Under Florida's former commercial-rent tax, how were a mixed-use hotel lease, third-party subleases, and a no-charge drainage easement treated?

Plain-English summary

For the 2003 ruling period, Florida allocated the hotel complex's master rent between excluded dwelling use and taxable commercial use. Guest rooms and common areas principally provided to guests without an additional fee were excluded from the former commercial-rent tax. Areas used for hotel operations, unavailable to guests, separately charged to guests, or subleased to third-party businesses entered the taxable calculation.

The hotel owner proposed an 11-year lease covering more than 1.2 million square feet. The property included guest rooms, roads, parking, pools, landscaped areas, elevators and service cores, offices, restaurants, shops, operational areas, and small spaces subleased to third-party operators. A planned conversion changed some areas and square footage during the lease term.

The master-lease tax was allocated by use

The ruling applied a fraction to the total lease payment:

• The numerator included land and improvements used exclusively by the hotel operator, areas that were not guest rooms or common areas principally provided to guests, and guest facilities carrying a separate fee.
• The denominator included all land and improvements subject to the lease.

Florida said the taxpayer's general square-footage calculation followed that approach. It cautioned that “service cores” could contain both guest-access areas and operational areas, so elevators, shafts, lobbies, stairs, and mechanical or electrical spaces had to be classified by actual guest access.

The historical statute quoted in the ruling imposed a 6% tax on the taxable share of rent. That rate and the general tax itself should not be treated as current law.

Subleases received a credit to prevent pyramiding

The prime tenant owed tax to the property owner on all nonexcluded portions of the master lease, including commercial space made available for sublease. It also collected tax from the third-party subtenants.

To prevent multiple tax on the same occupancy, Rule 12A-1.070(8) allowed the prime tenant a prorated credit against the tax collected from subtenants for tax it had already paid to the owner on the subleased square footage. The credit did not reduce the total tax due below the amount required for the taxable occupancy.

The separate drainage easement was not taxed

The owner also granted the tenant an easement allowing storm-water runoff to flow into an adjacent wetland, conservation buffer, and retention pond. Those lands were expressly excluded from the lease, and the parties exchanged no consideration for the easement.

Florida therefore found the easement outside the taxable lease and not subject to the former rent tax on the represented facts.

Current-law note

The commercial-rent analysis is historical. Florida TAA 25A-010 states that section 212.031's tax was repealed effective October 1, 2025. No state sales tax or discretionary sales surtax applies to rent or license fees for rental or occupancy periods beginning on or after that date.

TAA 03A-058 can still matter when reviewing older periods and the logic of mixed-use allocations, but current agreements require analysis under current law and any other applicable taxes.

What this means for you

Hotel owners and operators

For historical periods, maintain measured plans showing guest rooms, no-fee guest common areas, separately charged amenities, back-of-house operations, and third-party commercial spaces. Reclassify areas when renovations change use.

Commercial landlords and subtenants

For periods when the tax applied, coordinate master-lease tax and sublease collections so the same space received the permitted prorated credit without reducing the required total tax.

Real-estate and tax professionals

Analyze an easement separately from the lease. This ruling's no-tax result depended on both exclusion from the leased parcel and the absence of consideration.

Common questions

Q: Was all hotel master rent exempt as dwelling-unit rent?
A: No. Only the qualifying guest dwelling and no-added-fee guest areas were excluded; operational, separately charged, and subleased commercial areas were taxable under the former law.

Q: How were mixed uses allocated?
A: The ruling used square footage, with taxable-use area over the total area subject to the lease.

Q: Was sublease rent taxed twice?
A: The prime tenant collected tax from subtenants but could claim a prorated credit for tax already paid on the same subleased space.

Q: Why was the drainage easement not taxable?
A: It covered property excluded from the lease and no consideration was exchanged for its use.

Citations and references

• Fla. Stat. § 212.031(1), (2) — former commercial-real-property rent tax, mixed use, and anti-pyramiding
• Fla. Admin. Code r. 12A-1.070(1), (5), (8) — former rent tax and sublease credit
• Fla. Admin. Code r. 12A-1.061(3)(b)2. — separately charged guest facilities
• Fla. Stat. § 213.22(1) — taxpayer-specific, nonprecedential TAA treatment
• Florida TAA 25A-010 — official repeal confirmation

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 03A-058

Original ruling text

SUMMARY

QUESTIONS: (1) What portion, if any, of the rental payments
from a lessee to a lessor is subject to Florida sales tax
when the real property of the subject lease is a hotel
complex? (2) What is the proper handling of Florida sales
tax involving a prime lessee subletting commercial real
property to third-party commercial operators within a hotel
complex? (3) Is the granting of an easement for storm water
drainage subject to Florida sales tax wherein the easement
is not part of the real property subject to the lease in
question?

