What share of a four-floor Florida hotel's master-lease rent was taxable based on back-of-house versus guest-use square footage?

Plain-English summary

A master tenant leased an entire 1.88-acre hotel property from a landlord that owned the improvements and held the underlying ground lease. The four-floor hotel had 83 guest rooms, 95 parking spaces, no-charge guest amenities, operational spaces, and a hospitality suite rented to third parties for taxable events.

Florida accepted a square-footage fraction for the mixed-use rent. The Department did not verify the measurements; it ruled that the proposed methodology and figures were reasonable.

• Taxable numerator: 4,845 square feet used for hotel operations without guest access, including the dumpster, laundry and storage rooms, mechanical and electrical rooms, maintenance areas, breakfast preparation, PBX, offices, and the manager's office.
• Total denominator: 115,061 square feet covering the leased land and all four hotel floors.
• Taxable share: 4.21% of the rent.

Guest rooms and areas principally available to guests without an additional charge—pool, gardens, walkways, parking, driving areas, complimentary breakfast space, corridors, stairwells, and other common areas—stayed outside the numerator.

The hospitality suite was also excluded when a third-party renter paid tax on that space. Florida's no-pyramiding rule prevented double tax, but it also prevented the lease chain from reducing total tax: if the hospitality-suite tax was less than the amount allocable under the master lease, the taxpayer had to remit the difference.

What this means for you

Operational hotel space can remain taxable

The dwelling-unit exclusion did not cover back-office, mechanical, laundry, storage, and similar areas used by the hotel rather than its guests.

Guest access and extra charges matter

The ruling excluded amenities and circulation areas because guests could use them without an additional fee. Separately charged areas can require a different classification.

Sublease treatment requires a tax floor

Removing separately taxed event space from the numerator avoids duplicate tax, but only if the downstream transaction remits at least the tax otherwise attributable to that area.

The percentage belongs to this property

Florida's method was case-specific, and the Department did not audit the square footage. Another hotel must calculate its own numerator and denominator.

This is a historical 2008 lease-tax ruling

Confirm current Florida real-property-rent law before applying the 4.21% methodology today.

Common questions

Q: What percentage of rent was taxable?
A: 4.21% based on the figures presented.

Q: Were guest rooms and parking included?
A: No. Guest rooms and no-charge guest parking and common amenities were excluded.

Q: Was the hospitality suite included?
A: No when its third-party rental was already taxed, subject to paying any tax shortfall compared with the master-lease allocation.

Q: Did Florida verify the measurements?
A: No. The advisement approved the method using the taxpayer's submitted figures.

Citations and references

• Fla. Stat. § 212.031(1)(a)-(c) (real-property rent, dwelling exclusion, and mixed-use allocation)
• Fla. Stat. § 212.031(2)(b) (no pyramiding or reduction through successive leases)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)
• Fla. Admin. Code r. 12A-1.070(14)(a) (mixed-use rent allocation)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 08A-032

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-032
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.)

Technical Assistance Advisement
Page 2 of 8

XXX
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 of 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 master tenant under a Master Lease Agreement with XXX
(the “Taxpayer’s Landlord”), dated August 17, 2007 . . . . The Taxpayer’s
Landlord is not the fee simple owner of the land and improvements (the
“Property”), but is the legal owner of the improvements constructed on the
Property and the ground lessee of the land, pursuant to a

ground lease with the fee simple owner of the land (the “Ground Lessor”). Based
on its ground lessee position and its ownership of the improvements, the
Taxpayer’s Landlord has leased to the Taxpayer, in accordance with the Master
Lease Agreement, the entire Property, which is operated as a XXX (the “Hotel”). .
..
The Property consists of 1.88 acres with a building footprint of 11,056 square feet
and a total square footage of all four floors of the Hotel of 474,225 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.

Technical Assistance Advisement
Page 3 of 8

The Hotel has a hospitality suite that is principally rented to local third parties for
various types of events, which rentals are subject to sales tax.
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. The [Hotel’s] second,
third and fourth floors consist principally of guest rooms and guest accessible
corridors and stairwells, although each floor also contains small designated areas
for the maintenance of the Hotel, such as hot water rooms and storage.
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 Building
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

44,224
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

Hospitality Suite
Lobby
Public Restrooms
Breakfast Bar/Area
Exercise Area
Vestibule
Seating
Public Stairwells
Rental Rooms
Total Taxable Sq. Ft.

3,022

Hotel Second Floor
Storage
Vending
Seating
Elevator
Corridor
Public Stairwell
Rental Rooms
Total Taxable Sq. Ft.

11,056
384

Hotel Third Floor
Storage
Vending
Seating
Elevator
Corridor
Public Stairwell
Rental Rooms
Total Taxable Sq. Ft.

11,056
384

Hotel Fourth Floor
Storage
Hot Water Room
Vending
Seating
Elevator
Corridor
Public Stairwell
Rental Rooms

11,056
384
358

X

384

X

384

X
X

Technical Assistance Advisement
Page 5 of 8

Total Taxable Sq. Ft.

742

Taxpayer’s position is that 4,845 square feet of the 115,061 square foot lease are taxable,
or 4.21%.
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 6 of 8

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

Technical Assistance Advisement
Page 7 of 8

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,
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
Room, 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.

Technical Assistance Advisement
Page 8 of 8

CONCLUSION
Based on the figures provided, the proposed taxable percentage of 4.21% is a reasonable
determination and therefore the portion of the rent subject to sales tax.
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,

French Brown
Attorney
Technical Assistance and Dispute Resolution
(850) 922-4708
HFB/
Ctrl# 50583