It is believed that one or more of the OEMs might have recently changed a stair-step dealer cash program to straight dealer cash. If that is accurate, the amounts paid to the dealer would become taxable by the state of Illinois.

Basically, dealer incentives are taxable unless they are contingent at the time of sale on making or having additional retail sales (common stair-step programs), or contingent on some other qualifier, such as the dealer meeting certain manufacturer required marketing standards, facility standards, or sales and service department goals (CSI).
  
Illinois dealers must report taxable dealer incentives on Section 6, Line 1 of Form ST-556 as part of the sale of the vehicle reported on that return, one of several Illinois Revenue Department changes that took effect July 1, 2008.
• The changed regulations depict six distinct types of transactions; only No. 1 is taxable:

1. Taxable incentive payments [payment conditioned on the retail sale]: An automobile manufacturer offers a dealer incentive (sometimes referred to as "dealer cash") of $1,000 for each of a specific type of vehicle sold to a retail customer during March. A dealer sells that type of a vehicle to a retail customer for $38,000 during March. The retail sale of that vehicle qualifies the dealer for the manufacturer’s dealer incentive payment of $1,000. The purchaser pays the dealer $38,000 and the dealer receives $1,000 from the manufacturer. Since the $1,000 payment is conditioned only upon the sale of that vehicle and is not conditioned upon the sale of any other vehicle or vehicles, the taxable gross receipts received by the dealer for this sale are $39,000.

2. Nontaxable incentive payments [payment conditioned on the retail sale, but only after a certain number of sales have been made]: A manufacturer offers a dealer incentive payment (sometimes referred to as "dealer cash") of $1,000 for each of a specific type of automobile sold to a retail customer in March, but only if the dealer sells at least 15 of those types of vehicles during that month. A dealer sells that type of a vehicle to retail customer for $38,000 on March 25. The dealer had sold 14 of those types of cars earlier that month, and the March 25 sale qualified the dealer for the $1,000 manufacturer payment on that sale and each of the 14 previous sales. The gross receipts from the March 25 sale are $38,000 and the $1,000 manufacturer’s payment is not part of the dealer’s gross receipts from that sale. In addition, the $14,000 payment to the dealer for the sales of the previous 14 vehicles were contingent upon the sale of other vehicles and are not part of the gross receipts from the sales of those vehicles. If the dealer sold a vehicle on March 26 and qualified for another $1,000 manufacturer payment for that sale, the $1,000 manufacturer payment would not be part of the dealer’s gross receipts from that sale.

3. Non-taxable dealer hold-backs [payment not conditioned on the retail sale]: A manufacturer provides dealer hold-back payments to its automobile dealers of 3 percent of the invoice price of each vehicle purchased from that manufacturer. The dealer hold-back payments are paid to the dealer on a quarterly basis regardless of whether that dealer has sold at retail one or more of the vehicles it had purchased that quarter. The dealer purchases a vehicle from the manufacturer at the beginning of the month for an invoice price of $39,000 and then sells that car 10 days later at retail for $40,000. The manufacturer of that vehicle pays an amount to the dealer of $1,170 (3 percent of the invoice price of $39,000) at the end of the quarter as a dealer hold-back for that vehicle. Since the $1,170 hold-back payment to the dealer from the manufacturer is conditioned only on the purchase of the vehicle from the manufacturer (not on the subsequent retail sale of the vehicle), the taxable gross receipts received by the dealer for this sale are only $40,000.

4. Non-taxable [payment not conditioned on the retail sale]: A dealer normally offers a specific type of vehicle for retail sale for $40,000. The manufacturer agreed to pay an incentive to the dealer of $3,000 for each of those types of vehicles that the dealer purchased for resale from the manufacturer during a specified promotional period. After purchasing the vehicle during the qualifying period, the dealer offered the vehicle for sale at a reduced or discounted price of $37,000. A retail purchaser agrees to purchase the vehicle for $37,000. Since the $3,000 incentive provided to the dealer from the manufacturer is conditioned only on the dealer’s purchase of the vehicle from the manufacturer (not on the subsequent retail sale of the vehicle), the taxable gross receipts received by the dealer for this sale are $37,000.

5. Non-taxable performance bonus payments: A manufacturer establishes a performance bonus program for dealers who obtain a certain customer service index (CSI) score that demonstrates a substantial degree of satisfaction from their sales and service customers. Upon meeting such requirement, the automobile dealer will receive an incentive payment from the manufacturer calculated as 2 percent of the MSRP of the vehicles sold by that dealer during the incentive period. Because the bonus is contingent on the dealer meeting certain customer satisfaction goals as indicated by the CSI score, the manufacturer’s performance bonus would not be part of the gross receipts received by that dealer for the sales of those vehicles.

6. Non-taxable marketing or facility incentive payments: A manufacturer creates an incentive program for dealers who meet certain marketing standards or facility standards designed to increase sales and brand loyalty. Upon meeting such standards, the dealer will receive an incentive payment from the manufacturer calculated as a flat amount of $500 per vehicle sold by the dealer during the incentive period. Because the incentive is contingent on the dealer meeting certain marketing or facility standards set by the manufacturer, the $500 incentive payments would not be part of the gross receipts received by that dealer for the sales of those vehicles.