Was a separately stated, voluntary GAP charge included in the taxable sales price of a financed motor vehicle?

Plain-English summary

The separately stated GAP charge was not part of the motor vehicle's taxable sales price. The borrower could decide alone whether to buy the product, and declining it did not prevent the vehicle financing transaction.

The GAP addendum provided for cancellation or forgiveness of part of the customer's debt if the financed vehicle became a total loss from unrecovered theft or physical damage and the outstanding loan exceeded the vehicle's actual cash value.

Florida applied a court-created line between vendor-imposed charges and buyer-controlled optional charges. A fee imposed at the seller's option is part of taxable sales price; a separately itemized fee that the buyer alone can avoid is incidental and excluded.

What this means for you

Optional status and separate statement worked together. The ruling would not support exclusion where GAP coverage is mandatory, embedded in the vehicle price, or not separately identified.

The Department's conclusion was that this charge was outside the vehicle's sales price, not a broad ruling about every GAP or debt-cancellation product.

Common questions

Q: Was the GAP product mandatory? No. Purchase was strictly voluntary at the buyer's sole discretion.

Q: Was the charge separately shown? Yes, in the addendum's "cost of plan" box.

Q: Why was it excluded from sales price? The buyer alone could avoid it, and it was separately itemized.

Q: Would a required or bundled GAP charge receive the same result? The ruling does not say so. Those facts would not satisfy the optional, separately stated test it applied.

Citations and references

• Fla. Stat. § 212.02(16) — sales price includes services that are part of the sale
• Department of Revenue v. B & L Concepts, Inc., 612 So. 2d 720 (Fla. 5th DCA 1993) — buyer-controlled optional charges excluded from sales price
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-055

Original ruling text

SUMMARY

The Department ruled that a certain insurance type product
referred to as GAP coverage offered with the sale of motor
vehicles was not part of the taxable selling price. In
reaching this finding the Department followed the precedent
established in Department of Revenue v. B & L Concepts, 612
So.2d 720, 721 (Fla. 5 DCA 1993), for determining whether a
particular service is part of the taxable selling price.
Consistent with this case law, since the GAP coverage is
separately stated and is strictly optional at the sole
discretion of the buyer of the motor vehicle, it was
determined that the GAP charge does not constitute a
component of the selling price of the motor vehicle and is,
therefore, not subject to tax.

Aug 20, 1997

Re: Technical Assistance Advisement 97(A)-055
Sales Tax - Guaranteed Auto Protection (GAP) Coverage
Sales Price; Optional Purchase
Taxpayer: XXXX (the "Taxpayer")
Federal Identification Number: XXX
Sales Tax Registration Number: XXX

Dear :

This response is in reply to your February 25, 1997, petition
for the Department's issuance of a Technical Assistance
Advisement ("TAA") pursuant to s. 213.22, F.S. Your petition
regards the referenced matter and party. The Department has
carefully examined your petition and finds it to meet the
criteria set forth in Chapter 12-11, F.A.C., requisite to
issuance of a TAA. Therefore, the Department is by this
response issuing the requested TAA.

DISCUSSION OF FACTS

Your petition imparts the following significant information
regarding the issues under advisement herein:

[The Taxpayer] finances the sale of numerous motor vehicles
from motor vehicle sales persons to consumers. The motor
vehicle salespersons, at the time of the sale, take or
retain a security interest in the motor vehicles pursuant
to retail installment sales contracts (the "Contracts"), a
sample form of which is attached as Exhibit B. The motor
vehicle sales persons contemporaneously assign to [the
Taxpayer] all right, title and interest of the sales
persons in the Contracts and [the Taxpayer] pays to the
sales persons all amounts due under the Contracts.

At the time the Contracts are executed, borrowers are given
the opportunity to enroll in and pay for a plan called
[Taxpayer] Guaranteed Auto Protection (the "GAP Product").
The GAP Product is an agreement whereby a portion of the
customer's debt may, under certain circumstances, be
cancelled or forgiven. If the customer purchases the GAP
Product, the customer pays [the Taxpayer] a one-time fee of
XXX. The GAP Product pays or covers 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
the GAP Product is strictly voluntary.

Borrowers who wish to purchase the GAP Product must sign a
GAP Loan Addendum (the "Addendum") which amends the terms
of the Contracts. A copy of the Addendum is attached as
Exhibit C and a copy of a customer brochure regarding the
GAP Product is attached as Exhibit D. Upon execution of
the Addendum, the GAP Product becomes a feature of the loan
affecting the total price paid for the credit. Unlike
other providers who offer similar products, [the Taxpayer]
charges a uniform price for the GAP Product for all
vehicles and loan terms.

ISSUE

You endeavor to receive the Department's advice regarding the

issue whether the amount paid for the [Taxpayer's] GAP Product
is exempt from Florida sale and use tax as a finance charge.

DISCUSSION OF LAW

We consult the following, statutory and case law in addressing
the issue under advisement herein:

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

(16) "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....
(Emphasis Supplied)

The above statutory definition was interpreted by a Florida
court in the matter of Department of Revenue v. B & L Concepts,
612 So.2d 720, 721 (Fla. 5 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 where 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 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.

CONCLUSIONS OF LAW

Applying the tests used by the court in B & L Concepts to the
GAP Product, we find that: (i) the GAP Product is strictly
optional at the sole discretion of the purchaser and (ii) the
charge for the GAP Product is separately stated in the "cost of
plan" box on the Addendum. Given these facts, the precedent
established in B & L Concepts compels a finding that the charge
for the GAP Product 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 and your request are
public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect confidential
information, we request you notify the undersigned in writing
within 15 days of any deletions you wish made to the request or
this response.

Sincerely,

Daniel M. Wagner, Jr.

Tax Law Specialist

DW/dw
Control No. 28065