ST 2009-02 - Sales and Use Tax: Car Allowance Rebate System
(CARS) – Issued July 2009
Recent federal legislation has created the Car Allowance
Rebate System (CARS), commonly referred to as “Cash for
Clunkers.” The system allows owners of certain older, low gas
mileage vehicles to receive assistance totaling $3,500 or
$4,500 on the purchase or lease of a new, higher mileage
vehicle from a participating dealer. The owner of the
“clunker” must have owned the vehicle for at least one year
prior to turning in the vehicle. The vehicle must be less
than twenty-five years old, be in operating condition, and
must get an average gas mileage of no more than 18 miles per
gallon.
The dealer will give the customer the appropriate credit on
the purchase or lease of a new vehicle. Participating dealers
must have the vehicle that is turned in scrapped. The dealer
then submits a claim for reimbursement with the National
Highway Transportation Safety Administration, the federal
agency that is responsible for the program.
More information on the CARS program is available on the
official Web site of the program, www.cars.gov.
The question has arisen whether the $3,500 or $4,500
allowance provided to the new vehicle purchaser or lessee is
part of the sales price for computing Ohio sales and use tax,
or can be deducted from the price as a “trade-in.” Ohio
Revised Code (“R.C.”) section 5739.01(H) defines “price” for
sales tax purposes. Division (1)(b) of that section provides,
in pertinent part:
(b) "Price" includes consideration received by the vendor
from a third party, if the vendor actually receives the
consideration from a party other than the consumer, and the
consideration is directly related to a price reduction or
discount on the sale; the vendor has an obligation to pass
the price reduction or discount through to the consumer; the
amount of the consideration attributable to the sale is fixed
and determinable by the vendor at the time of the sale of the
item to the consumer; and one of the following criteria is
met:
* * *
(iii) The price reduction or discount is identified as a
third party price reduction or discount on the invoice
received by the consumer, or on a coupon, certificate, or
other document presented by the consumer.
Division (H)(2) of R.C. 5739.01 states:
In the case of a sale of any new motor vehicle by a new motor
vehicle dealer, as defined in section 4517.01 of the Revised
Code, in which another motor vehicle is accepted by the
dealer as part of the consideration received, "price" has the
same meaning as in division (H)(1) of this section, reduced
by the credit afforded the consumer by the dealer for the
motor vehicle received in trade.
Based on the foregoing statute, the allowance under the CARS
program is not a trade-in, and does not reduce the price of
the vehicle being purchased for tax purposes. The
amount provided under the program does not represent a
credit afforded to the customer by the dealer for the
“clunker.” Rather, the allowance is consideration received
from a third party (the federal government) which is directly
related to the allowance given to the consumer and which the
dealer is required to pass on to the customer. The amount is
fixed and determinable by the federal law and the dealer will
show the amount of the credit on the invoice. As such, under
Ohio sales tax law, the CARS credit is included in the
taxable price of the new vehicle.
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If you have any questions regarding this information release,
please contact our Taxpayer Service Center at 1-888-405-4039,
or e-mail us through our Web site: tax.ohio.gov.
OHIO RELAY SERVICES FOR
THE HEARING OR SPEECH IMPAIRED
Phone: 1-800-750-0750