Tax Exemption for Car Allowance Rebate System
Issued by Federal Government
"Example of how sales tax applies to sales of vehicles
A new car dealer sells a new fuel efficient SUV to a buyer for $30,000. The buyer
trades in a qualifying less fuel efficient SUV to the dealer. The CARS rebate on
the trade-in is $4,500. After deducting the CARS rebate, the selling price of the
new SUV is reduced to $25,500. Tax applies to the $25,500 directly paid by the
purchaser. The $4,500 rebate is a nontaxable sale to the United States. If no
rebate is issued, and the purchaser pays the full $30,000, sales tax applies to the
$30,000 sales price.
Example of how tax applies to lease of vehicles
A new car dealer leases a new fuel efficient passenger vehicle to a customer for a
contract period of 5 years. The customer trades in a qualifying less fuel efficient
passenger vehicle to the dealer. The CARS rebate on the trade-in is $4,500. The
new car dealer elects to report tax based on rental receipts. Before applying the
CARS rebate to the principle of the lease, the monthly rental payment amounts
to $350. After applying the CARS rebate to the principle of the lease, the monthly
rental payment is reduced to $300. Tax applies to the $300 monthly rental
payment.
The $4,500 rebate, when applied to a lease to reduce the amount normally paid
by the lessee, is considered a capitalized cost reduction. Generally capitalized
cost reductions are taxable, however the CARS rebate is considered a
nontaxable sale to the United States.
More CARS Act information
For more information about the CARS Act and program details, please go to
CARS.gov - Car Allowance Rebate System - Home - Formerly Referred to as “Cash for Clunkers”, which provides information for both car buyer and dealers.
Taxpayer Information Section
If you have any questions regarding this notice, please call our Taxpayer
Information Section at 800-400-7115 (TDD/TTY: 800-735-2929). Customer
service representatives are available weekdays from 8:00 a.m. to 5:00 p.m.
Pacific time, except state holidays."
This is getting a bit convoluted. Maybe they should have given out a little bit less and made it tax exempt. At the very least it should have saved on the paperwork.