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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 $40,000 and there is a $3,000 cash-back rebate, you will be taxed on the full $40,000 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

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About The Author

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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