In Florida, the rental or lease of any living or sleeping quarters is subject to sales tax. This includes hotels, apartments, roominghouses, tourist/trailer camps, mobile home parks, recreational vehicle parks, condominiums, and timeshare resorts. These rentals or leases will be subject to a state rate of 6%, plus any county sales tax as well as tourist development tax. However, there are instances in which sales tax is not due on the rental or lease of living or sleeping quarters. This article will discuss the sales tax exemption of the rental or lease of living or sleeping quarters for periods in excess of six months and what needs to be done to meet the exemption.
When a bona fide written agreement for continuous residence of longer than six months is entered into, the rental or lease of living or sleeping quarters is exempt from sales and use tax. The agreement must be at a single hotel, apartment house, roominghouse, tourist/trailer camps, or condominium. The Department of Revenue (“Department”), by rule, has provided what constitutes a bona fide written agreement.
The Department defines the term “month” a few different ways. First, if the lease commences on the first day of a month, the term “month” means a calendar month. Second, if the lease commences on a day other than the first day of the month, then “month” means the time period from any day of any month to the corresponding day of the next succeeding month. The Department wants the lease agreement to demonstrate the lessee will have exclusive use or the right to exclusive use of the accommodations.
Specifically, the lease must contain the length of time the accommodations are being occupied. This includes the commencement and termination dates. The Department also requires a statement of the lessor providing the lessee with complete and exclusive use or possession of the accommodations for the entire lease.
The Department states it must be allowed to examine the lease so as to determine the objective intent of the parties at the time of lease execution. The aspects the Department will examine in the lease agreement includes: (1) the language of the document to determine whether the document is a lease; (2) a “sufficient” description of the leased accommodations; (3) the lease states the document is the complete and sole agreement of the parties for the leased accommodations; (4) the lessee will pay an agreed to amount for the rental charge; (5) how frequent the rental payments are due and the due date of the payments along with where to mail the payment; (6) the conditions for early termination of the lease, rights/obligations of the parties upon termination, and penalties for early termination; and (7) signatures of the parties to the agreement.
There are specific aspects to a lease agreement the Department states does not constitute a bona fide written lease. Those aspects are if: (1) there is a provision allowing the lessor to lease back the premises from the lessee; (2) the lessor is able to sub-lease the accommodations to others for periods of less than six months; (3) the lease does not provide the lessee with the right to occupy the property for the entire lease; (4) the lessee can cancel the lease without penalty if there are no change in circumstances, such as illness death, bankruptcy, etc.; or (5) the lease allows the lessee to avoid paying the full amount of the rent.
In instances where there is a shorter lease agreement that ends up being extended over six months, the Department appears to take the position these agreements do not end up constituting an exempt lease. However, a provision is available stating that if tax was paid on the first six months of the continuous stay, then tax is not due on the continuous stay beyond the first six months.
In summary, it is critical to know what information the Department looks for in a lease agreement so a lease may be tailored accordingly. If your lease does not have the above-mentioned requirements, it might be worthwhile to consider adding the language sooner than later.
About the author: David Brennan is an associate attorney with Moffa, Sutton, & Donnini, P.A. His primary practice area is multistate tax controversy. David received a B.S. in Accounting and Finance, with a minor in Computer Science, from Florida State University. He worked as an accountant for a CPA firm before attending law school at Regent University. He received his Juris Doctor in 2013 and was licensed to practice law in Florida in the same year. In 2015, David earned his Masters of Laws in Taxation from Boston University. While working for the Florida Department of Revenue as a Senior Attorney, David focused on various sales and use tax issues. You can read his BIO HERE.
At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended Florida businesses against the Florida Department of Revenue since 1991 and have over 100 years of cumulative sales tax experience within our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire state of Florida. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
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AUTHORITY
ADDITIONAL RESOURCES
FLORIDA SALES TAX INFORMAL WRITTEN PROTEST, published November 17, 2018, by James Sutton, C.P.A., Esq.
FL CONDO/TRANSIENT RENTAL INDUSTRY - SALES AND USE TAX ISSUES AND SAVINGS OPPORTUNITIES, published April 17, 2012, by Jerry Donnini, Esq.
FLORIDA SALES TAX - VOLUNTARY DISCLOSURE PROGRAM, published April 9, 2018, by Jeanette Moffa, Esq.
FLORIDA USE TAX AUDIT LETTER?, published June 14, 2015, by James Sutton, CPA, Esq. and Jerry Donnini, Esq.
GO TO JAIL FOR NOT PAYING FLORIDA SALES TAX?, published November 3, 2013, by James Sutton, CPA, Esq.
SALES TAX ATTORNEY IN FLORIDA, published May 25, 2018, by James Sutton, CPA, Esq.