What is the deal with car pricing and cash back?

[Malachi151]

Sad to admit that I am a used car dealer myself and I don't know this, but I just have an on the side business and I dont' deal in new cars.

So anyway, when you buya new car. You pay tax on the "full price", but they give bonuses so that the car is often $1,000 to $5,000 less than the "offical" price.

Why? Why do they do it that way instead of knocking the price off the top?

Its something to do with accounting I am sure.

I know that on the books the car is the "real price" but the bonuses apply and you pay less. Yet, you still pay tax on the "real price".

I really don't know what is behind all this, but I'm sure its something. I smell a rat ;) just kidding, but really I am curious if anyone knows the anwser.

I sure it has someting to do with how profits are reported and corporate taxes and whatnot.

[a_unique_person]

I think it is to do with not affecting the resalers turnover. The manufacturer is going to lose out either way, but by selling the car for the original listed price, the dealer still gets the original turnover.

[The Central Scrutinizer]

Originally posted by Malachi151
I know that on the books the car is the "real price" but the bonuses apply and you pay less. Yet, you still pay tax on the "real price".


I don't know about where you live, but in Missouri you pay sales tax on the purchase price. The sticker price is irrelevant.

[a_unique_person]

Originally posted by The Central Scrutinizer


I don't know about where you live, but in Missouri you pay sales tax on the purchase price. The sticker price is irrelevant.

I think that's the same everywhere. What is the point is that the sale price is what the tax is paid on. The rebate does not reduce the tax, as it has nothing to do with the purchase price.

[Malachi151]

Right, what is the deal with the rebates.

Say they are offering a $2,000 "rebate"

You negotiate a price to pay for the car of $20,000.

On the paper work it reads $22,000 purchase price with a $2,000 rebate.

You pay tax on $22,000.

Now, the part about how much tax you pay has no beenfit for the car company, but there must be some other reason why they do it that way instead of just saying that they will give you $2,000 off the price. Why rebates instead of just lowering the price? There has to be some reason. I'm sure that some paper pusher somewhere has found some kind of loophole that is being taken advantage of.

[a_unique_person]

Originally posted by Malachi151
Right, what is the deal with the rebates.

Say they are offering a $2,000 "rebate"

You negotiate a price to pay for the car of $20,000.

On the paper work it reads $22,000 purchase price with a $2,000 rebate.

You pay tax on $22,000.

Now, the part about how much tax you pay has no beenfit for the car company, but there must be some other reason why they do it that way instead of just saying that they will give you $2,000 off the price. Why rebates instead of just lowering the price? There has to be some reason. I'm sure that some paper pusher somewhere has found some kind of loophole that is being taken advantage of.

The dealer gets to post 22,000 to his turnover, rather than 20,000. Turnover counts for a lot for a business in terms of it being evaluated by banks for loans, for example.

[WildCat]

Usually the rebate is in lieu of special financing, get the rebate or special 1.9% financing for example. Manufacturer makes about the same regardless of what you choose (since they usually finance the car anyway, $ lost on the rebate is made up by the financial branch of the manufacturer), it's just a way of clearing out excess inventory.

[The Central Scrutinizer]

Originally posted by Malachi151
Right, what is the deal with the rebates.

Say they are offering a $2,000 "rebate"

You negotiate a price to pay for the car of $20,000.

On the paper work it reads $22,000 purchase price with a $2,000 rebate.

You pay tax on $22,000.

Now, the part about how much tax you pay has no beenfit for the car company, but there must be some other reason why they do it that way instead of just saying that they will give you $2,000 off the price. Why rebates instead of just lowering the price? There has to be some reason. I'm sure that some paper pusher somewhere has found some kind of loophole that is being taken advantage of.

Oh, sorry, I think I just didn't follow your example. I will read more carefully next time. And I won't drink before logging on.