What percentage of a four-floor Florida hotel's master-lease rent was taxable after excluding guest rooms and no-charge amenities?

Plain-English summary

A master tenant operated an 83-room hotel on a 1.82-acre property leased from a landlord that owned the improvements and held the underlying ground lease. The four-floor property included 87 parking spaces, no-charge guest amenities, operational back-of-house areas, and a hospitality room rented to local third parties.

Florida accepted the taxpayer's square-footage approach, while noting that the Department had not verified the submitted measurements:

• Taxable operational space: 4,001 square feet, including dumpster, laundry, pantry, storage, mechanical, elevator, electrical, HVAC, maintenance, office, telephone, and CATV areas not available to guests.
• Total leased space: 114,535 square feet of land and building floors.
• Taxable percentage: 3.49% of the rent.

The calculation excluded guest rooms and spaces principally provided to guests without an extra charge, including the pool, gardens, walkways, parking and driving areas, complimentary breakfast space, corridors, stairwells, and other common areas.

The hospitality room was excluded when its third-party rentals were separately taxed. That avoided charging real-property rent tax twice on the same space, but the downstream tax could not be less than the amount allocable to the hospitality room under the master lease; the taxpayer owed any difference.

What this means for you

Hotel operations and guest use are separated by function

Back-of-house areas used by management and maintenance entered the taxable numerator. Guest lodging and no-charge amenities remained with the exempt dwelling use.

A supported square-footage method can be reasonable

Florida did not prescribe one universal valuation method. It accepted this fraction as reasonable for the property and data presented.

Separately taxed event space can be removed—with a floor

The hospitality room did not enter the numerator when third-party rentals were taxed, but the lease chain could not reduce the total state tax attributable to that space.

Keep measurements and use records

The Department expressly did not audit the figures. A hotel relying on an allocation needs current floor plans, area calculations, and evidence of how each space is used and charged.

This is a historical 2008 lease-tax ruling

Confirm current Florida real-property-rent law before using the 3.49% allocation approach today.

Common questions

Q: What taxable share did Florida accept?
A: 3.49%, based on 4,001 taxable square feet divided by 114,535 total square feet.

Q: Were guest rooms included?
A: No. Guest rooms and qualifying common areas provided without extra charge were excluded.

Q: Was the hospitality room taxable twice?
A: No. It was excluded from the master numerator when its third-party rentals were taxed, subject to a tax-shortfall safeguard.

Q: Did Florida verify the floor-area figures?
A: No. The ruling approved the methodology using the taxpayer's submitted measurements.

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 lease progression)
• 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-034

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-034
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 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 master tenant under a Master Lease Agreement with XXX
(collectively referred to as the “Taxpayer’s Landlord”), dated July 26, 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 1.82 acres with a building footprint of 11,816 square feet
and a total square footage of all four floors of the Hotel of 47,072 square feet.
The Hotel has 83 guest rooms and 87 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 room 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 (1.82 acres)
Land other than Building
Dumpster Area

Square Footage Taxable
79,279
67,463
X
443

Hotel Building
Hotel First Floor
Laundry Room
Linen Storage
HVAC rooms
Elevator Equipment
Electric Room
Mechanical Room
Manager Office and Hall
Work Area
Pantry
Storage
Registration Desk
Elevator Area
Hospitality Room

47,072
11,816
324.5
214.5
358.75
56
174
104.5
240.5
92
117
102
130
28
613

X
X
X
X
X
X
X
X
X
X

Technical Assistance Advisement
Page 4 of 8

Lobby
Public Restrooms
Breakfast Area
Exercise Area
Vending
Seating
Public Stairwells
Rental Rooms
Total Taxable Sq. Ft.

[1,784]

Hotel Second Floor
Storage
Laundry Chute
Maintenance
Telephone & CATV
Seating
Elevator
Corridor
Public Stairwell
Rental Rooms
Total Taxable Sq. Ft.

11,752
136.5
47.25
357.5
214.5

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

11,752
221
47.25
130

Hotel Fourth Floor
Storage
Laundry Chute
Electrical
Vending

11,752
357.5
47.25
214.5

X
X
X
X

756

X
X
X

399

X
X
X

Technical Assistance Advisement
Page 5 of 8

Seating
Elevator
Corridor
Public Stairwell
Rental Rooms
Total Taxable Sq. Ft.

619

Taxpayer’s position is that 4,001 square feet of the 114,535 square foot lease are taxable,
or 3.49%.
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.

Technical Assistance Advisement
Page 6 of 8

(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.
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 that 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, pantry, storage
rooms, mechanical rooms, elevator equipment rooms, electrical rooms, HVAC rooms,
maintenance rooms, manager’s office, telephone, and CATV rooms. This list appears to
correctly reflect the taxable areas of the lease.
Areas designated as subleased spaces, such as the Hospitality Room, 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 a 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

Technical Assistance Advisement
Page 8 of 8

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.
CONCLUSION
Based on the figures provided, the proposed taxable percentage of 3.49% is a reasonable
determination.
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# 50580