Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 490.0745


490.0745 Automobiles. A dealership sells a new vehicle and collects sales tax reimbursement from the customer. After several repairs, but short of meeting what the dealer believes to be the Lemon Law requirements, the customer requests that the manufacturer refund the purchase price without legal litigation. The manufacturer, through the dealership, refunds the purchase price and all applicable sales tax to satisfy the customer.

If the vehicle is defective and the dealer cannot repair it to conform to the applicable express warranties, the refund may nevertheless qualify as a lemon law restitution in accordance with subdivision (d) of civil code section 1723.2. The reasonable repair attempts requirement of the Lemon Law is an upper limit on how many times the manufacturer has attempted to repair the defect before the restitution and replacement provisions of the Lemon Law apply. It is not a lower limit on when the manufacturer and purchaser may agree that a Lemon Law defect exists.

The refunding may also qualify as a returned merchandise deduction. The main question to be answered is who contracted with the customer to make the refund. If the dealer made the refund literally on behalf of the manufacturer and the agreement for the refund was entered into between the manufacturer and the customer, no deduction for returned merchandise is available. On the other hand, if the person actually entering into the agreement to refund the money to the customer was the dealer and the dealer made the refund on its own behalf, the returned merchandise deduction is available if all of its requirements are satisfied. This is true without regard to any agreement between the manufacturer and the dealer for reimbursement to the dealer of the amount the dealer refunded to the customer. 6/19/95.