Were fractional interests sold under the proposed timeshare agreements taxable licenses or sales of timeshare estates, and did documentary stamp tax apply?

Plain-English summary

Florida ruled that the proposed fractional interests were timeshare licenses, not timeshare estates. That classification produced opposite answers under two taxes: the payments were taxable as transient rentals, but the transfers were not subject to documentary stamp tax.

The project sat on ground-leased property, and the taxpayer's own interest was a subleasehold. Its documents consistently described the buyers' rights as timeshare licenses. Buyers received recurring occupancy rights and an association membership, but no freehold estate or future interest in the property. Florida respected the licensor-licensee form chosen in the agreements.

Section 212.03 treated consideration for a timeshare license as taxable rent. Calling the interest real property for some purposes did not remove the payments from sales tax because Florida taxes the privilege of licensing transient accommodations.

For documentary stamp tax, however, the result was no tax. That tax applies to writings transferring real property or an interest in it. The reviewed licenses were not timeshare estates and therefore were not transfers of real-property interests under the ruling's analysis.

What this means for you

Timeshare labels alone do not determine tax; the contract rights, underlying property interest, future interest, and chosen transaction form matter. A license can produce taxable rental receipts without being a stamp-taxable conveyance of real property.

Common questions

Were the fractional interests timeshare estates? No. The documents created timeshare licenses and conveyed no qualifying freehold or future interest.

Were buyer payments subject to sales tax? Yes. Florida treated them as transient-rental charges.

Did documentary stamp tax apply? No, because the licenses did not transfer interests in real property.

Citations and references

• Fla. Stat. §§ 201.02, 212.02, 212.03, 212.031, 689.01, and 721.05, and Fla. Admin. Code r. 12A-1.061(3)(h)14., as quoted and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10A-024

Original ruling text

SUMMARY
QUESTION: Whether Taxpayer’s agreements are for sales of timeshare estates for purposes of
section 212.03, F.S.
ANSWER: No. The agreements are timeshare licenses. The agreement terms provide that the
sales are for timeshare licenses for purposes of section 721.05, F.S. The rentals paid are subject
to sales provided for by section 212.03, F.S.
May 25, 2010
XXX
Re:

Technical Assistance Advisement No: 10A-024
Sales and Use Tax-Transient Rental Accommodations
Documentary Stamp Tax-Sale of Fractional Interest in Real Property
Section 201.02(10), Florida Statutes (F.S.); section 212.03, F.S.
Section 212.02, F.S.; section 721.05, F.S.
Rule 12A-1.061(3)(h)(14), F.A.C.
XXX (hereinafter Taxpayer)(“Petitioner”)
FEI#: XXX
XXX (hereinafter “LLC1”)
XXX (hereinafter “Ground Lessor”)
XXX(“Island”)
XXX (“Project 1”)
XXX (“County A”)

Dear XXX:
This letter is a response to your petition dated September 19, 2008, for the Department’s
issuance of a Technical Assistance Advisement (“TAA”) concerning the above referenced party
and matter. Your petition 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 s. 213.22, F.S.
ISSUE #1
Whether Taxpayer’s rentals of “Time Share Licenses” are “timeshare licenses” for purposes of
section 212.03, F.S.
FACTS PER REQUEST
The [Ground Lessor] and [LLC1], a XXX limited liability company, have entered
into an “Agreement to Enter into Ground Lease,” a copy of which is attached hereto
as Exhibit “A,” under which the [Ground Lessor] has agreed to lease certain real
property consisting of approximately XXX acres located on [Island] (the
“Development Property”) and approximately XXX acres of submerged land (for a
total of XXX acres), to [LLC1] pursuant to a Ground Lease (“Ground Lease”), a
draft of which is attached hereto as Exhibit “B,” upon satisfaction of certain
conditions. The Ground Lease will provide [LLC1] generally with all of the rights

