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AutoBlog: Doh! Dealers learn Cash for Clunkers rebates count as taxable income for them

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Filed under: Car Buying, Government/Legal


As you're aware by now, yesterday's big news was H.R. 3435, the emergency legislation passed by the House of Representatives authorizing an additional $2B for the CARS scrappage scheme. As had been widely reported on Thursday, the clunkers program appeared to have run out of money a lot sooner than anyone had expected, sending legislators in favor of it into a panic. After a period of impassioned floor debate (the Michigan delegation appeared on the verge of a collective nervous breakdown, treating the possible suspension of C4C as the apocalypse), the resolution passed and will head on to the Senate next week for additional debate and a final vote. In the meantime, Cash for Clunkers stays online. For dealers, however, the action in the House wasn't the only important news to come out yesterday.

According to Automotive News, NHTSA -- the government bureaucracy responsible for administering the CARS program -- conducted a webinar for automobile dealers last Monday. During that session, retailers were reportedly told that the federal rebate cash they'd be receiving would be non-taxable. Now, for the buyers trading in so-called clunkers, this is indeed the case. Unfortunately for car dealers, however, it appears that NHTSA got the explanation wrong. In fact, AN reports that the IRS issued an advisory bulletin yesterday confirming that yes, the federal rebates dealerships receive for CARS trades count as taxable gross income.

Apparently, some retailers believed that since their customers weren't getting taxed, neither were they. And if the Automotive News account of events is accurate, it's fairly obvious that NHTSA didn't fully understand the tax implications either when they conducted their webinar. As a result, some dealer smiles around the country are likely turning into frowns this weekend. The money line in the AN piece comes from Dick Heider, a dealer accountant who points out that the CARS cash simply counts as a normal payment to the retailer, and thus is taxable. "What you are dealing with are people who don't understand accounting," he says. Apparently, on all sides of the equation.

[source: Automotive News | Photo: Steve Lyon (CC by SA 2.0)]

Doh! Dealers learn Cash for Clunkers rebates count as taxable income for them originally appeared on Autoblog on Sat, 01 Aug 2009 12:07:00 EST. Please see our terms for use of feeds.

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Well, duh, the customer isn't receiving the funds from the government, the dealer is. Naturally, I would have assumed the funds to be taxable. It wouldn't matter if the money came from the government or the customer, it's classified as income.

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