How come car dealerships apply rebates AFTER sales tax?

Question

My uncle went to a Saab dealer last night and they are offering a $3,000 rebate. When writing up the order the salesperson applied the rebate AFTER applying the sales tax. My uncle didn't think that made sense (common sense would say you apply the rebate then tax the car) so I checked my invoice on a Mazda I bought last year and they did the same thing! The $2,000 factory rebate was applied AFTER adding in the sales tax. That seems shady and I was wondering if that's an industry wide tactic and what the reasoning is. Other than to screw over the consumer!
Thanks

Answer 1

Rebates are NOT discounts, as you want to believe.

Look at it this way. The car manufacturer gives you money (the rebate amount) in cash. You then give the cash to the car dealer as a down payment. Like any other down payment cash that comes from your own pocket, the money is taxed.

For example, if the tax rate where you live is 5% and you get a $2000 rebate. Only $1900 of the rebate is actually applied to the car sale; $100 is tax.

Again, rebates are not the same as a discount or price reduction. It's cash that is given to you by the car manufacturer.

Answer 2

The logic is quite simple: a "rebate" is a portion of the purchase price that is returned to you as a buyer. It is not a reduction in the purchase price of the vehicle but rather you become eligible for the refund after buying the product. It would be the same as if you wrote a check to the dealer for the full amount then received a rebate check in the mail from the manufacturer two weeks later.

its the State Tax Boards that determine how purchases are taxed. On cars with rebates the full purchase price is subject to the tax. Your financing is predicated on that purchase price. The rebate is the same as a cash payment against the purchase price so it in no way reduces the taxable amount. Its not the dealer that makes the rules, it the State Tax Boards. The dealer is only collecting what the State says is due. Talk to your state representative if you think you're getting 'screwed' because its not the dealer that's doing it to you.

Hope that answers your question

Answer 3

A factory rebate is offered to you by the manufacturer of the product not the dealer. So the dealers selling price is set then you have subsidies from the manufacturer to buy their product. It is considered income and needs to be taxed, it is not a tactic to screw over the customer. I recently went to Best Buy and purchased an XM radio with rebate. I purchased the item at full price and mailed in my cash back rebate which I will receive in the mail after paying taxes on the full amount. It's relative to all kinds of consumer purchases not just cars.

Answer 4

The rebates are given to the dealer by the manufacturer. You are paying the full price therefore you pay the tax on the whole amount. The rebate comes into play after wards whereby the dealer is passing along the rebate in a form of a reward but not reduction in actual price shown on invoice. I don't know if that made sense it's complicated. In other words the state wants the FULL amount of tax due them on the full invoice price. Since the rebate is not a reduction in invoice price the state is entitled to their FAIR share.

Answer 5

I'd love to have the guy who gave the first answer come into my dealership and tell me that.

Rebates are treated just as cash down. Sales price + tax -cash down - rebates.

Example: You buy a computer with a mail-in rebate, say you pay 800.00, so you pay 800 plus tax, you mail the rebate in and get a check for the rebate amount, say 100.00. you still paid tax on the full 800.00 not 700.00.

This is the way it works, the state doesn't care if the company is offering rebates, they want tax on the sale price.

Answer 6

Short answer: rebates from the manufacturer act like CASH DOWN from the consumer. If you were buying a car and the sales price (before tax) were 10,000 (and you're paying cash) do you think that the purchase wouldn't be taxed? That you'd plop down 10 grand and have the car? Here in AZ you'd have to pony up 10810 (tax at 8.1%) plus other fees to get the car.

So, no, you didn't get a "shady" deal. You got a legit deal. Contrary to popular opinion, car dealership are not out to screw consumers.

Answer 7

Well I don't know all the in's and out's but Would you and your uncle rather had paid taxes on the Rebates too? The way the dealership did this which I'm sure is no problem but check it out Your uncle saved say 6% of $ 3,000.00=$ 180 dollar in your pocket to do what ever you wish.

Answer 8

its like this... I purchased laminate flooring at RONA at 75cents per Sqf... after 1 week RONA had a promo.. you know those scratch a coupon thing and you'll get 5% to 50% discount. When I checked the shelf of the laminate flooring.. they jacked up the price to 1.09Cents per Sqf..

now you do the math...

Answer 9

yea its another way for the salesman to see if your smart.

Your uncle should go back to that dealership and tell them he got a better deal down the road.

Watch the look on there faces when he asks for his paperwork, RIP IT UP IN FRONT OF THEM

They are your typical salesman - trying to take advantage of you.

Kinda like applying your tradein then adding everyting together - and wow I only got 400.00 for my old car......

You have just been scammed.