Cash for Clunkers and Sales Tax

Cash for clunkers (c4c as some dealers are calling it) has been a great success.  Forget that it has caused 250,000 individuals to go into debt by an additional $3.5 billion and that it has created a nightmare for car dealers who now have to fight with the federal government to get their money.  At the end of the day, I'm guessing that many a dealer will get stuck for part of all of the c4c payment. 

That aside, what are the state sales tax implications of the c4c payment.  Is the payments a price discount (store coupon) or is it a rebate (manufacture coupon).  In most states, rebates are considered part of the purchase price and are subject to sales tax.  Just as a manufacture's coupon is usually treated as taxable receipts when we give them to the grocery store and where the state taxes groceries.  In most states, the tax is due on the gross receipts received by the dealer regardless of the form those payments take.  With the c4c payments going to the dealer from the government, they may be considered taxable by many states.  A $4500 c4c payment would have $315 of sales tax at a 7% tax rate while a trade-in of $4500 would have no sales tax cost because it would be treated as a price discount. 

If the c4c payment is treated as a price discount (which I'm not sure how it could be), there would be no additional sales tax due on the payment.  Actually, I see the state of Mississippi is treating the c4c payment as a discount and imposing sales tax only on the after c4c payment.  In this case, the state is losing $315 per car sale in sales tax. 

With an estimated 250,000 cars sold under the c4c procedure, there is about $79,000,000 of sales tax in play (either received or missed) depending on how the state treats these payments. 


Any insights are appreciated.