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Friday, August 28, 2009

Tax for Clunkers (Continued)

CARs Following up on Wednesday's post, Tax for Clunkers:  Jim Maule (Villanova) elaborates in State Tax Consequences of Cash-for-Clunkers:

Although the IRS has made it clear, following the language of the enacting statute, that the amounts paid by the government to auto dealers as part of the cash-for-clunkers program is gross income to the dealers but not the purchasers, there are some important questions to be answered with respect to the state tax consequences of the program. ...

Jim notes that states differ over whether the $3,500 and $4,500 payments under the Car Allowance Rebate System (CARS) are subject to sales tax.

States which exclude CARS payments from sales tax:

  • California
  • Connecticut
  • Florida
  • Georgia
  • Illinois
  • Indiana
  • Iowa
  • Kentucky
  • Louisiana
  • Massachusetts
  • Michigan
  • Minnesota
  • Mississippi
  • Texas
  • Washington
  • Wisconsin

States which subject CARS payments to sales tax:

  • Idaho
  • Nebraska
  • Nevada
  • New Jersey
  • New York
  • Ohio
  • Rhode Island
  • South Dakota
  • Virginia

LexisNexis has this detailed chart on the sales tax treatment of the CARS payments in the fifty states.

http://taxprof.typepad.com/taxprof_blog/2009/08/tax-for-clunkers-1.html

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Comments

Isn't it interesting, a lot of commentators have suggested sales tax holidays by the states do not stimulate economic activity. Further, if the holidays are extended over a long period, the commentators note that people just change the time that they buy goods while increasing state deficits.

Apparently, the states have a different economic view when it comes to income taxes and the commentators are silent about the economic inefficiency of the cash for clunkers program.

Posted by: Dale Newland | Aug 28, 2009 2:13:20 PM

Vermont excluded the clunker cash from sales tax. That is, they treated it the same as they would any trade worth $3500-4500 and that amount was a (6%) sales tax credit towards the new vehicle.

Posted by: Jeff Soyer | Aug 28, 2009 2:58:14 PM

And in Oregon it's irrelevant because we don't have a sales tax....

Posted by: Jeff | Aug 28, 2009 3:29:55 PM

This doesn't surprise anyone! What is a surprise is that WE don't force goverment to report all the other income they redistribute from us. Why do I have to report W-2, IRS-Form 1099-misc, and other reporting requirements when I make money but the receipients of government largesse don't? Does a child tax deduction for which you file come anywhere near the $300/month a street drunk in San Francisco gets with no paperwork filing deadlines? Don't you think we could all agree if government is giving our money to other people because they think they know how to spend it better that we could at least agree that Welfare, AFCD, food stamps and other government "entitlements" be accompanied by an IRS Form 1099-GOV?

Posted by: SenatorMark4 | Aug 29, 2009 6:40:06 AM