Huh.but looking at it from a lawyer's perspective, I shouldn't be surprised.
See, a dealer rebate is essentially a discount given by the person selling the car. However, if the rebate comes from a third party, in this case the government, there is a benefit that is conferred upon the buyer. Generally, that kind of third party benefit is taxed as income. Shocking huh?
I certainly don't remember that featuer being talked about in the run-up to the cash for clunkers program. I wonder how many people would have bought a new car if they realized that they would have to pay about 25% of their rebate back in taxes. For the non-math majors, that is in excess of $1,000 in taxes.