Are manufacturer cash rebates on a new motor vehicle exempt from Kansas sales and use tax?

Plain-English summary

Kansas Notice 18-02 explains a temporary sales and use tax exemption for manufacturer cash rebates on new motor vehicles, created by House Bill 2111 (2018).

The exemption. Effective July 1, 2018 through June 30, 2021, a cash rebate a manufacturer grants to the purchaser or lessee of a new motor vehicle is not subject to Kansas retailers' sales or compensating use tax if it is paid directly to the retailer as a result of the original sale. HB 2111, Section 1, amended K.S.A. 79-3602(ll) -- the definition of "sales or selling price" -- to exclude these rebates.

Which vehicles qualify. The vehicle must be a "motor vehicle" as defined by K.S.A. 8-126 -- passenger vehicles, trucks, motorcycles, and motorhomes. Manufacturer rebates on trailers and non-highway vehicles remain taxable, including motorized bicycles, all-terrain vehicles, work-site vehicles, and anything not self-propelled or not licensed for highway use.

The bill-of-sale presumption. If the bill of sale shows a deduction for the manufacturer's cash rebate, it is presumed the rebate was paid directly from the manufacturer to the retailer and is exempt. If the bill of sale does not show the deduction, the rebate is presumed not paid directly and is taxable.

Attached items. Rebates on tangible personal property attached to the vehicle -- running boards, brush guards, trailer hitches, and the like -- are exempt only if they are shown on the bill of sale and paid directly to the dealer; otherwise they are taxable.

Timing and reporting. The sale must occur between July 1, 2018 and June 30, 2021, regardless of when the title is applied for. Dealers report a qualifying rebate as part of "gross receipts" and then take a deduction on Part II, line N, "Other allowable deductions."

What this means for you

Motor vehicle dealers

• A manufacturer cash rebate paid directly to you on a qualifying new motor vehicle (sold July 1, 2018 -- June 30, 2021) is exempt; show it on the bill of sale.
• Report the rebate in gross receipts, then deduct it on Part II, line N.

Buyers and lessees of new vehicles

• You aren't charged Kansas sales or use tax on a qualifying manufacturer cash rebate paid directly to the dealer during the exemption window.

Trailer, ATV, and non-highway vehicle buyers

• Manufacturer rebates on these remain taxable and stay part of the retailer's taxable gross receipts.

Common questions

How long does the exemption last? From July 1, 2018 through June 30, 2021.

What makes the rebate exempt? It must be a manufacturer cash rebate on a qualifying new motor vehicle, paid directly to the retailer as a result of the original sale.

How is it proven? A deduction shown on the bill of sale is presumed to be a direct-to-retailer, exempt rebate; if it isn't shown, the rebate is presumed taxable.

Do rebates on trailers or ATVs qualify? No -- rebates on trailers and non-highway vehicles remain taxable.

Citations and references

• House Bill 2111 (2018), Section 1 -- amended K.S.A. 79-3602(ll) to exclude qualifying manufacturer cash rebates from "sales or selling price."
• K.S.A. 8-126 -- definition of "motor vehicle" (passenger vehicles, trucks, motorcycles, motorhomes) that must be met for the exemption.
• Window: July 1, 2018 -- June 30, 2021; rebate must be paid directly to the retailer.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 18-02

Original ruling text

TAX POLICY DEPARTMENT OF REVENUE
109 SW 9th STREET PHONE: 785-368-8222
PO BOX 3506 FAX: 785-296-7928
TOPEKA, KS 66601-3506 www.ksrevenue.org
GOVERNOR JEFF COLYER, M.D.
SAMUEL M. WILLIAMS, SECRETARY

                                          NOTICE 18-02

SALES AND COMPENSATING USE TAX EXEMPTION ON MANUFACTURER CASH REBATES FOR
                 THE PURCHASE OR LEASE OF A MOTOR VEHICLE
                               (JULY 1, 2018)

During the 2018 Legislative Session House Bill 2111 was passed and signed into law. Section 1
of the Bill amends K.S.A. 79-3602 to provide that effective July 1, 2018, and ending June 30,
2021, cash rebates granted by a manufacturer to a purchaser or lessee of a new motor vehicle will
not be subject to Kansas retailers' sales or compensating use tax if paid directly to the retailer as a
result of the original sale.

K.S.A. 79-3602 provides definitions that are used for both Kansas sales and use tax purposes.
Section 1 of House Bill 2111 amends K.S.A. 79-3602(ll), the provision which defines "sales or
selling price". Specifically, the amended language now provides:

          (3) "Sales or selling price" shall not include:

          (E) commencing on July 1, 2018, and ending on June 30, 2021, cash rebates
    granted by a manufacturer to a purchaser or lessee of a new motor vehicle if paid
    directly to the retailer as a result of the original sale.

For a manufacturer's rebate to qualify for exemption from sales tax, the vehicle must qualify as a
"motor vehicle" as defined by K.S.A. 8-126. For purposes of the exemption, motor vehicles
include passenger vehicles, trucks, motorcycles, and motorhomes

To claim the sales tax exemption, the sale of the motor vehicle must occur between July 1, 2018
and June 30, 2021, regardless of the date the title is applied for.

If a deduction for a manufacturer's cash rebate is shown on the bill of sale it will be presumed the
manufacturer's cash rebate was paid directly from the manufacturer to the retailer, and that it is
exempt from sales tax. Conversely, if the bill of sale does not show a deduction for a
manufacturer's cash rebate it will be presumed the rebate was not paid directly from the
manufacturer to the retailer and that it is not exempt from sales tax.

Manufacturer's rebates for trailers and non-highway vehicles remain taxable. Motorized bicycles,
all-terrain vehicles, work-site vehicles, trailers, or any other vehicle that is not self-propelled or is
not licensed for highway use does not qualify. Therefore, manufacturer's rebates offered for the
purchase of these types of vehicles remain part of the retailer's gross receipts and are subject to
the retailers' sales or compensating use tax.

Additional manufacturer's rebates for items of tangible personal property that are attached to the
vehicle, such as running boards, brush guards, trailer hitches, etc. are exempt from tax if they are
shown on the bill of sale and are paid directly to the dealer. These rebates are subject to tax if they
are not shown on the bill of sale for the original purchase, or if paid directly to the purchaser.

Motor vehicle dealers, please note: To report transactions that include a tax exempt manufacturer's
cash rebate you will include the amount of the rebate as part of "gross receipts" and then report a
deduction on Part II, line N "Other allowable deductions".

                                   Taxpayer Assistance

Additional copies of this notice, forms or publications are available from our web site,
www.ksrevenue.org. If you have questions about this Notice, please contact:

                               Taxpayer Assistance Center
                              Kansas Department of Revenue
                                Topeka, KS 66612-1588
                                  Phone: 785-368-8222
                                   Fax: 785-291-3614