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Cash for Clunkers Rebate is Taxable Income, Including Penalties
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by Tina Kells | August 25, 2009 at 04:02 pm
7303 views | 22 Recommendations | 8 comments
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Remember that awesome $4500 Cash for Clunkers rebate? Would you think it was so awesome if you knew that your Cash for Clunkers rebate grant was taxable income? Do you think dealerships would have been so quick to push it on you if they knew that it was them (but not you, phew!!) who would be taxed?
It seems that the dealerships that took advantage of the Cash for Clunkers rebate were shocked to learn that the amount they were credited counts as taxable income. Not only is the Cash for Clunkers rebate taxable income for dealerships, but if they are late paying what they owe they will be subject to standard interest and/or penalties.
So suddenly that Cash for Clunkers rebate that didn't really put any cash in the bank for retailers will actually be taking money from them! How typical of government to give with one hand but take with the other... on the Cash for Clunkers front the dealerships really get a raw deal.
The only winners in the Cash for Clunkers deal seem to be the automakers, with the government as a close second. The automakers clear their inventory and the government doesn't lose any taxes. However, both retailers and consumers get the shaft. Retailers have to pay tax on money they never took in, and consumers take on more debt to trade in their old clunkers for shiny new vehicles.
According to Automotive News, NHTSA -- 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. In fact, AN reports that the IRS issued an advisory bulletin yesterday confirming that yes, the federal rebates dealerships receive for CARS trades count as taxable gross income.
Apparently, some retailers believed that since their customers weren't getting taxed, neither were they. And if the Automotive News account of events is accurate, it's fairly obvious that NHTSA didn't fully understand the tax implications either when they conducted their webinar. As a result, some dealer smiles around the country are likely turning into frowns this weekend. The money line in the AN piece comes from Richard Heider, a dealer accountant who points out that the CARS cash simply counts as a normal payment to the retailer, and thus is taxable. "What you are dealing with are people who don't understand accounting," he says. Apparently, on all sides of the equation.
"That means they need their title, their damage disclosure, their bill of sale and the dealers have 30 days to get that to them," Minnehaha County Treasurer Pam Nelson said.
But many of those cashing in on the clunkers program are surprised when they get to the treasurer's office windows. That's because the government's rebate of up to $4500 dollars for every clunker is taxable.
"They didn't realize that would be taxable. A lot of people don't realize that. So they're not happy and kind of surprised when they find that out," Nelson said.
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Most RecentMost Recommended Comments (8)
at 17:09 on August 25th, 2009
This seems to be another well thought out program without any prior explanation. Surely the dealers must have known that they are taxed on this and if they did the consumer got shafted too.
On the other hand it was a good way for middle class families to get rid of their second old vehicle and get a new one. It did nothing for those that had little money or availability of credit.
at 18:37 on August 25th, 2009
Did they honestly believe that they were just going to be given 4k for nothing? O_o
at 13:13 on August 26th, 2009
Why not? Obama is giving away free money to everyone else.
at 17:48 on August 27th, 2009
If you really believe in free money, then give my regards to the Easter Bunny. The Organized crime syndicate that has taken over Washinton DC would make Alphonse Capone of Chicago green with envy. This is the new Mafia of the 21st Century
at 19:31 on October 17th, 2009
That's right. Everyone that disagrees with your views is either a communist, criminal, socialist, nazi .... did I miss anything?I don't agree with everything the current administration is doing. Far from it. However, I have enough self respect not to resort to lies, personal attackes and half truths. If the facts don't fully support your position and you need to resort to "embellishment" or lies, perhaps you should re-evaluate your position.
at 19:19 on August 27th, 2009
I am not sure the automotive news group has this story correct? Who is really receiving a benefit here? Answer - the car buyer aka tax payer! What the government is doing is giving the buyer the money who in turn uses it to buy the vehicle. (Gov't actually gives money directly to dealer!). Bottom line it is the buyer who has received what is being called a taxable benefit. IMHO
at 01:22 on September 1st, 2009
Does the (IRS) Internal Revenue Service should consider the government's cash for clunkers program taxable income? They should not - because the program is a government voucher that is not taxable, so people who participate in Cash for Clunkers won't get docked on their taxes for participating. The credit you get for trading in your old car doesn't count towards your 1040. Some members of Congress aren't amused – Congressman Ron Paul (R-TX) has advocated a tax deduction instead of a payment – which is a dandy idea. (He also wants to get rid of the IRS, a GREAT idea!) So take heart – you won't need guaranteed loans for your tax bill if you participated in Cash for Clunkers.
at 15:14 on September 17th, 2009
In California at least, the CARS rebate was not subject to sales tax as part of the vehicle purchase/trade-in transaction. The sales tax was based on the sales price less the CARS rebate. It is taxable to the dealers as income because it is actually received by the dealer from the government. The dealer gets the cash in their bank account. It is gross income just as is a rebate from the manufacturer. That's not a shocker or surprise to anyone in the car business. Those that are making a big deal about this aspect of the program don't understand how a car dealer operates. I have been in the business for over ten years and trust me, this is how it works. As for the income tax, it looks as if each state will make a determination on whether the rebate is taxable to the consumer. This is out of the hands of the NHTSA and the IRS as each state has its own tax board independent of the IRS, which is the federal taxing authority. At the onset of the program, I didn't feel that the rebates would be taxable to consumers in any form, but that doesn't seem to be the case now. That is a bummer. They should have announced this earlier as I guarantee that at least some of the consumers would not have participated in the program.