Car Rebates Don’t Translate to Tax Savings

August 26, 2005

Car companies are increasingly using discounts, employee prices and rebates to attract customers in order to move cars in the exceedingly competitive automotive industry. It is sensible to think a rebate that lowers prices would also lower the sales tax paid by consumers, but apparently this would be a false assertion. From the Washington Post:

Under the laws of the District and most states, including Maryland and Virginia, a rebate is treated “as a form of cash payment [to the seller] so it doesn’t affect the transaction price,” said George E. Hoffer, professor of economics at Virginia Commonwealth University.

Tax collectors are reaping the benefit of increased automobile sales and the tax revenue paid on the full price of the vehicle, not the actual price paid by consumers. The Post article continues:

Jack Gillis of the Consumer Federation of America, said his group has had several complaints recently from car buyers who noticed that they had been taxed on a higher amount than they had paid. “That’s outrageous,” Gillis said. “Sales tax always has to be based on the actual sales price. With a rebate, that’s price less the rebate. What’s the next step — you go ahead and charge tax on the MSRP [manufacturer’s suggested retail price] even though you’ve negotiated $5,000 off the price?”

Consumers be aware. When receiving discounts from sellers tax collectors could be reaching in your pocket for more than their fair share

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