By: Judith Lohman, Chief Analyst
You asked for a comparison of how Connecticut and selected other states assess sales tax when a purchase involves use of a manufacturer ‘ s rebate.
A survey of the tax department websites of seven surrounding states found that all but one have the same policy as Connecticut for assessing sales tax on purchases involving manufacturer ‘ s rebates. States that have policies like Connecticut ‘ s are: Maine, Maryland, New Jersey, New York, Pennsylvania, and Rhode Island. Only Massachusetts has a different policy for figuring taxes when the sale includes a manufacturer ‘ s rebate on the purchase of a motor vehicle.
Connecticut and six of the states require retailers to collect sales tax on the full price when they sell any item of taxable property or services that includes a manufacturer ‘ s coupon or rebate, even if the customer receives the value of the rebate at the time of the sale. For example, when a manufacturer offers a cash rebate to purchasers of a particular car, the customer frequently assigns the rebate to the dealer to reduce his downpayment. But the dealer nevertheless receives the full price for the car. Thus, in Connecticut and six of the other states we surveyed, he must use that full price to figure the sales tax on the transaction.
Only Massachusetts departs from this policy in that situation. Like all the states surveyed, Massachusetts requires vendors to collect sales tax on the full price of any taxable item for which the customer receives a manufacturer ‘ s rebate after the sale, such as through a mail-in rebate program. But when the customer receives the value of the manufacturer ‘ s rebate at the time of the sale, Massachusetts treats the rebate as a discount and excludes it from the taxable price.
For example, a dealer sells a car for $18,000 to a customer who will receive a $2,000 rebate from the manufacturer. The customer assigns his right to the rebate to the dealer as part of his downpayment. In Connecticut and six of the other states, the state sales tax is assessed on the full $18,000 price of the car. But, in Massachusetts, the dealer could deduct the $2,000 rebate before figuring the sales tax. Under Connecticut ‘ s current policy the sales tax would be $1,080 (6% of $18,000). If the Massachusetts policy applied in Connecticut, the tax would be $960 (6% of $16,000).