L. c. 64H, § 1. An exception to this general rule is provided in G.L. c. 64H, § 26, which provides: "Where a trade-in of a motor vehicle or trailer is received by a dealer in such vehicles holding a valid vendor’s registration, upon the sale of another motor vehicle or trailer to a consumer or user, the tax shall be imposed only on the difference between the sales price of the motor vehicle or trailer purchased and the amount allowed on the motor vehicle or trailer traded in on such purchase."

The Department’s sales tax regulation on motor vehicles, 830 CMR 64H.25.1, defines "trade-in" as "the transfer of complete ownership of a motor vehicle, trailer, or other vehicle from a purchaser to a seller, but only if the transfer occurs at the time of and as consideration for a sale of a similar type of vehicle by the seller to the purchaser." Both the statute and regulation require that the trade-in occur "contemporaneously" with the purchase. See Edward Accomando v. Commissioner of Revenue, ATB Docket No. 173930 (1991).


Therefore, a dealer that has a customer with a CARS qualified vehicle for trade-in and that is purchasing a qualified new vehicle, may treat the amount of the CARS allowance rebate as a “trade-in” for purposes of calculating the sales tax and should report the allowance as a trade-in on the Form RMV-1. Generally, the trade-in rules under the Department’s motor vehicle regulation, 830 CMR 64H.25.1(5)(c) will apply. In addition, dealers must maintain a copy of such certifications as deemed necessary by NSTSA that documents the proper disposal of the trade-in vehicles.

 

Thanks Fussion101 for pulling the MA regulation. I was trusting my dealership to be correct as they're a good size and wouldn't mess with something like this.

I'm really lucky to get my car before Aug 1st when MA sales tax goes up 25%. ouch.

 

For the benefit of other Illinoisans, the payment from the feds is NOT taxable for sales tax purposes.

See link below for details.
Federal CARS program, known as “Cash for Clunkers”

 

Anyone know what the rule is in Virginia? I'm picking up my Prius under the CFC program tomorrow!

 

What about AZ. Somewhere we need a compilation of all states where we know the "unofficial" law so customers are better prepared at the dealership!

 

FYI for folks living in Virginia:

I just came across the following memo from the Virginia Automobile Dealers Association:

http://www.vada.com/Portals/0/Documents/CONFIDENTIAL/July-23-2009_Clunker_Update.pdf

I'm copying the relevant portion of the memo here:

So according to VADA, taxes are levied on the full price of the vehicle, not the price after the $3500/$4500 deduction/credit.

Can anyone in Virginia confirm this?

 

Here is the answer for Colorado buyers which I received from my county clerk via email. Looks like I will have to pay sales tax on the rebate, but at least it's deductible on federal income tax this year.

Question:
I will be buying a new car in next week using a clunker trade-in under the CARS.gov program which will credit the dealer $4500 for my trade-in and will subsequently reduce the price of the car. Normally, I would pay sales tax on the new car price minus the trade-in allowance. My question is, will I be responsible for paying sales tax on the $4500 that the dealer gets reimbursed from the U.S. government for my trade-in under the CARS program.

Answer:
Eligibility for the credit and the amount of credit are determined at the dealer under the federal guidelines. The credit allowed is applied toward the purchase or lease as partial payment, similar to manufacturer rebate. The dealer will apply this credit in addition to other rebates or credits. The dealer is reimbursed by the federal government for this credit. This federal credit does not lower the purchase price or the amount subject to state or local sales tax.

If the dealer as part of the sales negotiations allows a scrap value for the vehicle being traded in, that scrap value can be considered a trade in and is allowed as a deduction from the amount subject to state and local sales tax.

 

Each state's going to make a different ruling, but cars sold in CA are not taxed on the rebate. The rebate shouldn't appear on the contract. We wrote some deals wrong too, because the State Board of Equalization didn't make their decision public to us till 10am Friday, and we'd already rolled 10 cars by then. Anyone who bought their Prius from me that morning will be re-written correctly, and their selling price will drop $4500 as per the BOE's memo to dealers as to how this is shown on contracts.

Dianne

 

I received a reply from the Indiana Department of Revenue yesterday with a link to the answer for Indiana residents.

http://www.in.gov/dor/reference/files/dn31.pdf

The sales tax is to be calculated AFTER the CARS rebate is applied to the price of the vehicle. Unfortunately, my previous research, while not official, indicated that this would not be the case and so I was not surprised when my dealer charged me sales tax on the full amount. Now I have to go back and get $315 out of them.

 

I'm in Ca and the rebate was applied BEFORE state tax. The dealer initially applied the rebate after tax but they called me back in a day later and corrected it. I ended up saving another $500(approx.).

 

We were charged sales/title tax on the MSRP (plus a dealer processing fee). Apparently that is law in VA.