If your new or certified pre-owned vehicle keeps stalling, the check-engine light won’t stay off, or repeated repairs just aren’t fixing the problem, you’re probably exploring your rights under California’s Song-Beverly Consumer Warranty Act—better known as the Lemon Law. Two questions we hear often are: what’s changing under AB 1755, and are lemon law settlements taxable in California? Below, we explain both in plain English so you can make informed next steps, keep good records, and know when it’s time to talk to a professional.
AB 1755 Explained: California Lemon Law Updates
AB 1755 is a recent California bill focused on how the state’s Lemon Law is applied in practice. Like other updates to the Song-Beverly Consumer Warranty Act (California Civil Code sections 1790 et seq.), AB 1755 is aimed at refining procedures and clarifying consumer protections when vehicles have defects that the manufacturer or its dealers cannot fix within a reasonable number of attempts. Because bill language and status can change, it’s important to check the latest official text or speak with a consumer attorney for the most current details.
In plain terms, discussions around AB 1755 have centered on practical issues that matter to car owners: how to count repair attempts, whether days a vehicle sits at the dealership waiting for parts count toward the 30-day “out of service” rule, how software-related and over-the-air (OTA) fixes are treated, and what disclosures manufacturers must provide when offering a repurchase or replacement. These topics come up frequently in real life—think of a vehicle that’s undriveable for weeks due to backordered parts, or a safety-related defect (like brake or airbag warnings) that returns despite multiple visits. Clarifying these points can make the process more predictable for consumers and manufacturers alike.
What can you do right now, regardless of the bill’s final form? Keep a complete paper trail: repair orders, dealer notes, mileage in and out, days your car was in the shop, and receipts for towing, rental, rideshare, or hotel expenses. Make sure the dealer writes your exact complaint on the work order (for example, “vehicle stalls when turning left” rather than “customer states issue”). Give the manufacturer a reasonable opportunity to fix the problem and follow any written notice requirements in your warranty booklet. If you think your vehicle meets the Lemon Law criteria, talk to ZapLemon for a case review and to discuss your options.
Are Lemon Law Settlements Taxable in California?
Whether a lemon law settlement is taxable depends on what the money represents. In many cases, a manufacturer “buyback” (repurchase) functions as a return of the vehicle’s purchase price, less a mileage/use offset, plus certain fees. A return of purchase price is often treated like a reduction in what you paid (return of capital), not ordinary income. Other components can be different: interest is generally taxable income; civil penalties are often taxable; and reimbursements for out-of-pocket costs may or may not be taxable depending on the circumstances. California typically follows federal principles, but you should confirm your specific situation with a tax professional.
Here’s how this can look in real life. Example 1: You receive a repurchase where the manufacturer pays off your auto loan, refunds your down payment and monthly payments, and reimburses registration fees, minus a mileage offset. That core refund often resembles a price adjustment rather than taxable income, but any interest included is usually taxable. Example 2: You accept a “cash-and-keep” payment to compensate for a defect while you keep the vehicle. Portions of that payment, especially any civil penalty, can be taxable. Example 3: Attorney’s fees and costs paid as part of the resolution can have complex tax treatment—manufacturers may issue Forms 1099 to you or your lawyer, and the way fees are paid or allocated in the agreement can affect reporting, even though it doesn’t automatically control the tax result.
Practical tips: ask for a written breakdown in your settlement agreement that separates repurchase amounts, interest, penalties, reimbursements, and fees; keep receipts for towing, rental cars, and other incidental expenses; and ask whether the manufacturer intends to issue a Form 1099 and to whom. Before you sign, consider speaking with a qualified tax advisor so you understand potential reporting and timing. For help evaluating whether your car qualifies under California’s Lemon Law and what resolution options might look like, contact ZapLemon for a consultation.
This article is for informational purposes only and is not legal or tax advice. Reading this blog does not create an attorney–client relationship with ZapLemon. Every situation is different, and laws and tax rules can change. If you believe your vehicle may qualify as a lemon—or you have questions about how a potential settlement could be treated for tax purposes—contact ZapLemon at (310) 489-3017 or https://zaplemon.com to request a consultation.