• Jul 28th 2009 at 8:00AM
  • 29
Nothing is ever as simple as it seems. One prime example is the government's newly minted "Cash for Clunkers" program, or CARS (Car Allowance Rebate System) that launched yesterday.

As the rebate program kicks into gear, dealers that are hoping to cash in are facing a new worry. But according to Automotive News, they may end up having to pay federal and/or state taxes on the rebate money they receive from the federal government. It seems that the lobbyists and congressional aides who actually wrote the bill neglected to address the issue of whether the rebates count as income for dealers.

In the end, the bill passed by Congress explicitly states that the rebates don't count as income for consumers. As for the dealers, oops! Nothing in the rules published by the National Traffic Safety Administration or the law says anything one way or the other, which means that the Internal Revenue Service and individual states will have to make the call. Some dealers are already setting aside cash just in case they end up having to pay.

[Source: Automotive News – sub. req'd | Image: Justin Sullivan/Getty]


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  • 29 Comments
      • 6 Years Ago
      Dealers who make a profit pay income taxes on their profit. How many are actually making money?

      Probably more than you think. Been in the finance office lately?



        • 6 Years Ago
        Maybe consumers that feel as though the dealer finance department is making "too much money", they should get off their a** and grab their own financing? Lazy Americans.
      • 6 Years Ago
      Maybe, one day these so called government leaders will actually read & analyze what they are voting on!!!!!!!!!!!!

      Watch out health care!!!!!!
      • 6 Years Ago
      On second thought, let's not be too hard on them. Maybe they didn't read the bill.
        • 6 Years Ago
        The real question is, what bill DID they read lately?
      • 6 Years Ago
      Seminole: That is why California is issuing IOU's. The Fed can just print more money if it runs a deficit.

      But I don't get it - somewhere between 0 and negative 40billion, they used ... what? It's not like they went from solvent -poof!- to 40billion in the hole.

      In between, they ran a deficit. Granted, they can't print money* but they obviously shell-gamed to achieve essentially the same thing - a float that they didn't have money for.

      (*isn't issuing IOUs essentially the same as printing money? I mean, it's like the 1700 and 1800s where regional banks printed notes that weren't accepted anywhere else - what's really the difference? It's a regionally [state] delineated note that represents value guaranteed by the state)
      • 6 Years Ago
      NHTSA just announced dealers will not pay income tax on the voucher.
      • 6 Years Ago
      I was surprised to learn that the payment was to be made to the dealer rather than directly to the consumer. I can understand they wanted to save the consumer from being out-of-pocket. But the way it has turned out the consumer might never receive the full saving. I wonder if there is anything in the legislation that allows the consumer to elect to receive payment directly, rather than as a discount from the dealer. I suppose not.
      • 6 Years Ago
      So wait...they are taxing the refunds of tax money? Yea, that's about right - can't wait for them to get healthcare all buttoned up to saves us 3 pennies and a ball of lint.
      • 6 Years Ago
      I'm not seeing why taxing the dealers is that big of an issue:

      1) The customer sells the dealer a clunker worth < $4500
      2) The dealer gives the customer $4500 for the clunker toward the price of a new car
      3) The government buys the car from the dealer for $4500

      Since the dealer has given the customer $4,500 for the car that should be his basis in the car for tax purposes. The dealer then sells the car to the government for $4,500. The dealer makes no income from this deal; the consumer made the income but Congress waived those taxes.

      The only two issues I'm seeing off-hand are:
      1) Dealers can strip parts off the clunkers. If they sell those parts then that profit would be taxed.
      2) Are states going to try to tax the transfer between the dealer and US government? I'd expect that'll get shot down quickly, e.g. blackmail to withhold stimulus money from the state.
      • 6 Years Ago
      Is Autoblog just trying to stir up the mob with another non story?
      The issue of dealers paying taxes was not addressed in the law because they OBVIOUSLY would have to pay taxes on it. Why would the rebate be considered any differently than the rest of the purchase price that came out of the buyers pocket or from financing? It's all the same money to the dealer so they would pay on the entire purchase price.
      Think people.
      • 6 Years Ago
      @ Brian

      Think yourself.

      Trade is worth $500; CARS bumps it to $4500, which the customer gets.

      Why should a dealer have to pay income tax to state and feds on the $4000? They didn't get to keep it.

      Dealers pay tax on their profits; is it actually a profit if they give it to the customer? They did receive $4500 for a piece worth $500, but the string was they had to give it to the customer.

      Another fascinating example of politics in action. Stir up a frenzy of activity, lather a "green" layer onto it and then tax the small businessman.

      I can feel the CHANGE all around me.
        • 6 Years Ago
        You don't understand the program. The customer doesn't get anything. The $4500 is a voucher that goes straight to the dealer as part of the purchase price of a new vehicle. Why wouldn't if be considered for any taxes the dealer has to pay on the sale of that new vehicle.
      • 6 Years Ago
      Whats the big deal? As a business owner you get taxed on all income you generate, this is no different..Whether the dealers received the 4500 from the customer or the government is irrelevant makes no difference because it's still income..Stop with the whine...
      • 6 Years Ago
      Brian,

      You might want to think about that statement. (Isn't that where we started?)

      The customer gets a trade in allowance hundreds or thousands of dollars more than he knows the sled is worth. Do you really want to say the customer gets nothing?

      You are absolutely right, if the price of the new car went up by the amount of the voucher.

      Which dealership are you at? I want to hurry down...
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