Motortrend.com, which tracks the automobile industry, puts total cash auto rebates last year at more than $28 billion nationwide. And lots of states are collecting sales or excise taxes on that amount, even though it is ultimately returned to customers.
In the wake of the success of other forms of price reductions such as “employee discounts” that U.S. manufacturers offered this summer, some have been talking about moving permanently to lower prices rather than spasmodic auto rebate campaigns. Such a shift, if it were to take place and stick, might reduce revenue in some states, though in today’s strong economy that prospect is not as worrisome as it might have been a few years ago.
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Because not all states tax auto rebates, and those that do charge widely varying rates, figuring an overall revenue loss is difficult. But some states have calculated the possible consequences of a loss to rebate taxes. In Virginia, for example, early estimates put the figure in the $20 million to $30 million range.
In other words, if the sticker price of a car is $30,000, and the carmaker cuts the price to $28,000, or if the buyer simply talks the dealer down to $28,000, the tax is based on $28,000. But if the dealer holds fast at $30,000, but the manufacturer supplies a $2,000 auto rebates so the price to the customer is again $28,000, the tax is computed on $30,000.
But not all states tax auto rebates, some don’t tax them if they are identified and stated separately on the sale documents. Others don’t tax them if they are used as part of the down payment.
Some analysts don’t think auto rebates are going away, no matter what carmakers say.
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