Cash for Clunkers Vouchers Taxable to Auto Dealers

The IRS has clarified that the vouchers provided to new car purchasers under the "Cash for Clunkers" program are income to the auto dealer. The vouchers represent part of the cost of the vehicle and must be included in the dealership’s gross income.

In a typical dealership transaction, a customer may pay for the vehicle in cash, finance the full vehicle price, or finance something less than the full selling price after the application of a cash down payment or a trade-in vehicle allowance. A dealership’s gross receipts include the full selling price of the vehicle, regardless of the form of the customer’s payment. In addition, to the extent the dealership receives any scrap value for the customer’s trade-in, that scrap amount is includible in the dealership’s income.

The credit and ultimate payment by the National Highway Traffic Safety Administration (NHTSA) to the dealership under the CARS program is includible in the dealership’s gross receipts from the sale of the vehicle. The dealership must include this income in the year the vehicle is sold.