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DanielleCPA
DanielleCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 789
Experience:  Years of Experience in Business & Personal Taxes
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I live in CT and buying a new car for cash. Since Im paying

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I live in CT and buying a new car for cash. Since I'm paying cash there is a $750. reduction in the price. Looking at the invoice I noticed that the dealer wrote the total due without the $750 rebate and then added the 6.35% tax - after that they deducted the rebate which means I'm paying tax on the rebate which seems strange to me. I asked about this and the answer I received was "that's how it's done". Is this legal or should I dispute it? I don't understand why I should pay tax on money I'm not spending.

Thank you for any help,
Gloria Pepin [email protected]

DanielleCPA :

Welcome and thanks for your question!

DanielleCPA :

Unfortunately, if the $750 is considered a rebate, then the car dealer is correct. Rebates are not considered to be a reduction in the invoice price for sales tax purposes.

DanielleCPA :

If you look at section 8 on Connecticut Form H-13, you will see that sales tax is calculated on net purchase price, which is defined as invoice price less trade-in allowance. It may seem illogical, but the rebate isn't treated as a reduction in the purchase price. It is treated like a cash payment -- a separate transaction -- to the buyer even though that may not directly relate to the actual flow of the transaction.

DanielleCPA :

However, if the $750 is not a rebate and is simply a reduction in the purchase price as part of your negotiations with the dealer, then you should not pay tax on it.

DanielleCPA :

I know it may seem illogical since they are giving you the rebate off the top, but think about mail-in rebates. If you went to an appliance store and purchased a stove for $1,000 and received a 10% mail-in rebate, you would pay tax in the store on $1,000 and receive a check in the mail for $100. The state is still viewing your rebate similarly to the two separate transactions in this example.

DanielleCPA :

I am sorry that I could not deliver better news. If you have any follow-up questions, please do not hesitate to ask and I will gladly assist you. If not, then please accept this answer with a positive rating. I hope you have a wonderful day and enjoy your new vehicle!

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