Technical Assistance Advisement
Page 2
and responsibilities for the Development Property, including the rights to build and
use improvements on the Development Property. The Ground Lease will have an
initial term of forty-five (45) years with two (2) fifteen (15) year renewal options
exercisable at the option of the ground lessee, for an aggregate term of seventy-five
(75) years. Pursuant to the Ground Lease, title to the land will at all times remain
vested in the [Ground Lessor]. All improvements constructed on the Development
Property will belong to the developer of the improvements during the term of the
Ground Lease but revert to the [Ground Lessor] on termination of the Ground Lease.
[LLC1] intends to create and develop a mixed-use project on the Development
Property to be known as [Project 1], and intends that [Project 1] will include two
hotels, a fractional timeshare project, a marina, retail space, and other amenities.
[LLC1] intends to enter into a sub-ground lease with Taxpayer for portions of one of
the buildings to be developed on the Development Property (“Fractional Sub-Ground
Lease”), as reflected in the Agreement to Enter into a Sublease, a copy of which is
attached hereto as Exhibit “C.” The property that will be subject of the Fractional
Sub-Ground Lease[,] a draft of which is … attached hereto as Exhibit “D,” is
referred to herein as the “Fractional Property.” The Fractional Sub-Ground Lease
will be entered into upon substantially similar terms as the Ground Lease, except that
the Fractional Sub-Ground Lease is coterminous with the Ground Lease (i.e., an
initial term of forty-five (45) years, and two fifteen (15) year renewal options, for an
aggregate term of seventy-five (75) years).
Taxpayer plans to develop a maximum of ninety-eight (98) fractional timeshare
accommodation units (“Units”), with eight (8) fractions per unit (each individually
referred to herein as a “Fractional Interest”), for a maximum total of seven hundred
eighty-four (784) Fractional Interests, and appurtenant support facilities upon the
Fractional Property and plans to sell the Fractional Interests therein. There will be
one-bedroom, two-bedroom, three-bedroom, and four-bedroom Units. The Units
and the remainder of the Fractional Property will be subject to a fractional use plan
(“Fractional Use Plan”), a copy of which is attached hereto as Exhibit “E,”
established in a declaration of covenants, conditions, and restrictions (the “Fractional
Declaration”), a draft copy of which is attached hereto as Exhibit “F,” applicable to
the Fractional Property which establishes rights, duties, and obligations of holders of
Fractional Interests (“Fractional Interest Holders”) and the manner in which the
Fractional Property will be governed. The Fractional Declaration provides that each
Fractional Interest Holder will have the exclusive use and occupancy of one of the
Units corresponding to the Fractional Interest purchased by the respective Fractional
Interest Holder, and the right, through easements granted by [LLC1], to use certain
common and limited common areas of the Development Property. Following the
sale of a Fractional Interest by Taxpayer, Taxpayer retains the rights, as sublessee, of
all rights to the common areas and limited common areas (e.g. balconies attached to
the Units) of the Development Property subject to the rights of Fractional Interest

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Holders to use certain common and limited common areas of the Development
Property granted by easement to Fractional Interest Holders. [LLC1] will record the
Fractional Declaration in the pubic real estate records of [County A].
The Fractional Declaration will establish that each Fractional Interest conveyed to a
Fractional Interest Holder will consist of: (i) the rights to possess, use and occupy a
Unit in accordance with the terms and conditions of the Fractional Use Plan, for a
time period that is coterminous with [LLC1’s] and the Taxpayer’s rights in the
Development Property under the Ground Lease and the Fractional Sub-Ground
Lease respectively (i.e., an initial term of forty-five (45) years and two fifteen (15)
year renewal options, for an aggregate term of seventy-five (75) years), and (ii) a
membership interest in the non-profit corporation formed to manage and operate the
Fractional Use Plan, become the ground sublessee of the Fractional Property
exclusive of the Units and represent the Fractional Interest Holders (the “Owners’
Association”).
Taxpayer will convey all of the Taxpayer’s rights and interest in the Fractional
Property, subject to the Fractional Declaration, to the Fractional Interest Holders
(who will receive the Units) and the Owners’ Association (who will receive the
remaining property subject to the Fractional Declaration other than the Units). No
later than thirty (30) days after the conveyance by Taxpayer of the last Fractional
Interest held by Taxpayer (the “End Date”), Taxpayer will convey all remaining
interests Taxpayer may have in the Fractional Sub-Ground Lease to the Owners’
Association. These remaining interests will include common areas, and limited
common areas. Taxpayer also has an option to convey any unsold Fractional
Interests, or any other interests of the Taxpayer under the Fractional Sub-Ground
Lease[,] to the Owner’s Association at any time prior to the End Date. Further,
Taxpayer must transfer control of the Owners’ Association to the Fractional Interest
Holders no later than the seventh (7th) year after the recording of the Fractional Use
Plan. Accordingly, at such time that Taxpayer has conveyed any remaining interest
in the Fractional Sub-Ground Lease to Owners’ Association, Taxpayer will no longer
retain any present or future interest in the Fractional Property.
Taxpayer plans to offer the Fractional Interests for sale to customers in the ordinary
course of its trade or business pursuant to a Fractional Interest Purchase Contract and
License Agreement, a copy of which is attached hereto as Exhibit “G.” In
accordance with the Florida Timeshare Act, Chapter 721, Florida Statutes, prior to
offering the Fractional Interests to prospective purchasers, Taxpayer has registered
the Fractional Interests for sale with the Division of Florida Land Sales,
Condominiums, and Mobile Homes of the State of Florida Department of Business
and Professional Regulation, and that registration has been approved.
Each Fractional Interest Holder will have the right to possess, use and occupy a Unit
pursuant to the Fractional Declaration for a time period coterminous with [LLC1’s]

