Not sure how Michigan handles it or how the State of Washington justifies your situation. Sounds like a scam to me.
State charges sales tax on car rebates and I feel ripped off
I live in Washington State. The combined state/city sales tax on vehicles is 9.8%. Let’s round to 10%. I recently purchased a new 2014 Cruze. It was included in the 20% off clearance sale in Dec 2014. I also had a couple thousand in GM earnings I redeemed.
I had to pay sales tax on the pre-rebate cost of the car, and it’s got me irked.
To make the math simple and rounded, let’s say the Cruze was $20K MSRP. The 20% off promotion was counted as a rebate, so that was $4,000. Let’s say the dealer gave a discount of $1,000. Let’s say my GM card earnings were $2,000.
Sales tax was charged on $19,000 ($20,000 msrp less $1,000 dealer discount.) $1,900 in sales tax. The dealer then applied the “rebates” totaling $6,000 and my net cost after tax was $14,900 ($19,000 plus $1,900 sales tax minus $6,000 rebate.)
Do you see what happened here? I paid an effective sales tax rate of much more than 9.8% on this transaction because sales tax was calculated on the pre-rebate price. That seems very unfair to me. Sales tax is a tax on consumption. I’m not consuming a $19,000 car. I’m consuming a $13,000 car. That is the pretax price of the car ($19,000 less $6,000.)
When I buy a TV at Target that has a regular price of $600 and a sales price of $500 I pay sales tax on the $500. Why? Because that is the net of the transaction. $500 is the level of economic activity taking place and that determines the sales tax.
It seems really arbitrary that Washington state essentially says, “well, if a reduction in price is called a discount then it lowers the sales tax, but if a reduction in price is called a rebate it does not lower the sales tax.”
We’re not talking a few dollars here, folks. We’re talking $600 additional sales tax for just this one transaction ($6,000 times 9.8%.)
Two questions:
1. How do other states handle this?
2. Why doesn’t GM classify price reductions as “discounts” instead of “rebates?” GM customers would save millions of dollars in sales taxes.
I had to pay sales tax on the pre-rebate cost of the car, and it’s got me irked.
To make the math simple and rounded, let’s say the Cruze was $20K MSRP. The 20% off promotion was counted as a rebate, so that was $4,000. Let’s say the dealer gave a discount of $1,000. Let’s say my GM card earnings were $2,000.
Sales tax was charged on $19,000 ($20,000 msrp less $1,000 dealer discount.) $1,900 in sales tax. The dealer then applied the “rebates” totaling $6,000 and my net cost after tax was $14,900 ($19,000 plus $1,900 sales tax minus $6,000 rebate.)
Do you see what happened here? I paid an effective sales tax rate of much more than 9.8% on this transaction because sales tax was calculated on the pre-rebate price. That seems very unfair to me. Sales tax is a tax on consumption. I’m not consuming a $19,000 car. I’m consuming a $13,000 car. That is the pretax price of the car ($19,000 less $6,000.)
When I buy a TV at Target that has a regular price of $600 and a sales price of $500 I pay sales tax on the $500. Why? Because that is the net of the transaction. $500 is the level of economic activity taking place and that determines the sales tax.
It seems really arbitrary that Washington state essentially says, “well, if a reduction in price is called a discount then it lowers the sales tax, but if a reduction in price is called a rebate it does not lower the sales tax.”
We’re not talking a few dollars here, folks. We’re talking $600 additional sales tax for just this one transaction ($6,000 times 9.8%.)
Two questions:
1. How do other states handle this?
2. Why doesn’t GM classify price reductions as “discounts” instead of “rebates?” GM customers would save millions of dollars in sales taxes.
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By my accounts you bought a $19000 car. When you buy a TV in the store you will pay taxes on the price paid before coupons/rebates/down payment is done.
$19000 is the retail price you are paying, similar to a TV on sale. You GM $$$ is like a gift card and the 20% from GM would be a coupon/rebate.
Just curious how your State handles 'trade-in' value and taxes?
$19000 is the retail price you are paying, similar to a TV on sale. You GM $$$ is like a gift card and the 20% from GM would be a coupon/rebate.
Just curious how your State handles 'trade-in' value and taxes?
I bet you get an offset on your trade to make up for it. In Virginia, we do not pay tax on rebates, but there is no offset for trades.
Move to Idaho.
More sales with a lower tax take per sale would still probably overall benefit the state economy, both bidnesses and tax coffers.
Legislators forget they supposedly work FOR THE PEOPLE, and for some reason think that the money is theirs.
