Sales and Use Tax TAA 17A-004 Taxable Portions of a Port Authority Lease

Question: What portion of the taxpayer’s rent payments Will be subject to sales tax under section 212.031, f.S.?

Answer: Section 212.031(1)(B), f.S., and rule 12A-1.070(14)(A), f.A.C., provide that the department shall identify those portions of “rent” that are taxable and those that are tax-exempt. Based on the information provided, a taxable percentage of 24.49% of the rent paid by the taxpayer to the port authority is subject to sales tax. 

January 31, 2017 

Re: Technical Assistance Advisement 17A-004 
Sales and Use Tax – Taxable Portions of a Port Authority Lease 
Sections 212.031 and 315.02, Florida Statutes (F.S.) 
Rule 12A-1.070, Florida Administrative Code (F.A.C.) 
XXXX (The Taxpayer) 
FEI #XXXX 
XXXX (The Port Authority) 
FEI # XXXX 

Dear XXXX: 

This is in response to your letter dated September 14, 2016, requesting this Department’s issuance of aTechnical Assistance Advisement (“TAA”) pursuant to section 213.22, F.S., and Rule Chapter 12-11, F.A.C. An examination of your letter has established 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. 

The Taxpayer’s request for Technical Assistance Advisement (Request for TAA), dated September 14, 2016, provides that following in part:

* * * 

FACTS 

The Taxpayer’s primary business is the XXXX. The Taxpayer is leasing XXXX acres or XXXX square feet from the . . . Port Authority for a period of XXXX. The . . . Port Authority was created by the Florida Legislature under the . . . Chapter 95-488, and therefore, it is a “port authority” as defined in Fla. Stat. §315.02(2). The lease agreement commenced on XXXX, and will end on XXXX. The monthly lease payment for the first year was $XXXX and it is adjusted for subsequent years based upon the CPI adjustment factor. The Port Authority has historically charged sales tax on the entire lease payment. . . .

* * * 

The majority of the leased property is directly and exclusively related to the loading and unloading of petroleum fuel products from vessels and fueling vessels at the port facility. We have analyzed the property and divided it into five different areas based on each area’s purpose and use. XXXX These five sections include: 
• Non-production 1: This area includes an office building, warehouse, employee parking, and other paved areas. This section also includes a flare stack and other unimproved grassy areas on the east side of the property. The total area associated with this section is XXXX square feet. . . . 
• Non-production 2: This area lies just north of the shore loading rack facility and includes minimal tankage and a shed that is not exclusively used for the loading and unloading of vessels. The total area associated with this section is XXXX square feet. . . . 
• Non-production 3: This area includes a portion of the parking lot, driveway and grassy area between Non-production 1 and Non-production 2. The total area associated with this section is XXXX square feet. . . . 
• Non-production 4: located between the loading and unloading facility and consists of a concrete and grass section. This area covers XXXX square feet. . . . 
• Improved for Load/Unload: This portion of the property includes the tank farm, pipelines, dike farm area, secondary containment, and the shore side facility used to move the product from the vessel to the consumer. The facilities shown in the aerial photos include an integrated pipeline system, storage tanks, and terminal rack. The secondary containment wall runs along the border of this entire area, which is fully in use. Notably, the grassy and dirt areas surrounding the tanks [are] referred to as the dike farm area, which is required under the Florida Rules related to above ground tank storage. This area is meant to contain any spills that may occur from the tanks in conjunction with the secondary containment wall. This section covers XXXX square feet. . . .

. . .[T]he Taxpayer has determined that the Improved for Load/Unload portion of the leased premises qualifies for this exemption. Each component of the Improved for Load/Unload area is used exclusively for temporary storage, loading and unloading fuel cargo to Taxpayer’s customers. The tanks, piping, dike area, and secondary containment are all required to load and unload fuel to oceangoing vessels. Specifically, the tanks store the fuel that is loaded and unloaded via the integrated piping system. . . . The secondary containment and dike area are both required by the Florida Rules related to Above Ground Storage Tank Systems under Fla. Admin. Code R. 62-762 as precautions against a potential leak or spill from the storage tanks. Without either the secondary containment barrier or the dike farm area, the Taxpayer would not be able to lawfully operate its business.  

CALCULATION METHODOLOGY  

Based on the above, we determined the lease payments related to the Improved for Load/Unload section of the premises are exempt from sales tax. The lease payments on the remainder of the rented property is taxable since that property is not exclusively used for loading or unloading fuel. 
XXXX (we have attached a taxability calculation spreadsheet to this letter to provide a summary of this analysis). 
XXXX sq. ft. / [XXXX sq. ft. = 24.49%]1 

* * * 

In an e-mail dated XXXX, the Taxpayer provided the following in part: 
. . . XXXX are owned by the Taxpayer. 
. . . XXXX refined products from the barges until it can be loaded in tanker trucks or into the pipeline. Taxpayer does not process or refine the fuel. . . . 