ANSWERS - Based on Facts Below: (1) The leasing of the
areas of the hotel complex, not exclusively used as
dwelling units, are subject to Florida sales tax. (2)
Because pyramiding of tax is prohibited under Florida law,
care must be taken to ensure the proper handling of
subleases in this context. Therefore, we refer the reader
to the body of the TAA. (3) This easement was not subject
to Florida sales tax because it was not part of the lease
in question and no consideration was exchanged for its use.

Dec 08, 2003

Subject: Technical Assistance Advisement 03A-058
Lease and Sublease of Hotel Property and the Grant of
an Easement
Sales and Use Tax
Sections 212.031 and 213.22, F.S. ("Florida Statutes")
Rule 12A-1.070, F.A.C. ("Florida Administrative Code")

Dear :

This response is in reply to your letter dated October 23, 2003,
requesting the Department's issuance of a Technical Assistance
Advisement ("TAA") pursuant to Section 213.22, F.S., and Chapter
12-11, F.A.C., regarding Florida sales tax treatment of a lease

and sublease of hotel property as well as the granting of an
easement. An examination of your letter has established that you
have complied with the statutory and regulatory requirements for
issuance of a TAA. Therefore, the Department is hereby granting
your request for issuance of a TAA.

You provided the following documents:

A transmittal letter and a detailed request for a TAA (both
dated October 23, 2003), the "Master Lease" at issue, a Power of
Attorney, a "Statement of Deletions", and a bound compilation of
the relevant authority you cite to support your positions.

ISSUES

1. What portion, if any, of the rental payments from a lessee to
   a lessor is subject to Florida sales tax when the real property
   of the subject lease is a hotel complex?

2. What is the proper handling of Florida sales tax involving a
   prime lessee subletting commercial real property to third-party
   commercial operators within a hotel complex?

3. Is the granting of an easement for storm water drainage
   subject to Florida sales tax wherein the easement is not part of
   the real property subject to the lease in question?

FACTS

Your letter of October 23, 2003, provides in part:

Our law firm represents... (the "Company")....

The Company owns certain real property in [County] (the
"Property"). The Company intends to enter into a lease
agreement (the "Lease") with... (the "Tenant") ... pursuant
to which the Company will lease the Property to the Tenant
for a term of 11 years....

The Company also owns certain real property that is
contiguous to the Property, which real property comprises

an undevelopable wetland, conservation buffer and retention
pond. None of this additional real property owned by the
Company will be leased by the Tenant. However, pursuant to
the Lease, the Company will grant the Tenant an easement to
dispose of storm water runoff from the Property into the
retention pond owned by the Company.

During our telephone conversation of November 6, 2003, you
clarified that the easement in question is not part of the Lease
but is incorporated into the Lease by reference. (The easement
is addressed in "Exhibit A" of the Lease.) The easement is
within a parcel of property that is specifically excluded from
the leased property. You provided that it was the intent of the
parties to grant an easement for purposes of permitting storm
water to flow from the leased property into the wet land area
adjacent to the leased property and that no consideration was
exchanged for the granting of this easement; nor is any exchange
of consideration contemplated under the Lease.

Your letter continues, providing in part:

Upon commencement of the term of the Lease, the Property
will consist of [a hotel complex]. Throughout the term of
the Lease, the Tenant will operate the Property as a hotel
facility and, in connection therewith, will provide guest
accommodations, together with related amenities, e.g., pool
and pool deck areas, fitness room, restaurants and shops,
and parking spaces.

Immediately after the commencement of the lease term, the
Company will begin conversion of the Property... and in
connection with such conversion, will begin construction of
a new lobby building and modification of certain of the
existing hotel buildings (collectively, the
"Conversion").... The Conversion is expected to be
completed on or about the first anniversary of the
commencement of the Lease.

