SURPRISE!! Cash For Clunkers Will Be Taxable!!

A few weeks ago, I listed the top 10 problems with the "cash for clunkers" boondoggle (and why it doesn't bode well for healthcare). It didn't even occur to me, and probably also didn't with those that flocked to dealerships, that the $3,500 - $4,500 government subsidy would be taxed. That's right - that figure is added to what you actually pay for the car when state sales tax is assessed. From KeloLand via RightWing News: Some Surprised By 'Clunker' Tax.
The Cash For Clunkers program is adding to the activity at treasurers' offices all around South Dakota. First, people were asking for proof of ownership, so they could show they owned their vehicle for a full year, allowing them to cash it in. Now, they'll be returning to register their new vehicle. And when they do, new owners need to bring every bit of paperwork provided to them by their dealer."That means they need their title, their damage disclosure, their bill of sale and the dealers have 30 days to get that to them," Minnehaha County Treasurer Pam Nelson said.But many of those cashing in on the clunkers program are surprised when they get to the treasurer's office windows. That's because the government's rebate of up to $4500 dollars for every clunker is taxable.Warner Todd Huston also sais this over at RWN:
Even worse, many states will charge income tax on the $4,500 because the sum will be determined to be the same thing as income to the car buyer.
Exit question: anyone know how the subsidy will be handled with regard to federal taxes?UPDATE: A thread on this has opened up over at memeorandum with more commentary from Riehl World View.Previously:"Cash For Clunkers" Failing Dealerships In MichiganCash for clunkers program has only reimbursed dealers 2% of claims. If the feds can't run a simple trade-in program, how can they run healthcare???Will healthcare be administered like cash for clunkers?Top 10 reasons why "cash for clunkers" doesn't bode well for ObamacareWith video: The most transparent administration in history is -- withholding "cash for clunkers" dataWith video. No logic - "cash for clinkers" destroying perfectly good engines, carsU.S. House Reaches Compromise on "Foreign Car Reinvestment Act"