* * * 

In an e-mail dated XXXX, the Taxpayer provided the following in part: 
XXXX 
Along with the request for advisement, the Taxpayer included copies of the following: 
 Ground Lease Agreement between . . . Port Authority and the Taxpayer. 
 Addendum I, which outlines the rental payment terms. 
 Exhibit A, which provides a detailed description of the leased premises. 
 Lease invoice from the . . . Port Authority showing the current lease payment and a charge for sales tax. 
 Aerial photos titled “. . . Aerial” and “. . . Port Location” showing the layout of the Taxpayer’s leased property and the facilities used to load and unload petroleum products.

* * *

The Ground Lease Agreement provides the following in part: 
. . . II. CONSIDERATION 
A. Rent 

[The Taxpayer] covenants and agrees to pay to the Authority the rent and considerations specified in Addendum I (“Rent”) in advance on the first day of the calendar month during the Term of this Lease, together with all applicable sales or rental tax thereon. . . . 
* * * 
XII. USE 

A. Permitted Use  

[The Taxpayer] shall use the Premises solely for XXXX as are handled, dealt with or utilized by Tenant in its business and for all other purposes necessary or incident to the forgoing and for no other use or purpose without the express written permission of the Authority . . . . 

* * * 

Addendum I provides the following in part: 
A. Rent for the Initial Term of the Lease 
Rent shall be due and payable monthly in advance, together with any Applicable Taxes, based on a XXXX site the following schedule:

Annually Monthly  

Lease Year 1 $XXXX $XXXX 
Lease Year XXXX annual Rent for Year 1 monthly Rent during Year 1 times the CPI Adjustment Factor times the CPI Adjustment Factor 
Option Years XXXX and XXXX: 
B. Fair Market Value 
The Rent for each Extension Option Period shall be adjusted at the commencement of each Extension Option to the Fair Market Rent for the Premises. . . . 
* * * 
The First Amendment to the Ground Lease Agreement provides the following in part: 
. . . WHEREAS, Authority and [the Taxpayer] entered into that certain Ground Lease Agreement commencing XXXX, together with Exhibits and Addendums (“Lease”) for the use of approximately XXXX of land (“Premises”), which is more particularly described in the Lease; and 
WHEREAS, Authority and [the Taxpayer] desire to amend the Lease by reducing the Premises by 0.11 acres therefore reducing the Premises from acres XXXX acres of land . . . .  

Requested Advisement  

[The Taxpayer] requests the Department issue a TAA that acknowledges the proposed calculation is acceptable to the state, so that [the Taxpayer] can instruct the . . . Port Authority to begin imposing tax on only [24.49%] of the monthly lease payment. 

Applicable Authority and Discussion  

The Department has not verified the square footage of the figures that were provided. This response is regarding the methodology the Taxpayer provided that it used to calculate the taxable portion of the Ground Lease Agreement. 
Section 212.031, F.S., imposes the tax on the total rent or license fee charged for the lease or rental of real property by the person charging or collecting the rental or license fee. Section 212.031(1)(a)8.a., F.S., excludes real property “used at a port authority . . . exclusively . . . for the purpose of loading or unloading passengers or cargo onto or from such a vessel . . . .” The facts provide that Taxpayer’s lease is for real property located at a port authority, as defined in section 315.02(2), F.S.; therefore, under this lease, the real property exclusively used for the purpose of loading or unloading passengers or cargo onto or from vessels is excluded from sales tax. 
In this case, Taxpayer leases a total of XXXX, from the Port Authority. According to the facts provided in the Taxpayer’s Request for TAA, the Improved for Load/Unload of XXXX square feet is “used exclusively for temporary storage, loading and unloading fuel cargo.” The Ground Lease Agreement supports the amount of land leased from the Port Authority and the use of the property by the Taxpayer. 
Rule 12A-1.070(14)(a), F.A.C., authorizes the Department to determine the taxable portion of the total rent payment when, in a lease of real property, there are multiple uses of such property and a portion of the property is subject to the tax, while another portion is not subject to the tax. Applying the information provided in the Taxpayer’s request and supporting documentation, the Department agrees with the calculation methodology proposed by the Taxpayer. 

Conclusion  

Based on the information provided, a taxable percentage of 24.49% of the rent paid by the Taxpayer to the Port Authority is subject to sales tax. 
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 that 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, 
Brinton Hevey 
Tax Law Specialist 
Technical Assistance and Dispute Resolution 
850/717-6839 
Record ID: 211858

End Notes:

1 The “First Amendment to Ground Lease Agreement” provides that the “Revised Premises” is equal to 15.89 acres of land, which equals 692,168.40 square feet.