Are Guaranteed Auto Protection (GAP) premiums subject to Kansas sales tax?

Plain-English summary

The Department was asked whether Guaranteed Auto Protection (GAP) premiums are subject to Kansas sales tax. GAP coverage pays the difference between what a borrower still owes on a vehicle and what the vehicle is worth if it is totaled or stolen.

The Department concluded that a GAP premium is treated as the sale of insurance in Kansas. Because Kansas sales tax applies to retail sales of tangible personal property and to specifically enumerated services — not to the sale of insurance — the GAP premium is not subject to Kansas sales tax.

What this means for you

Auto dealers and lenders

When you charge a customer a GAP premium in connection with a vehicle sale or loan, you do not collect Kansas sales tax on that premium, because it is treated as insurance rather than a sale of goods or a taxable service.

Vehicle buyers

A GAP premium added to your purchase or financing is not itself a taxable charge for Kansas sales-tax purposes.

Common questions

Q: Is a GAP premium taxable in Kansas?
A: No. The Department treats it as the sale of insurance, which is not subject to Kansas sales tax.

Q: Why isn't it taxed like an add-on product?
A: Kansas sales tax reaches retail sales of tangible personal property and listed services. Insurance is neither, so the premium falls outside the tax.

Citations and references

• Kansas Retailers' Sales Tax Act — the Department stated the 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," and that "the GAP (Guaranteed Auto Protection) premium would be viewed as the sale of insurance in the state of Kansas," so "the respective premium would not be subject to sales tax in this state." The ruling cites no specific statute section.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2006-001

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

December 30, 2005

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Dear Mr. TTTTTT:

We wish to acknowledge receipt of your letter dated November 3, 2005, 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: 01/05/2006 Date Modified: 01/05/2006

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