Sales and Use Tax TAA 19A-023 Sales and Use Tax-Lease of Real Property

QUESTION: Is a payment for reimbursement of certain costs associated with the agreement for

the use of real property subject to a different sales tax rate?

ANSWER: No. The payments pursuant to the agreement are both for rent.

November 13, 2019

XXXXXXXXX

XXXXXXXXX

XXXXXXXXX

Subject: Technical Assistance Advisement (“TAA”)

TAA 19A-023

AMS#: XXXXXXXX

Sales and Use Tax-Lease of Real Property

Section 212.031, Florida Statutes (“F.S.”)

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

XXXXXXXXX (“Petitioner”) (“Taxpayer”)

Business Partner Number: XXXXXXXXX

FEIN: XX-XXXXXXX

XXXXXXXXXX (“Operator”)

XXXXXXXXXX (“River”)

XXXXXXXXXX (“Recreational Facility”)

XXXXXXXXX (“Agreement”)

XXXXXXXXX (“Sheriff’s Office”)

XXXXXXXXX (“Deputy”)

Dear XX XXXXXXXXX:

This letter is a response to your petition dated June 27, 2019 for the Department’s issuance of a

Technical Assistance Advisement (“TAA”) to Petitioner regarding payments pursuant to

Agreement made by Operator to Taxpayer for the use of facilities at Recreational Facility.

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

What tax rate applies to the payments pursuant to Agreement from Operator to Taxpayer?

Facts

Taxpayer and Operator entered into an Agreement that provided Operator with the exclusive

right to rent kayaks and other equipment on Taxpayer’s Recreational Facility. Operator was

granted the exclusive right to use boat ramps and other space at Recreational Facility. The

Agreement provided for a single monthly payment which varied in the amount.

To address complaints regarding River navigation rule violations, the Agreement was amended

in 2018. The Agreement provided of a payment of a $ XXXXXXXX, plus sales tax. The

Agreement also required Operator to make its best efforts to reach an agreement with the

Sheriff’s Office to enforce navigation rules on the River. The amended Agreement required

Operator to fund the cost incurred by the Sheriff’s Office.

Since the Sheriff’s Office would not enter into an agreement with Operator, Taxpayer and

Operator further amended the Agreement. The second amended Agreement requires Taxpayer

to hire the Deputy from the Sheriff’s Office to enforce River navigation rules. The second

amended Agreement also requires Operator to pay an additional payment of $XXXXXXXX, plus

sales tax, to reimburse Taxpayer for the cost related to hiring the Deputy.

Taxpayer Position

Taxpayer believes that the $XXXXXX payment is for real property rental subject to the tax rate

imposed by s. 212.031, F.S. Taxpayer believes that the $XXXXXXX payment is subject to the

general tax rate of 6%, plus discretionary surtax. Taxpayer believes that the provision included

in s. 212.031(1)(c), F.S., requiring an allocation of the rental payment and other charges for the

use of personal property requires a different tax rate than the one imposed by s. 212.031, F.S.

Applicable Law

Section 212.031(1)(a), F.S., provides that every person is exercising a taxable privilege

who engages in the business of renting, leasing, letting, or granting a license for the use

of any real property. Section 212.031(3), F.S., provides that tax is due and payable at

the time of the receipt of such rental payment by the lessor or other person who

receives the rental or payment. Section 212.031(1)(c), F.S., provides that tax is levied on

the total rent or license fee charged for such real property by the person charging or

collecting the rental or license fee. Section 212.031(1)(c), F.S., also provides that

charges for the use of certain intrinsically valuable personal property are not subject to

the tax imposed by s. 212.031, F.S. The latter provision is inapplicable because

Agreement does not lease or sell personal property to Operator. Agreement only allows

for the use of real property (with Deputy).

Rent is defined as “consideration paid, usually periodically, for use or occupation of

property.” Cascella v. Canaveral Port Authority, 827 So.2d 308, 310 (Fla. 5th DCA 2002)

(Citing Black's Law Dictionary 1299 (7th ed. 1999)). In Seaboard Coastline Railroad

Company v. Askew, Case #72-15 (Fla. Cir. Ct., 2nd Cir., Leon Co., 1972) (hereinafter

“Seaboard Coastline”) the court addressed the issue of what is included as rental

consideration and held as follows:

The consideration paid by the tenant for the privilege conferred by the

lease is “rent.” Rent may be payable in cash, or in some commodity, or by

rendering specified services. Rent may be payable directly to the lessor or

to some other person either specified in the lease or directed by the

lessor.... Section 212.031 imposes a tax upon “the total rent charged” for

the “renting, leasing or letting” of real estate.... While taxes are not

specifically mentioned, this language clearly indicates a legislative intent

to tax the full benefits flowing to the landlord for the use of leased

premises.... The payment of these taxes by the lessee is the payment of

money for account of the owner and for his benefit.... A tax [sales tax] is

imposed upon a transaction and measured by the rent. In every rental

transaction the amount of taxes upon the rented property is necessarily

considered by the parties in determining the rent to be charged and paid

whether the taxes be paid by the landlord from a fixed monthly or annual

rental or paid for the landlord by the tenant.

As provided by Seaboard Coastline, the funds or other benefits flowing to a property

owner may be rental consideration regardless of the manner or description attached to

the funds or benefits received. Rent, fees, or other charges subject to the tax imposed

by s. 212.031, F.S., includes a landlord or licensors operating or other costs passed

through to the tenant or licensee. Examples of operating costs passed through to the

occupants are provided by Rule 12A-1.070(4), F.A.C. The Rule provides that all

consideration paid for the use of real property is rent subject to the tax, including

payments for property tax and common area maintenance.

The costs related to Deputy’s service to enforce navigational rules on the River are

directly related and essential to carrying out the Agreement regarding Operator’s

permitted activities. Prior to its repeal in 2009, section 212.031(10), F.S., provided an

exemption for separately stated charges, such as the charge for law enforcement

officers to provide security or traffic control, that were required as part of a rental or

license to use real property for a publicly owned recreational facility. The statutory

exemption would have excluded Deputy’s services. After the repeal of the statute,

those charges became subject to the tax imposed on real property rentals.1

Therefore, the payment of $XXXXXX is subject to the tax imposed by s. 212.031, F.S., at the same

tax rate applied to the $XXXXXX payment.

Response

The rate imposed pursuant to s. 212.031, F.S., is applicable to both payments in the second

amended Agreement.

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,

Chuck Wallace

Chuck Wallace

Technical Assistance & Dispute Resolution

(850) 717-7541

AMS #: 7000230046