What portion of a building lease was exempt when the tenant subleased about 10% of the space for mobile-communications equipment?

Plain-English summary

The Florida Department of Revenue allowed 10% of the prime building rent to be treated as exempt because that portion was subleased for qualifying mobile-communications use. The other 90% remained taxable commercial rent.

The landlord leased a 9,668-square-foot office property to a tenant for $11,000 per month. The tenant subleased approximately 1,000 square feet to a communications company for $1,584 per month to provide exempt mobile-communications services.

The exemption covered property supporting mobile communications

Section 212.031(1)(a)5. exempted specified property used by communications-service providers, including property where towers, antennas, cables, accessory structures, or equipment were placed for mobile-communications services. Switching equipment was excluded. The Department stated that "property" could include a building.

Payments for the right to use qualifying fixtures or place qualifying communications equipment on a building were therefore exempt on the stated facts.

Mixed-use rent required a reasonable allocation

The rest of the building remained taxable. Section 212.031 and Rule 12A-1.070 allowed the Department to allocate rent between exempt and taxable uses based on the lease and available information.

The Department accepted square footage as reasonable here. Approximately 1,000 of 9,668 square feet—rounded to 10%—served the exempt communications sublease.

The historical calculation taxed 90%

Ninety percent of the $11,000 monthly rent was $9,900. At the 7% state-plus-local rate used in the ruling, tax was $693. Tax on the full rent would have been $770, so the exempt allocation reduced the amount due by $77.

The ruling also said the tenant could provide Form DR-40 and that the landlord could collect less than 100% of the otherwise applicable rent tax when the deduction rested on a reasonable allocation.

What this means for you

Commercial landlords

A communications sublease does not necessarily exempt the entire building. Identify the physical portion devoted to qualifying towers, antennas, cables, accessory structures, or equipment and allocate rent reasonably.

Wireless and communications companies

Confirm that the equipment and service fit the statutory mobile-communications definitions. Switching equipment was expressly outside the listed exemption.

Property managers and accountants

Keep the prime lease, sublease, floor plans, square-footage calculation, equipment description, and any exemption affidavit together. The allocation should be supportable from the documents.

Common questions

Q: Was the entire $11,000 monthly lease exempt?
A: No. Only the 10% allocated to the qualifying communications use was exempt.

Q: How did the Department calculate the exempt share?
A: It compared approximately 1,000 subleased square feet with 9,668 total square feet and used a rounded 10% allocation.

Q: What rent amount remained taxable?
A: $9,900 per month under the ruling's calculation.

Q: What was the tax reduction?
A: $77 per month at the historical 7% combined rate stated in the ruling.

Q: Did the exemption include switching equipment?
A: No. The statutory language quoted in the ruling excluded switching equipment.

Citations and references

• Fla. Stat. § 212.031(1)(a)5. — communications fixtures and mobile-communications property exemption
• Fla. Stat. § 212.031(1)(b)-(c) — allocation between exempt and taxable real-property uses
• Fla. Stat. § 202.11 — definitions referenced by the communications exemption
• Fla. Admin. Code r. 12A-1.070(8), (9), and (14) — sublease credits and allocation rules
• Fla. Admin. Code r. 12A-1.097 — Form DR-40 referenced by the Department

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05A-027

Original ruling text

SUMMARY
QUESTION: Taxpayer leases space to a communications company. Is a portion of the lease exempt for mobile
communication purposes?
ANSWER - Based on Facts Below: Yes. Section 212.031(1)(a)5., F.S., exempts from sales tax, in part, fixtures used
by a provider of communications services, as defined in s. 202.11, F.S., and property on which the following are
placed: towers, antennas, cables, accessory structures, or equipment, not including switching equipment, used in the
provision of mobile communications services, as defined in s. 202.11, F.S. The term "property" includes a building.

June 3, 2005

Re: Technical Assistance Advisement 05A-027
Sales & Use Tax - Communications Tower Exemption
Sections: 212.02(16), 212.05, 212.031, Florida Statutes
Rule 12A-1.070, F.A.C.
Cert. No: XX
Dear:
This is in response to your letter dated February 17, 2005, and other correspondence provided requesting a technical
assistance advisement (TAA) regarding the above referenced party and matter. Your letter has been carefully
examined and the Department finds it to be in compliance with the requisite criteria set forth in 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
You have provided the following in your letter referenced above:
On August 31, 2004, [Landlord] purchased property that included an office building from XXX and XXX ("Tenant").
Simultaneous with the purchase [Landlord] leased back to the [Tenant] the property ... for a monthly rental of
$11,000.00. The ... adjusted square footage of [the property is] 9,668 [square feet]. The [Tenant] subleased
approximately 1,000 square feet of the property to XXX, ("Communication Company") for exempt mobile
communication purposes for a monthly rental of $1,584.00.
You have provided all leases, property description, contracts and other such information for the Department's review.
ISSUE PRESENTED
You have asked what portion of the sales tax collected from the Tenant can be reduced by the Communication

