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Cash For Clunkers – Taxable or Not?

Posted by salestax on July 28, 2009

Check back occasionally for more updates to this post.

C4C may be over, but if you buy a new car this year, regardless of the mileage it gets, you can save the sales tax amount paid on your 2009 federal income tax return filed next spring.  See the IRS website here, for more information.

For more information on the CARS program go to the official Web site of the program at: www.cars.gov

Alternatively, if you don’t qualify for the CARS program, but still have a car you’d like to unload consider this:  donating it to a charity for an income tax deduction and up to $300 in groceries or gas.   

Check out:  donatecarusa.com

Since the CARS program is starting to get attention in the sales tax world, I’ll try to track the states that put forth a ruling the sales tax treatment – as I’m sure they’ll be coming in small waves from most states so that car dealers know how to treat these reimbursements.  That is if the program lasts long enough for most to react.  My guess is that they’ll be treated somewhat like the TV Converter boxes (see those determinations here).

Okay, here we go:

*GOOD!  If you can take the CARS credit off of the selling price before calculating tax I’ll indicate it as “Included.” This means that you should only expect to pay tax on the difference after the credit is calculated (example: Price $20000, less CARS $4500 = $15500 x 7% sales tax = $1085; $16585 total paid.)

*NOT GOOD.  If you must tax the selling price before the CARS credit, I’ll indicated it as “NOT Included.” This means that you should expect to pay tax on the whole amount of the vehicle and then use the CARS credit to lower the total amount to be paid. (example: Price $20000 x 7% sales tax = 1400, less $4500 CARS, total paid $16900.)

And, in both cases, don’t forget about the Stimulus Plan that will let you write off your sales taxes on a new car at the end of the year when you file your 2009 Income Taxes – a little sugar on top!

Arizona – NOT Included (link) – but any salvage value given in addition is included. 

California – Included (link)

Connecticut – Included (link)

Colorado – NOT Included (link)

Florida – Included (link)

Georgia – Included (link)

Idaho – Not Included (link)

Illinois – Included (link)

Indiana – Included (link)

Kansas – Included (link)

Kentucky –  Included (Link)

NOTE:  This is not CARS related:  However, KY, for one year will deduct the trade-in allowance from the price of the NEW vehicle purchase for computing sales taxes.  See here under “Motor Vehicle Usage Tax New Car trade-In Allowance about 1/3 down the page.

Louisiana – Included (link)

Massachusetts – Included (link)

Mississippi – Included (link)

Minnesota – Included (link)

Nebraska – NOT Included (link) *note: the link here is not from the NE revenue website, but as reported in NE related online journals.

New Jersey – NOT Included (link)

New York – NOT Included (link)

North Carolina – Included (link)  Not officially put out by the NC Revenue dept., but some investigative reporting tracked down the policy.

Ohio – NOT Included (link)*

South Carolina – *UPDATED*Included (Link/) The staff interpretation got it wrong and SC is only making the sales tax applicable on the price AFTER the CARS rebate.  But is still goes that the max tax to be paid is $300 anyway.  So, unless you’re final purchase price was under 5,000.00 there’s still no reason to get your feathers ruffled. 

(link). However, the max tax allowed on a vehicle purchase is $300, so the cluncker deal wouldn’t make that much of an impact anyway.  NOTE:  This is a staff interpretation subject to further scrutiny.  Follow it’s process here in case it changes. 

Texas – Included (link)

Virginia – NOT Included  (link)

Washington – NOT Included (link and another)

Wisconsin – Included (link)

I must rant about the ambiguity in wording of the OH communication regarding this program. If you notice in the last paragraph, it explicitly states that the rebate is not included in the sales price and therefore the tax is calculated on the amount prior to the CARS amount being considered. However, in the last sentence, if you’re a regular human being, reading the text of this document, it seems to say just the opposite – to me:   “the CARS credit is included in the taxable price of the new vehicle.”  Since this is my full time job to read these things and note what is really the truth about what is being promulgated, I can tell the difference, but to your average dealership accountant, I find that OH did a very bad job at explaining their rule in a clear and concise manner. But, what can I say… this is the way to come back some years later and find fault in the dealerships who read the interpretation incorrectly.

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17 Responses to “Cash For Clunkers – Taxable or Not?”

