Thanks for your answer. Note that this is not a rebate or incentive from the manufacturer/seller. This is money that the state was giving out as an incentive to purchase a PHEV.
The State Agency has since given their unofficial answer that they believe it is taxable. If they had set it up to characterize it as a rebate/refund of a portion of the sales tax then it would likely not be taxable, but they didn't do that so they issued the 1099.
Unfortunately, this purchase didn't qualify for the federal incentive.
