What percentage of a ground-leased Florida hotel was taxable commercial space rather than exempt guest and common areas?

Plain-English summary

A ground lessee owned a hotel's improvements on 1.88 acres and leased the entire land-and-building property to an unrelated hotel operator for more rent than it paid the ground owner. The hotel contained 83 guest rooms, 95 parking spaces, a pool and other guest areas, operational back-of-house space, and a hospitality suite rented to third parties for taxable events.

Florida accepted a square-footage allocation to separate taxable commercial hotel use from exempt dwelling and guest use. The Department did not verify the measurements; it approved the method and figures presented.

The taxable numerator was 3,335 square feet of areas guests could not access, including the dumpster area, laundry and storage rooms, mechanical and electrical rooms, maintenance areas, breakfast-preparation space, PBX, offices, and the manager's office. The denominator was the entire 81,893-square-foot leased property. The resulting 4.07% was a reasonable taxable share of rent.

Guest rooms and areas available to guests without an additional charge—pool, gardens, walkways, parking and driving areas, complimentary breakfast space, and common areas—were excluded. The hospitality suite was also excluded when its third-party sublease rent was already taxed, preventing double taxation. But the tax collected on a subleased area could not be less than the amount allocable to that same space under the prime lease; any shortfall had to be remitted.

Because the taxpayer re-leased all of the ground lease, charged more than its own rent, and retained no premises, tax was due only on the agreement between the taxpayer and hotel operator. The rule allowed the taxpayer to use a resale certificate for the prime lease.

What this means for you

Back-of-house space entered the taxable numerator

The formula included operational areas used exclusively by the hotel rather than guest living quarters or common amenities.

No-charge guest amenities stayed outside the numerator

The operator did not charge guests separately for the pool, parking, breakfast area, gardens, or circulation spaces. Those areas were treated with the exempt hotel dwelling use.

Subleases cannot create double tax or reduce total tax

Properly taxed subleased space can be excluded from the master allocation, but the downstream tax must at least equal what would otherwise be due for that area.

A complete re-lease can shift collection downstream

When the intermediate lessee retains no meaningful use, it can extend a resale certificate to the ground landlord and collect the tax on its own sublease instead.

This is a historical 2008 lease-tax ruling

The 4.07% calculation and cited commercial-rent rules reflect the law and property configuration then presented. Confirm current Florida law before applying it today.

Common questions

Q: What taxable percentage did Florida accept?
A: 4.07%, based on 3,335 taxable square feet divided by 81,893 total square feet.

Q: Were the 83 guest rooms taxable lease space?
A: No. They were excluded as dwelling-unit use, along with qualifying no-charge common areas for guests.

Q: Was the hospitality suite included?
A: Not when its third-party rental was separately taxed, although the downstream tax could not undercut the tax otherwise allocable to that space.

Q: Was tax due on both the ground lease and hotel lease?
A: No under these facts. Because the taxpayer re-leased the entire premises and retained none, tax was due only on the downstream agreement.

Citations and references

• Fla. Stat. § 212.031(1)(a)-(c) (real-property lease tax, dwelling exclusion, and reasonable allocation)
• Fla. Stat. § 212.031(2)(b) (no tax pyramiding or reduction through successive leases)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)
• Fla. Admin. Code r. 12A-1.070(8) (sublease credit)
• Fla. Admin. Code r. 12A-1.070(9) (complete re-lease and resale certificate)
• Fla. Admin. Code r. 12A-1.070(14)(a) (mixed-use allocation)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 08A-031

Original ruling text

SUMMARY
QUESTION:
What portion of the Taxpayer’s rent payments will be subject to sales tax under section
212.031, Florida Statutes?
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 taxexempt. In reaching this determination, the Department must develop a case-by-case
approach that is reasonable. There are several approaches that may be used to reach a
reasonable determination. Which approach is most reasonable is a decision that must be
made depending on the facts and circumstances of the individual taxpayer.
Under the facts provided in this request, the taxable portion was determined by dividing
the total square footage of the premises that is used exclusively by the Lessee for its hotel
related purposes, plus any other square footage used by the Lessee that is not guest rooms
or common areas principally provided for use of the guests, and for which either, (a) the
Lessee does not impose a charge for the use of such areas; or (b) the Lessee imposes a
separate charge for the use of an area and that charge is subject to tax under a provision
of Chapter 212, F.S., other than Section 212.031, F.S. (the numerator), by the entire
leased space (the denominator).
December 8, 2008

