Are Cash Rebates Taxable?

A while back, I asked if credit card rewards were taxable or not and my buddy at AllFinancialMatters answered it for me. But just to close the loop on the issue, I thought I'd highlight this piece from Money Central that says cash rebates are not taxable. The details:

A cash rebate you receive from a dealer or manufacturer of an item you buy is not income, but you must reduce your basis by the amount of the rebate. Example: You buy a new car for $9,000 cash and receive a $400 rebate check from the manufacturer. The $400 is not income to you. Your basis in the car is $8,600. This is your basis on which you figure gain or loss if you sell the car, and depreciation if you use it for business.

Good. Now we can put that issue to rest and I can take the cash rebate money I make with the Blue Cash from American Express card and add it to my $10k effort with no problem. ;-)

Comments

[rdub]

I would agree. To a smaller extent, when you buy something at someplace like Best Buy, you are paying taxes on the full amount. The rebate comes after the fact, so you are actually paying more taxes than you really should. You have already paid taxes on that amount.

[kevin]

i am buying a car from a dealer and he is telling me that I have to pay sales tax on the full amount of the car regardless of the rebate. I think I should on pay sale tax on the purchase price minus the rebate.

[John]

I fully agree with you but I have no idea what the law requires.

[Frank]

If you buy a vehicle from a dealer and the car is $30,000.00 and you receive a $2000.00 rebate
the vehicle is taxed at $30,000.00 because there is tax on the rebate even though the net price is $28000.00. If you buy a coffee maker at $99.00 and there is a rebate of $10.00 you pay tax on the $99.00 at the register and the ten dollars is mailed to you. The net price is $89.00 but you paid tax on $99.00. If you cannot understand this you are totally dense.

[Tom]

One issue with rebates and discounts is that the store must issue the discount. For example, if that $10 rebate came from the manufacturer, the taxable amount remains $99. If the store gives a discount out of their own pocket at the point of sale, that reduces the sales price. If the store sends you a store credit for future purchases that is not a reduction of the sales price for sales tax purposes. Cars can be a totally different animal and generally the invoice cost is the price regardless of trade in or manufacturer rebates.