Could a subsequent purchaser's vehicle remain a 'new motor vehicle' for Lemon Law purposes while the transferable new-car warranty remained usable?

Plain-English summary

The memorandum addressed vehicles sold to later purchasers while part of the manufacturer's new-car express warranty remained in effect.

California concluded that a vehicle remained a "new motor vehicle" for Lemon Law purposes during the period when the subsequent purchaser could use the warranty and obtain service and repairs in the same manner as the original purchaser.

The result was not limited to a warranty that restarted in full on resale. The operative fact was the later purchaser's ability to use the remaining express coverage on equal service-and-repair terms.

Common questions

Did the subsequent buyer need a brand-new full warranty?

No. A usable residual portion could qualify under the memorandum's reading.

What rights had to carry over?

The subsequent purchaser had to be able to use the manufacturer's service and repair facilities as the original purchaser could.

Did the memorandum adopt a broader tax-credit policy?

No. It said the separate tentative revised policy had not yet been adopted.

Citations and references

• Cal. Civ. Code section 1793.22(e)(2) — dealer-owned vehicles, demonstrators, and other vehicles sold with a manufacturer's new-car warranty

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/490-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/490-0511-100.pdf

Original ruling text

State of California

Board of Equalization
Legal Division- MIC:82

490.0511.100

Memorandum
To:

Mr. Robert L. Buntjer, Supervisor
Audit Review & Refund Section (MIC:39)

Date:

From:

Thomas Cooke
Staff Counsel

Telephone: (916) 445-6496

Subject:

March 6, 1995

CalNet 485-6496

Lemon Law and Returned Merchandise
We have received your memorandum dated February 10, 1995 in which you state that REDACTED TEXT has requested that the Board approve guidelines that they intend to provide to their dealerships. The first guideline concerns the "California Lemon Law" and the type of vehicle that is subject to the Law. Civil Code Section 1793.22(e)(2) includes "a dealer-owned vehicle" and a "demonstrator" or other motor vehicle sold with a manufacturer's new car warranty within the definition of a "new motor vehicle." You state that, typically, a demonstrator is sold with the remaining pro rata portion of the manufacturer's new car warranty. The warranty commences when the vehicle is placed into demonstrator inventory. You also ask if it is the intent of the statute that vehicles sold with only a "full" manufacturer's new car warranty are covered under the lemon law? You ask, if that is not the case, is every sale of a used vehicle that still has a residual portion of the manufacturer's new car warranty also covered under the lemon law? If an automobile manufacturer provides that a new car express warranty is available to a subsequent purchaser of a vehicle which entitles that purchaser to utilize service and repair facilities in the same manner as is available to the original vehicle purchaser, it is our opinion that Civil Code section 1793.22(e)(2) provides that the term "new motor vehicle" applies to the vehicle when owned by a subsequent purchaser during the period that the express warranty on the vehicle can be utilized by that subsequent purchaser. You also attached a letter to your memorandum from S.T. Sarem, Senior Tax Auditor which was mailed to the REDACTED TEXT. In this letter, S.T. Sarem analyzed the tax consequences when restitution is made or vehicles returned to automobile dealerships under provisions of the Sales and Use Tax Law. Under the Sales and Use Tax Law, there is no tax credit available to a manufacturer who replaces a vehicle, or makes restitution, to a retail customer. The California Lemon Law was designed to provide tax credit to a manufacturer in these situations. Typically, the manufacturer sells vehicles to a dealership who, in turn, resells the vehicles to retail customers. The manufacturer is normally not a "retailer". The enclosed

Mr. Robert L. Buntjer

-2-

March 6, 1995
490.0511.100

letter dated November 10, 1993 to REDACTED TEXT of the REDACTED TEXT stated a tentative revised Board policy on tax credit due to a manufacturer or dealership when a vehicle was replaced or restitution given. It is my understanding that this revised policy has not yet been adopted by the Board. TJC:plh Enclosure