Did a federal Cash for Clunkers voucher reduce the South Carolina sales-tax base for a new vehicle?

Plain-English summary

The South Carolina Department of Revenue ruled that a federal Cash for Clunkers electronic voucher did not reduce the sales or use-tax base for a new vehicle. The dealer received part of the vehicle price from the consumer and $3,500 or $4,500 from the federal government, so both amounts formed gross proceeds or sales price.

The federal payment did not turn the transaction into an exempt sale to the United States. The consumer, not the federal government, purchased the vehicle; the program merely reimbursed the dealer for part of that consumer purchase.

The amount allowed for the old vehicle's salvage value was different. It was trade-in value and therefore excluded from the tax base. The ruling also applied the then-existing $300 maximum sales and use tax on a qualifying motor-vehicle sale or long-term written lease.

What this means for you

Historical vehicle transactions

For a 2009 program purchase, the federal voucher was treated like a third-party payment to the dealer, not a price discount that reduced taxable proceeds.

Dealers and tax preparers

Separate the voucher from the trade-in allowance. The former entered the tax base; the latter was excluded as secondhand property transferred in partial payment.

Current vehicle buyers

Do not use the ruling's $300 cap or Cash for Clunkers procedures for a present sale. The federal program ended in 2009, and South Carolina's vehicle-tax regime must be checked under current law.

Common questions

Q: Was the $3,500 or $4,500 voucher taxable?
A: Yes. It was part of the total amount the dealer received for the new vehicle.

Q: Did the federal-government exemption apply?
A: No. The consumer was the purchaser; federal reimbursement of the dealer did not make the United States the buyer.

Q: Was the old vehicle's salvage value taxed?
A: No. The ruling excluded the amount allowed for secondhand property transferred as a trade-in.

Q: What if the buyer paid sales tax to another state?
A: The ruling allowed credit against South Carolina use tax, with only any South Carolina difference remaining due.

Q: Is this program still active?
A: No. The ruling states that the federal program ended on August 24, 2009.

Citations and references

• S.C. Code §§ 12-36-910 and 12-36-90 (sales tax and gross proceeds)
• S.C. Code §§ 12-36-1310 and 12-36-130 (use tax, sales price, and credit for tax paid elsewhere)
• S.C. Code § 12-36-2110 (historical maximum motor-vehicle tax)
• S.C. Code § 12-36-2120(2) (sales to the federal government)
• Consumer Assistance to Recycle and Save Act of 2009, Pub. L. 111-32, Title XIII (federal program described)
• Meyers Arnold v. South Carolina Tax Commission, 285 S.C. 303, 328 S.E.2d 920 (1985) (amounts received with a sale included in gross proceeds)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR09-11.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P.O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org

SC REVENUE RULING #09-11

SUBJECT:

Federal “Car Assistance Rebate System”
(Sales and Use Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous advisory opinions and any oral directives in
conflict herewith.

REFERENCES:

S. C. Code Ann. Section 12-36-910(A) (2000)
S. C. Code Ann. Section 12-36-90 (2000; Supp. 2008)
S. C. Code Ann. Section 12-36-1310(A) (2000)
S. C. Code Ann. Section 12-36-130 (2000; Supp. 2008)
S. C. Code Ann. Section 12-36-2120(2) (2000)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2000)
S. C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #09-3

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the
public and to Department personnel. It is an advisory opinion
issued to apply principles of tax law to a set of facts or general
category of taxpayers. It is the Department’s position until
superseded or modified by a change in statute, regulation, court
decision, or another Departmental advisory opinion.

0B

Question:
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How does the use of a federal electronic voucher of $3,500.00 or $4,500.00 in purchasing
a new, fuel-efficient motor vehicle, as described in the facts, affect the measure of the
sales tax – “gross proceeds of sales” – and the measure of the use tax – “sales price?”

