Sales and Use Taxx TAA 18A-010 Real Property Rentals

Question: Maytaxpayer determine the taxable percentage of lease payments of multi-use property using appraisal valuations in lieu of using only square footage data.

Answer: Yes, so Longas the method reflects a reasonable valuation of the taxable rental.

July 6, 2018

Subject: Technical Assistance Advisement (“TAA”) 
TAA 18A-010 
AMS#: 7000071854 
Sales and Use Tax-Real Property Rentals

Section(s) 212.031, Florida Statutes (“F.S.”) 
Rule(s) 12A-1.070, Florida Administrative Code (“F.A.C.”)

XXXXXX (“Owner”)(“Landlord”) 
FEIN: XX-XXXXXXX

XXXXXX (“Tenant”) 
FEIN: XX-XXXXXXX

XXXXXX (“Petitioner”)(“Purchaser”) 
Business Partner Number: XXXXX 
FEIN: XX-XXXXXXX

Dear XX XXXXXXXXXXXXXX:

This letter is a response to your petition dated April 22, 2018, for the Department’s issuance of a Technical Assistance Advisement (“TAA”) to Petitioner, regarding real property rentals. 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.

Facts  

Purchaser is a XXXXXXXXXXXXXXX headquartered in XXXXXXXXXXXX, XXXXXXXXXXXX. Owner is the owner of record. Owner leases the property to Tenant. The leased premises include hotel property, including land, buildings, furniture, fixtures, and equipment. The leased premises also include a golf course. The XXXXXX has a XXXX full-service bar and restaurant, locker rooms, pro shop, and tennis courts. Tenant will enter into a contract with a management company.

The leased property has two independent appraisals. The XXXXX is valued at $XXXXXXXXX. The remainder of the leased premises are valued at $XXXXXXXX. The golf course has over XXXXXXXXXXX square feet, and the remainder of the property has XXXXXXXX square feet.

Issue

Whether Tenant may use appraisal values instead of only square footage of the leased premises to determine the taxable rent portion?

Taxpayer Position

The hotel includes dwelling areas that are not subject to tax, as provided by section 212.031(1)(a)2., Florida Statutes (“F.S.”). Petitioner maintains that the property is multi-use property, as provided by s. 212.031(1)(b), F.S. Petitioner believes a more accurate determination of the taxable rental portion requires the use of separate valuations for the golf course and the hotel. 
Petitioner proposes to use the square footage of the leased premises to determine an allocation of the taxable rental area. Petitioner proposes that the taxable value should be divided by the total appraised value of the leased premises. Petitioner believes that approximately ten (10) percent of the non-XXXXXXX areas are used for non-dwelling purposes. 
XXXXXXX 

Petitioner proposes to determine the taxable rental by using the following formula: 
$XXXXXXXXX (XXXXXX appraisal) + $XXXXXXXXX (XX% of other leased premises) 
$XXXXXXXXXX (Total appraisal value of the leased premises)

This proposed formula will result in 14.37% of the total rental to be considered the taxable rental amount.

Although Petitioner believes that approximately ten (10) percent of the non-XXXXXXXX areas are used for non-dwelling purposes, Petitioner will determine the dwelling areas of the hotel property based on the room areas and common areas, such as the hallways.

Law and Discussion  

Section 212.031, F.S., requires property owners, such as Landlord to collect sales tax from lessees, such as Tenant, on real property rentals. Section 212.031(1)(a)2., F.S., provides for an exemption for real property leased that is used exclusively as a dwelling unit. This includes the hotel rooms used by the guests, and common areas, such as the hallways. It may include other areas, depending on the facts. Section 212.031(1)(b), F.S., addresses situations in which the leased property is multi-use property that includes areas that are not subject to the tax, such as property used exclusively as a dwelling unit, and other areas that are subject to the tax imposed by s. 212.031, F.S. Section 212.031(1)(b), F.S., provides that the allocation is based on the lease agreement and other available information. Although, an allocation using square footage information is used as an example in Rule 12A-1.070, Florida Administrative Code (“F.A.C.”), the Department will use reasonable methods to determine taxable rental. See 
Department of Revenue v. Vanjaria Enterprises, Inc., 675 So.2d 252 (Fla. 5th DCA 1996).

Response  

Based on the facts provided, the use of both appraisal values to determine the percentage of the taxable rental amount is reasonable. Tenant is required to use the actual square feet of the dwelling units, and common areas based on the lease amount, and other information available instead of an estimated percentage.

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 #: 7000071854