Is a GAP (Guaranteed Auto Protection) premium subject to Kansas sales tax?

Plain-English summary

The question was whether a GAP (Guaranteed Auto Protection) premium is subject to Kansas sales tax. The Department ruled that it is not, because GAP is treated as insurance.

What Kansas sales tax reaches. The Department restated the scope of the tax: "the Kansas sales tax is imposed [on] the privilege of engaging in the business of selling tangible personal property at retail in this state or the rendering or furnishing of any services taxable under the Kansas Retailers' Sales Tax Act." In other words, the tax hits retail sales of goods and specifically enumerated taxable services - and nothing else.

GAP is the sale of insurance. The Department concluded that "the GAP (Guaranteed Auto Protection) premium would be viewed as the sale of insurance in the state of Kansas. Therefore, the respective premium would not be subject to sales tax in this state." GAP coverage - which pays the difference between what a totaled or stolen vehicle is worth and what the owner still owes on it - is insurance, not a sale of tangible personal property or an enumerated taxable service.

Bottom line: a GAP premium is not subject to Kansas sales tax; it is treated as the sale of insurance.

What this means for you

Auto dealers and lenders offering GAP

Do not charge Kansas sales tax on the GAP premium. The Department treats it as the sale of insurance, which is outside the sales tax base.

The reason is the nature of the charge

Sales tax applies to retail sales of goods and enumerated taxable services. A GAP premium is insurance, so it falls outside both categories.

Separate from the taxable vehicle sale

This ruling addresses the GAP premium itself. The underlying sale or financing of the vehicle is a separate matter with its own tax treatment.

Common questions

Q: Is a GAP premium taxable in Kansas?
A: No. The Department ruled that a GAP (Guaranteed Auto Protection) premium is viewed as the sale of insurance and is not subject to Kansas sales tax.

Q: Why isn't it taxed?
A: Kansas sales tax applies to retail sales of tangible personal property and to enumerated taxable services. Insurance is neither, so the premium is not taxed.

Q: Does this affect the tax on the vehicle itself?
A: No. This ruling is only about the GAP premium. The sale of the vehicle has its own separate tax treatment.

Citations and references

• The Department applied the general scope of the Kansas Retailers' Sales Tax Act - which taxes retail sales of tangible personal property and enumerated taxable services - and concluded that a GAP (Guaranteed Auto Protection) premium is the sale of insurance, so it falls outside that base and is not subject to Kansas sales tax. No specific K.S.A. section was cited in the ruling for the holding.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2000-064

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 20, 2000

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Dear Ms. TTTTTT:

We wish to acknowledge receipt of your letter dated November 14, 2000, regarding the application of Kansas Retailers’ Sales tax.

The Kansas sales tax is imposed the privilege of engaging in the business of selling tangible personal property at retail in this state or the rendering or furnishing of any services taxable under the Kansas Retailers’ Sales Tax Act.

Please be advised that the GAP (Guaranteed Auto Protection) premium would be viewed as the sale of insurance in the state of Kansas. Therefore, the respective premium would not be subject to sales tax in this state.

This is a private letter ruling pursuant to K.A.R. 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This ruling will be revoked in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially effects this private letter ruling. If I may be of further assistance, please contact me at your earliest convenience at (785) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist

TPB

Date Composed: 11/21/2000 Date Modified: 10/11/2001

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