Sales and Use Tax TAA 14A-023 – Rentals, Leases – Real Property

QUESTION: IS THE TAXPAYER IS DUE A FULL CREDIT OF THE SALES TAX COLLECTED FROM ITS TENANTS OF 2 SPECIFIED LOCATION FOR 2 SPECIFIC MONTH.

ANSWER: BASED ON THE LIMITED INFORMATION PROVIDED REGARDING THE TAXPAYER’S MONTHLY RENTAL PAYMENTS AND RECEIPTS FOR THE SPECIFIED LOCATION, THE TAX AMOUNT PAID ON THE PRIME LEASE IS GREATER THAT THE TAX AMOUNT COLLECTED FROM THE SUBLEASE OF THE PROPERTY. THE TAXPAYER IS DUE A FULL CREDIT OF THE SALES TAX COLLECTED FROM ITS TENANTS OF THE SPECIFIED LOCATION FOR THE MONTH.

October 7, 2014

Re: Subject: Technical Assistance Advisement (TAA) 14A-023 Sales and Use Tax – Sublease of Real Property
Section 212.031, Florida Statutes (F.S.)
Rule 12A-1.070, Florida Administrative Code (F.A.C.) XXXX (“Taxpayer”)

FEI # XXXX XXXX (“Landlord”) FEI # XXXX

Dear XXXX:

This is in response to your letter dated XXXX, requesting this Department’s issuance of a Technical Assistance Advisement (“TAA”) pursuant to section 213.22, F.S., and Rule Chapter 12-11, F.A.C., concerning the calculation of a sales tax credit due for tax collected from a sublessee of real property for the month of XXXX. An examination of your letter has established you have complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for a TAA.

Facts

The Taxpayer’s letter dated XXXX, provides the following in part:

[The Taxpayer] is a nationwide provider of food & beverage and retail services in airports and along highways. [The Taxpayer] operates in XXXX service plazas and as part of its activities, leases real property from the [the Landlord] under a Concession Agreement and then subleases some of the real property to concessionaires or vendors (hereinafter referred to as “Sub Lessees” or “Vendors”) at those service plazas. [The Taxpayer’s] rent on its lease with the [Landlord] is calculated based on the higher of an established “Minimum Annual Guaranty” within its lease agreement or 5.75% of its gross receipts. This lease is unusual because the rent is not based upon square footage as is typical in most other commercial leases. Additionally, the lease is atypical because of the nature of the leased real property at issue (i.e. property situated in the middle of a XXXX thoroughfare only accessible after payment to the [the Landlord]).

[The Taxpayer] pays Florida and applicable county sales tax on the entire rental amount it
pays to the [the Landlord][ and collects tax on the total proceeds it receives for subleasing
or licensing real property to Vendors. To avoid the pyramiding of taxes, [the Taxpayer] is entitled under Florida law to a credit for the amount of the tax collected from the Vendors, which will offset a portion of the total sales tax it pays the [Landlord] under the Concession Agreement. We believe our approach in calculating the credit is reasonable because the amount [the Taxpayer] collect[s] from its Vendors is less than the amount paid pursuant to the Concession Agreement. For example, with respect to the gas station/convenience store operator, [the Taxpayer] charges $.01 per gallon of fuel sold by the Sub Lessee at each Service Plaza during the calendar year plus four percent of the revenue generated by the convenience stores.

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The Concession Agreement and Sublease provides that [the Taxpayer] is leasing the gas station space from the [Landlord] for a price per square foot more than what it receives from the Sub Lessee for the use of the space.

Based upon the terms of the Concession Agreement between [the Taxpayer] and the
[Landlord], we believe it is reasonable for [the Taxpayer] to claim the entire tax it collects on its sublease as a credit for this space using the methodology described above. Under the prior agreement with the [Landlord], [the Taxpayer] paid five cents per gallon for the lease of the gas station area space. Currently, the Sub Lessee is paying [the Taxpayer] $.01 per gallon of fuel sold at each Service Plaza during the calendar year plus four percent of convenience store sales.

. . . To date, [the Taxpayer] has not yet generated revenue from its concessions requiring them to pay the [Landlord] an amount above the required minimum payment.

