Sales Tax Refunds After A NYS Lemon Law Repurchase

Under the New York State tax code, consumers are entitled to a refund of sales tax if their vehicle is repurchased pursuant to the New York Lemon Law.

In the past, this was a fairly straightforward proposition. The Application Form is available online. You would simply fill it out per the instructions, and mail it to the New York State Department of Taxation & Finance along with a copy of your Purchase Invoice or Lease Agreement (whichever is applicable) and a copy of either the court or arbitrators judgment, or settlement documents.

Unfortunately, the process has become a little bit more difficult. I have recently been contacted by several of my former Lemon Law repurchase clients indicating that their applications for a sales tax refund weren’t approved. In all cases, New York State wanted to see more documentation.

I was surprised to hear about this and contacted the auditor at the Department of Taxation & Finance who handles these applications. The gentleman explained to me that in the case of a settlement, unless the documents specifically indicate that the vehicle is being repurchased pursuant to the Lemon Law, his office would have to interpret the transfer as simply an ordinary purchase of a vehicle, which would not entitle the consumer for a refund of his/her sales tax.

While I am not happy to hear that this process has been made more complicated, I certainly understand the auditor’s position. Accordingly, I have updated my procedures to make sure that every repurchase settlement has this specific language contained in the settlement documents. For my past clients, I am trying to work out a way for them to prove it was a lemon law repurchase, either through provision of a copy of my Demand Letter along with an attorney Affidavit, or a letter from the manufacturer or its representative.

While this is certainly not a very breathtaking topic, it literally means thousands of dollars in the pockets of my clients. I take that very seriously. It illustrates just one of the many pitfalls of Lemon Law practice in New York. It also shows why you, as a potential Lemon Law client, should be very dilligent about choosing an attorney to represent you on your New York case. I am not so sure that a lawyer based out of Michigan or Pennsylvania, who happens to be licensed in New York, will be aware of the ins and outs of a New York specific practice.

UPDATE 12/8/10 – I received, two months ago, additional clarification from NYS Department of Taxation & Finance on this issue. They will no longer require that release documents specifically indicate that the vehicle is being repurchased pursuant to the Lemon Law. However, they will require the following documents in order to fulfill a sales tax refund application in a Lemon Law Case: 1) Purchase Invoice or Lease Agreement (whichever is applicable) indicating sales tax paid; 2) Settlement documents or Court Order indicating the repurchase calculations; 3) A copy of the check from the 3rd party that repurchased the vehicle. I have not heard of any problems from former clients since I started conveying this information to them. Hopefully the problem with sales tax refunds has been resolved for good.

Government Guarantee Of Warranties – A Lemon Law Perspective

With General Motors and Chrysler on the verge of bankruptcy, the Obama Administration applied some tough love today and declined to bail them out – for the time being.

GM was provided with 60 days of government financing for operating costs and Chrysler was offered up to $6 billion in financing if it comes to terms with Fiat, within 30 days, on a possible merger or sale.

Addressing the reasonable concern that these two companies might end up in bankruptcy court, which GM’s new CEO seems to acknowledge, the Administration announced that it would guarantee all warranties on new cars sold by GM and Chrysler during a restructuring period. The length of the restructuring period has not been clarified, so for all intents and purposes, it will last until the government says so.

Importantly, this guarantee of warranties does not apply to vehicles sold before March 30, 2009. I previously discussed what might happen in the event of a large manufacturer bankruptcy. Theoretically, if the manufacturer of your vehicle were to file for bankruptcy, your warranty could be voided. Realistically, it would be politically lethal for the Obama Administration to let that happen – and it won’t. My strong gut feeling is that even in a liquidation bankruptcy (restructuring is more likely), either a trust fund would be created by the bankruptcy court from remaining assets to cover warranty costs, or alternatively, Congress would draft legislation to cover consumer warranties of affected manufacturers.