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(and Taxpayer’s) rights in the Fractional Property (i.e., an initial term of forty-five
(45) years, and two fifteen (15) year renewal options, for an aggregate term of
seventy-five (75) years). The Ground Lease between [LLC1] and the [Ground
Lessor] and the Fractional Sub-Ground Lease between [LLC1] and Taxpayer will
provide for an initial term of forty-five (45) years with two (2) fifteen (15) year
renewal options.
The governing documents will provide that the Fractional Interest Holders can
continue their use rights for the full seventy-five (75) year term of the Ground Lease
regardless of whether [LLC1] extends the Ground Lease or whether Taxpayer
extends the Fractional Sub-Ground Lease. Upon conveyance of all of Taxpayer’s
interest in the Fractional Sub-Ground Lease to the Owners’ Association, the board of
directors of the Owners’ Association, pursuant to the Fractional Declaration, will
have an independent right to extend on behalf of its members, the Fractional Interest
Holders, the term of the Fractional Sub-Ground Lease for the full seventy-five (75)
year term. Furthermore, pursuant to the subordination and non-disturbance
agreement, a draft of which is attached hereto as Exhibit “H,” to be recorded in the
public records (“Non-Disturbance Agreement”), the Owners’ Association can
continue the Fractional Interest Holders’ rights under the Fractional Interests for the
duration of the stated Ground Lease term (including any extension terms which were
available for exercise under the Ground Lease, whether or not so exercised) by
providing notice of such election to [Ground Lessor]. If the Owners’ Association
elects to continue such rights, the [Ground Lessor] is required to either enter into a
new replacement lease with the Association or enter into a new lease with a third
party, which third party is required to provide the Fractional Interest Holders with
comparable terms and conditions as the Ground Lease. Accordingly, regardless of
whether [LLC1] extends the Ground Lease or whether Taxpayer extends the
Fractional Sub-Ground Lease, the Owners’ Association may continue the Fractional
Interest Holders’ use rights in the Fractional Property for the full seventy-five (75)
year term of the Ground Lease.
Each Fractional Interest Holder may freely sell, transfer, or assign his or her
Fractional Interest without any approval right, or other restrictions of [LLC1] or
Taxpayer other than a limited right of first refusal of Taxpayer with respect to sales
occurring before the earlier of: (i) sellout of the Fractional Interest, or (ii) two (2)
years after completion of construction on the final phase of Units (the “Limited Right
of First Refusal”). The Fractional Interest Holders will also have the right to lease all
or a portion of unused fractional time subject to such rules, restrictions and
limitations as may be imposed by the Owners’ Association as provided in the
Fractional Use Plan. Any rents derived from the rental of unused fractional time will
inure exclusively to the benefit of the applicable Fractional Interest Holder. Neither
[LLC1] nor Taxpayer will have any independent or exclusive right to lease a
Fractional Interest Holder’s Fractional Interest under any circumstances.