Company sublease rent of $1,584.00.
TAXPAYER POSITION
You state in your letter that the allocation can be computed based on the square footage that is subleased to the
Communication Company. The tax due would equal $693.00. Alternatively, the allocation could be based on the pro
rata amounts of rents collected. Tax due under this allocation would equal $659.12.
APPLICABLE STATUTES AND RULES
Section 212.05, F.S., states in pertinent part as follows:
It is hereby declared to be the legislative intent that every person is exercising a taxable privilege who engages in the
business of selling tangible personal property at retail in this state, including the business of making mail order sales,
or who rents or furnishes any of the things or services taxable under this chapter....
(1) For the exercise of such privilege, a tax is levied on each taxable transaction or incident, which tax is due and
payable as follows:
(a)1.a. At the rate of 6 percent of the sales price of each item or article of tangible personal property when sold at
retail in this state, computed on each taxable sale for the purpose of remitting the amount of tax due the state, and
including each and every retail sale....
Section 212.02(16), F.S., defines "sales price" as follows:
(16) "Sales price" means the total amount paid for tangible personal property, including any services that are a part of
the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to
the purchaser by the seller, without any deduction therefrom on account of the cost of the property sold, the cost of
materials used, labor or service cost, interest charged, losses, or any other expense whatsoever....
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:

5. A public or private street or right-of-way and poles, conduits, fixtures, and similar improvements located on such
   streets or rights-of-way, occupied or used by a utility or provider of communications services, as defined by s. 202.11,
   for utility or communications or television purposes. For purposes of this subparagraph, the term "utility" means any
   person providing utility services as defined in s. 203.012. This exception also applies to property, wherever located, on
   which the following are placed: towers, antennas, cables, accessory structures, or equipment, not including switching
   equipment, used in the provision of mobile communications services as defined in s. 202.11. For purposes of this
   chapter, towers used in the provision of mobile communications services, as defined in s. 202.11, are considered to
   be fixtures. (Emphasis Supplied)

***
(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.... In the case of a
contractual arrangement that provides for both payments taxable as total rent or license fee and payments not subject
to tax, the tax shall be based on a reasonable allocation of such payments and shall not apply to that portion which is
for the nontaxable payments.
Rule 12A-1.070, F.A.C., provides in part:
(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.)
(9) 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.

(14)(a) When a rental, lease, or license to use or occupy real property involves multiple use of such real property
wherein a part of the real property is subject to tax, and a part of the property is excluded from the tax, the Executive
Director or the Executive Director's designee in the responsible program shall determine from the lease or license and
such other information as may be available, that portion of the total rental charge or license fee which is exempt from
the tax. When, in the judgment of the Executive Director or the Executive Director's designee in the responsible
program, the amount of rent or license fee stated in the lease or license arrangement for the taxable portion of the real
property does not represent true value, the Executive Director or the Executive Director's designee in the responsible
program shall make a determination of the proper amount of rent or license fee applicable thereto for the purpose of
determining the amount of tax due from such other information as is available.

Great weight is given to a rule that has been in effect over an extended period of time, unless it is clearly erroneous.
State, Department of Commerce, Division of Labor v. Matthews Corp., 358 So.2d 256 (Fla. 1st DCA 1978); Pan
American World Airways, Inc. v. Florida Public Service Commission, 427 So.2d 716 (Fla. 1983). Also, properly
promulgated rules are presumptively valid. Agrico Chemical Co. v. Department of Environmental Regulation, 365
So.2d 759 (Fla. 1st DCA 1978).
RESPONSE
Section 212.031(1)(a)5., F.S., exempts from sales tax, in part, fixtures used by a provider of communications services,
as defined in s. 202.11, F.S., and property on which the following are placed: towers, antennas, cables, accessory
structures, or equipment, not including switching equipment, used in the provision of mobile communications services,
as defined in s. 202.11, F.S. The term "property" includes a building. Any payments made to the tenant for the right to
use fixtures to provide communications services, or for the right to locate towers, antennas, cables, accessory
structures or equipment, other than switching equipment, on a building to provide mobile communications services are
exempt from Florida sales tax
The Department has reviewed all leases, property description, contracts and other such information that is available.
Based on this review and the information you have provided, the square footage sublet to Communications Company
is 10% of the total that Landlord leases to Tenant. The Tenant may provide an affidavit, form DR-40, incorporated by
reference in Rule 12A-1.097, F.A.C. In this instance, the Landlord can collect less than 100%, provided the amount
deducted is based on a reasonable allocation, pursuant to s. 212.031(1)(c), F.S.
Pursuant to Rule 12A-1.070(8), F.A.C., an example is provided which calculates a credit based on an allocation of
square footage. We can use the above example to calculate an allocation. The Tenant pays the Landlord $11,000, for
9,668 square feet of space. The Tenant subleases approximately 1,000 square feet or 10% of this space to
Communication Company. The subleased property is not subject to tax, because the subleased property is being
used as provided in s. 212.031(1)(a)5., F.S.
Ninety percent of the remaining rent, which is $9,900.00, is taxable. The 7% sales tax plus local surtax due on
$9,900.00 is $693.00. You have asked what portion of the sales tax collected from the Tenant can be reduced by the
Communication Company sublease rent of $1,584.00. Tax due on the $11,000.00 lease at 7% is $770.00. The
amount by which the sublease will reduce the amount due on the lease is $77.00 ($770.00 - $693.00).
This response constitutes a Technical Assistance Advisement under s. 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 s. 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,
Valerie L. Koenitzer, CPA
Senior Tax Specialist
Technical Assistance & Dispute Resolution
(850) 922-9412
vk/lp
Control No. 12877