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Sales and Use Tax TAA 18A-003 - Common Area Maintenance Charges Paid

QUESTION: WILL COMMON AREA MAINTENANCE CHARGES BE TAXABLE WHEN PAID BY OWNERS OF REAL PROPERTY?

ANSWER: NO.

January 31, 2018

XXXX
XXXX
XXXX

Technical Assistance Advisement 18A-003
Sales & Use Tax – Taxability of Common Area Maintenance
Section 212.031, Florida Statutes (F.S.)
Rule 12A-1.070, Florida Administrative Code (F.A.C.)
XXX (The Taxpayer)

Dear XXXX:

This is in response to your letter dated November 20, 2017, 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 common area maintenance fees charged to “association owners.” Your petition has been carefully examined, and the Department finds it to be in compliance with the requisite criteria set forth in Rule Chapter 12-11, F.A.C. This response to your request constitutes a TAA and is issued to you under the authority of section 213.22, F.S.

Issue

The issue is whether common area maintenance fees (CAM fees) collected by the Taxpayer, from commercial property owners and used for common area maintenance, insurance, utilities and Taxpayer’s salaries and wages, are subject to Sales/Use Tax.

Facts

Your request provides in pertinent part:

To reiterate, this is not a commercial rental property and we are not collecting rent. This is an Association of owners of commercial property whereby CAM fees are being used to pay for the expenses of maintaining the common areas of the Association. These common area maintenance expenses are estimated for the year, billed to the owners in monthly installments, and then adjusted at the end of the year based on actual expenses paid. Refunds are made to Owners if actual expenses are less than fees collected, or additional amounts billed to Owners if actual expenses are more than fees collected. Please find enclosed the Associations Articles of Incorporation, Bylaws, and Covenants, Restrictions and Reciprocal Easements. I have highlighted pertinent information to evidence the owner relationship, purpose of the Association and Common Area Maintenance assessments.

In Article I, labeled, “Purposes,” of the Amended and Restated Articles of Incorporation of [the Taxpayer] (the Articles), section B provides one of the stated purposes of the Taxpayer is “[t]o own and maintain, repair and replace the general and/or Common Areas and other improvements in and/or benefiting . . . Plaza.”

Section E. of the Articles, provides that the Taxpayer is to “operate without profit for the benefit of its members.”

Article IV, labeled, “Members,” section A. provides in pertinent part that “[t]he members will consist of the Owners in . . . Plaza, and all such Owners will be members of the [the Taxpayer].”

The Amended and Restated Bylaws of [the Taxpayer] (the Bylaws), provides in Article VIII, section B., in pertinent part, the following:

The Board will adopt, for, and in advance of, each calendar year, a budget for the Association showing the estimated costs of performing all of the functions of the Association as to . . . XXX for the year. Each budget will show the total estimated expenses of the Association for that year and will contain an itemized breakdown of expenses, which will include, without limitation, the costs of operating and maintaining the Common Areas, taxes on Association property, wages and salaries of Association employees, management, legal and accounting fees, office supplies, public utility services not metered or charged separately to Sites, premiums for insurance carried by the Association and any reserve accounts and/or funds which may be established from time to time by the Board. Each budget will also show the proportionate share of the total estimated expenses to be assessed against and collected from the Owner of each Site and the due date(s) and amounts of installments thereof. . . .

The “Amended and Restated Declaration of Covenants, Restrictions and Reciprocal Easements for . . . Plaza (the Easement),” provides in Article IX, Section 9.1 that the Taxpayer “. . . was created for the purpose of providing a forum and structure within which Owners and Occupants [1] of portions of the Overall Site can make decisions affecting their common interests, and perform on behalf of Owners and Occupants such maintenance and other functions as provided herein or as such Owners deem appropriate. . . .” The Easement indicates the owners will pay the fees.

Applicable Law

Section 212.031(2)(a), Florida Statutes, states:

The tenant or person actually occupying, using, or entitled to the use of any property from which the rental or license fee is subject to taxation under this section shall pay the tax to his or her immediate landlord or other person granting the right to such tenant or person to occupy or use such real property.

Rule 12A-l.070(4)(b), Florida Administrative Code, provides in part:

The tax shall be paid . . . 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)(d), F.A.C., provides:

Common area maintenance charges paid by a tenant to the lessor for the privilege or right to use or occupy real property are taxable.

Payments made by the owners for their portion of the common area maintenance fees would not be taxable as rental income, since there is no relationship between the owners and the Taxpayer as ‘‘lessor’’ and “lessee.” However, if any of the subject fees are passed down to any person or entity occupying or leasing an owner’s commercial property, defined as an “occupant” in the Easement, such fees would be subject to tax as part of the consideration to use the subject real property.

Concluding Statement

The CAM fees, collected by the Taxpayer from the owners, are not subject to Sales/Use Tax. However, any fees paid by occupants, as defined in the Easement, are subject to tax (regardless of whether the owner or the Taxpayer receives the payment).

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 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 10 days of the date of this letter.

Respectfully,
R. Clay Brower
R. Clay Brower
Technical Assistance & Dispute Resolution
(850) 717-6306
Control No: 33703

End Note:

1 “Occupant” is defined in Article I, labeled “Definitions and References,” as “. . . a person or entity which occupies, from time to time, all or a portion of a Building or other improvements situated upon the Overall Site, whether pursuant to ownership, lease, sublease or otherwise.”

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