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Ezel / Tax Rulings / KS
KS P-2002-090 Kansas Retailers' Sales Tax 2002-11-05

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

Short answer: No. A Guaranteed Auto Protection (GAP) premium is viewed as the sale of insurance in Kansas, so the premium is not subject to Kansas sales tax. The Kansas sales tax is imposed on selling tangible personal property at retail or furnishing services taxable under the Kansas Retailers' Sales Tax Act, and an insurance premium is neither.

Apply this to your situation

This page answers the general question as of 2002. Ezel answers yours, under current Kansas tax law, with citations.

Currency note: this ruling is from 2002
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 Private Letter Ruling (numbered P-2002-090), issued under K.A.R. 92-19-59 to the taxpayer who requested it based solely on the facts provided; identifying details are redacted. It is null and void if material facts were not disclosed, and is automatically revoked by operation of law if a statute, administrative regulation, case law, or published revenue ruling that materially affects it changes. It binds the Department only as to the requesting taxpayer and cannot be cited or relied upon as precedent by anyone else. 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 taxpayer asked whether Guaranteed Auto Protection (GAP) premiums are subject to Kansas sales tax. The Department's answer: no.

Why. The Kansas sales tax is imposed on the privilege of engaging in the business of selling tangible personal property at retail in Kansas or rendering or furnishing any services taxable under the Kansas Retailers' Sales Tax Act. A GAP premium is viewed as the sale of insurance in Kansas — it is neither a sale of tangible personal property nor an enumerated taxable service — so the premium is not subject to Kansas sales tax.

(GAP coverage pays the difference between what a borrower still owes on a vehicle and what standard insurance pays if the vehicle is totaled or stolen.)

What this means for you

Auto dealers and lenders selling GAP

A GAP premium you charge is treated as insurance and is not subject to Kansas sales tax. Don't add sales tax to the GAP premium line.

Distinguish insurance from taxable add-ons

Not every dealership add-on is insurance. Products that are not insurance — for example, certain service contracts, appearance packages, or tangible add-ons — can be taxable. GAP's tax-free treatment here rests specifically on its character as insurance.

Keep the premium separately identified

Because the exemption depends on the charge being an insurance premium, keep it separately stated and documented as insurance rather than bundled into a taxable charge.

Common questions

Q: Do we charge Kansas sales tax on a GAP premium?
A: No. The Department treats a GAP premium as the sale of insurance, which is not subject to Kansas sales tax.

Q: Why isn't it taxable?
A: Kansas sales tax applies to retail sales of tangible personal property and to enumerated taxable services. An insurance premium is neither.

Q: Does this cover all dealership add-ons?
A: No. This ruling addresses GAP specifically because it is insurance. Other add-ons may be taxable depending on what they are.

Q: Does this ruling apply to my business?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others, though it reflects the Department's treatment of GAP as insurance.

Citations and references

  • Sales tax imposition — Kansas sales tax applies to selling tangible personal property at retail or furnishing services taxable under the Kansas Retailers' Sales Tax Act; a GAP premium is neither.
  • Insurance characterization — the Department views a GAP premium as the sale of insurance, which is not subject to Kansas sales tax.
  • K.A.R. 92-19-59 — the regulation authorizing Kansas private letter rulings.

Source

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 5, 2002

TTTTTTTTTTT
TTTTTTTTTTT
TTTTTTTTTTT
TTTTTTTTTTT

Dear Mr. TTTTTT:

We wish to acknowledge receipt of your letter dated November 2, 2002, 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: 11/15/2002 Date Modified: 11/15/2002

Table 1

Ruling Number: P-2002-090

Table 2

Tax Type: Kansas Retailers' Sales Tax
Brief Description: Guaranteed Auto Protection (GAP) premiums.
Keywords:
Approval Date: 11/05/2002

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