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Do You Have to Pay Taxes on Cash Back Rebates?

When it comes to cash-back rebates, many car buyers are surprised to learn that most states do tax them.

This seems unfair, but most states view cash rebates as a form of payment from the manufacturer and conclude that it does not affect the purchase price of the car.

So what this means is if you purchase a car for $25,000 and there is a $3,000 cash-back rebate, you will be taxed on the full $25,000 before the rebate is subtracted. In a state like California which has 10% sales tax, that's an additional $300!

It's good to keep this in mind so you're not surprised when you see all the final numbers. It's not uncommon for car buyers to accuse dealers of fraud when this happens, but it's a legitimate tax. Thankfully, there are some states that don't tax cash rebates.

States That Do Not Tax Cash Rebates

  • Alaska
  • Arizona
  • Delaware
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • Massachusetts
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Hampshire
  • Oklahoma
  • Oregon
  • Pennsylvania
  • Rhode Island
  • Texas
  • Utah
  • Vermont
  • Wyoming

My Recommendation for Car Shoppers

TrueCar No-Haggle and Edmunds Price Promise are the quickest way to see the lowest car prices in your area. These sites show you no-haggle prices from dealers closest to you - and the deals are usually really good. This should be the first step you take when negotiating your car price. Follow this up with my checklist to make sure you squeeze out every last bit of savings.
- Gregg Fidan

Gregg Fidan

About: Gregg Fidan


Gregg Fidan + is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.

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