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Conclusion:1
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It is the department’s opinion that a federal electronic voucher of $3,500.00 or $4,500.00
used in the purchase of a new, more fuel-efficient motor vehicle is a part of the measure
of the sales tax – “gross proceeds of sales” – and the measure of the use tax – “sales price
and is subject to the sales and use tax. However, the maximum sales and use tax due on
the transaction cannot exceed $300.00.
In other words, if a new, fuel-efficient motor vehicle is sold by a retailer using a federal
electronic voucher of $3,500.00 or $4,500.00 as described in the facts, and the price
charged the consumer by the retailer is reduced by the amount of the federal electronic
voucher, then the total amount received by the retailer from the consumer and the federal
government is includable in “gross proceeds of sales” for sales tax purposes or “sales
price” for use tax purposes, and therefore, subject to the sales and use tax. However, the
total sales and use tax due on the sale of the new, fuel-efficient motor vehicle cannot
exceed $300.00.
Note: The amount allowed by the retailer for the salvage value of the motor vehicle that
is “traded in” as part of the sales transaction is not subject to the tax.
Note: If a South Carolina consumer travels to another state and purchases a new, fuelefficient motor vehicle from a retailer in the other state for use, storage or consumption in
South Carolina, the South Carolina consumer would only owe the use tax on the
difference between the sales tax paid in the other state (if any) and the use tax due in
South Carolina. In other words, if the state and local sales or use tax due and paid in
another state is equal to or greater than the state and local use tax due in South Carolina,
then no use tax is due in South Carolina. See Code Section 12-36-1310(C) and SC
Revenue Ruling #07-5.
Facts:
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The “Car Allowance Rebate System” is a new program administered by the National
Highway Traffic Safety Administration (“NHTSA”) that was authorized by Congress
under the Consumer Assistance to Recycle and Save Act of 2009. 2
FF

FF

If a transaction meets the requirements of the program, a federal electronic voucher of
either $3,500.00 or $4,500.00 is sent to the new car dealer and is used to assist a
consumer in the purchase of a new, more fuel-efficient motor vehicle when that consumer
is trading-in an older motor vehicle as part of the purchase transaction.
1

During the time period that a draft of this revenue ruling was published for public comments and
suggestions, the United States Department of Transportation announced that the Federal “Car Assistance
Rebate System” would end on August 24, 2009. It was, however, decided that this revenue ruling would
still be issued as an advisory opinion to make the public aware of the Department of Revenue’s position on
this matter and in case Congress decided to re-authorize the program.
2
The Consumer Assistance to Recycle and Save Act of 2009 is part (Title XIII) of the Supplemental Act,
Public Law 111-32, 123 Stat.1859.

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The following are some general requirements of the program (as noted on the NHTSA
website for the program):
(1) The trade-in vehicle must be less than 25 years old on the trade-in date.
(2) Only the purchase or lease of a new vehicle qualifies for the program.
(3) Generally, the trade-in vehicle must get 18 or less miles per gallon (some very
large pick-up trucks and cargo vans have different requirements).
(4) The trade-in vehicle must be registered and have been insured continuously
for the full year preceding the trade-in.
(5) The program runs through November 1, 2009 or when the funds are
exhausted, whichever comes first.
(6) The program requires the disposal of the eligible trade-in vehicle and that the
dealer disclose to the purchaser an estimate of the scrap value of the trade-in
vehicle. The scrap value, however minimal, will be in addition to the rebate, and
not in place of the rebate.
For more details on the requirements of this program, visit the website established by the
NHTSA for the “Car Allowance Rebate System” at http://www.cars.gov/.
HU

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Discussion:
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Code Section 12-36-910(A) imposes “a sales tax, equal to five percent 3 of gross proceeds
of sales, upon every person engaged ... within this State in the business of selling tangible
personal property at retail.”
FF

FF

Code Section 12-36-90 defines the term “gross proceeds of sales” and reads, in part:
Gross proceeds of sales, or any similar term, means the value proceeding
or accruing from the sale, lease, or rental of tangible personal property.
(1) The term includes:

(b) the proceeds from the sale of tangible personal property without any
deduction for:

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Code Section 12-36-1110 increased the general sales and use tax rate by 1% from 5% to 6%. However,
the 1% increase does not apply to the sale of items subject to the maximum tax provisions of Code Section
12-36-2110. As such, sales of motor vehicles to be licensed for use on the highways are taxed a rate of 5%;
however, the maximum tax due on the sale of the motor vehicle cannot exceed $300.00.

