Was the federal Cash for Clunkers allowance included in the Kansas taxable price of a new vehicle?

Plain-English summary

Kansas excluded the federal Cash for Clunkers allowance from the taxable sales price of a qualifying new vehicle. Participating dealers provided a $3,500 or $4,500 allowance for an eligible trade-in and received a federal voucher.

The Department treated the customer allowance as a trade-in allowance. It therefore was not subject to Kansas retailers' sales tax or compensating use tax and was not part of the new vehicle's sales price.

What this means for you

For qualifying CARS transactions, calculate Kansas tax after excluding the $3,500 or $4,500 federal allowance. The notice does not address unrelated dealer discounts.

Subject

Cash for Clunkers Allowance Excluded from Sales Price

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 09-10

Original ruling text

Kansas Department of Revenue
Office of Policy and Research

                              Notice 09-10

                       Cash for Clunkers a/k/a
                Car Allowance Rebate System (CARS)

Recent federal legislation provides either a guaranteed $3,500 or $4,500 trade-in
allowance for certain qualifying motor vehicles traded-in on the purchase of
certain qualifying new motor vehicles between July 1, 2009 and November 1,
2009. The new vehicle must meet certain criteria, including a higher mile per
gallon (mpg) rating than the trade-in vehicle. For example, if someone owns a
vehicle with a value of $1,000 and wants to trade it in on the purchase of a new
motor vehicle that has the required higher mpg – a participating motor vehicle
dealer will allow either a $3,500 or $4,500 trade-in allowance for the “clunker”
toward the purchase of a new motor vehicle. The federal government will issue
the motor vehicle dealer a voucher for either $3,500 or $4,500 and the “clunker”
must be transferred to a salvage dealer who must destroy the “clunker”. For
more information about this program go to: www.cars.gov

The Kansas Department of Revenue will treat the $3500 or $4500 trade-in
allowance that the customer receives from the dealer participating in CARS on
the purchase of a new qualifying vehicle as a "trade-in” allowance for Kansas
sales tax purposes. Thus, the $3500 or $4500 allowance would not be subject to
Kansas retailers’ sales or Kansas compensating use tax and would not be part of
the "sales price" for the new vehicle when calculating the sales tax due.

Taxpayer Assistance
Additional copies of this notice, forms or publications are available from our web
site, www.ksrevenue.org. If you have questions, please contact:

                     Taxpayer Assistance Center
                    Kansas Department of Revenue
                    915 SW Harrison St., 1st Floor
                       Topeka, KS 66612-1588
                        Phone: 785-368-8222
                         Fax: 785-291-3614