The Pennsylvania Department of Revenue has issued a legal letter ruling stating that for purposes of Pennsylvania sales tax, the vehicle value paid to car owners under the buyback or restitution provisions of a motor vehicle class action settlement agreement cannot be deducted from the purchase price of a new vehicle.Under the buyback program in question, the vehicle manufacturer will purchase an eligible vehicle from the owner and pay the vehicle value, which the owner may or may not choose to apply to the purchase of a new vehicle. Per Pennsylvania tax law, the purchase price of a new vehicle may be deducted by the amount of a trade-in allowed on the purchase if the trade-in occurs at the same time of the sale. Unlike a trade-in with a car dealership, the vehicle is not purchased by the dealership, but rather by the manufacturer under the buyback program. The buyback is considered a separate or independent sale rather than a trade-in. As a result, the purchase price of a new vehicle cannot be reduced by the vehicle value, even if it is immediately applied to the purchase of the new vehicle. Similarly, an owner restitution payment is not considered a trade-in.
Under Pennsylvania’s Automobile Lemon Law, if a manufacturer fails to repair or correct a nonconformity after a reasonable number of attempts, a purchaser may request the manufacturer either to replace the vehicle with a comparable motor vehicle of equal value or to refund the vehicle’s full purchase price including the Pennsylvania sales tax. The manufacturer can then file for a refund of the sales tax paid to the customer as part of the refund. Under the buyback program, the manufacturer agrees to purchase the vehicle from owners and to pay the vehicle value, not to replace the vehicle. The vehicle value is not the purchase price of the vehicle that the owner paid. The same goes for an owner restitution payment. As a result, neither the buyback or restitution payment are considered a vehicle replacement or refund under Pennsylvania’s Automobile Lemon Law. (Legal Letter Ruling No. SUT-16-003, Pennsylvania Department of Revenue, December 5, 2016)