Government (And Car Dealers) Screw You Again!

This is hilarious

But many of those cashing in on the clunkers program are surprised
when they get to the treasurer's office windows. That's because the
government's rebate of up to $4500 dollars for every clunker is taxable.

"They didn't realize that would be taxable. A lot of people don't
realize that. So they're not happy and kind of surprised when
they find that out," Nelson said. The amusement here is how
most (if not all) states compute sales tax (charged when you
register the vehicle.)

When you buy a new car you pay tax on the difference between the
new car's purchase price and the trade-in you present to the dealer.
This is an intentional distortion in the law that is intended to favor
dealers over private-party used car sales; if you sell your used car
privately the new buyer pays sales tax but you do not get the offset
on the purchase of your replacement vehicle - the only way to get
that is to trade the car.

Dealers use this, of course, in negotiations, effectively pocketing
the sales tax - and why not? It's a real difference to you!

But the "cash for clunkers" is not a trade-in. That's a $4,500 check
from the government, basically.So you get nailed at least once and
possibly twice. Specifically, you pay sales tax on the full vehicle
price (effectively paying sales tax on the $4,500!) and what's
worse those states that tax income (that would be most of them!)
might wind up counting this as income for state income tax
purposes too, effectively taxing you twice.

I should have probably done a Ticker on this originally, but I
(naively) believed that most people understood how the tax system
works when it comes to new and used car transactions.

Apparently, from the referenced news article, this is not the case,
and I bet the car dealers, incredibly ethical people that they are,
were fully informing their suckers, er, clients of this little "feature"
of that government handout too.

PS: I have also received several emails informing me that dealers
had customers so giddy over the "free cash" that they were selling
cars at full sticker price besides - effectively, in many cases,
turning the entire "cash for clunkers" money into pure dealership
profit and managing to charge you tax (twice) on it as well. Ain't
car dealers grand (several grand out of your pocket, that is!)

Related article:Whoops!
Cash For Clunkers Payments Are Taxable!
http://tinyurl.com/lb94eg