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Sales and Use Tax TAA 12A-027 Pass Through Utility Charge

QUESTION 1: The issue is whether utility charges, passed on to a lessee of real property,

constitute taxable rental consideration pursuant to section 212.031, F.S.

ANSWER: The utility charges, passed on to the lessee of real property, constitute taxable rental

consideration pursuant to section 212.031, F.S.

November 29, 2012

Re: Technical Assistance Advisement - 12A-027

Sales and Use Tax - Pass Through Utility Charge

Section 212.031, Florida Statutes (F.S.);

Rule 12A-1.070, Florida Administrative Code (F.A.C.)

XXX(“the Taxpayer”)

FEI #: XXX

Dear XXX:

This is in response to your letter dated XXX, 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., regarding the taxability of certain utility charges passed on to lessees pursuant to a

real property lease. 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 I

The issue is whether utility charges, passed on to a lessee of real property, constitute taxable

rental consideration pursuant to section 212.031, F.S.

FACTS

The Taxpayer is a church with an exemption certificate. Accordingly, the Taxpayer does not pay

sales tax on its purchases of utilities for the church. Taxpayer leases certain areas of the church

property in Florida to a for-profit corporation. The Taxpayer separately states and bills the lessee

for sales tax on utility charges, as part of the total rental consideration for the use of the property.

The tenant is refusing to pay the tax associated with these charges. Taxpayer requests advice on

whether the utility charge is taxable as part of the consideration paid for the use of real property.

The lease agreement, termed Commercial Lease (the Lease), provides in Article 3(A), “Lessee

shall be responsible for utilities and garbage collections attributable to its use of the Premises on

a pro rata basis as computed and invoiced by the Lessor.”

TAXPAYER POSITION

It is the Taxpayer’s position that the utility pass through charges are subject to sales and use tax.

The Taxpayer also requests that the Department charge the lessee for any interest and penalty

due to the lessee’s refusal to pay the tax.

LAW AND DISCUSSION

Section 212.031, Florida Statute (F.S.), provides that every person who engages in the business of

renting, leasing, letting, or granting a license for the use of any real property is exercising a taxable

privilege. This privilege is taxable at a rate of 6 percent of the total consideration due and payable

by the tenant for the use of real property for any purpose. S. 212.031(1)(c), F.S., Rule 12A1.070(4)(b), F.A.C.

As a general rule, charges for utilities that must be paid as "additional rent" by the lessee to the

lessor for the right or privilege to use or occupy real property are subject to tax. See Rule 12A1.070(4), F.A.C. However, s. 212.031(7), F.S., provides an exemption for utility charges "paid by a

tenant to the lessor and which are part of a payment for the privilege or right to use or occupy real

property . . . if the lessor has paid sales tax on the purchase of such utilities and the charges billed by

the lessor to the tenant are separately stated and at the same or a lower price than those paid by the

lessor."

Pursuant to section 212.031(7), F.S., and Rule 12A-1.070(4)(e), F.A.C, for pass through utility

charges to be exempt, the following three requirements must be met:

1. The lessor must have already paid sales tax on the purchase of the utilities from the utility

provider;

2. The utilities billed by the lessor to the tenant must be separately stated on the lessor's

invoice to the tenant; and

3. The utility charges billed to the tenant must be at the same or lower price as those billed by

the utility company to the lessor.

In the present case, the lessor did not pay sales tax on the purchase of the utilities from the utility

provider; hence, the pass through utility charges to the tenant are not exempt from sales tax under s.

212.031(7), F.S. The charge for utilities to the tenant is subject to sales tax as part of the

consideration paid for the use of the real property, pursuant to s. 212.031(1)(c), F.S. and Rule 12A1.070(4)(e), F.A.C. With regard to your request that the Department collect the interest and penalty

from the lessee, please be advised both the lessee and lessor are co-liable for any sales and use tax

due the State of Florida. While the tenant is required to pay the tax to the Taxpayer, the Taxpayer is

required to collect and remit such tax. See s. 212.031(3), F.S.

RESPONSE

The utility charges, passed on to the lessee of real property, constitute taxable rental

consideration pursuant to section 212.031, F.S.

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 15 days of the date of this

letter.

Sincerely,

R. Clay Brower

Revenue Program Administrator

Technical Assistance and Dispute Resolution

(850) 717-6306

RCB/

Ctrl# 133564

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