That example is for a purchase. On leases, in most states, you are taxed on the monthly payment. States also tax rebates and any down payments, but they do not tax dealer discounts.
Actually, as I stated previously, this is wrong. I wish that people in general did not reference/cite to things not written by tax professionals and that just go off of articles on websites.
I asked to see a deal sheet to see what is going on, and nothing was ever posted.
Arizona clearly DOES NOT tax this amount, but this is ONLY if the rebate is assigned to the dealer:
In computing the tax base, any city, town or other taxing jurisdiction shall not include in the gross proceeds of sales or gross income:
A manufacturerâs cash rebate on the sales price of a motor vehicle if the buyer assigns the buyerâs right in the rebate to the retailer.
See: Ariz. Rev. Stat. Ann. § 42-6004(E) and Ariz. Rev. Stat. Ann. § 42-5061(L)(1).
Itâs just not as clear-cut as throwing it into a general chart.
I appreciate where you are coming from and your intention. At the same time it sounds like you need to take a step back and realize that the common lay people are not tax professionals, and canât expect them to only cite tax code. Even if we were to find it, the jargon used makes it more confusing:
What does that even mean? What is assigning the buyerâs right? What qualifies as a ârebateâ? Does this apply to the dealer simply discounting the MSRP before other rebates/incentives from Volvo for example?
It means instead of you purchasing/leasing the vehicle and then receiving the rebate from the manufacturer, the dealer credits you the amount of the rebate during the sale and then receives the rebate on your behalf to reimburse them.
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Thank you @B5RT. In this example, letâs say a car has an MSRP of 60k.
MSRP 60k
Dealer lowers selling price to 55k
Volvo Incentive of 5k
Final price of 50k. Of that 10k difference, what should be taxed?
Maybe none, maybe $5,000. If the rebate is assigned to the dealer, then itâs not taxed.
For the standard incentives, I would expect the $5k from volvo to be taxed.
Yes, but AZ has that quirk that it can be âassigned to the dealer,â so they actually may not be taxed.
What does âassigned to the dealerâ mean in this context though?
I could see how the $3000 incentive on loaners are assigned to the dealer, or the huge incentives that Acura is doing on the MDX/TLX, as those all go straight to the dealer and get captured in a larger dealer discount than as a line item on a rebate.
I suppose I have seen deal sheets where things like loyalty are captured as a separate line item and are treated as essentially a cap cost reduction vs others that get baked into the sales price.
On a side note, presuming this tax should not have been added by the dealer according to the above tax code - how are they allowed to get away with this on unsuspecting customers? How is that not illegal?
Right, thatâs part of it. From what I understand about similar assignments (again, Iâm not in AZ, not licensed there, etc., so Iâm not 100% familiar with the way it works), but itâs pretty much a formality, and in preparing the lease, the dealer has the cash, rather than it being keyed as âcustomer cashâ or something similar. It could just be keyed as a cap reduction, as you mentioned, and it mirrors a discount in terms of taxation (in that itâs not taxed).
From what was posted, it sounds like none of it is taxable in AZ. Here in CT, if the money is defined as a rebate, we get taxed on the price before the rebate is deducted. It doesnât matter if it is a car or a toaster, or whether we get the value immediately at purchase or after. All the other nearby states where Iâve bought cars are the same, except for MA (unless itâs changed). There, they have an exception similar to the one in AZ. If you get the value of the rebate at the time of the transaction and not afterwards, itâs a non-taxable discount.
The dealer cannot charge fake taxes. Thatâs why @AP919 has been asking you to post the dealerâs lease worksheet.
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Yup, thatâs exactly what I said a week ago. If there is something like a coupon that discounts the selling price of goods (a/k/a tangible personal property), itâll be taxable on the amount before the discount.
I will post the sheet once I get it.
Yeah. Its just speculation otherwise. We need to see what is actually being taxed, and at what rate.
Iâd think $1,000 would be taxed since itâs listed as âLease Bonus Dealer Cashâ. 5k is Volvo allowance, so itâs customer facing. But I donât know exactly how it works.
Edit: I switched it around, I think 
Iâm not sure what makes an incentive a rebate and what makes a discount, and it probably varies by state. I would think the argument could be made the âdealer cashâ is money paid to the dealer, which allows them to discount the price of the car further without hurting their margin and is pre-tax. If it was customer cash, thatâs money that is going to the customer that theyâre then applying toward the sale price, and would be post-tax.