Throughout the term of the lease, the specific areas

comprised by the Property will be dividable into the
following three categories: (1) those areas used for the
benefit and enjoyment of the hotel's guests, as to which
the guests will have an exclusive or non-exclusive license
or right to use...; (2) those areas used by the Tenant for
its operation of the hotel business, which are not open to
access by hotel guests...; and (3) those areas that will be
subleased by the Tenant to third parties....

Upon commencement of the term of the Lease, the Property
will include a total square footage of 1,203,362, which
total square footage will comprise the aforementioned three
categories of the Property and the following square footage
areas:

Table 1: Pre-Conversion Areas Used Exclusively by
Tenant for Its Own Purposes

Area

Square Footage

Pervious Area Used for Construction

11,500

Parking Spaces in Excess of Rooms

3,800

Service Building A (Round House)

10,000

Service Building B (Engineering/Laundry)
Storage Space

3,328

2 - Cabanas (Pool Bars)

800

Mechanical Building

2,100

Restaurant

2,840

Dining Area

2,009

Bar

2,500

448

General Store

803

Food Court

495

Buffet Area

352

Reservations, Accounting, Executive,
Sales and Front Offices

3,756

Kitchen Area and Offices

3,135

Total Area Used Exclusively by Tenant

47,866

Table 2: Pre-Conversion Areas Used by Guests

Area

Square Footage

Pervious Areas - Gardens, Landscaped Areas 294,889
Total Roadways and Parking Spaces Not in

275,341

Excess of Rooms
...Guest Rooms

410,456

Pool and Pool Deck Areas

17,197

(no fee imposed)
Service Cores - Elevators

22,680

Fitness Room (no fee imposed)
Sidewalks

1,067
120,904

Front Desk, Lobby, Game Room, Gift Shop,

11,799

Guest Services

Total Area Used by Guests

1,154,333

Table 3: Pre-Conversion Areas Subleased by
Tenant to Third-Parties

Area

Square Footage

Shared Revenue Games

207

Timeshare Area

105

Photography Area

60

Kid's Spa

152

Gift Shop

495

ATM Machine
Movie Bar
Business Center

12
32
100

Total Area Subleased to Third Parties

1,163

Upon completion of the Conversion, the Property will
include a total square footage of 1,220,762, which total square
footage will comprise the aforementioned three categories of the
Property and the following square footage areas:

Table 4: Post-Conversion Areas Used Exclusively by
Tenant for Its Own Purposes

Area

Square Footage

Parking Spaces in Excess of Rooms

3,800

Service Building A (Round House)

10,000

Service Building B (Engineering/Laundry)
Storage Space

2,500

3,328

2 - Cabanas (Pool Bars)

800

Mechanical Building

2,100

Restaurant

2,085

Dining Area

3,500

Bar

448

General Store

803

Food Court

860

Buffet Area

890

Banquet Rooms

3,623

(fees will be imposed for use)
Showroom Backstage Area

312

Commons Building - Kitchen Area; Reservations,12,355
Accounting, Executive, Sales, Front and
Kitchen Offices
Lobby Building - Non Guest Area

8,562

Total Area Used Exclusively by Tenant

55,966

Table 5: Post-Conversion Areas Used by Guests

Area

Square Footage

Pervious Areas - Gardens, Landscaped Areas
Total Roadways and Parking Spaces

295,341

275,341

Not In Excess of Rooms
...Guest Rooms

410,456

Pool and Pool Deck Areas

17,197

(no fee imposed)
Service Cores - Elevators

22,680

Fitness Room (no fee imposed)
Sidewalks

1,067
120,904

Front Desk, Lobby, Game Room, Guest Services 12,042
Banquet Room Lobby
Showroom
Rotunda

800
3,076
1,725

Lobby Building - Vestibule and Lobby

2,486

Total Area Used by Guests

1,163,115

Table 6: Post-Conversion Areas Subleased by
Tenant to Third-Parties

Area

Square Footage

Shared Revenue Games

414

Timeshare Area

105

Photography Area

150

Kid's Spa

285

Gift Shop

455

ATM Machine

12

Business Center

260

Total Area Subleased to Third Parties

1,681

THE TAXPAYER'S POSITION

As to Issue #1, your letter provides in part:

