Is the sale of a Guaranteed Asset Protection (GAP) waiver contract taxable as part of the price of a motor vehicle in Nebraska?

Plain-English summary

When you finance a car, the dealer often offers a Guaranteed Asset Protection (GAP) waiver for a separate charge. If the vehicle is totaled or stolen and not recovered, a GAP waiver cancels the "gap" between what your insurance pays and what you still owe on the loan or lease. This ruling answers a narrow but common question: is that GAP waiver charge subject to Nebraska sales and use tax?

The Department's answer: yes. When the GAP waiver is sold by the retail seller of the vehicle (the "creditor") to the vehicle purchaser (the "borrower"), the charge is part of the sales or lease price of the motor vehicle and is taxable.

The reasoning turns on two points:

1. Sales tax applies to the whole sales price, not just the car. Nebraska taxes the total consideration for the sale, including the seller's costs and charges for services necessary to complete the sale (Neb. Rev. Stat. §§ 77-2701.16, 77-2701.35; Reg-1-001.02). A GAP waiver sold as part of the vehicle deal falls inside that total price.
2. A GAP waiver is not insurance. Nebraska excludes insurance contracts subject to the premium tax from sales and use tax (Neb. Rev. Stat. § 77-908). But the Guaranteed Asset Protection Waiver Act (Laws 2010, LB 571) specifically distinguishes GAP waivers from GAP insurance and exempts the waivers from Department of Insurance regulation. Because a GAP waiver is not an insurance contract subject to the premium tax, it does not get the insurance exclusion -- so it stays inside the taxable vehicle sales price.

The ruling cites two Lancaster County District Court decisions -- Farmer's Cooperative v. Nebraska Dep't of Revenue (2014) and Enterprise Rent-a-Car Co. Midwest LLC v. Nebraska Dep't of Revenue (2012) -- for the breadth of "sales price."

What this means for you

Auto dealers and other motor vehicle sellers

If you sell a GAP waiver to a vehicle buyer as part of the deal, collect Nebraska sales tax on the GAP waiver charge as part of the vehicle's taxable sales or lease price. Treating it as a nontaxable insurance product is the specific error this ruling addresses. Note the broad definition of "motor vehicle" here -- it includes automobiles, trucks, motorcycles, RVs, ATVs, snowmobiles, campers, boats, personal watercraft, and related trailers.

Vehicle buyers

Expect to see sales tax applied to a GAP waiver charge that is part of your vehicle purchase or lease -- it is taxed as part of the vehicle price, not as separate insurance.

GAP insurance vs. GAP waiver

The distinction matters. A true GAP insurance product regulated as insurance and subject to the premium tax is treated differently. This ruling addresses GAP waivers under the Guaranteed Asset Protection Waiver Act; the Department invites questions about the taxability of a specific GAP contract.

Common questions

Q: Is a GAP waiver charge taxable in Nebraska?
A: Yes, when sold by the vehicle's retail seller to the buyer, it is part of the vehicle's sales or lease price and subject to sales and use tax.

Q: Why isn't it treated like tax-exempt insurance?
A: Because a GAP waiver is not insurance. The Guaranteed Asset Protection Waiver Act exempts GAP waivers from Department of Insurance regulation, so they are not insurance contracts subject to the premium tax and do not qualify for the sales-tax exclusion in Neb. Rev. Stat. § 77-908.

Q: What counts as a "motor vehicle" for this ruling?
A: A broad range of self-propelled or towed vehicles -- automobiles, trucks, motorcycles, RVs, ATVs, snowmobiles, campers, boats, personal watercraft, and related trailers (Neb. Rev. Stat. § 45-1103(8)).

Q: What is a GAP waiver, exactly?
A: A contractual agreement where the creditor agrees, for a separate charge, to cancel or waive the remaining balance on the finance agreement if the vehicle suffers a total physical damage loss or unrecovered theft (Neb. Rev. Stat. § 45-1103(7)).

Citations and references

• Neb. Rev. Stat. § 77-2703 -- motor vehicle sales subject to sales and use tax.
• Neb. Rev. Stat. §§ 77-2701.16, 77-2701.35 -- "sales price" is the total consideration, including the seller's costs and charges for services necessary to complete the sale.
• Neb. Rev. Stat. § 77-908 -- insurance contracts subject to premium tax are not subject to sales and use tax.
• Neb. Rev. Stat. § 45-1103(1), (2), (7), (8) -- Guaranteed Asset Protection Waiver Act definitions (borrower, creditor, GAP waiver contract, motor vehicle); the Act is Laws 2010, LB 571.
• Reg-1-001.02 (Nature of the Sales Tax) -- tax is on the total sales price, not merely the article sold.
• Farmer's Cooperative v. Nebraska Dep't of Revenue, CI 13-2325 (Dist. Ct. Lancaster Cty. Mar. 5, 2014); Enterprise Rent-a-Car Co. Midwest LLC v. Nebraska Dep't of Revenue, CI 11-3101 (Dist. Ct. Lancaster Cty. Nov. 5, 2012).

