Posted on 08/28/2009 7:31:39 AM PDT by NCjim
This is hilarious:
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.
The amusement here is how most (if not all) states compute sales tax (charged when you register the vehicle.)
When you buy a new car you pay tax on the difference between the new car's purchase price and the trade-in you present to the dealer. This is an intentional distortion in the law that is intended to favor dealers over private-party used car sales; if you sell your used car privately the new buyer pays sales tax but you do not get the offset on the purchase of your replacement vehicle - the only way to get that is to trade the car.
Dealers use this, of course, in negotiations, effectively pocketing the sales tax - and why not? It's a real difference to you!
But the "cash for clunkers" is not a trade-in. That's a $4,500 check from the government, basically.
So you get nailed at least once and possibly twice. Specifically, you pay sales tax on the full vehicle price (effectively paying sales tax on the $4,500!) and what's worse those states that tax income (that would be most of them!) might wind up counting this as income for state income tax purposes too, effectively taxing you twice.
I should have probably done a Ticker on this originally, but I (naively) believed that most people understood how the tax system works when it comes to new and used car transactions. Apparently, from the referenced news article, this is not the case, and I bet the car dealers, incredibly ethical people that they are, were fully informing their suckers, er, clients of this little "feature" of that government handout too.
PS: I have also received several emails informing me that dealers had customers so giddy over the "free cash" that they were selling cars at full sticker price besides - effectively, in many cases, turning the entire "cash for clunkers" money into pure dealership profit and managing to charge you tax (twice) on it as well. Ain't car dealers grand (several grand out of your pocket, that is!)
Right from the Ben Dover auto group!
That is because they don't read freerepublica, I posted it here that it would be considered taxable income. In a country that taxes SSI, nothing else is possible.
Yet another “hopey”, “changey” dissapointment. EVERYTHING the fool in the WH touches turns to lead. Let’s wait and see how the $8,000 tax credit/rebate for 1st time home buyers comes back to bite people in the arse.
Well, good. The taxpayers will recover a little bit back from their handout to those who milked us taxpayers.
Cars are simply not an investment. I've always bought mediocre-looking used vehicles. Who cares? They're getting my ass from point A to point B.
I’m not a supports of the program but according to it’s website, the gov’t payment is not taxable as income. However it may be subject to local or state sales tax.
http://www.cars.gov/faq#category-06
“Is the credit subject to being taxed as income to the consumers that participate in the program?
NO. The CARS Act expressly provides that the credit is not income for the consumer.”
“Do I have to pay State or local sales tax on the amount of the CARS program credit?
MAYBE. The question of whether a consumer must pay State or local sales tax on the amount of the CARS program credit depends on the sales tax law of each State or locality. Consumers should review the law of their respective States or consult a tax advisor to answer this question.”
“When you buy a new car you pay tax on the difference between the new car’s purchase price and the trade-in you present to the dealer.”
I don’t believe this is true. In Indiana, you pay the tax on the full new car price. You do not deduct the difference in the trade in price. Additionally, you also pay sales tax on the price of a used car.
Not to defend the dealers, but they don’t “pocket” the sales tax. They are required to forward every penny of it to the state...in CA, The State Board of Equalization. If you sell a vehicle privately, the seller pays the tax when he registers the vehicle.
There is a lot of "buyer's remorse" in these deals. The biggest one? Is now they all have a $200 to $300 a month car payment, when before they didn't have that expense.
What? Did they think they were getting the car for free? Did they not understand the contract they signed?
That's why I was fortunate enough to put aside enough earlier this year & fully pay off the principal on my house. My primary rationale for doing this is that I fully expect the jOker to remove the tax deduction on mortgage interest next year.
Make that...The BUYER pays the sales tax when he registers a used car. Sorry!
also, if the DEALERSHIP doesn’t file the paperwork withing 30 days, you will be charged further interest and fees on that money.
WOW. this was NOT such a good deal.
Succors are born ever minute. There are no effective abortion clinics for them. Politicians count on it!
“I fully expect the jOker to remove the tax deduction on mortgage interest next year”.
...this was beilng mulled over by Congress 3 years ago. At that time they had a cap of homes valued over $350,000 would no longer get the deduction. As you know, anyone that owns a house over 350K is evil and rich. ~sarc
You earn it- pay income tax on those earnings.
Government "gives" you $4500 of your tax money back, which you have to claim as income which you pay taxes on yet again.
PLUS, You pay sales/state taxes on it.
Plus you basically give them your clunker for basically nothing, which I imagine either the dealer or government gets whatever salvage value it's worth.
If the dealer, the salvage value is deducted from their 4500 reimbursement for fronting you the clunker cash.
No kidding. That's why I've never bit on the rebates.
If I'm shopping for a car, I always ask them for their best out-the-door price, tax, license fees, prep, the works. And if they try to weasel out of telling me or try to steer me into a lease, I walk away. And a lot of times, they will call you a week later and offer you the price you demanded in the first place.
You are 100% correct. The idea of ANY car is to get safely from point A to point B and then back to A (home). Period.
My late father, who always required a NEW car for longer daily 50 mile commute always pointed out that a “New car was just like a FINE steak.They BOTH ended up in the same place.” At the time it took me a week to understand his lesson.
There are no words left to express the contempt that I feel for those losers in our government.
Really, why do we expect a set of people - few of which who have encountered any college courses considered difficult - to make decisions affecting our economy, our climate, our processes for decision making, etc?
There is a reason people go into politics.
They can do nothing productive, but still need to feel important.
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