TAA 21A-002 Subleasing Real Property

QUESTION: Is Taxpayer is in compliance with Florida State Sales tax laws/requirements whereby Taxpayer collected sales taxes from its sublessees and remits same to the State of Florida, rather than paying sales tax on its lease with the city; and whether Taxpayer’s use of its Annual Resale Certificates to bill sublessees satisfies its tax liability to the State of Florida.

ANSWER: Taxpayer, by collecting tax on the rent from its sublessees and remitting that tax to the Department, rather than remitting tax on its prime lease with the City, is incompliance with the law as long as Taxpayer continues to be a registered dealer and continues to annually extend a resale certificate to the City.

January 15, 2021

Technical Assistance Advisement 21A-002

Sales and Use Tax – Subleasing Real Property

Sections 212.18 and 212.031, Florida Statutes

Rules 12A-1.039 and 12A-1.070, Florida Administrative Code

XXXXXXXXX (the Taxpayer)

FEIN#: XXXXXXXXX

Dear Mr. XXXXXXXXX, 

This is in response to your letter dated November 5, 2020, requesting this Department’s issuance of a Technical Assistance Advisement (“TAA”) pursuant to Section 213.22, Florida Statutes (Fla. Stat.), and Chapter 12-11, Florida Administrative Code (Fla. Admin. Code), regarding the taxability of your client’s subleasing of real property. Your request has been carefully examined, and the Department finds it to be in compliance with the requisite criteria set forth in Chapter 12-11, Fla. Admin. Code.

Please be advised that Technical Assistance Advisements shall have no precedential value except to the taxpayer who requests the advisement, and then only for the specific transaction addressed in the Technical Assistance Advisement, unless specifically stated otherwise in the advisement. 

This response to your request constitutes a TAA and is issued to you under the authority of Section 213.22, Fla. Stat.

Facts Provided by Taxpayer 

On November 5, 2020, you wrote to the Department, requesting the issuance of a TAA. You explained that your client, XXXXXXXXX (“Taxpayer”), a registered dealer in possession of an Annual Resale Certificate issued by the Department, entered into a lease whereby it rents certain real property, consisting of a marina and restaurant building, from the City of XXXXXXXXX. Taxpayer, in turn, sublets wet slips and dry storage facilities, as well as the restaurant building itself, to its sublessees. You state that Taxpayer, as lessee, has not paid any sales tax to the City of XXXXXXXXX on its lease with the city, instead collecting, as lessor, rent from its sublessees, and remitting tax on the rent to the Department.

You attach to your letter as Exhibit 1 a copy of your request for a Letter of Technical Assistance dated October 16, 2020. You attach to your letter as Exhibit 2 a copy of the undersigned’s October 28, 2020, response to your request for informal guidance. You also submit with your current request Exhibit 3, a copy of the Lease Agreement between the City of XXXXXXXXX, lessor, and Taxpayer, lessee, and Exhibit 4, the City of XXXXXXXXX written consent for Taxpayer to sublet the restaurant building. You explain that pursuant to section 3 of the Lease Agreement, Taxpayer is required to sublet wet and dry slips as part of the marina’s operations.

You let us know that the City of XXXXXXXXX has requested that you obtain a TAA from the Department. You write the Department to request a TAA, clarifying whether: 

XXXXXXXXX is in compliance with Florida State Sales tax laws/requirements whereby XXXXXXXXX collected sales taxes from its sublessees and remits same to the State of Florida, rather than paying sales tax on its lease with the city; and 

XXXXXXXXX use of Annual Resale Certificates to bill sublessees satisfies its tax liability to the State of Florida.

Law and Discussion 

Pursuant to Section 212.031(1)(a), Fla. Stat., it is the intent of the legislature “… 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 unless such property is [exempt].” For the exercise of such a privilege, a 5.5 percent tax is assessed on the total rent or license fee charged by the person charging or collecting the rental or license fee. See Section 212.031(1)(c), Fla. Stat. Section 212.18(3), Fla. Stat., provides that all persons must be registered with the Department of Revenue before engaging in business subject to sales tax in Florida. Florida law defines those persons who are required to register, collect, and remit tax as "dealers."

In accordance with Section 212.031(2)(a), Fla. Stat., it is the tenant actually occupying, using, or entitled to the use of the property from which the rental fee is subject to taxation who shall pay the tax to his or her immediate landlord or other person granting the right to the tenant to occupy or use the real property. Section 212.031(2)(b), Fla. Stat., states that it is the Legislature’s intent that only one tax be collected on the rental fee payable for the occupancy or use of real property. Paragraph (2)(b) prohibits the pyramiding of tax collected by a progression of transactions and likewise prohibits a decrease in tax due by any such progression of transactions.

Therefore, to answer your question as to whether Taxpayer is in compliance with the law by collecting tax from its sublessees and remitting that tax to the Department, rather than paying tax on its prime lease with the City of XXXXXXXXX, the answer is “yes.” 

The answer to your second question, whether Taxpayer’s presentation of a resale certificate to the City of XXXXXXXXX, in order for Taxpayer to collect tax from its subleases, satisfies Taxpayer’s tax liability to the State of Florida, is also “yes.”

Pursuant to Rule 12A-1.070(7)(a), Fla. Admin. Code, where a tenant or person entitled to use any real property which is subject to tax sublets or assigns and collects rent, such tenant or other person is required to register with the Department as a sales tax dealer and collect and remit the tax on all subleases or assignments. 

Taxpayer, by collecting tax on the rent from its sublessees and remitting that tax to the Department, rather than remitting tax on its prime lease with the City of XXXXXXXXX, is incompliance with the law as long as Taxpayer continues to be a registered dealer and continues to annually extend a resale certificate to the City of XXXXXXXXX.

The lease or rental of real property to a dealer, when the property will subsequently be leased by the dealer’s tenants, is considered a sale for resale. See Rule 12A1.039(1)(b)4., Fla. Administrative Code. 

Rule 12A-1.070(9), Fla. Admin. Code, states:

If a tenant or other person sublets or assigns his interest in all of the leased or licensed premises, or retains only an incidental portion of the entire premises, then such tenant or other person may elect not to pay tax on the prime lease or license, provided that such tenant or other person shall register as a dealer and collect and remit tax due on the sub-rentals or assignments and pay the tax due on the portion of the rental charges or license fees pertaining to any taxable space which he retains. If the tenant or licensee elects not to pay the tax to his landlord, or other person granting the right to occupy or use such real property, he should extend to his landlord or such other person a resale certificate.

Emphasis added. 

Taxpayer states that it is a registered dealer and each year presents to the City of XXXXXXXXX a Florida Annual Resale Certificate for Sales Tax. Under the facts presented, Taxpayer is in compliance with the law by collecting tax on the rent from its sublessees and remitting that tax to the Department.

Concluding Statement 

Taxpayer, by collecting tax on the rent from its sublessees and remitting that tax to the Department, rather than remitting tax on its prime lease with the City of XXXXXXXXX, is incompliance with the law as long as Taxpayer continues to be a registered dealer and continues to annually extend a resale certificate to the City of XXXXXXXXX.

This response constitutes a Technical Assistance Advisement under Section 213.22, Fla. Stat., 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, Fla. Stat. 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, Fla. Stat., and are subject to disclosure to the public under the conditions of Section 213.22, Fla. Stat. 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.

Donna La Plante 

Senior Attorney 

Florida Department of Revenue 

Technical Assistance and Dispute Resolution