Do You Have to Pay Taxes on Cash Back Rebates?
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
- New Hampshire
- Rhode Island
My Recommendation for Car ShoppersTrueCar No-Haggle, CarsDirect, and NADAGuides 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
Each week, I'll keep you up-to-date on the latest car deals and news that might affect your purchase. This includes...
- Best Rebates, Incentives, and Lease Deals
- Latest Car Buying Scams and Tricks
- The Best & Worst Time to Buy a Car
- Which Cars You Should Avoid