XXX

Re:

Technical Assistance Advisement 08A-031
Taxable Portions of a Hotel Lease
Sales and Use Tax
Section 212.031, Florida Statutes (F.S.)
Rule 12A-1.070, Florida Administrative Code (F.A.C.)
XXX

Technical Assistance Advisement
Page 2 of 8

XXX
This is in response to your letter dated August 26, 2008, requesting this Department’s
issuance of a Technical Assistance Advisement (TAA) pursuant to section 213.22, F.S.,
and Rule Chapter 12-11, F.A.C., regarding the above referenced matter and party. 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 a TAA.
ISSUE
What portion of the Taxpayer’s rent payments will be subject to sales tax under section
212.031, Florida Statutes?
FACTS
Your letter provides the following in pertinent part:
The Taxpayer is the ground lessee under a Ground Lease Agreement with XXX
(the “Ground Lessor[,]” which is the Taxpayer’s landlord), dated August 17, 2007
. . . . The Ground Lessor is the owner of the land only, and the Taxpayer is the
legal owner of the improvements constructed on the land. Based on its ground
lessee position and its ownership of the improvements and the land, the Taxpayer
has leased the land and the improvements (jointly referred to as the “Property”) to
an unrelated third party.

The third party operates a XXX (the “Hotel”) on the Property. The rent received
by the Taxpayer from its tenant exceeds the rent paid by the Taxpayer to the
Ground Lessor. . . .
The Property consists of 1.88 acres with a building footprint of 11,056 square
feet. The Hotel has 83 guest rooms and 95 parking spaces. The land portion of
the Property does not include any areas not available to guests, other than the
dumpster area. Guests are entitled, without additional charge, to the use of the
pool, garden areas, walkways, parking spaces, driving areas and common areas.
The Hotel has a hospitality suite on the ground floor that is principally rented to
local third parties for various types of events, which rentals are subject to sales
tax.

Technical Assistance Advisement
Page 3 of 8

In addition to providing guest accommodations, the Hotel provides guests a
complimentary breakfast. The complimentary breakfast is provided in an area
designated for that purpose on the ground floor. There are no gift shops, health
clubs, restaurants or other portions of the Property leased to third parties.
The Hotel’s ground floor consists principally of various guest rooms, equipment
rooms, storage and laundry rooms, hotel management offices, hotel lobby,
registration desk, breakfast areas and other common areas.
TAXPAYER POSITION
Your letter provides tables showing the square footage used for each area of the Hotel.
The letter also provided whether you believed this area was taxable.
Area
Land (1.88 acres)
Land other than Building
Dumpster Area

Square Footage Taxable
81,893
70,837
X
313

Hotel First Floor
Laundry/Storage Room
Pump/Janitor Room
Linen/Employee Room
Office Space
Elevator Equipment
Electric Room
Storage
Work Area
Manager/Safe/Storage
PBX
Breakfast Prep. Area
Registration Desk
Elevator Area
Hospitality Suite
Lobby
Public Restrooms
Breakfast Bar/Area
Exercise Area
Vestibule
Seating
Public Stairwells

11,056
323
187
696.6
687.5
71.5
130
214.5
234
207
128
143

X
X
X
X
X
X
X
X
X
X
X

Technical Assistance Advisement
Page 4 of 8

Rental Rooms
Total Taxable Sq. Ft.

3,022

Taxpayer’s position is that 3,335 square feet of the 81,893 square foot lease are taxable,
or 4.07%.
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. . . . 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.

(2)(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.

Technical Assistance Advisement
Page 5 of 8

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. . . .
(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.
DISCUSSION
The Department has not verified the square footage of the figures that were provided.
This response is regarding the methodology you are using to calculate the taxable portion
of your client’s lease agreement.