Application of Sales Tax to Rental Payments Attributable to
Areas Not Subleased

... it is the Company's position that, prior to the
completion of the Conversion, only the areas listed in
Table 1 (i.e., 47,866 sq. ft.), and, upon completion of the
Conversion, only the areas listed in Table 4 (i.e., 55,966
sq. ft) are included in the numerator for purposes of
determining the percentages of the total rental payments
made by the Tenant to the Company pursuant to the Lease
that are subject to sales tax pursuant to Section 212.031,
Florida Statutes. The denominator consists of the total
square footage of the Property subject to the lease
(including the areas that the Tenant will Sublease), or
1,203,362 square feet before the Conversion, and 1,220,762
square feet upon completion of the Conversion. [A preconversion percentage of 3.978%, and a post-conversion

percentage of 4.585% were arrived at]

As to Issue #2, your letter provides in part:

Application of Rental Payments Attributable to Subleased
Areas

In accordance with Rule 12A-1.070, Fl. Admin. Code, it is
the Company's position that, prior to the completion of the
Conversion, the Tenant may take a credit against the sales
tax applicable to the rental payments it receives for the
subleased areas equal to the sales tax applicable to .10%
[calculated on the total square footage subleased by Tenant
divided by the total square footage subject to the Lease]
of the total rent paid by the Tenant to the Company
pursuant to the Lease.

In accordance with Rule 12A-1.070, Fl. Admin. Code, it is
the Company's position that, upon completion of the
Conversion, the Tenant may take a credit against the sales
tax applicable to the rental payments it receives for
subleased areas equal to the sales tax applicable to 0.14%
[calculated on the total square footage subleased by Tenant
divided by the total square footage subject to the Lease]
of the total rent paid by the Tenant to the Company
pursuant to the Lease.

As to Issue #3, your letter provides in part:

Exemption of Easements

It is the Company's position that, based on [two TAA's], no
sales tax is due in connection with the grant of the
easement by the Company to the Tenant pursuant to the
Lease.

APPLICABLE STATUTES AND RULES

Section 212.031, F.S., provides in part:

(1)(a) It is declared to be the legislative intent 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:

2. Used exclusively as dwelling units.

(b) When a lease involves multiple use of real property
wherein a part of the real property is subject to the tax
herein, and a part of the property would be excluded from
the tax under subparagraph (a)1., subparagraph (a)2.,
subparagraph (a)3., or subparagraph (a)5., the department
shall determine, from the lease or license and such other
information as may be available, that portion of the total
rental charge which is exempt from the tax imposed by this
section....

(c) For the exercise of such privilege, a tax is levied in
an amount equal to 6 percent of and on the total rent or
license fee charged for such real property by the person
charging or collecting the rental or license fee. The total
rent or license fee charged for such real property shall
include payments for the granting of a privilege to use or
occupy real property for any purpose and shall include base
rent, percentage rents, or similar charges....

(2)(a) The tenant or person actually occupying, using, or
entitled to the use of any property from which the rental
or license fee is subject to taxation under this section
shall pay the tax to his or her immediate landlord or other
person granting the right to such tenant or person to
occupy or use such real property.

(b) It is the further intent of this Legislature that only
one tax be collected on the rental or license fee payable
for the occupancy or use of any such property, that the tax

so collected shall not be pyramided by a progression of
transactions, and that the amount of the tax due the state
shall not be decreased by any such progression of
transactions.

Section 213.22(1), F.S., provides in part:

... 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....

Rule 12A-1.070, F.A.C., provides in part:

(1)(a) Every person who rents or leases any real property
or who grants a license to use, occupy, or enter upon any
real property is exercising a taxable privilege unless such
real property is:

2. Used exclusively as dwelling units.

(5) Only one tax on the rental or license fee payable from
the occupancy or use of any real property from which the
rental or license fee is subject to taxation under s.
212.031, F.S., shall be collected, and the tax shall not be
pyramided by a progression of transactions; however, the
amount of tax due the State of Florida shall not be
decreased by any such progression of transactions.

