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GM expands employee discount; be aware of Ill. sales tax implications

November 22, 2010

By offering all customers the same discount that General Motors employees get, GM gives consumers nationwide thousands of dollars off the price of every 2005 car or truck except the Chevrolet Corvette. 

The new program, announced June 1, could help trim high inventories of cars and trucks. That particularly means full-size pickups and sport utility vehicles, sales of which have suffered due to record high gasoline prices, dealers said.

 

GM executives have said in recent months that they hope to back away from offering large incentives on their vehicles, which analysts said has weakened the strength of some GM brands and hurt the trade-in value of GM vehicles. 

With the new program, GM appears to be returning to the tried and true model of keeping incentive programs simple and compelling, the same formula that helped spark sales shortly after the Sept. 11 attacks. And GM dealers generally welcome the program.

 

But Illinois dealers must remember to determine any tax due based on the sale amount, before the discount. 

The Illinois Revenue Department has ruled that money reimbursed by a manufacturer to a dealer in most cases may not be subtracted from the selling price to figure sales tax. Rather, the tax must be calculated on all amounts the dealer receives as gross receipts toward the sale.

 

For example, if a dealer sells a car for $20,000, it does not matter whether the customer paid $20,000 or whether the customer paid $18,000 and the manufacturer paid $2,000 to the dealer as part of some type of program. In either case, the dealer’s gross receipts from the vehicle sale are $20,000, and that is the amount subject to tax. 

Revenue department auditors regularly rule that dealers who report sales tax based on the selling price minus a manufacturer’s rebate or other reimbursements on a specific vehicle would face additional tax, penalty and interest on the amount of the rebate—for each transaction uncovered.

 

David Healy, an automotive analyst with Burnham Securities, commended GM’s new incentive program as "simple," compared to previous, "complicated" programs.

 

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