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.