(8) When a tenant (lessee) or other person occupying,
using, or entitled to use any real property (licensee)
sublets or assigns some portion of the leased or licensed
property, he may take credit on a pro rata basis for the
tax that he paid to his landlord or other such person on
the space that he subleases or assigns. Proration shall be
computed on square footage or some other basis acceptable
to the Executive Director or the Executive Director's
designee in the responsible program. For example, Tenant
leases 200 square feet of floor space for $400 and pays

Landlord $24 rental tax. Tenant subleases 100 square feet,
or one half, of the space to Subtenant for $300 and
collects $18 tax which he remits to the State, less a
credit of $12 for tax that he paid to his landlord on the
space that he subleased to Subtenant. (One half of $400 is
$200 and 6 percent of this amount is $12.)

RESPONSE

Because you have relied on previously issued TAA's in your
request, we note that TAA's are of no precedential value
pursuant to Section 213.22(1), F.S. In addition, this response
is based on the representations made as to the "areas" and the
square footages provided.

Issue #1, calculating that portion of a hotel complex lease
subject to Florida sales tax

The Lessee will owe Florida sales tax in the amount that results
when the rate of 6 percent is multiplied by the fraction of the
total lease payment, which fraction is computed as follows: The
numerator is the square footage of the land and improvements
used by the Lessee in the operation of the business, such as the
office area and all spaces, which either are used exclusively by
the Lessee, or which do not constitute guest rooms or common
areas principally provided to guests. The numerator should also
include square footage for which a guest is charged a separate
fee to use (e.g., steam room, tennis courts, etc.). See Rule
12A-1.061(3)(b)2., F.A.C. The denominator is the total square
footage of the entire area subject to the Lease, including the
land and the improvements thereon.

The computation provided in your letter appears to follow the
above calculation correctly.

The only "area" which we make note of is: "service cores elevators." It is our understanding that the term "service
core" might encompass a wide-range of "areas" such as elevators,
elevator-shafts, lobbies, staircases, mechanical and electrical
risers, etc. Care should be taken to insure that the

appropriate distinctions are made for purposes of characterizing
these "areas" (i.e., those areas where guests have access versus
those areas where guests would not be given access).

Issue #2, calculating the proper handling of Florida sales tax
on sublet real property

It is the prime tenant's responsibility to pay tax to the prime
landlord on all non-exempt portions of the property being leased
("exempt" portions being those areas used by guests for no
additional fee). The prime tenant may take a credit on the tax
it collects from sub-lessees. Rule 12A-1.070(8), F.A.C.,
provides that when the prime tenant sublets or assigns some
portion of the leased property, the prime tenant may take credit
on a pro rata basis for the tax that he may have paid to his
landlord.

A possible method for applying a "credit" under Rule 12A1.070(8), F.A.C., would first center on the fraction discussed
above. The numerator would include that square footage that is
made available for subletting to third-parties as that space is
not considered "dwelling space." Florida sales tax would be
collected by the prime tenant on the subleasing of the spaces.
A credit would then be available to the prime tenant on the
Florida sales tax it collects from its sub-lessees on a prorated basis for the tax paid on the prime lease.

Issue #3, the taxability of the Easement

The issue presented is whether the granting of an easement, not
a part of the lease before us, is subject to Florida sales tax
under Section 212.031, F.S. In Florida, 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. See Section 212.031(1)(a), F.S. An easement
is distinguishable from a license to use real property in that:

... an easement implies an interest in land, which
ordinarily is created by a grant and is often permanent,
since it runs with the land. Conversely, a license does not
imply an interest in the land, but is simply a personal,

unassignable, and ordinarily revocable privilege or permit
to do something on the land of another.... 20 Fla Jur 2d
Easements and Licenses in Real Property s. 3.

Black's Law Dictionary defines "easement" by saying:

A right of use over the property of another. Traditionally
the permitted kinds of uses were limited, the most
important being rights of way and rights concerning flowing
waters.... Black's Law Dictionary 457 (5th ed. 1979).

Under the facts presented here, it is unnecessary to explore the
legal distinctions between easements and licenses to use real
property any further, as the easement granted here is not part
of the real property under the Lease. "Exhibit A" of the Lease
specifically excludes certain lands (namely the wet lands,
conservation buffer area and retention pond). The easement is
within "Parcel 2" of these excluded pieces of property. The
easement is not subject to Florida tax because it is not part of
the property being leased under the Lease and no consideration
is being exchanged for its use.

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 s. 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,

Eric R. Peate
Senior Attorney
Technical Assistance and Dispute Resolution
(850) 922-4714
Ctrl# 57377