Don’t get all wrapped up about the state Cash for Clunkers tax right now
August 29th, 2009 | by mbhunter |Bargaineering addressed some tax consequences of the CARS (”Cash for Clunkers”) rebate program for Maryland.
Virginia’s sales tax consequences are similar to Maryland’s: Sales tax is assessed on the full price, not the price after being reduced by the voucher. In this way it’s similar to the way grocery store coupons are handled some places. “Just because the manufacturer is offering 75 cents off doesn’t imply that I have to tax you less.”
Other states assess tax on the post-rebate price.
It’s already clear that the rebate is not treated as income at the federal level, so the open issues will be how the rebate is treated at the state and local levels. What happens at the state and local levels will depend on how the individual states’ tax laws are worded, and whether the legislatures enact adjustments to what is already on the books. (Here is a running chart of where the states stand now. Maryland isn’t mentioned in this chart, but Jim’s right.)
So, if you took advantage of the Cash for Clunkers program, any of the following could be true:
- You’ve already paid sales tax on the voucher. (This is the case in Virginia and several other states.)
- You didn’t pay sales tax on the voucher.
- You might pay state income tax if your legislature enacts an add-in.
- You might not pay state income tax.
In short, you might be looking at a few hundred dollars either way if you took advantage of the program, but you won’t know for sure until you do your 2009 taxes. So, enjoy your new ride and don’t worry about this now.