. . . Consequently, in effect, [the Taxpayer] is therefore charged a tax on an amount that is above the amount of the tax they can collect from their Sub Lessees. In essence, they are subleasing part of the premises at a loss. . . . (Emphasis in Original)

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Along with its request for advisement, the Taxpayer included a copy of a spreadsheet which provides the amount of rent paid to the [Landlord] and received from Sub Lessees at the XXXX for the month of XXXX. The calculations provide that in XXXX, the Taxpayer subleased XXXX square feet of plaza space for XXXX per square foot. The Taxpayer’s calculations provide that the Taxpayer paid XXXX per square foot for the subleased area to the Landlord.

Requested Advisement

The Taxpayer requests that the Department issue a Technical Assistance Advisement declaring the following:

If the subleased rate per square foot per plaza is lower than the rental rate paid to the
[Landlord] for the month, [the Taxpayer] is entitled to a full credit for the tax collected. If
the amount of rent received per square foot is higher, the amount of rent received above the amount paid is remitted on the sales and use tax return each month. . . . The maximum credit permitted will be the tax collected per square foot on subleases up to the tax paid per square foot on the [Landlord] Concession Agreement.

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Applicable Authority and Discussion

The Department has not verified the square footage figures or rent and tax payment amounts that were provided with the Taxpayer’s request. This response does not address the method used by the Taxpayer to determine the amount of square footage subleased by the Taxpayer. This response addresses whether the Taxpayer is due a full credit for the sales tax paid to its landlord for the property it subleased at the XXXX for the month of XXXX. This response is based on the information provided by the Taxpayer and is limited to the XXXX for the month of XXXX. The response does not address any other XXXX locations or other time periods.

Section 212.031(1)(a), F.S., imposes sales tax on the privilege of engaging in the leasing of, or the granting of a license to use, real property. Section 212.031(1)(c), F.S., imposes the tax on the total rent or license fee charged for such real property by the person charging or collecting the rental or license fee. Rule 12A-1.070(4)(b), F.A.C, provides that tax is payable on all considerations due and payable by the tenant or other person occupying, using, or entitled to use any real property to his landlord or other person for the privilege of use, occupancy, or the right to use or occupy any real property for any purpose. Rule 12A-1.070(7)(a), F.A.C, provides that when a tenant sublets or assigns some portion of taxable leased property, the tenant is required to register as a dealer and collect and remit the tax on all such sub-rentals or assignments.

Section 212.031(2)(b), F.S., prohibits both pyramiding and inverse pyramiding of the tax by providing the “intent of this Legislature that only one tax be collected on the rental or license fee payable for the occupancy or use of any such property, that the tax so collected shall not be pyramided by a progression of transactions, and that the amount of tax due the state shall not be decreased by any such progression of transactions.”

In light of the Legislative intent that prohibits the pyramiding of sales tax, Rule 12A-1.070(8) and (9), F.A.C., provide measures that eliminate the pyramiding of sales tax in cases where commercial real property is subleased. Rule 12A-1.070(8), F.A.C, provides that when a lessee sublets a portion of the leased property, the lessee is authorized to take a proportional credit for the tax paid to the prime lessor on tax collected for the space that the lessee subleases.

In the case of the information regarding the Taxpayer’s November 2013 rental payments and receipts for the XXXX, the Taxpayer provides that it leased XXXX square feet at XXXX per square foot. The Taxpayer provides that it subleased XXXX square feet of the property at XXXX per square foot. Since the tax amount paid on the prime lease is greater that the tax amount collected from the sublease of the property, the Taxpayer is due a full credit of the tax collected from its tenants.

Conclusion

Based on the limited information provided, the Taxpayer is due a full credit of the sales tax collected from its tenants of the XXXX for the month of XXXX.

This response constitutes a Technical Assistance Advisement under section 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 section 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 that 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 section 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,

Brinton Hevey
Tax Law Specialist
Technical Assistance and Dispute Resolution 850/717-6839

Record ID: 176422

End Notes:

1 The Department made several requests to the Taxpayer for additional information upon which to make a determination for the TAA. Unfortunately sufficient information related only to the XXXX for the month of XXXX, was provided.