From a Lemon Law perspective, it is unclear at this time whether the government guarantee on new sales extends to legal claims against the manufacturers for breach of warranty pursuant to state lemon laws and the Magnusson-Moss Warranty Act. It’s certainly possible that warranty repairs are ultimately covered, but breach of warranty claimants may stand on line with the rest of the manufacturers unsecured creditors in bankruptcy court. It’s even possible that warranty claims from before March 30, 2009 are stuck in bankruptcy court, and those after March 30, 2009 are covered, but if you have to litigate them you need to bring the case in the United States Court of Claims.

Refusal To Repair Cases

A typical New York Lemon Law case involves a vehicle that has been serviced repeatedly for the same problem, or has been out of service for repair for an unreasonable amount of time. These are inability to repair cases. I previously wrote a blog that concentrates on these types of cases.

There is also another kind of New York Lemon Law case which perhaps doesn’t get as much attention, but is just as important. Refusal to repair cases. These are cases where the vehicle is brought to the dealership for warranty repairs and the dealership is either unable to verify the consumer’s complaint (cannot duplicate customers concern), or it verifies that something is wrong with the car, but determine that the problem is not covered by the vehicles warranty.

Refusal to repair cases are more difficult to pursue because there is a fundamental disagreement between the consumer and the manufacturer. The manufacturer believes that there is either nothing wrong with the car, or alternatively, that whatever is wrong with the car is not its responsbility. On the other hand, in an inability to repair case, the manufacturer has attempted a repair, which implies that it recognizes something was wrong with the vehicle and that it was its responsibility to fix it. In those cases, where there are sufficient repairs, a manufacturer will usually concede that it must repurchase or replace the vehicle, and it does so voluntarily. This almost never happens in a refusal to repair situation.

Thus, refusal to repair cases must usually be litigated or arbitrated. An expert must be retained to inspect the vehicle, verify a defective condition, and testify about it. The manufacturer will, of course, produce its own technical specialists who will testify that there is nothing wrong with the vehicle or that the defect is the consumer’s fault. Ultimately, it can often come down to credibility, or if it’s an arbitration, the arbitrator’s test drive.

In addition to the evidentiary hurdles that consumers must get through in order to win their refusal to repair case, there is also a procedural step which often proves difficult. Pursuant to the New York Lemon Law statute, the following steps must occur before a consumer can bring a refusal to repair case:

The consumer must bring the defect to the attention of the dealership
After the dealership refuses to commence repairs within 7 days of being notified of the defective condition, the consumer must write a letter to the manufacturer of the vehicle, notifying it of its dealerships refusal to commence repairs, and demanding that it commence repairs within 20 days of its receipt of the notice. I have provided a sample letter here which you can use as a template when drafting your own. Make sure that when you write your letter, you identify the vehicle by VIN number, and provide contact information (address and phone number) for yourself.
The letter must be mailed via Certified Mail, with Return Receipt Requested (the two green slips at the post office), to the manufacturer, NOT the dealership.

The statute is very specific about how these steps must be carried out. Of course it’s also important to keep a photocopy of your letter, keep the certified mail slip when its given back to you at the post office, and the return receipt slip when it is mailed back to you after the manufacturer receives your letter.

There is one side benefit to these procedural hurdles. When a manufacturer receives this type of letter, it will often contact you to make arrangements for one of its own technical specialists (instead of a dealership employee) to inspect the vehicle and conduct repairs if the defective condition is verified. I have had plenty of situations where this type of 20 day notice letter has resulted in the vehicles finally being fixed. And of course, any such repair can potentially be used in an inability to repair case.

One thing to note is that the 2 year / 18,000 mile Lemon Law presumption period applies to refusal to repair cases. If you purchased or leased your vehicle more than 2 years ago, or have put on more than 18,000 miles, the refusal to repair provision of the New York Lemon Law is not applicable to your case.

I often advise individuals to prepare their own 20 day notice letter using the sample letter I provided as a template. If you follow all of the steps in this article, and 20 days after receipt of your letter the manufacturer has still not commenced any repairs, you may have a Lemon Law case. At that point you should call me or another New York Lemon Law attorney, who can then assist you in pursuing your case further.

Good luck!

New York Lemon Law – A Nutshell

Lets start at the beginning, shall we?