Technical Assistance Advisement
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The rights of the Fractional Interest Holders to use the common areas and amenities
included in the Fractional Use Plan will be subject to the Non-Disturbance
Agreement. The Non-Disturbance Agreement will be executed by the [Ground
Lessor], [LLC1], and any mortgagee of the building or other holder of a superior
interest in the Fractional Property, and will be recorded in the public records.
Pursuant to the Non-Disturbance Agreement, the mortgagee will recognize and not
disturb the rights of the Fractional Interest Holders notwithstanding any foreclosure
by the mortgagee or the exercise of any other rights under the mortgage. The NonDisturbance Agreement will cover interests of the Fractional Use Plan, including the
right to continued use rights in the Fractional Property through the seventy-five (75)
year term of the Ground Lease (as discussed above) and to utilize amenities and
other facilities in the Development Property.
ADDITIONAL FACTS
A copy of the Fractional Interest Purchase Contract and License Agreement (Exhibit
“G”) was provided. It is a form agreement between Taxpayer and a prospective buyer. The
Fractional Interest Purchase Contract and License Agreement provides at page 1 for the purchase
of a one-eighth undivided interest in a Fractional Unit, with the right to use and occupy a
Fractional Unit subject to the Fractional Declaration for the entire term of the Ground Lease, and
a membership interest in the Association.
Page 1 provides in part the following:
The terms used in this Contract shall have the same meaning as the identical
terms utilized in the Fractional Declaration unless the context otherwise requires.
Any reference in this Contract, Public Offering Statement or other Fractional
Project Documents to “Purchaser” … or similar terms shall not signify, imply, or
connote that the Fractional Interests are not timeshare licenses. (Emphasis
added)
Paragraph L. on page 2 of the Fractional Declaration (Exhibit “F”) provides:
The Fractionals Component, consists of approximately ninety-eight (98)
accommodation units (each, a “Fractional Unit”), together with such additional
property and use rights established in the Fractional Sublease, collectively, the
“Fractionals Component”. Developer will enter into fractional interest Purchase
Contract and License Agreements (“Agreements”) for each of the Fractional
Units with individual agreements of each of the Fractional Units. Each such
purchaser/licensee of a Fractional Interest is referred to as an “Owner” even
though such purchaser’s interest consists solely of a fractional interest in a
sub-subleasehold arising from the Fractional Sublease. (Emphasis added)
Section 1.23 on pages 4 and 5 of the Fractional Declaration provides in part, “Evidence of

Technical Assistance Advisement
Page 6
Interest means that short-form license and document of conveyance to be recorded … evidencing
an Owner’s Interest in a Fractional Interest in a Fractional Interest in the Fractional Plan….”
Section 1.29 (page 5) provides in part, “Fractional Interest shall consist of a license to reserve,
use and occupy a Fractional Unit subject to the Fractional Declaration….” Section 6.1 (page 14)
provides in part, “A Fractional Interest shall consist of a license to reserve, use and occupy a
Fractional Unit subject to the Fractional Declaration, together with a membership interest in the
Association. Each Fractional Interest is the equivalent of an undivided one-eighth (1/8th) interest
in a license to use a Fractional Unit in accordance with the terms of the Fractional Declaration,
coupled with a membership interest in the Association….” Section 14.1 (page 42) provides that
the Use of the Fractional Property by an Owner, is limited solely to the personal use of an
Owner, which includes occasional leasing.
Section 2.2 of the Ground Lease (Exhibit “B”) provides that the nature of the agreement is
a ground lease, not including the property to be developed. Section 4.2.6 references LLC1’s
interest as a leasehold estate. The Non-Disturbance Agreement characterizes LLC1’s interest as
a leasehold estate during the ground lease term with LLC1 as the owner of the improvements. It
also characterizes the Sublease agreement as a sublease and Taxpayer’s interest as a
subleasehold estate.
Section 1.5 of the Sublease agreement (Exhibit “D”) defines the term “Approved Timeshare
License” to mean “any Timeshare License as defined in section 721.05(35), Florida Statutes.”
The term “Fractional Interest Ownership” is defined, in part, in the Sublease Agreement as “the
rights granted … pursuant to which the Approved Timeshare Licensees obtain a license to use
and occupy a portion of the Subleased Property ….” The Sublease Agreement provides that
“Leasehold Estate” means all Sublessor’s right, title and interest as lessee under the Ground
Lease. It defines “Subleasehold Estate” to mean all of Taxpayer’s right, title and interest as
Sublessee pursuant to the Sublease in subleased property and subleasehold improvements.
Section 13.1(a) provides that LLC1 warrants that it has a good and valid leasehold interest in the
subleased property and authority to transfer the subleasehold estate to the Taxpayer. Section
25.2(c) requires rents owed by Approved Timeshare Licensees to be paid when demanded to the
Ground Lessor or LLC1. Section 37.14 prohibits merger of the interest of the subleasehold
estate with the fee estate in the subleased property or any portion of the leasehold estate. The
Non-Disturbance Agreement between the Ground Lessor and LLC1 provides that there is no
merger of the leasehold estate and improvements (Section 14). The Ground Lease also provides
for no merger of these interests (section 36.18).
Request for Advisement
You request that the Department confirm that the sale of Fractional Interest, as described
in the request, is taxed as real property subject to Documentary Stamp Tax and not subject to
Sales Tax as personal property.
Taxpayer Position

