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Sales and Use Tax - TAA 16A-002 Rentals, Leases – Real Property

QUESTION: IS A TRANSACTION FEE, REQUIRED UNDER A LEASE OF REAL PROPERTY, SUBJECT TO SALES AND USE TAX?

ANSWER: YES

February 17, 2016

Re: Technical Assistance Advisement 16A-002 Commercial Rental

Sales & Use Tax
Section 212.031(1)(c), Florida Statutes (F.S.)
Rule 12A-1.070(4)(b), Florida Administrative Code (F.A.C.)

Dear XXX:

This is in response to your letter dated December 4, 2015, requesting this Department’s issuance of a Technical Assistance Advisement (“TAA”) pursuant to Section 213.22, F.S., and Rule Chapter 12-11, Florida Administrative Code (F.A.C.), regarding the taxability of a real property lease in Florida. An examination of your letter has established that 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.

ISSUE

The issue concerns the taxability of a transaction fee required in an agreement to sub-sublease real property.

FACTS AS PRESENTED

Sub-Sublessor and Sub-Sublessee entered into an entitled “Agreement to Sublease By and Between XXX and XXX (the Contract).1

Your request for TAA provides in part the following:

The Contract provides for the payment of a transaction fee in the amount of $400,000.00 per acre (the “Transaction Fee”) as consideration for the right and privilege to enter into the proposed Sub- Sublease Agreement (“Sub-Sublease”), a copy of which proposed Sub-Sublease is attached as an Exhibit to the Contract. The Transaction Fee is estimated to be approximately $4,648,000.00 based on the anticipated acreage of the lands being sub-leased. The Transaction Fee is treated in the Contract and the proposed Sub-Sublease separately from the rental amounts payable under the proposed Sub-Sublease, which rental amounts are set forth in Section 2 of Article III. The initial annual rental payable under the Sub-Sublease (the “Initial Annual Rental”) is $937.73 per acre (subject to annual adjustment as provided in the Contract and the proposed Sub-Sublease). Based on the anticipated acreage being sub-leased, the Initial Annual Rental is expected to be approximately $14,112.84 per year. . . .

Article III, of the Contract, provides the requirement that Sub-Sublessee shall pay a transaction fee, at the time of closing the subject agreement. The transaction fee is defined in Article I, of the Contract as “. . . the sum of Four Hundred Thousand and No/100 Dollars ($400,000.00) per acre . . . .”

RULINGS REQUESTED

The issue is whether the Transaction Fee constitutes a purchase price which would be subject to documentary stamp taxes for the privilege of entering into the proposed Sub-Sublease or if the fee constitutes rental consideration upon which sales tax would be due.

LAW AND DISCUSSION

Under Section 212.031, Florida Statutes (F.S.), sales tax is due on the lease or rental of real property. A tax of six percent, plus applicable county surtax, is levied on the total rent or license fee charged. The statute is clear that tax is due on the total rent charged including “payments for the granting of a privilege to use or occupy real property for any purpose and shall include base rent, percentage rents, or similar charges.” § 212.031(c), F.S. Additionally, Rule 12A-1.070, Florida Administrative Code, further clarifies that the tax is due “on all considerations due and payable by the tenant or other person actually 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(4)(b)(emphasis added).

Documentary stamp taxes are due when there is a transfer of a beneficial or ownership interest of real property. Pursuant to section 201.02(1), F.S., a tax is imposed on deeds, instruments, or writings whereby any lands, tenements, or other real property, or any interest therein, shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or any other person by his direction. The amount of the tax is $.70 on each $100.00 of consideration paid therefor.

RESPONSE

The transaction fee is subject to sales and use tax. The transaction fee contemplated in the sub-sublease agreement is paid in conjunction with the lease of real property as opposed to a transfer of ownership in real property. Section 212.031, Florida Statutes, provides that sales tax is due on the total rent charged and rule 12A-1.070(4)(b), F.A.C., further clarifies that tax shall be paid on all considerations due and payable by thetenant. Accordingly,thisfeeissubjecttosalesandusetaxpursuanttoSection212.031asitispartofthe total rent charged and is paid in consideration by the sub-subtenant.

Under section 201.02, F.S., documentary stamp taxes are due on the deeds and other instruments relating to a conveyance of an ownership interest in real property. The transaction fee is not related to a transfer of an ownership interest and documentary stamp tax would not be due on the subject fee.

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 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.

If you have any further questions with regard to this matter and wish to discuss them, you may contact me directly at (850) 717-6306.

Sincerely,

R. Clay Brower
Revenue Program Administrator
Technical Assistance & Dispute Resolution

Record ID: 208964

End Notes:

1. This is a sub-sublease and there exists (i) a prime ground lease (the “Prime Lease”) between the XXX and XXX, an independent special district established pursuant to Chapter 189, Florida Statutes, and (ii) a sublease between XXX and XXX of a portion of the lands leased to XXX under the Prime Lease, which lands include the premises which are the subject of the Contract and the proposed Sub-Sublease.

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