Ezel / Tax Rulings / KS
KS O-2006-002 Kansas Retailers' Sales Tax 2006-02-13

Is a separately stated premium for Guaranteed Auto Protection insurance subject to Kansas sales tax?

Short answer: No. Kansas treated Guaranteed Auto Protection coverage as insurance rather than a taxable sale. A GAP premium charged to a vehicle buyer or lessor was not subject to Kansas sales tax when the charge was separately stated. The opinion does not address a bundled or unstated GAP charge.

Apply this to your situation

This page answers the general question as of 2006. Ezel answers yours, under current Kansas tax law, with citations.

Currency note: this ruling is from 2006
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Kansas Department of Revenue Opinion Letter: written guidance stating the Department's interpretation of Kansas tax law on the facts presented. It is general guidance, does not have the force of law, and another taxpayer with different facts should not assume the same treatment applies; later changes in statutes, regulations, or interpretation may change the result. Kansas state and local sales and use taxes are administered centrally by the Department, so there is no self-collected home-rule city tax outside its scope. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.
View original ruling (PDF)

Plain-English summary

A correspondent asked whether Kansas sales tax applied to Guaranteed Auto Protection (GAP) insurance. The letter describes GAP insurance as covering the difference between the amount owed on a vehicle and the value assigned by an insurance company.

The Department answered no when the premium was separately stated. Kansas treated the product as insurance, and the sale of insurance was not subject to Kansas sales tax.

The conclusion covered separately stated GAP premiums charged to either a vehicle buyer or a lessor. The opinion did not state how Kansas would treat a GAP amount bundled into another charge without separate identification.

The Department noted that its position was consistent with cited guidance from Florida and Illinois, while South Dakota guidance then took a different approach. Those comparisons did not change the Kansas conclusion.

What this means for you

Auto dealers and lessors

Separately state the GAP insurance premium if relying on the treatment described in this opinion.

Vehicle buyers and lessors

A separately identified GAP premium was not part of the Kansas sales-tax base under the Department's 2006 guidance.

Accountants

Confirm that the charge is for insurance and is separately stated. The letter does not provide a rule for a bundled GAP charge.

Common questions

Q: Is a separately stated GAP insurance premium taxable in Kansas?
A: No. The Department treated it as a nontaxable sale of insurance.

Q: Does the answer apply to both buyers and lessors?
A: Yes. The opinion expressly refers to a separately stated charge to the buyer or lessor.

Q: What does GAP insurance cover?
A: The letter describes it as covering the difference between the vehicle debt and the value determined by an insurance company.

Q: Does the opinion address a GAP charge bundled into the vehicle price?
A: No. Its conclusion is expressly tied to a separately stated premium.

Citations and references

  • Florida Technical Assistance Advisement No. 02A-044 — cited as consistent treatment
  • Illinois General Information Letter ST-99-0226-GIL (July 14, 1999) — cited as consistent treatment
  • South Dakota Tax Facts No. 235 — cited as an example of different state treatment

Source

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

February 13, 2006

XXXX
XXXX
XXXX

RE: GAP Insurance

Dear XXXX:

Thank you for your recent e-mail. You ask if receipts from charges for GAP (Guaranteed Auto Protection) insurance are taxable in Kansas. Gap insurance insures a person for the difference between what is owed on a vehicle and what an insurance company says it's worth. GAP insurance is attractive to new car buyers and lessors since a new vehicle depreciates as soon as it is driven off the dealer's lot.

In Kansas, the sale of GAP insurance is treated as the sale of insurance, which is not subject to Kansas sales tax. Therefore, a premium charge for GAP insurance is not subject to Kansas sales tax when it is a separately stated charge to the buyer or lessor. This position is consistent with the tax treatment accorded to GAP insurance by several other states. See Florida Technical Assistance Advisement, No. 02A-044; Illinois General Information Letter ST-99-0226-GIL, July 14, 1999. Some states do, however, include GAP insurance payments in the tax base. See South Dakota Tax Facts #235.

I hope that I have clearly answered your question. Please call me if you need to discuss anything further.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 02/17/2006 Date Modified: 02/17/2006

Table 1

Letter Number: O-2006-002

Table 2

Tax Type: Kansas Retailers' Sales Tax
Brief Description: Sales taxability of GAP (Guaranteed Auto Protection) charges.
Keywords:
Approval Date: 02/13/2006

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