Some of these promotion companies pay a lot of money just to have their cars as part of promotions (and the sweepstakes companies can get into big trouble if their systems are not setup to give away x cars. Most of them are time seeded so someone is guaranteed to win one a week).
If your already investing that much money, can't the company also cover the taxes, or do most states have laws forbidding that? It seems like bad publicity if your "winners" have to pay several thousand in sales tax to get their "prize car."
You're paying income tax, not sales tax, because winnings are income. (Think about professional gamblers...)
Income taxes are progressive, of course, and then there are a mess of deductions. But they could still make an estimate by just assuming the person is in the $37K to $92K bracket. So that's 25% [1].
> It seems like bad publicity if your "winners" have to pay several thousand in sales tax to get their "prize car."
I think they make the judgement that offering a prize that is 3/4ths as expensive would be less good publicity vs. the largely unknown bad publicity that is mostly oriented towards the government anyway.
[1] ... and yeah, there's 25% on that, and 25% on that, etc.; for tax rates < 1 it's convergent, if the tax_paid = rate * (original_value + tax_paid), just solve for tax_paid.
> You're paying income tax, not sales tax, because winnings are income. (Think about professional gamblers...)
Think about them why? Gambling income is in a completely different category from a prize you won for free. There's no reason they have to be taxed the same.
> Gambling income is in a completely different category from a prize you won for free.
The only difference is that as a professional, you're filing your taxes as a business. It's still "income"[1], it's just the entity filing is a business rather than a specific person.
Regardless, a prize you win is not taxed as a sale.
> There's no reason they have to be taxed the same.
To the extent they're treated inconsistently, people will use the discrepancy to game the system. Politicians do that deliberately, of course, since it's an opportunity for graft.
For legit contests, there is usually a small cash prize in addition that covers the cost of sales/gift tax. This was the case back in the 90s through at least Oprah's car giveaway in the early 2000s. Maybe they dont do it anymore?
If your already investing that much money, can't the company also cover the taxes, or do most states have laws forbidding that? It seems like bad publicity if your "winners" have to pay several thousand in sales tax to get their "prize car."