It turns out dealers will have to pay taxes on the thousands of dollars in rebates they receive under the federal cash-for-clunkers program, according to an IRS advisory bulletin issued today.
The cash-for-clunkers measure, known as the Consumer Assistance to Recycle and Save Act of 2009, exempts consumers who take advantage of the program from paying taxes on the rebate. But it does not exempt car dealers.
"Gross income generally means all income from whatever source derived unless specifically excluded by law," wrote Terri Harris, who heads an IRS division specializing in automotive issues. "Gross income derived from a business means the total sales, less the cost of goods sold."
It likely will be treated like a cash downpayment from the consumer.
A NHTSA official assured car dealers listening in on a National Automobile Dealers Association webinar Monday that they would not be taxed on the rebates.
"What you are dealing with are people who don't understand accounting," explains Dick Heider, a Denver-based dealer accountant. "This is a normal payment like in any car deal whether the money comes from the bank, the manufacturer or the government."
Asked why dealers might have been confused about their tax obligations, Heider said they may have thought that because consumers didn't have to pay taxes on the rebate, they also would be exempt.
Says Heider: "It's still money in their pocket."