Cash for Clunkers Taxed: CARS Dealers Rebate Taxed

Clunker sellers will not be taxed on the rebate they receive from Clunker buyers. Clunker buyers, however, will be taxed – but guess what, this is the government and the government originally informed participating dealers that the rebate monies they receive back from the program (assuming they do) will not be taxed.

Cash for Clunkers

Participating dealers did not learn of this plan until Monday July 27th.

…the government bureaucracy responsible for administering the CARS program — conducted a webinar for automobile dealers last Monday. During that session, retailers were reportedly told that the federal rebate cash they’d be receiving would be non-taxable. Now, for the buyers trading in so-called clunkers, this is indeed the case. Unfortunately for car dealers, however, it appears that NHTSA got the explanation wrong.

…the IRS issued an advisory bulletin yesterday confirming that yes, the federal rebates dealerships receive for CARS trades count as taxable gross income.

A dealer who is also an accountant points out that dealers paying tax on the rebates is as it should be. “…the CARS cash simply counts as a normal payment to the retailer, and thus is taxable.”

That makes sense, but what does not made sense is that the NHTSA got it wrong, and gave incorrect advice. Some dealers may have wanted to make a decision based on being taxed, while dealing with a huge, enormously disorganized government program that is time consuming and almost impossible to navigate. After all, “time” is worth something. Another consideration may be the time period that the dealer has money tied-up, awaiting government reimbursement.

What do you think?

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