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My understanding is that the DMV will tax the customer on whatever their purchase price is, and not the MSRP price.

I tried to take advantage of the 20% MSRP off 2016 models (now it is too late), but every time I was quoted an initial OTD price, the salesman would let me know the tax is on the sale price (after 20% off) during the breakdown. However, once I called back to finalize, I would then be informed the tax is on the MSRP.

I certainly do not want to commit tax fraud, but is it possible these dealers are pocketing the extra money while they process the registration?
 

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Tax is almost always calculated on the pre-rebate price. So if all you are getting off is the 20% rebate, you will be taxed on full MSRP.
 

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Rebate are always taxed, dealer discounts are not.
When I bought my 2013, the dealership was had a "pay your state tax" deal that month so they paid my taxes. But those taxes were exactly as HenryFL described. Dealer discount was not taxed but the $5K GM rebate was. So was my $3600 GM Card rebate. But my trade in was not. Yet ultimately since the dealership knocked off the state taxes from my bottom line, technically nothing was taxed. I've never seen that great of a deal before, yet again this was only the second new car I had ever purchased for me or my wife in 22 years of marriage.
 
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