The Car Allowance Rebate System (CARS), commonly known as "cash for clunkers," is a newly-enacted $1 billion federal government program that helps consumers purchase or lease an environmental-friendly vehicle from a participating dealer when they trade in a less fuel-efficient car or truck. The amount of the credit is $3,500 or $4,500 and generally depends on the type of vehicle purchased and the difference in fuel economy between the purchased vehicle and the trade-in vehicle. The owner of the less fuel-efficient model must have owned the vehicle for at least one year prior to turning it in. The vehicle must be less than 25 years old, must be in operating condition and must get an average gas mileage of no more than 18 miles per gallon.
For detailed eligibility requirements and additional information for the CARS program, visit the official website at www.cars.gov.
The Ohio Department of Taxation recently issued an information release (ST 2009-02) on whether the amount of the CARS program credit is subject to the Ohio Sales and Use Tax. Specifically, the issue was whether the $3,500 or $4,500 credit for the new vehicle purchase or lease was part of the sale price for purposes of computing the Ohio sales and use tax or if it could be deducted from the price as a "trade-in." ST 2009-02 concluded that the CARS credit is included in the taxable price of the new vehicle, rather than a trade-in. The CARS credit does not constitute a trade-in under Ohio Revised Code (R.C.) section 5739.01(H)(2) because it does not reduce the price of the vehicle being purchased and is not a credit afforded to the consumer by the dealer. Rather, the credit is consideration received from a third party (the federal government) and falls under the definition of "price" for sales tax purposes in R.C. 5739.01(H)(1)(b) which provides:
(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:
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(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.
The CARS credit constitutes 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 and the dealer shows the amount of the credit on the invoice. Thus, ST 2009-02 concluded that under the Ohio sales tax, the CARS credit is included in the taxable price of the new vehicle.