In my experience, when you purchase a product for a rebate, the rebate comes after the purchase. Taxes should have been paid at the time of sales. This means that you have paid the taxes at the time that you purchased the product so the rebate has already been taxed. You won’t be able to receive the taxes paid on the product if you do not get your rebate. In other words, it would be the same as purchasing the product at its regular price and paying taxes on it.
Rebates that go unredeemed may be considered profit for the store or the manufacturing company who produces the product or is offering the rebate, and get taxed when it comes time for them to do their income tax. However, unredeemed rebates may not be considered profit since the products normally sell for a specific price unless otherwise on sale. If a store or manufacturing company can gain profit from an unredeemed rebate could you be taxed for a redeemed rebate? Can a rebate be considered part of your income come tax time?
There is always a possibility that you could be taxed for rebates if you gained profit from them. For instance, when you got a rebate back, you invested it in stocks, a cd or in an interest making account at your bank. But for most people the answer would be no. Rebates are not taxed come tax time. Think back to the initial purchase of the product. Remember that when you purchased the product, you paid taxes on the full amount before you will have received the rebate. It’s not the rebate that gets taxed, but rather what you do with the rebate. You may for example, spend your entire rebate on lottery tickets and perhaps strike it rich. Your winnings would be taxed no matter what the amount of money spent to purchase the tickets is. Therefore you could say that your rebate was taxed although technically it wasn’t. Another funny way to think about the whole rebate thing is that most of your future purchases will be taxed. If you use your rebate to pay for purchases at the store, chances are it will be taxed.
Susan J. Samtur with Tad Tuleja, Cashing In at the Checkout (New York, 1979), p. 132.