House Passes Bill to Prolong 'Cash for Clunkers'

The U.S. House of Representatives passed a bill Friday afternoon to give the popular, week-old Car Allowance Rebate System (CARS) program, or “Cash for Clunkers”, an additional $2 billion.  The program, which provides credits for the owners of old gas guzzlers to purchase newer, more fuel-efficient cars, had almost run through its initial $1 billion allotment.

Today’s congressional action would give the CARS program a chance to continue through its November 1 expiration date.

The money will come from funds in the already-passed economic stimulus package that were intended for energy loan guarantees. Congress will seek to replenish the energy program at a later date.

“If you were planning on going to buy a car this weekend, using this program, this program continues to run,” White House press secretary Robert Gibbs said Friday. “If you meet the requirements of the program, the certificates will be honored.”

Senate leaders hope to bring the bill up next week. Conservatives who opposed both the original cash for clunkers program and the stimulus package as a whole may seek to slow the process, as might liberals who want the program’s mileage standards to be revised upwards.

Two members of the Michigan congressional delegation said the administration had told them it would continue to honor exchanges made under the program “until further notice.”

Lawmakers also want problems fixed in the way the program has been administered and and to ensure auto dealers are being reimbursed in a timely fashion. Technical glitches have made it difficult for the administration to know exactly how many exchanges have taken place and how much money has been paid out to date.

Previous Tax Topics entries about the CARS program:


Revenue Information Bulletin 09-018: 'Federal Cash for Clunkers Program'

Revenue Information Bulletin No. 09-018
July 28, 2009
Sales Tax

Computation of the State Sales Tax on Vehicle Transactions under the Federal “Cash for Clunkers” Program

On June 24, 2009 President Obama signed into law the Consumer Assistance to Recycle and Save (CARS) Act of 2009. This act establishes the “Cash for Clunkers” program, under which the United States Government will provide $3,500 or $4,500 to offset the purchase or lease price of a more fuel efficient vehicle upon the trade-in of an eligible vehicle.

The program requires that, in order for consumers to receive the monetary credit toward the purchase or lease of eligible new fuel-efficient vehicles, they must surrender their old, less fuel-efficient vehicles. The payments to consumers on vehicle purchases under this program will be treated as dealer allowances for vehicle trade-ins on the purchase of new vehicles and are not subject to the state sales tax.

An example is as follows:


 Sales Price of Vehicle




 Less: Federal Program Payment




 Amount Subject to State Sales Tax



Under the state sales tax law, qualified vehicle lessors who acquire vehicles for leasing under this program will not be required to pay sales taxes on their acquisitions of the vehicles. The federal payments that are applied to consumer leases as capitalized cost reductions will be considered as taxable “gross proceeds” from leasing and renting.

Questions concerning this matter can be directed to the Department of Revenue’s Taxpayer Services Division at 225.219.7356.