I do know Moochigan does not offset the taxable price by the trade-in value. That definitely cuts into sales IMHO.Not sure how Michigan handles it or how the State of Washington justifies your situation. Sounds like a scam to me.
More sales with a lower tax take per sale would still probably overall benefit the state economy, both bidnesses and tax coffers.
Legislators forget they supposedly work FOR THE PEOPLE, and for some reason think that the money is theirs.
I bet you get an offset on your trade to make up for it. In Virginia, we do not pay tax on rebates, but there is no offset for trades.
Bottom line the government - federal, state and local are all beasts that need to be fed money. They will get it from you in one way, shape or form. I just wish they'd drop all these little, hidden tricks and only collect via income tax or something.
Death and taxes.....
Death and taxes.....
in Manitoba CANADA the TAX rate is based on the NET after trade price
IE 20K - 4K "rebate" - 10K trade in = 6K taxable I do not know about GM points but believe they are considered as part of your payment and is taxed BUT we pay
Manitoba sales tax of 8% on EVERY car transaction including a privet sale of a used car (get hit at time of REGO)
GST a national "value added tax" of 5% - on DEALER transactions
tire/batt/A/C system levy of approx 200 dollars on NEW cars ONLY (for recycling)
IE 20K - 4K "rebate" - 10K trade in = 6K taxable I do not know about GM points but believe they are considered as part of your payment and is taxed BUT we pay
Manitoba sales tax of 8% on EVERY car transaction including a privet sale of a used car (get hit at time of REGO)
GST a national "value added tax" of 5% - on DEALER transactions
tire/batt/A/C system levy of approx 200 dollars on NEW cars ONLY (for recycling)
NY, NJ, PA, CT and MA all work the same way. A rebate is an incentive to the customer from the manufacturer. It is designed to be applied after the purchase of the car. When you buy a printer/digital camera/computer at a place like Staples they often include a "mail-in rebate". You'll often hear/see ads that say something like, "Now buy a HP 5x3xx-blah-blah printer for just $30*... after $50 mail-in rebate."
Automotive Rebates are really no different in principle. The only way they differ is that no one wants to front the money (or finance) the entire price (say $19,000) AND THEN mail-away for a $4000 check that they won't get for at least 6-weeks! So... the dealer does this for the customer. The Dealers are fronting the savings that the rebate represents and are getting reimbursed by GM (in this case) about the 2 - 3 months later!
Another way to look at it is this: In many cases a consumer can choose between a Manufacturer's Rebate or the Manufacturer's Subsidised low APR (usually NOT both). The client who chooses the low APR (say 0% for 60 months) should NOT have to pay more taxes than the person who took the $X,000 Rebate.
Automotive Rebates are really no different in principle. The only way they differ is that no one wants to front the money (or finance) the entire price (say $19,000) AND THEN mail-away for a $4000 check that they won't get for at least 6-weeks! So... the dealer does this for the customer. The Dealers are fronting the savings that the rebate represents and are getting reimbursed by GM (in this case) about the 2 - 3 months later!
Another way to look at it is this: In many cases a consumer can choose between a Manufacturer's Rebate or the Manufacturer's Subsidised low APR (usually NOT both). The client who chooses the low APR (say 0% for 60 months) should NOT have to pay more taxes than the person who took the $X,000 Rebate.
Washington State allows a credit for trade-ins. That’s a pretty different matter, though. Some people have a trade and some don’t.
I agree that a mail-in rebate on a TV is a different matter. But the “rebate” Chevy is offering on the car is, in my mind, very different. In the case of the Chevy, the rebate is immediately applied to the transaction. The customer doesn’t have to wait for the rebate or see if qualifications are met. So I see it as more of a price reduction than a rebate.
Technically, the Chevy website calls it a “cash allowance.”
The law in Washington State is clear. Discounts reduce sales tax. Rebates do not reduce sales tax.
Now that I realize the promotion was not a rebate but was a “cash allowance” I’m not sure what the law is. I have contacted the state department of revenue for clarification.
It still seems very silly to me that GM would offer a rebate on a car. It would be far better to offer a discount instead. Again, we are talking about millions of dollars in sales tax.
I agree that a mail-in rebate on a TV is a different matter. But the “rebate” Chevy is offering on the car is, in my mind, very different. In the case of the Chevy, the rebate is immediately applied to the transaction. The customer doesn’t have to wait for the rebate or see if qualifications are met. So I see it as more of a price reduction than a rebate.
Technically, the Chevy website calls it a “cash allowance.”