Source

• Landing page: https://revenue.nebraska.gov/about/legal-information/revenue-rulings-issued-tax-commissioner
• Original PDF: https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/legal/rulings/rr011601_GAP_waiver.pdf

Original ruling text

Revenue Ruling 01-16-1

Sales and Use Tax

March 7, 2016

Guaranteed Asset Protection (GAP) Waiver Contracts
This guidance document is advisory in nature but is binding on the Nebraska Department of Revenue
(Department) until amended. A guidance document does not include internal procedural documents
that only affect the internal operations of the Department and does not impose additional requirements
or penalties on regulated parties or include confidential information or rules and regulations made in
accordance with the Administrative Procedure Act. If you believe that this guidance document imposes
additional requirements or penalties on regulated parties, you may request a review of the document.
This guidance document may change with updated information or added examples. The Department
recommends you do not print this document. Instead, sign up for the subscription service at revenue.
nebraska.gov to get updates on your topics of interest.

Issue
Is the sale of a Guaranteed Asset Protection (GAP) waiver contract included in the sales price of a
motor vehicle and subject to sales and use tax?

Conclusion
The sale of a GAP waiver contract made between the purchaser of a motor vehicle (borrower) and
the retail seller of motor vehicles (creditor) is part of the sales or lease price of the motor vehicle
and subject to sales and use tax.

Definitions (for purposes of determining the taxability of GAP waiver contracts)
Borrower. Borrower means a debtor, retail buyer, or lessee under a finance agreement. See
Neb. Rev. Stat. § 45-1103(1).
Creditor. Creditor means any retail seller, including a lessor, of motor vehicles that provides credit
to retail buyers of motor vehicles. See Neb. Rev. Stat. § 45-1103(2).
Guaranteed Asset Protection (GAP) Waiver Contract. GAP waiver contract means a contractual
agreement where a creditor or the creditor’s designee agrees, for a separate charge, to cancel
or waive all or part of any remaining amounts due on a borrower’s finance agreement if the
motor vehicle purchased or leased suffers a total physical damage loss or unrecovered theft. See
Neb. Rev. Stat. § 45-1103(7).
Motor Vehicle. Motor vehicle means self-propelled or towed vehicles designed for personal or
commercial use, including, but not limited to, automobiles, trucks, motorcycles, recreational
vehicles, all-terrain vehicles, snowmobiles, campers, boats, personal watercraft, and motorcycle,
boat, camper, and personal watercraft trailers. See Neb. Rev. Stat. § 45-1103(8).

Analysis
The Guaranteed Asset Protection Waiver Act (Act) (see Laws 2010, LB 571) provides a framework
for a creditor who is not an insurer or a financial institution to sell GAP waiver contracts in
Nebraska. The Act defines GAP waiver contracts as contractual agreements between a creditor and
Nebraska Department of Revenue, PO Box 94818, Lincoln, Nebraska 68509-4818

Revenue Ruling 01-16-1

March 7, 2016

Page 2 of 2

a borrower where the only benefit to the borrower is the creditor’s promise to waive or cancel the
amount due on a finance agreement from the sale of a motor vehicle in the event of a total physical
loss or unrecovered theft of the motor vehicle. The sale of GAP waiver contracts are subject to
compliance with the Act.
The Act also distinguishes these GAP waiver contracts from GAP insurance contracts and
specifically exempts the GAP waiver contracts from regulation by the Nebraska Department of
Insurance. While gross receipts from the sales of motor vehicles are subject to sales and use tax
pursuant to Neb. Rev. Stat. § 77‑2703, insurance contracts and agreements subject to the premium
tax under Neb. Rev. Stat. § 77‑908 are not subject to sales and use taxes.
Sales and use taxes are imposed on the total sales price of tangible personal property and not
merely “upon the article sold,” per Reg-1-001.02, Nature of the Sales Tax. The sales price is the
total amount of consideration for which personal property or services are sold, leased, or rented.
The sales price includes, among other identified costs and expenses, the seller’s costs and the
charges by the seller for any services necessary to complete the sale. Neb. Rev. Stat. §§ 77-2701.16,
77‑2701.35; see also Farmer’s Cooperative v. Nebraska Dep’t of Revenue, CI 13-2325 (District
Court of Lancaster County (Mar. 5, 2014)); and Enterprise Rent-a-Car Co. Midwest LLC v. Nebraska
Dep’t of Revenue, CI 11-3101 (District Court of Lancaster County (Nov. 5, 2012)). Sales of GAP
waiver contracts are part of the sales price of the motor vehicle (Neb. Rev. Stat. § 77‑2701.35) and
are subject to sales and use tax.
Please contact the Department of Revenue if you have any questions regarding the taxability of a
specific GAP contract.
APPROVED:

Tony Fulton
Tax Commissioner
March 7, 2016