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(i)

the cost of goods sold;

(ii)

the cost of materials, labor, or service;

(iii) interest paid;
(iv) losses;
(v)

transportation costs;

(vi) manufacturers or importers excise taxes imposed by the United
States; or
(vii) any other expenses.
(2) The term does not include:
(a) a cash discount allowed and taken on sales;

(c) the value allowed for secondhand property transferred to the vendor as
a trade-in;

Code Section 12-36-1310(A) imposes the use tax at the rate of five percent 4 of the sales
price of the property “on the storage, use, or other consumption in this State of tangible
personal property purchased at retail for storage, use, or other consumption in this State.”
FF

FF

Code Section 12-36-130 defines the term “sales price” and reads:
"Sales price" means the total amount for which tangible personal property
is sold, without any deduction for the cost of the property sold, the cost of
the materials used, labor or service cost, interest paid, losses, or any other
expenses.
(1) The term includes:
(a) any services or transportation costs that are a part of the sale,
whether paid in money or otherwise; and
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Code Section 12-36-1110 increased the general sales and use tax rate by 1% from 5% to 6%. However,
the 1% increase does not apply to the sale of items subject to the maximum tax provisions of Code Section
12-36-2110. As such, sales of motor vehicles are taxed a rate of 5%; however, the maximum tax due on the
sale of a motor vehicle cannot exceed $300.00.

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(b) any manufacturers or importers excise tax imposed by the United
States.
(2) The term does not include:
(a) a cash discount allowed and taken on the sale;
(b) an amount charged for property, which is returned by the purchaser,
and the full amount is refunded in cash or by credit;
(c) the value allowed for secondhand property transferred to the vendor
in partial payment; and
(d) the amount of any tax imposed by the United States with respect to
retail sales, whether imposed upon the retailer or consumer, except for
manufacturers or importers excise taxes.
Opinion of the Attorney General S-OAG-45 (SC Department of Revenue Manual of
Regulations and Opinions of the Attorney General) concerns a manufacturer's rebate paid
to the purchaser, and reads in part:
There is nothing in the sales tax statutes or regulations permitting a seller
to deduct from his gross proceeds an amount paid by a third party to or for
the benefit of a purchaser, even though the purpose of the payment is to
reimburse the purchaser for a part of the purchase price.
Also, in Meyers Arnold v. South Carolina Tax Commission, 285 S.C. 303, 328 S.E. 2d.
920 (1985), the Court of Appeals, in interpreting the definition of “gross proceeds of
sales” with respect to lay away fees paid in conjunction with lay away sales, held:
Section 12-35-30 [now Section 12-36-90] defines gross proceeds of sales
as “the value proceeding or accruing from the sale of tangible personal
property ... without any deduction for service costs.” But for the lay away
sales, Meyers Arnold would not receive the lay away fees. The fees are
obviously rendered in making lay away sales. For these reasons, this court
holds the lay away fees are part of the gross proceeds of sales and subject
to the sales tax.
Furthermore, SC Revenue Ruling #99-9 provides guidance with respect to
manufacturer’s coupons, and concludes in part:
If a consumer purchases a product from a local retailer using a
manufacturer's coupon as described in the facts, and the price charged the
consumer by the retailer is reduced by the value assigned the coupon by
the manufacturer, then the total amount received by the retailer from the
consumer and the manufacturer is includable in “gross proceeds of sales,”

