CASH FOR CLUNKERS VOUCHERS— Tax Free, right? NO! Ask your People...
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Phone: 732-671-9314
On June 24, 2009 President Obama signed the Consumer Assistance to Recycle and Save Act of 2009 into law. (8 USC 1301) The Act establishes a new program under which the government will provide $3,500 or $4,500 to help consumers purchase or lease a new, more fuel efficient vehicle from a participating dealer when they trade in an old, less fuel efficient vehicle. This program is also known as the “Cash for Clunkers” program.
Vouchers may be issued for purchases that occur beginning July 1, 2009 and ending the earlier of November 1, 2009 or the date the overall budget limit of $1 billion that was allocated to the clunker program has been reached.
(The Senate is currently considering a House-passed bill that appropriates another $2 billion for this program. The fate of that bill is currently unknown.)
Several states have issued guidance addressing how the Cash for Clunker vouchers issued by the federal government will be treated for state sales tax purposes. Some states issuing guidance will deduct the voucher amount from the sales price in order to determine the amount subject to sales tax. Example: A vehicle is priced at $20,000 and the trade-in is eligible for a $3,500 federal voucher. The state taxes the sale based upon the net out-of-pocket cost of $16,500.
In New Jersey, you'll be paying state sales tax on the entire amount, including the Cash For Clunkers rebate.
"As the Federal funds provided to the dealer under this program are directed towards the purchase or lease of a new vehicle, those funds are deemed to be third-party consideration. Like in a manufacturer’s rebate situation, the amount of third-party consideration must be included in the sales tax base when calculating the applicable sales tax due on the transaction. The funds are not deemed to be an augmentation of the trade-in value that a dealer offers a buyer."
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