Richard Hill: Ain’t government grand? |

Richard Hill: Ain’t government grand?

Taxes seem to be in the news a great deal lately. And here is one of which you may not be aware.

I recently purchased a new vehicle. With the exception of a couple of visits to the dealer to look at and test drive the car, all negotiations were done via phone or email. We agreed upon a price and I calculated the sales tax. Arriving at the dealer to pay for and pick up the car, I noted that the sales tax was greater than I calculated.

This was a 2017 vehicle and there was a manufacturer’s rebate. Much to my surprise I learned that a “Manufacturer’s Rebate” is added to the negotiated price and that total is used to calculate the sales tax. A thousand dollar manufacturer’s rebate therefore costs you approximately $75 in extra sales tax.

The rationale behind this is somewhat hazy. According to state regulations, manufacturer’s rebates are theoretically issued directly to a customer in the form of a check. The customer then endorses the check to the retailer and writes his own check in the amount of the negotiated price. The total equals the gross amount you paid for the vehicle and this gross amount is subject to a sale tax. However, in my case I received no check and the rebate showed on the sales agreement as a credit. Furthermore, the rebate is not considered revenue to the dealer and thus not taxable as income. Perfectly clear now?

I suspect that no cash actually changes hands between the manufacturer, the dealer and/or the customer and this is a paperwork exercise allowed by California, by which the state extracts a few bucks more in sales tax.

Ain’t government grand?

Richard L. Hill lives in Penn Valley.

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