The New York Lemon Law, otherwise known as New York General Business Law Section 198-a, is a consumer protection statute originally enacted in 1983 as a response to rampant consumer complaints about defective automobiles. It has a four year statute of limitations, which means that you can bring a lawsuit or arbitration to enforce your rights under the law within four years of your purchase or lease of the vehicle in question.

What happens if I have a Lemon?

Did you ever hear the phrase, “one man’s terrorist is another man’s freedom fighter”? That is what comes to mind when I’m asked what happens if your car is a lemon. One mans lemon is a car manufacturer’s sparkling example of modern engineering. The trick is getting the right person (or ajudicating entity) to agree it’s a lemon. Once you get that accomplished (more about that in a minute), you’re entitled to your choice of the following:

Repurchase of the vehicle by its manufacturer.
Comparable replacement vehicle.

What makes my car a lemon?

This is the type of question that deserves a simple answer. So here it is. Your car is a lemon if it has been subject to a sufficient amount of warranty repairs.

Now let me give you the real answer.

First off, for new cars (which are what I concentrate on), we will only take into account warranty repairs that occur within the first 2 years or 18,000 miles from original delivery of the vehicle, whichever comes first.

Contrary to popular belief, the law does not explicitly require a specific number of warranty repairs or days out of service for repair to qualify your vehicle as a lemon. Rather, during that 2 year / 18,000 mile time period, if the manufacturer has been unable to repair a substantial defect under warranty, given a reasonable opportunity to do so, then the manufacturer should repurchase or replace the vehicle under the law.

This is where the law pulls a fast one on us. Even though it gives us a fuzzy ‘reasonableness’ standard to determine how many repairs are sufficient to qualify the vehicle as a lemon, it proceeds to tell us that a court should presume a reasonable repair opportunity when the vehicle has been repaired under its warranty 4 times for the same defect (with the defect continuing to persist after the 4th repair attempt), or 30 days altogether for warranty repairs.

Theoretically, a court could decide that only a couple of repair attempts, or perhaps 20 days out of service for repair, satisfy the reasonableness requirement. Particularly in cases where the defect complained of puts the occupants of the vehicle in danger of serious harm. In practice, however, we generally want to see 4+ repairs or 30 days before litigating these cases.

What if my car is working wonderfully after 14 repairs and 112 days out of service?

Per the case of DaimlerChrysler Corporation v. Spitzer, it doesn’t matter if your car is currently working properly. What matters is how much it was repaired during the 2 year, 18,000 mile presumption period.

What are substantial repairs?

Good question!

Specifically, the statute requires that the defect complained of “substantially impair the value of the vehicle to the consumer.” Now at this point I am torn between detailing the origins of this language and summarizing the intricacies of its dual subjective/objective interpretation, or giving you a plainer answer.

For once, simplicity rules the day. Generally speaking, for a defect to be considered substantial enough to justify Lemon Law relief, it should detrimentally effect the functionality or safety of the car. Radio static does not cut it. The interior molding is loose, too bad. Water leaking into the vehicle, you have my ear. Transmission fell out 8 times. You’re my new best friend!

Will I have to pay a lawyer?

The Lemon Law is considered a consumer protection statute. One nice thing about such statutes is that in order to make the laws more practical for consumers to utilize, there are often fee-shifting provisions contained within them that require a defendant to pay the legal fees of a consumer who wins a case in court. This creates an incentive for the automobile manufacturers to settle meritorious cases early in order to avoid having to pay out even more money in legal fees (both for their own lawyers, and for the consumers). In cases where the manufacturer voluntarily repurchases or replaces a vehicle pursuant to the New York Lemon Law, they will pay a fee to the attorney, at that early stage, of approximately $2,000.00, give or take a few hundred. If it goes into litigation and settles, or if the consumer ends up winning the case, the attorney fee paid by the manufacturer will be a great deal higher.

What else do I need to know?

Now you’re asking too much! Do you want me to end this blog on its second post? If you absolutely must have more New York Lemon Law information this very minute, might I humbly suggest reading the New York Lemon Law FAQ section of the web site?

Get to it!