  1. We bought a truck and are in a dispute say we paid 29,000.00 they should deduct the 4500. cash clunker, and the 4500.00 ford rebates they offer then tax us at 6% on 20,000.00 CORRECT? That is the way KY legislative office told me but, Ford said they have done 90 of these and tax on 90% of msrp? Ky said wrong. We are argued and they did it our way but had us sign a paper saying we would pay them back if we were wrong. Your view would be greatly appreciated.

    Denise

    • Dale Large said

      I live in Ky also and did a clunker deal with Dodge. I got 3500 off from the clunkers and 5000 from Dodge. I checked around and it seemed most places were charging 90% of sticker or so forth. The toyota in my area that had sold about 200 vehicles told me that it was 90% of sticker with nothing off for the clunker or rebates.

      I finally found a clerk’s office that believed the 8500 in my case should be took off the purchase price. From my understanding, this was the correct way and I believe it was also. I just believe that most people ended up paying a lot more than they should have. Probably some dealers knew better but made some extra profit.

      If You go to the Ky website and read this: “The Department has determined that the amount of the voucher paid directly to the car dealer from the National Highway Traffic Safety Administration (NHTSA) constitutes a dealer rebate for motor vehicle usage tax calculation purposes. Therefore, the amount of this federal credit applied to reduce the new car buyer’s purchase price is not part of “total consideration” that is subject to the usage tax”

      It sounds like to me that the clunker value isn’t included and dealer rebates also. Where I transfered my vehicle, they said the rebate wasn’t included if the amount was took off the top at the dealer. In other words, If you pay so much and get a rebate check later, it is not excluded from tax. But if they take the price of the vehicle minus clunker and instant rebates at the dealership, then You only pay tax on what you paid.

      Hope this helps

      • Red Oscar said

        Dale……..I too live in Kentucky and purchased a new Dodge in the “Cash for Clunkers” program. Like you we received a $3500 CARS credit and $5000 Cash Back from Dodge. Our dealer only charged us Kentucky Use Tax on the negotiated price of the vehicle after all discounts/credits. In fact, the salesman reduced the Use Tax on the contract when he learned that tax was not to be charged on the CARS credit, with no input from us. We made our purchase on July 24th when the program rules were just made public. I feel our dealer was obviously trying to play very correctly to all the rules in this CARS program. I would be pretty upset if I learned we had overpaid for use tax on our vehicle.

  2. salestax said

    Hi Denise,

    This is a real long explanation, the way I see it, so I replied to your comment privately. However, for the good of readership, to summarize:

    KY – doesn’t typically have a sales tax on vehicles, instead has a Motor Vehicle Usage Tax (MVUT)
    KY – will reduce the Total Consideration which is taxable by the amount of the CARS rebate
    KY – does not reduce the Total Consideration taxable by the amount of the 3rd party reimbursement from Ford Motor Company.
    KY – has 2 options for calculating tax base on MVUT: a. 90% of MSRP (which I think should be reduced by the CARS amount) or b. Total Consideration attested to on a special form (71A100). Still wouldn’t reduce the tax base by the extra $4500 rebate. I think the purpose of option “b” is for when dealers give their own incentives or dollars off that are more than 10% of the vehicle MSRP and aren’t reimbursed by a 3rd party to do so.

    I hope this helps!

  3. […] Tax is Sales Tax. It is hard to get around it. This is a great post. It has info on many states. Cash For Clunkers – Taxable or Not? The Sales Tax Connection Also, if you did not do the research to figure this out – or look at the paperwork when you […]

  4. […] more details on these State’s tax rules and links to their authorities’ websites, see Cash for Clunkers: Taxable or Not? If your State isn’t included above, it’s likely they haven’t communicated their […]

  5. Sue said

    For your list, I looked up Rhode Island’s tax rule regarding C4C and it appears that RI laws allow the taxation of the sales price BEFORE the deduction of the C4C credit. Therefore they ARE taxing the C4C credit. The text is below so you can check if I read it right! Thanks for the great info. We paid tax on our $4500 credit, but since our trade in was only worth $800 and we’ll get to deduct the sales tax on our Fed. form, it was still worth it for us.

    Rhode Island General Law 44-18-12(v)(C) states that “sales price” shall include consideration received by the seller from third parties if the seller receives consideration from a party other than the purchaser and the consideration is directly related to a price reduction or discount on the sale. The credit received by the purchaser at the time of purchase or lease of new qualifying motor vehicle therefore shall be included in the sale price subject to tax.

    .

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