Was a separately stated, optional guaranteed auto protection charge included in the taxable sales price of a financed vehicle?

Plain-English summary

The separately stated GAP waiver charge was not subject to Florida sales tax. A member financing a new or used vehicle could choose coverage for the difference between the outstanding loan balance and the vehicle's actual cash value after certain total losses.

The decisive facts were that the buyer alone chose whether to purchase GAP, the lender did not require it to make the loan, and the election form separately stated the one-time charge. Under the court test cited by the Department, a separately itemized fee that the buyer can avoid by the buyer's own decision is incidental to the sale rather than part of the taxable sales price.

What this means for you

Optionality and separate statement both mattered. This ruling does not say every GAP or ancillary vehicle-financing charge is nontaxable; a required charge, seller-imposed fee, or differently documented product could be included in the sales price.

Common questions

Q: Did the borrower have to buy GAP to obtain the loan? No.

Q: Was the GAP charge bundled into the vehicle price? No. It was separately stated on the signed election form.

Q: Why did those details matter? The cited court decision distinguished seller-imposed charges from separately itemized charges the purchaser alone could avoid.

Citations and references

• Fla. Stat. § 212.02(16) — sales price
• Department of Revenue v. B & L Concepts, 612 So. 2d 720 (Fla. 5th DCA 1993)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02A-044

Original ruling text

SUMMARY

QUESTION: Is GAP (Guaranteed Auto Protection) offered to
individuals who finance a motor vehicle subject to
Florida's sales and use tax?

ANSWER - Based on Facts Below: The Department finds that:
(i) the GAP Waiver is strictly optional at the sole
discretion of the purchaser and (ii) the one-time cost
charge for the GAP Waiver is separately stated on the
Election Form in the "Yes, I elect the GAP Waiver" portion
of the Form. Given these facts, the charge for the GAP
Waiver election is not part of the "sales price" and,
therefore, is not subject to sales tax.

Oct 15, 2002

Re: Technical Assistance Advisement 02A-044
Sales Price; Optional Purchase - Guaranteed Auto Protection
(GAP) Coverage
Section 212.02(16), F.S.

Dear :

This is in response to your letter of September 27, 2002, in
which you asked for a technical assistance advisement concerning
the taxability of GAP (Guaranteed Auto Protection) offered to
individuals who finance a motor vehicle through the XXX
("Taxpayer").

Taxpayer currently offers Guaranteed Auto Protection ("GAP")
insurance to its members. GAP offers protection against
financial liability for Taxpayer members who finance a new or
used vehicle with Taxpayer by paying, subject to certain
exceptions, the difference between the outstanding loan balance
and the actual cash value of a financed vehicle that has been
declared a total loss due to an unrecovered theft or physical
damage. The purchase of GAP is strictly voluntary at the option
of the member and is not required to obtain a loan from Taxpayer

for the purchase of a vehicle. Members who wish to purchase GAP
must sign a GAP Waiver Addendum -Election Form. Members who wish
to purchase GAP also receive a Program Brochure, which contains
a summary description of GAP. The charge for GAP is separately
stated on the GAP Waiver Addendum -Election Form. As supporting
documentation, you provided a copy of the GAP Waiver AddendumElection Form and brochures for the product offered by the
Taxpayer.

Statutory and Regulatory Authority

Section 212.02(16), F.S., defines the term "sales price" for
sales and use tax purposes as follows:

"Sales price" means the total amount paid for tangible
personal property, including any services that are a part
of the sale, valued in money, whether paid in money or
otherwise, and includes any amount for which credit is
given to the purchaser by the seller, without any deduction
therefrom on account of the cost of the property sold, the
cost of materials used, labor or service cost, interest
charged, losses, or any other expense whatsoever....

The above statutory definition was interpreted by a Florida
court in Department of Revenue v. B & L Concepts, 612 So. 2d 720
(Fla. 5th DCA 1993). The court applied the following standard
in analyzing whether late fees, order processing fees, and
delivery fees billed in connection with the lease of household
appliances, furniture, and home entertainment products were part
of the taxable "sales price":

We hold that in the context of this problem, the proper
line of demarcation is that if service charges or fees
incidental to the sale or lease are imposed at the option
of the vendor or lessor, those service charges or fees are
a part of the "sales price" and are subject to the sales
tax, but if such service charges or fees are separately
itemized and applied at the sole option or election of the
vendee or lessee, or can be avoided by decision or action
on the part of the vendee or lessee alone, then those
charges and fees are only incidental to the sale, are not

part of the "sales price" and are not subject to sales tax.

Applying this line of reasoning, the court held that the late
fees and delivery fees were to be excluded from the taxable
"sales price," since the late fees could be avoided by the
timely return of the rented items and because of the optional
nature of the delivery fee.

Conclusion

Applying the tests used by the court in B & L Concepts, supra,
to the Taxpayer's GAP Waiver Addendum, we find that: (i) GAP is
strictly optional, at the sole discretion of the purchaser, and
(ii) the one-time cost charge for the GAP Waiver Addendum is
separately stated on the Election Form in the "Yes, I elect the
GAP Waiver" portion of the Form. Given these facts, the
precedent established in B & L Concepts, supra, compels a
finding that the charge by the Taxpayer for the GAP Waiver, and
the protection provided by it, is not part of the "sales price"
and, therefore, is not subject to sales tax.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material, and this response, deleting names,
addresses, and any other details which might lead to

identification of the taxpayer. Your response should be
received by the Department within 15 days of the date of this
letter.

Sincerely,

Horace Royals
Tax Law Specialist
Technical Assistance and Dispute Resolution

Control No. 52073