Think about it - what kind of bookkeeping is necessary for a customer to purchase or lease a car only to have the dealer 'provide' them with a $1000 American Express card on the way out?
A) They're charging $1000 more than they should in order to entice you, the dopey consumer, to help them hit their sales incentives.
B) How does that $1000 that is heading out get worked up by accounting?
OK - B is not your concern. But what if...
C) You're a self employed business person. The IRS only allows you to deduct based on actual cost. Did you subtract that $1,000 Amex Card discount? Do you really have to?
D) Is worse -- New Jersey taxes cash rebates. So does New York.
When it comes to cash-back rebates, many car buyers are surprised to learn that most states do tax them.
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.
That's right. You get an Amex card (not even cash...) AND a higher sales tax cost. Who hoo.
Anyway, we digress. Here's O'Hara talking about literally throwing up.
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