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and therefore, subject to the sales tax. For example, if an item normally
sells for $5.00 and the customer pays $4.00 and presents a manufacturer’s
coupon valued at $1.00, then the sales tax is based on $5.00 (“gross
proceeds of sale”) since the retailer receives $4.00 from the customer and
$1.00 from the manufacturer.
Based on the above, the amount received by the retailer from the federal government via
the electronic voucher under the “Car Assistance Rebate System” and the amount
received from the consumer are a part of “gross proceeds of sales” or “sales price” and
subject to the sales and use tax. However, any amount allowed for the salvage value of
the motor vehicle “traded- in” as part of the sale transaction is not a part of “gross
proceeds of sales” or “sales price” and not subject to the sales and use tax.
However, Code Section 12-36-2110(A) establishes a maximum tax for motor vehicles
and states in part:
The maximum tax imposed by this chapter is three hundred dollars for
each sale made after June 30, 1984, or lease executed after August 31,
1985, of each:

(2) motor vehicle;

In the case of a lease, the total tax rate required by law applies on each
payment until the total tax paid equals three hundred dollars. Nothing in
this section prohibits a taxpayer from paying the total tax due at the time
of execution of the lease, or with any payment under the lease. To qualify
for the tax limitation provided by this section, a lease must be in writing
and specifically state the term of, and remain in force for, a period in
excess of ninety continuous days.
Therefore, the maximum sales and use tax due with respect to a sale or lease (provided
the lease is in writing and states a term of, and remain in force for, a period in excess of
ninety continuous days) of a motor vehicle is $300.00.
Finally, one additional issue must be considered – does the use of the federal electronic
voucher in purchasing a new, fuel-efficient motor vehicle make the sale an exempt sale to
the federal government under Code Section 12-36-2120(2)?
Commission Decision #93-2 provides an analogous situation with respect to purchases
involving Medicare and Medicaid funds. In that decision, the commissioners held:
Section 12-36-2120(2) exempts sales to the federal government from sales
tax. According to the taxpayers, transactions involving medicare and

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medicaid funds are actually sales to the federal government and thus
exempt under this provision.
There are two reasons why this argument is incorrect. First, the federal
government is not the purchaser of the items in question. The mere fact
medicare or medicaid funds are involved is of no consequence. Stripped of
their highly regulated guidelines, these programs do nothing more than
reimburse the taxpayer for purchases made by the program's recipients.
As such, the federal government is not the purchaser of the new, fuel-efficient motor
vehicle and the federal “Car Assistance Rebate System” does nothing more than
reimburse the retailer (in part) for the purchase of a new, fuel-efficient motor vehicle
made by a consumer. Therefore, such sales are subject to the sales and use tax and not
exempt under the exemption for sales to the federal government found in Code Section
12-36-2120(2).
Based on the above, it is the department’s opinion that a federal electronic voucher of
$3,500.00 or $4,500.00 used in the purchase of a new, more fuel-efficient motor vehicle
is a part of the measure of the sales tax – “gross proceeds of sales” – and the measure of
the use tax – “sales price and is subject to the sales and use tax. However, the maximum
sales and use tax due on the transaction cannot exceed $300.00.
In other words, if a new, more fuel-efficient motor vehicle is sold by a retailer using a
federal electronic voucher of $3,500.00 or $4,500.00 as described in the facts, and the
price charged the consumer by the retailer is reduced by the amount of the electronic
voucher, then the total amount received by the retailer from the consumer and the federal
government is includable in “gross proceeds of sales” for sales tax purposes or “sales
price” for use tax purposes, and therefore, subject to the sales and use tax. However, the
total sales and use tax due on the sale of the new, fuel-efficient motor vehicle cannot
exceed $300.00.
Note: The amount allowed by the retailer for the salvage value of the motor vehicle that
is “traded in” as part of the sales transaction is not subject to the tax.
Note: If a South Carolina consumer travels to another state and purchases a new, fuelefficient motor vehicle from a retailer in the other state for use, storage or consumption in
South Carolina, the South Carolina consumer would only owe the use tax on the
difference between the sales tax paid in the other state (if any) and the use tax due in
South Carolina. In other words, if the state and local sales or use tax due and paid in
another state is equal to or greater than the state and local use tax due in South Carolina,
then no use tax is due in South Carolina. See Code Section 12-36-1310(C) and SC
Revenue Ruling #07-5.

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SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Ray N. Stevens
Ray N. Stevens, Director
August 25
, 2009
Columbia, South Carolina

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