The law in Washington State is clear. Discounts reduce sales tax. Rebates do not reduce sales tax.
Now that I realize the promotion was not a rebate but was a “cash allowance” I’m not sure what the law is. I have contacted the state department of revenue for clarification.
It still seems very silly to me that GM would offer a rebate on a car. It would be far better to offer a discount instead. Again, we are talking about millions of dollars in sales tax.
Every state handles taxes differently. In PA we only pay 6% sales tax on the FINAL agreed upon price AFTER all discounts, rebates, GM Card earnings, loyalty, private offers, etc, MINUS trade-in value.
I did more research and it looks like Washington State law differentiates as follows:
1. Discretionary discounts offered by the retailer *do* reduce sales tax.
2. Mandatory discounts (ie rebates, cash allowances) *do not* reduce sales taxes.
It seems unfair to me, but the law is the law. Again, GM should simply offer customers discounts (instead of rebates) when they need to move cars and save a boatload of sales taxes.
On the flip side, we are one of the seven states with no individual income tax. So my family does okay in the big picture. We have other taxes, though.
1. Discretionary discounts offered by the retailer *do* reduce sales tax.
2. Mandatory discounts (ie rebates, cash allowances) *do not* reduce sales taxes.
It seems unfair to me, but the law is the law. Again, GM should simply offer customers discounts (instead of rebates) when they need to move cars and save a boatload of sales taxes.
On the flip side, we are one of the seven states with no individual income tax. So my family does okay in the big picture. We have other taxes, though.
I remember when the "rebate" game began, IIRC in the 80s. I recall my mother, her sister, and me laughing about the concept.Washington State allows a credit for trade-ins. That’s a pretty different matter, though. Some people have a trade and some don’t.
I agree that a mail-in rebate on a TV is a different matter. But the “rebate” Chevy is offering on the car is, in my mind, very different. In the case of the Chevy, the rebate is immediately applied to the transaction. The customer doesn’t have to wait for the rebate or see if qualifications are met. So I see it as more of a price reduction than a rebate.
Technically, the Chevy website calls it a “cash allowance.”
The law in Washington State is clear. Discounts reduce sales tax. Rebates do not reduce sales tax.
Now that I realize the promotion was not a rebate but was a “cash allowance” I’m not sure what the law is. I have contacted the state department of revenue for clarification.
It still seems very silly to me that GM would offer a rebate on a car. It would be far better to offer a discount instead. Again, we are talking about millions of dollars in sales tax.
It's the same old sucker game, not much different from Fitch or one of those other fast-talkers on As Seen On TV offering you, "Call now, get another one for FREE! And just because I like you, we'll DOUBLE YOUR ORDER!!!!!!!!!"
I know how you feel, but it really is a "rebate", just like buying a computer or appliance. I just wish Virginia tax gave you credit for your trade, like some states do.
Tennessee treats it the same damn way as Washington State and our sales tax is 9.75%.
It sucks big time.
It sucks big time.
It's all relative - in the EU the VAT sales tax varies from 17 to 25% depending on country - but in most cases the VAT element of the trade-in is allowed as a deduction - but it's the dealer who sees all that as prices have to be shown/quoted including the local VAT - many countries also have a one-off initial fee/tax/duty.
Only three things in life are certain - birth, death and taxes.
Only three things in life are certain - birth, death and taxes.
I for one like how PA handles it. LolEvery state handles taxes differently. In PA we only pay 6% sales tax on the FINAL agreed upon price AFTER all discounts, rebates, GM Card earnings, loyalty, private offers, etc, MINUS trade-in value.
It's the same in CT.Two questions:
1. How do other states handle this?
2. Why doesn’t GM classify price reductions as “discounts” instead of “rebates?” GM customers would save millions of dollars in sales taxes.
In NH there is no sales tax, which is nice, but they make up for it with the registration tax..umm... I mean, registration fees.
I live in PA and I pay the tax on the selling price - trade value BEFORE any rebates/loyalties/GM Card points, just like in New York.Every state handles taxes differently. In PA we only pay 6% sales tax on the FINAL agreed upon price AFTER all discounts, rebates, GM Card earnings, loyalty, private offers, etc, MINUS trade-in value.
Don't let Missouri get wind of this.
Please explain "selling price" further. In all of my 8 brand new GM purchases I've used GM Card earnings(over $18K worth) and have NEVER paid sales tax on them, nor any other rebates or discounts. I live in Pike county.I live in PA and I pay the tax on the selling price - trade value BEFORE any rebates/loyalties/GM Card points, just like in New York.
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