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

Plain-English summary

Kansas Notice 24-01 explains that 2022 Senate Substitute for House Bill 2239 made permanent an exclusion that keeps certain manufacturer cash rebates out of the taxable price of a new vehicle. The change amended the definition of "sales or selling price" in K.S.A. 79-3602(ll)(3)(E).

Since July 1, 2018, a cash rebate a manufacturer grants to the buyer or lessee of a new motor vehicle is excluded from the vehicle's sales or selling price -- so no sales or compensating use tax applies to it -- if the rebate is paid directly to the retailer as a result of the original sale. That exclusion had been scheduled to end on June 30, 2024. The amendment removes all the dates, so the exclusion does not expire.

The vehicle must qualify as a "motor vehicle" under K.S.A. 8-126. For this exemption, motor vehicles include passenger vehicles, trucks, motorcycles, and motorhomes. Rebates on trailers, non-highway vehicles, motorized bicycles, all-terrain vehicles, work-site vehicles, and anything not self-propelled or not licensed for highway use remain part of the retailer's gross receipts and are taxable.

What this means for you

Buyers and lessees of new vehicles

• A manufacturer's cash rebate paid directly to the dealer is not part of the taxable price of your new car, truck, motorcycle, or motorhome.
• For the rebate to be treated as exempt, it must be shown as a deduction on the bill of sale. If it is shown, the Department presumes it was paid directly by the manufacturer and is exempt; if it is not shown, the Department presumes it is taxable.
• Rebates for extra items attached to the vehicle (running boards, brush guards, trailer hitches, and the like) are exempt only if they are shown on the original bill of sale and paid directly to the dealer -- otherwise they are taxable.

Motor vehicle dealers

• To report a transaction that includes a tax-exempt manufacturer's cash rebate, include the rebate amount in the "Gross Sales" column on Part III of the Kansas sales tax return (ST-36), then report the rebate as a deduction on Part II, line N, "Other allowable deductions."
• Rebates on trailers and non-highway vehicles stay taxable.

Common questions

Is a manufacturer's cash rebate on a new car taxable in Kansas? No, if it is paid directly to the dealer and shown on the bill of sale. Only the amount after the rebate is taxed.

Did this exemption expire in 2024? No. It was scheduled to sunset June 30, 2024, but 2022 Senate Substitute for House Bill 2239 removed the sunset, so it is permanent.

Which vehicles qualify? Motor vehicles under K.S.A. 8-126 -- passenger vehicles, trucks, motorcycles, and motorhomes. Trailers, ATVs, motorized bicycles, work-site vehicles, and other non-highway vehicles do not.

What about rebates on add-on items? Rebates on items attached to the vehicle are exempt only if shown on the original bill of sale and paid directly to the dealer.

Citations and references

• Senate Substitute for House Bill 2239 (2022) -- removed the sunset on the manufacturer cash rebate exclusion.
• K.S.A. 79-3602(ll)(3)(E) -- excludes manufacturer cash rebates paid directly to the retailer from the sales or selling price of a new motor vehicle.
• K.S.A. 8-126 -- the "motor vehicle" definition that determines which vehicles qualify.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 24-01

Original ruling text

Policy and Research
109 SW 9th Street
Phone: 785-368-8222
PO Box 3506
Fax: 785-296-1279
Topeka KS 66601-3506
www.ksrevenue.gov
Mark A. Burghart, Secretary
Laura Kelly, Governor

NOTICE 24-01

Sales and Compensating Use Tax Exemption On Manufacturer Cash Rebates for the Purchase of a Motor Vehicle

(JUNE 5, 2024)

During the 2022 Legislative Session, Senate Substitute for House Bill 2239 was passed and signed into law. The bill amended the definition of "sales or selling price" found in K.S.A. 79- 3602(ll)(3)(E), to remove the sunset provision for the exclusion of certain cash rebates granted by a manufacturer from the sales or selling price of a vehicle.

Prior to amendment, K.S.A. 79-3602(ll)(3)(E) provided that, commencing on July 1, 2018, and ending on June 30, 2024, cash rebates granted by a manufacturer to a purchaser or lessee of a new motor vehicle shall not be included in the sales or selling price of the vehicle if the cash rebates are paid directly to the retailer as a result of the original sale.

The amendment made by the Bill removes any dates related to the exclusion, which means the exclusion will not expire.

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.

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 for the original purchase of the motor vehicle 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 of the motor vehicle, 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 on Part III of your Kansas sales tax return, under the column labeled "Gross Sales" and then report the amount of the rebate as a deduction on Part II, line N "Other allowable deductions", of the ST-36.

TAXPAYER ASSISTANCE

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

Taxpayer Assistance Center
Kansas Department of Revenue
Scott Office Building, 1st Floor
120 SE 10th Ave
P. O. Box 3506
Topeka, KS 66601-3506
Phone: 785-368-8222
Fax: 785-291-3614