Yes. The California electric vehicle rebates are taxable on both the federal return and the state of California return.
This is true because of IRC section 61: Gross income means all income from whatever source derived unless specifically excluded by law. A rebate is normally excluded from gross income when it is treated as a reduction in the purchase price of a product or service. However, the California electric vehicle rebate comes from the California Clean Vehicle Rebate Project (CVRP), which is administered by the California Center for Sustainable Energy for the California Air Resources Board. Therefore, the rebate is issued in a transaction wholly separate from the purchase of the vehicle and cannot really be considered a reduction in the purchase price of the vehicle.
For California purposes, California conforms to IRC section 61 and does not provide a specific exclusion for the CVRP rebate, so the rebate is taxable in California too.
This income will be entered on line 21, form 1040 as other income. Then it will be carried over to the state return. Please follow the directions below to enter your rebate income into the TurboTax. (see screenshots for reference)
"the rebate is issued in a transaction wholly separate from the purchase of the vehicle and cannot really be considered a reduction in the purchase price of the vehicle."
I don't understand how they can be "wholly separate" if receiving the rebate is predicated on the requirement that you purchase and own the vehicle?
According to CVRP Implementation Manual linked here, CVPR is NOT taxable.
The relevant section is on page 11 (pg 14 of the PDF) and reproduced below:
The CVRP rebate is not taxable income and the Administrator does not issue a 1099 for your rebate. The Administrator cannot offer tax advice of any kind. If you have tax related questions, please consult with your individual tax advisor.
Rebates are not normally taxed, they reduce the purchase price, therefore reducing your cost and/or basis;
If you took any type of credit for the purchase of the electric vehicle, that might need to be addressed and the rebate would be classified as a recovery.
Please use the link below for more information.