June 19, 2002

You request a ruling on behalf of *************** and other General Motors automobile dealers ("Dealers") as to whether credits given to the retail purchaser or lessee of a General Motors automobile resulting from participation in a credit card program ("Program") marketed as the "GM Card" (the "Card") should be treated as a manufacturer's rebate within the meaning of 830 CMR 64H.1.4 (3). We conclude that these credits are a manufacturer's rebate within the meaning of that regulation, and that they are therefore excluded from the sales price or lease down payment (capitalized cost reduction) subject to sales or use tax.

Facts

The Card is a credit card that offers its holders the opportunity to earn credits that may be used toward the purchase or lease of General Motors vehicles. The Card is issued by Household Bank (SB), N.A. or by Household Bank (Nevada), (collectively, "Bank") under an agreement with General Motors ("Manufacturer").

The agreement provides that Bank is responsible for approving and administering accounts and issuing the Cards. The Manufacturer agrees to establish and administer a program whereby the cardholder will accumulate credits, calculated at 5% of eligible purchases made with the card. Eligible purchases are generally limited to $10,000 in spending per year, which could result in an annual credit of up to $500. The agreement provides for some further limitations on accumulation and redemption of credits, not relevant to this ruling, that are disclosed to the cardholder at the time the card is issued.

The agreement between Bank and Manufacturer specifically provides that Manufacturer will have the "sole responsibility for operation and administration" of the Program, "including the redemption cost of credits," and Bank or its affiliates "will not be obligated to pay credits to any Cardholder or any other person" who is allowed by Manufacturer to redeem credits. The agreement between Bank and Manufacturer further provides that the Program rules disclosed to the cardholder will state that Manufacturer "is solely responsible for the operation and administration of the GM Program and for credits granted pursuant thereto."

The Bank and the Manufacturer share revenue from the card and the fees paid from Bank to the Manufacturer are characterized as "compensation for performance obligations" under the agreement. [ Specific details of the revenue sharing arrangement between Bank and Manufacturer have been redacted.]

Discussion of Law

General Laws Chapter 64H, §1, defines the "sales price" of taxable tangible personal property as "the total amount paid by a purchaser to a vendor as consideration for a retail sale, valued in money or otherwise" excluding "cash discounts allowed and taken on sales." The Department's regulation on Discounts, Coupons and Rebates, 830 CMR 64H.1.4(3), as amended and effective May 1, 2000, defines a "rebate" as a "refund of an amount of money from a manufacturer of a product to the retail purchaser of the product." The regulation further provides, "(i)f a vendor sells tangible personal property to a customer who applies a manufacturer's rebate to reduce the sales price at the time of the sale, such manufacturer's rebate is generally treated like a cash discount and excluded from the sales price subject to tax."

Sales or use tax on motor vehicles is paid by the purchaser to the Registry of Motor Vehicles and is generally not collected by the Dealer making the sale. G.L. c. 64H, § 3(c). The Dealer is required to certify, on form RMV-1 (Application for Title and Registration), the gross sales price and adjustments for the manufacturer's excise and trade-in (where applicable). 830 CMR 64H.25.1 (4) (d) 1. The RMV-1 form and tax may be transmitted to the Registry by the retail purchaser, an employee of the Dealer, or electronically by certain dealers qualified under the "DRIVE" (Distributed Registration Information and Vehicle Entry) Program. 830 CMR 64H.25.1(4)(b)4.

With respect to leased vehicles, each period for which a lease payment is due is considered a completed retail sale for the purpose of imposition, collection, and payment of sales tax. 830 CMR 64H.25.1 (9) (a). The initial payment from the lessee at the time a lease contract is originated is called a "capitalized cost reduction" because it decreases the amount of the monthly payments subsequently due during the term of the lease. Capitalized cost reductions include cash down payments, trade-ins of other vehicles, and manufacturer's rebates paid to the dealer at the time the lease is signed. The dealer originating the lease is generally responsible for collecting and remitting sales tax on capitalized cost reductions. See DD 97-4. [1]

Conclusion

Manufacturer is solely responsible for the operation and administration of the Card program as well as payments to Dealers when a cardholder redeems credits accumulated under the Program for the retail purchase of a motor vehicle. Since the reduction in the sales price of the motor vehicle results from a payment that is directly controlled and made by Manufacturer, it is a manufacturer's rebate within the meaning of 830 CMR 64H.1.4(3) and is excluded from the sales price on the retail sale of a motor vehicle or excluded from the taxable capitalized cost reduction in the case of a leased vehicle.

Rulings

  1. Dealers that make sales of motor vehicles in which the retail purchaser redeems a credit resulting from participation in the Program should exclude the amount of that credit from the gross sales price reported on the RMV-1.

  2. Dealers originating leases of motor vehicles in which the lessee redeems a credit that resulted from participation in the Program should exclude the amount of that credit from the taxable capitalized cost reduction.

  3. If the vehicle was leased, the CA-6 may be filed by the Dealer, or the lessee, if the lessee has a power of attorney from the Dealer.

Very truly yours,

/s/Alan LeBovidge

Alan LeBovidge
Commissioner of Revenue

AL:DMS:ecl

LR 02-2



[1] Note that the treatment of manufacturer's rebates was changed effective May 1, 2000, and DD 97-4 reflects the Department's former policy that such rebates were generally subject to tax. DD 97-4 has been modified by 830 CMR 64H.1.4 to the extent that the directive is inconsistent with the regulation. A manufacturer's rebate applied as a capitalized cost reduction at the inception of a lease is not subject to tax on or after May 1, 2000.