It’s true that the clunker money is subject to sales tax in most states.  The government’s official website for the CARS program clearly states in the FAQ section that the CARS credit may be subject to sales tax and encourages customers to check the laws in their state or to consult with their tax advisor. 

Why is the clunker money taxable?   The clunker credit is a REBATE.  Rebates, by definition, come off the bottom line – after taxes have been assessed on the selling price of the car.  The cash rebates offered frequently by the car manufacturers work the same way.  So do rebates on other products like soda, toilet paper and refrigerators.  Look at your grocery store receipt the next time you use a rebate coupon.

Perhaps the confusion stems from the fact that most people perceived the clunker money as a trade allowance instead of a rebate.  In most states, the sales tax on a car is assessed on the sale price minus the trade allowance (the amount the dealer gives you for your old car).   For example, if you purchased a new car for $20,000 and traded in your old car for $4,500, you would only pay sales tax on the difference of $15,500.  With the clunker rebate, you pay sales tax on the full $20,000, and THEN the $4,500 rebate is applied. 

The claim that consumers will have pay income tax on $3,500 or $4,500 rebate is completely FALSE!  The official CARS government website explicitly states that the CARS credit is NOT considered taxable income for the consumer.  It is, however, considered part of the dealer’s gross income.

Unfortunately, some blogs are spreading mis-information about the clunker program in an attempt to schmear the current administration as well as bash the car dealers.   Politics aside, I hope this post sets the record straight and eases people’s minds about the clunker money and taxes.

To learn more about the program and to see if you are eligible to take advantage of it, contact Women’s Automotive Solutions or visit the official government website, www.CARS.gov. 

What is the “Cash for Clunkers” Program?
 
Cash for Clunkers, officially known as the Car Allowance Rebate System (CARS), is a federal program passed by Congress and signed into law by President Obama will provide a voucher worth up to $4,500 to consumers trading in an old gas guzzler for new, more fuel efficient vehicle.  The program is effective beginning July 1, 2009 and ending on November 1, 2009 (or when the funding runs out, whichever comes first).

Sounds pretty good, huh?  Well… maybe not.  The government vouchers for $3,500 or $4,500 are in replacement of — not in addition to — the ordinary trade-in value of the vehicle.  If your trade is worth more than $4,500, forget it.  If your trade is worth less than the voucher, then the program might benefit you.  But, it’s only good for purchasing a new car, not a used one.  Purchasing a good, used car will likely save you more money overall than buying a new car with the voucher.

What’s the Catch?

Your trade must also be drivable, must have been made in 1984 or later, owned, insured and operated by you for one year, and must get 18 mpg or less city/highway combined.  The trade vehicle must be crushed, not resold.  (The idea is to get them off the road) If that’s not enough restrictions for you, there’s more!  You must purchase a new vehicle with a sticker price of $45,000 or less.  If you buy a new passenger car, it must get at least 4 mpg MORE than your trade vehicle.  If you buy a new SUV, minivan or small truck, it must get at least 2 mpg more than your trade.  (Larger trucks have different requirements and restrictions.)  Only one voucher is allowed per person.  Confused yet?  Visit the government’s website (www.cars.gov) or call a Women’s Automotive Solutions consultant for more information.

Who could benefit from this program?

Critics of this program (myself included) argue that this program won’t benefit most consumers. It doesn’t apply to used car purchases, and most people who drive “clunkers” do so because they can’t afford a brand new car in the first place.  However, there are a few folks who could take advantage of it:

1.  People who buy a new vehicle once in a blue moon, drive it until it almost dies, and then buy a new one again.
2.  Students or young professionals driving an old, college clunker who now have a good job and are ready to buy their first, new car.
3.  Parents who bought their teenager a piece of junk and now want a shiny new car for themselves.

The good news is that the voucher is in addition to (not in lieu of) any dealer incentives and rebates available on the new vehicle.   If you are thinking about taking advantage of this program, contact a Women’s Automotive Solutions consultant to see if you qualify and if the program is right for you.  Even if it’s not, Women’s Automotive Solutions will get you the best possible deal no matter what vehicle you buy – or what you trade in.