2011 Legislative Preview: HB 1012

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Bill Name: AN ACT TO EXEMPT SALES AND USE TAX ON THE MANUFACTURER’S OR DEALER’S REBATE OF A MOTOR VEHICLE

Sponsors: Garry L. Smith (D-7), 870-574-1792.

Purpose: And I quote: “The gross receipts or gross proceeds derived from a manufacturer’s or dealer’s rebate on a motor vehicle is [sic] exempt from the gross receipts tax levied by this chapter and the compensating use tax levied by the Arkansas Compensating Tax Act of 1949, § 26-53-101 et seq.”  I have to say, though, that this bill is somewhat confusing inasmuch as manufacturer’s rebates and dealer’s rebates are not the same animal.  The former is generally paid to the dealer in the expectation that the dealer will pass on a lower car cost to the consumer; the latter is an amount rebated to the consumer from the dealer.  The former basically guarantees that a dealer will not lose any money by selling a car more cheaply; the latter means that he will.

Because it refers to “gross receipts or gross proceeds” that the dealer receives, I assume this bill is aimed (albeit poorly) at the manufacturer’s rebate, and the goal is to exempt money received by the dealer from the manufacturer from the 3% Gross Receipts Tax (A.C.A. 26-52-101, et seq.) and the 3% Compensation or Use Tax (A.C.A. 26-53-101, et seq.).

Pros for Average Arkansans:  Nada mucho, cabron.  I suppose a dealer would be more likely to pass along the manufacturer’s rebate if he knew that he would not be subjected to these taxes, but there is no guarantee of this, and such an argument feels a lot like trickle-down theory.  Look at it this way: if he can get the sticker price PLUS the rebate (sans taxes), he comes out ahead relative to getting sticker price less rebate plus rebate (sans taxes).  There’s only incentive pass the rebate along if he cannot sell the car without giving it up.

Cons for Average Arkansans: Reduction in state revenue that is dedicated to some worthwhile purposes.  Ark. Code Ann. 26-52-102 defines the purposes of the tax as to provide:

(1) Relief of the common schools;
(2) Funds to buy free textbooks for the first eight (8) grades thereof;
(3) Funds for state charitable institutions;
(4) Funds for circulating library service in connection with the public schools and funds to take the place of homestead exemptions;
(5) For the wards of the state who will receive support through the Department of Human Services; and
(6) For worthy causes.

This bill would cut into that money even where the dealer did pass along the savings to the car buyer (i.e. the dealer who receives $10,000 from a buyer pays more than the dealer who receives $8,000 from a buyer and $2,000 in a manufacturer’s rebate).  Couple this loss with the less-than-certain nature of any real savings for consumers and this bill seems more like a favor to some car dealers than a measure in the best interests of the state.

Official BHR Position: Strongly oppose as bad policy.