Technical Assistance Advisement
Page 6 of 8

Section 212.031(1)(a), F.S., imposes sales tax on the privilege of engaging in the leasing
of, or the granting of a license to use, real property. Section 212.031(1)(c), F.S., imposes
the tax on the total rent or license fee charged for such real property by the person
charging or collecting the rental or license fee. However Section 212.031(1)(a)2., F.S.,
excludes real property when such property is “used exclusively as dwelling units.”
Section 212.031(1)(b), F.S., 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, under subparagraphs 212.031(1)(a)1, 2, 3, or 5., F.S. The
Department’s interpretation of this statute provides, in Rule 12A-1.070(14)(a), F.A.C.,
that the Department shall determine, from the lease or license agreement or other
pertinent information available, that portion of the rental charge that is exempt from tax.
The following equation is a reasonable method useful for calculating the taxable portion
of a lease payment under a lease for multiple use property, such as a hotel. The equation
multiplies the total rent or license fee by a fraction, the numerator of which is the square
footage used by the lessee for its own purposes, and the denominator of which is the
entire square footage of the land demised by the lease.
Computing the numerator
The numerator is comprised of the total square footage of the premises that is used
exclusively by the Lessee for its hotel related purposes, plus any other square footage
used by the Lessee that is not guest rooms or common areas principally provided for use
of the guests, and for which either (a) the Lessee does not impose a charge for the use of
such areas (e.g., a lounge providing complimentary food and drinks); or (b) the Lessee
imposes a separate charge for the use of an area and that charge is subject to tax under a
provision of Chapter 212, F.S., other than Section 212.031, F.S. (e.g., a health club
requiring an additional charge which would be subject to tax as an admission). Also, the
numerator would include any land demised under the lease, whether developed or
undeveloped, and used exclusively by the lessee. This includes areas of land that cannot
be developed due to certain restrictions and cannot be used by the hotel guests.
Your letter provides that guests are entitled, without additional charge, to the use of the
pool, garden areas, walkways, parking spaces, driving areas, complementary breakfast
area, and common areas. Therefore, you are correct in identifying these areas used by the
guest and not to be included in the numerator.
The tables you provided regarding square footage allocation list the following taxable
spaces to which guests have no access: dumpster area, laundry rooms, storage rooms,
mechanical rooms, elevator equipment rooms, electrical rooms, maintenance rooms,

Technical Assistance Advisement
Page 7 of 8

breakfast preparation area, PBX, office space, and manager’s office. This list appears to
correctly reflect the taxable areas of the lease.
Areas designated as subleased spaces, such as the Hospitality Suite, wherein the tax is
paid by the sublessee, would not be included in the numerator. This would cause them to
be subject to the same tax twice, once to the sublessees, and then to the lessee.
Specifically, Section 212.031(2)(b), F.S., prohibits the pyramiding of tax by a
progression of transactions. You also should note that this statute does not permit the
amount of tax due to the state to be decreased by such progression of transactions. The
amount of tax remitted for each of the subleased retail areas and for the meeting rooms
and ballrooms should not be less than the amount that would be due if these areas were
not subleased. However, if the tax collected for these areas, such as the Hospitality Suite,
is less than an amount that would be due for each of these areas to the prime lessor, the
Taxpayer would be required to remit the difference.
Rule 12A-1.070(8) and (9), F.A.C., further provides that when a person sublets or assigns
his interest in all of the leased or licensed premises he may extend a resale certificate to
his immediate landlord and remit tax pertaining to any taxable space which he retains.
Here, Taxpayer is charging the third party assignee more for the premises than it is
charged under the Ground Lease, and Taxpayer is not retaining any of the premises.
Therefore, no tax would be due on the lease between Taxpayer and Ground Lessor.
CONCLUSION
Based on the figures provided, the proposed taxable percentage of 4.07% is a reasonable
determination and therefore the portion of the rent subject to sales tax. However,
Taxpayer is assigning all of the Ground Lease for a higher amount. Therefore, sales tax
is only due on the Agreement between Taxpayer and the third party assignee/sublessee.
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

Technical Assistance Advisement
Page 8 of 8

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,

French Brown
Attorney
Technical Assistance and Dispute Resolution
(850) 922-4708
HFB/
Ctrl# 50586