Was a separately stated, optional guaranteed auto protection charge included in the taxable sales price of a financed motor vehicle?

Plain-English summary

The separately stated GAP charge was not subject to Florida sales tax. The product waived the unpaid loan balance remaining after insurance proceeds when a financed vehicle suffered a total loss or unrecovered theft.

The purchaser could freely decline the coverage, and the one-time price appeared separately in the affirmative election section of the form. Applying the optional-charge analysis from B & L Concepts, the Department held that the charge was not part of the vehicle's sales price.

What this means for you

The result depended on genuine customer choice and separate pricing. GAP that is mandatory, automatically bundled, or embedded in the vehicle price could present a different sales-price question.

Common questions

Q: Was the GAP charge taxable? No.

Q: Why not? It was strictly optional and separately stated on the election form.

Q: What loss did the product cover? The remaining financed balance after a total loss or unrecovered theft, beyond traditional insurance proceeds.

Citations and references

• Fla. Stat. § 212.02(16) — sales price
• Department of Revenue v. B & L Concepts, 612 So. 2d 720 (Fla. 5th DCA 1993)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02A-008

Original ruling text

SUMMARY

QUESTION: Is GAP (Guarantees Auto Protection) or Debt
Cancellation Insurance, offered to individuals who finance
a motor vehicle subject to Florida's sales and use tax?

ANSWER - Based on Facts Below: The Department finds that:
(i) the GAProtection is strictly optional at the sole
discretion of the purchaser and (ii) the one-time cost
charge for the GAProtection is separately stated on the
Election Form in the "Yes, I elect the GAProtection,"
portion of the Form. Given these facts, the charge for the
GAProtection is not part of the "sales price" and,
therefore, is not subject to sales tax.

Feb 19, 2002

Re: Technical Assistance Advisement 02A-008
Sales and Use Tax
Sales Price; Optional Purchase - Guaranteed Auto Protection
(GAP) Coverage
Section 212.02(16), F.S.

Dear :

This is in response to your letter January 25, 2002, in which
you asked for a technical assistance advisement concerning the
taxability of GAP (Guaranteed Auto Protection) or Debt
Cancellation Insurance, offered to individuals who finance a
motor vehicle through the XXX ("Taxpayer").

Taxpayer provides a product called GAProtection, which stands
for Guaranteed Auto Protection. GAP offers protection against
financial liability for individuals who finance a new or used
vehicle. GAP is a program that, when selected by the purchaser,
will waive the unpaid net balance remaining due to a physical
damage constructive total loss or a total unrecovered theft to
the collateral vehicle described on the form. This protection is

useful, because for the first few years after the purchase of a
vehicle, the loan/lease balance can be higher than the market
value of the vehicle (which is paid by traditional automobile
insurance). Without GAP, the vehicle owner would be liable for
the difference between the insurance settlement and the
outstanding loan/lease balance in the event of theft or other
total loss.

Borrowers who wish to purchase the GAP Product must sign an
Optional GAProtection Election Form. Upon execution of the
election form, the GAP Product becomes a feature of the loan,
affecting the total price paid for the credit. The purchase of
the GAP Product is strictly voluntary. As supporting
documentation, you provided a copy of an Election Form and
brochures for the product offered to your members.

Statutory and Regulatory Authority

The following statutory and case law are relevant to the issue
under advisement:

Section 212.02(16), F.S., defines the term "sales price"
for sales and use tax purposes as follows:

"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....

The above statutory definition was interpreted by a Florida
court in Department of Revenue v. B & L Concepts, 612 So.2d 720
(Fla. 5th 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 that 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.

Conclusion

Applying the tests used by the court in B & L Concepts, supra,
to the GAProtection, we find that: (i) the GAProtection is
strictly optional, at the sole discretion of the purchaser, and
(ii) the one-time cost charge for the GAProtection is separately
stated on the Election Form in the "Yes, I elect the
GAProtection" portion of the Form. Given these facts, the
precedent established in B & L Concepts, supra, compels a
finding that the charge for the GAProtection 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, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material, and this response, deleting names,
addresses, and any other details which might lead to
identification of the taxpayer. Your response should be received
by the Department within 15 days of the date of this letter.

Sincerely,

Horace Royals
Tax Law Specialist
Technical Assistance and Dispute Resolution

Control No. 48558