BISMARCK, N.D. (AP) -- Telling customers they must pay a 5 percent tax on the manufacturer's rebate for the new car they just bought tends to put them in a sour mood, the president of a Mandan car dealership says.
"They say, 'That is wrong,'" said Steve Schwan, president of Schwan GM Auto Center Inc. "It gets to be an issue right off the bat, right before they've even taken delivery of the vehicle."
Sen. Curtis Olafson, R-Edinburg, has introduced legislation to eliminate the state's motor vehicle excise tax on manufacturers' rebates.
The Senate's Finance and Taxation Committee examined the bill Wednesday. The full Senate will vote on the measure later.
Olafson displayed a bill from his own purchase last year of a new Dodge pickup. He paid the 5 percent tax on the vehicle's $44,500 cash price, even though the truck cost him $5,000 less because of a Chrysler customer incentive. His tax bill was $250 more than it should have been, he said.
"I believe, myself, that it's a matter of principle that you should not be taxed for any part of a purchase that is not factored into the net price," Olafson said.
No one opposed the proposal during Wednesday's hearing. North Dakota's Tax Department says dropping the tax on manufacturers' rebates will cost the state treasury $6.4 million every two years.
The North Dakota House approved a similar bill two years ago, but it was defeated in the Senate.
Another sponsor of the measure, Rep. Don Vigesaa, R-Cooperstown, said some sales incentives have run as high as $10,000 for a vehicle, which required customers to pay an extra $500 in North Dakota tax.
Although the incentives are often called rebates, Chrysler, General Motors and other car manufacturers no longer give customers money back, Vigesaa said. Instead, the rebate is subtracted from a vehicle's final, negotiated purchase price.
The existing law can result in different tax bills for the same vehicle, sold for the same price, Vigesaa said.
Some automakers offer to sell vehicles at the same price offered to company employees and the full sales price is taxable. But if the same final price includes a $3,000 manufacturer's incentive, the tax bill is $150 higher, Vigesaa said.
"I believe the customer should pay excise tax on what he or she writes the check for when purchasing a vehicle," he said.