Tax News

CCH (cch.taxgroup.com) reports:

  The Illinois Department of Revenue has provided guidance on the sales tax treatment for vehicles purchased in conjunction with the federal government's Car Allowance Rebate System (CARS) program, also known as "cash for clunkers."

  The department has determined that the $3,500 or $4,500 payment from the federal government to the dealer under the CARS program is not taxable for Illinois sales tax purposes because it is a direct government payment to the dealer. The salvage value that the dealer provides for the traded-in vehicle will be treated as a trade-in and therefore is also not taxable for sales tax purposes.

  For example, $20,000 (purchase price of new vehicle) minus $4,500 (federal CARS payment to dealer) and minus $1,000 (salvage value allowed by dealer on traded-in vehicle) would result in $14,500 as the amount subject to sales tax.

  Dealers should combine both payment amounts on Part 6, Line 2 (Total trade in credit or value), of Form ST-556 but keep the amounts separate in their books and records. Manufacturer or dealer incentives remain taxable.

  The announcement can be found on the department's Web site at
http://www.revenue.state.il.us/announcements/cashforclunkers.htm.

"Cash for Clunkers" Announcement , Illinois Department of Revenue, July 27, 2009