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Pricing hijinx?
Ok, got a question for those in the know. Went to test drive a Durango RT today (awesome btw), but afterward, the numbers didn't come out to what i expected. I'm in Michigan. They're currently offering $2500 in incentives at this dealer. We also have employee pricing.
Invoice price came to $44,007 as expected. However, considering employee pricing, sales tax, and the incentives noted above, the car came to (estimated) $45,000. That didn't seem right to me so he walked me through the math.
EP + $2500 rebate
then add 6% sales tax to that number
then subtract $2500 rebate.
That didn't seem right either. My understanding is the math should look something like this:
EP price  $2500 rebate
then add 6% sales tax.
At the very least, should be
EP price + 6% tax, then subtract rebates.
Anyone know which one is correct? The way he did it just didn't seem correct (add the rebate, tax that amount, then subtract rebate). That means you're getting taxed on the rebate/incentive. The difference is substantial (about $2000) so it's not exactly chump change.
That math, and the fact that he couldn't show me the EP until after placing the order, made me uncomfortable so i walked.
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11292013, 09:28 PM

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I got an R/T with FFP pricing. Cars sticker was around $49,300 and I ended up getting it to about 45k+ tax.
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11292013, 10:59 PM


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Rebates are taxed
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11302013, 03:28 AM

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Rebates are taxable. The dealer math is correct in the end but I can see why it would be confusing. The real formula is:
EP + .06 x ( EP + 2500 ) = price
The .06 x ( EP + 2500 ) gives you the 6% sales tax on the EP and the 2500 rebate. To show you it works out the same, let's use a nice round number for the EP...say, 10000. Using this formula, you get:
10000 + .06 x ( 1000 + 2500 ) = 10750.
Now let's do it the way the dealer described it:
10000 + 2500 = 12500
Adding 6% of 12500 (which is 750) gives 13250
Subtracting 2500 gives 10750
Plug in your numbers and you'll see it comes out the same and is the correct price.
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11302013, 06:03 AM

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Quote:
Originally Posted by Peter_K
Rebates are taxable. The dealer math is correct in the end but I can see why it would be confusing. The real formula is:
EP + .06 x ( EP + 2500 ) = price
The .06 x ( EP + 2500 ) gives you the 6% sales tax on the EP and the 2500 rebate. To show you it works out the same, let's use a nice round number for the EP...say, 10000. Using this formula, you get:
10000 + .06 x ( 1000 + 2500 ) = 10750.
Now let's do it the way the dealer described it:
10000 + 2500 = 12500
Adding 6% of 12500 (which is 750) gives 13250
Subtracting 2500 gives 10750
Plug in your numbers and you'll see it comes out the same and is the correct price.

If that's true though, then it's best to say no to the rebate then.
example: $10,000 + 6% = $10,600
or with rebate: $12,500 + 6%  $2500 = $10,750
So it makes no sense to use the rebate. My understanding is that rebates are like down payments and the taxable amount is the price prerebate only to take the rebate off of that number.
This is what the state says. Granted it's old, but perhaps still current.
https://www.google.com/url?sa=t&sour...JXQiUWjOnpwLTQ
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11302013, 09:18 AM

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Re: Pricing hijinx?
I just did this with a dealer yesterday. I am in Chicago so I don't know if it is different, but it goes price+ taxincentive. That way uncle Sam gets a smidge more.
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11302013, 11:00 AM

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Actually my math is off...never do math at 3:30am
The dealer is actually incorrect. The first equation I showed should have another 2500 subtracted off of it. It should be:
EP + .06 x ( EP + 2500 )  2500 = price
And that's not the same as the dealer's math. As someone pointed out, the dealers math effectively makes you get no rebate but pay more tax.
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11302013, 12:03 PM


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Also depends on the state sales tax on new cars for the state you live in.
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11302013, 12:18 PM


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Re: Pricing hijinx?
Quote:
Originally Posted by mcfarl58
If that's true though, then it's best to say no to the rebate then.
example: $10,000 + 6% = $10,600
or with rebate: $12,500 + 6%  $2500 = $10,750

As someone else pointed out, you still need to subtract out the rebate itself.
The math would be:
Employee Price + Tax on Employee Price + Tax on Rebate  Rebate = Final Cost:
10,000 + (6% * 10,000) + (6% * 2,500)  2,500 = Final. Cost
10,750  2500 =8,250.
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12022013, 09:27 AM


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Re: Pricing hijinx?
Definitely check the tax laws in your state.
In NJ, where JoeyD and I are located, rebates are taxable. His math is correct for our state.
Also of note, for anyone purchasing a car out of state, the tax must be calculated based on state of final registration, not state of purchase. We bought ours in MD and I had to go over the NJ tax rules with our dealer to make sure the calculations were correct.
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12022013, 09:42 AM

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Re: Pricing hijinx?
Quote:
Originally Posted by JoeyD
As someone else pointed out, you still need to subtract out the rebate itself.
The math would be:
Employee Price + Tax on Employee Price + Tax on Rebate  Rebate = Final Cost:
10,000 + (6% * 10,000) + (6% * 2,500)  2,500 = Final. Cost
10,750  2500 =8,250.

Right, even with that it's not the same as what the dealer did. The dealer added the tax to the EP + rebate price, then subtracted the rebate.
Dealer did this:
$10,000 + $2500 rebate + (taxes of 750) = $13,250
THEN subtracted the rebate = $10,750
Should be: $10,000 + 600 tax on EP + 150 tax on rebate  $2500 rebate for a price of $8250 like you said.
I thought his math was a little fuzzy.
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12062013, 06:54 AM


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Re: Pricing hijinx?
My... head... is hurting...
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