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