Not a tax professional. I research a lot when I do our own taxes. When we purchased the car we used our income (that we paid income tax on) to pay sales tax. If we receive a “refund” of our purchase and the refund includes sales tax, you didn’t earn any extra income. You just spent less on sales tax. The issue might be if you itemized sales tax the year you purchased. We deduct for state income tax instead of sales tax, so I’m not worried about it for us, but your situation might be different. That is the limit of my knowledge.

 

Unless JLR pays more than your original cost there is no federal income tax. Business may have a gain if the asset has been depreciated below the repurchase amount. States are virtually the same.

In CA the sales tax is paid by the buyer. So a private party goes to register and title in their name, the DMV collects any sales tax. Dealer of course will collect from buyer on the purchase agreement and remit to the state when they submit the title transfer.

Some states allow the sales tax to be paid on the net price after deducting the trade in. If sold to JLR there is no trade in on the next purchase.

 

Have you considered this?

Tax laws vary widely across the US. In fact the sale of the vehicle to JLR can be completely different than any other vehicle sale in your location.

For example, in MI it is possible to sell a vehicle between relatives and there is no sales tax. Any other vehicle sale requires sales tax to be paid.

I took a cursory look at laws where I live. A sale between people is treated differently than a trade-in. A sale to a business is different from that. A sale to an out-of-state person is different. But frankly I didn't find anything specific to selling a car to an out-of-state corporation. This recall is a sale of the car to JLR not the local dealership where the vehicle is handed over. Sales tax responsibility could be yours to collect and turn in to the state not JLR.

Then there is the matter of income tax. Does this add $xx,xxxx to your income and you owe income tax on it? Will this impact other taxes and costs? Senior citizens pay Medicare cost based on income level, or qualify for other tax reductions based on income level such as homestead property tax credit where I live.

I strongly suggest people seek professional tax advice for their location. You don't want a nasty surprise.

Speculation responses won't be helpful. Only responses by persons who have actual information, and could back it up at a tax audit, should reply noting the location where that information applies.

In my documents from Jaguar there is a sales tax waiver. I am in WA.

REFUND

MOTOR VEHICLE SALES TAX WAIVER AND ASSIGNMENT

Upon signing this waiver, xxxxxxxxxxs, hereby stipulate that a motor vehicle refund, rather than a replacement, has been accepted by me as a settlement of a motor vehicle returned to the manufacturer under Provisions of the State Lemon Law. Such returned vehicle is more particularly described as a, 2019 Jaguar I Pace with Vehicle Identification Number SADHD2S16Kxxxxxx.

Since the sales tax on this vehicle was refunded to me by Jaguar Land Rover North America, LLC, I hereby assign my right to the motor vehicle sales tax refund on this vehicle from the state to the manufacturer, Jaguar Land Rover North America, LLC. Further, I stipulate that I am not entitled to further refund from either State or the manufacturer, and should I attempt to seek an additional refund on this vehicle, the State will hold me responsible and may prosecute to the full extent of the law.

 

I’m a CA business lawyer. Not a tax expert, but I’m confident there won’t be any tax effect when JLR buys back my car (state or federal).

That said, as one of my colleagues always liked to say, “if this were legal advice to you, it would be accompanied by a bill.” 😜

 

The only reason you should have to pay tax is you got more money back than you paid for it. Which happens with real estate but seldom with cars.

 

Hawaii charges a small fee when you report selling a car, not just buying one. But it's not a full on tax.