Technical Assistance Advisement
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Your initial request provides in part the following:
The Taxpayer respectfully requests that the Department conduct a substantive
analysis of the facts and confirm that for Florida taxation purposes, the nature of
the Fractional Interests contains a “bundle of rights” more analogous to a real
property interest similar to that of a “timeshare estate” under section 721.05(34),
F.S. (2007), than personal property rights similar to a “time share license” under
section 721.05(37), F.S. (2007), and accordingly, a documentary stamp tax levied
under [Chapter] 201, F.S. (2007), and not sales and use tax levied under [Chapter]
212, F.S. (2007), is due upon the sale of a Fractional Interest by Taxpayer to
Fractional Interest Holder.
Pursuant to section 201.02(1), F.S. (2007), Documentary Tax is due, “[o]n deeds,
instruments, or writings whereby any lands, tenements, or other real property, or
any interest therein, shall be granted, assigned, transferred, or otherwise conveyed
to, or vested in, the purchaser or any other person by his or her direction, on each
$100 of the consideration therefore” at the rate of 70 cents.
Chapter 212, F.S. (2007), addresses Sales Tax, and section 212.031(1)(a), F.S.
(2007), generally provides that “[i]t is declared to be the legislative intent that
every person is exercising a [sales and use] 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 meets certain enumerated exemptions. [Rule 12A1.061(3)(b), F.A.C.], provides for certain exclusions from the Sales Tax, which
exclusions include “[c]onsideration paid by a timeshare owner for purchase of a
timeshare estate, as defined in section 721.05, F.S.”
See Rule 12A1.061(3)(h)(14), F.A.C.
However, [the Rule] further provides that
“[c]onsideration paid under a timeshare license, as defined in section 721.05, F.S.,
is rental charges or room rates and is subject to [sales and use] tax.
Section 721.05(34), F.S.(2007), defines a “timeshare estate” as a right to occupy a
timeshare unit, coupled with a freehold estate or an estate for years with a future
interest in a timeshare property or a specific portion thereof. Transfers of
timeshare estates are clearly transfers of real property and are not subject to Sales
Tax. A “timeshare license”, as defined by section 721.05(37)(2007), F.S., is a
contractual right to use, and does not convey any interest in real property. The
Department has taken the position that a sale of a timeshare license is subject to
the provisions of section 212.03(1)(2007), F.S., which generally provides that
renting, leasing or granting of a license for the use of any real property is the
exercise of a taxable privilege subject to Sales Tax. Id.
It is Taxpayer’s position that for tax purposes the Fractional Interests are more in
the nature of a real property interest similar to a timeshare estate than a personal
property interest similar to a timeshare license for Florida taxation purposes, even

Technical Assistance Advisement
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though the Fractional Interests conveyed to Fractional Interest Holders are labeled
“timeshare licenses” in the purchase contracts with Fractional Interest Holders
pursuant to the terms of the Ground Lease.
“In the field of taxation,
administrators of the laws and the courts are concerned with the substance and
realities, and formal written documents are not rigidly binding.” See Helvering v.
F&R. Lazarus & Co., 308 U.S. 252, 255. Therefore, for Florida taxation
purposes, Taxpayer requests that the Department consider the substantive
characteristics of the Fractional Interest over the form and labeling thereof, and
determine that the Fractional Interest is subject to Documentary Tax and not Sales
Tax.
Similar to a timeshare estate, the Fractional Interests as described above include a
right to occupy a timeshare unit, coupled with an estate for years with a future
interest in a timeshare property or a specific portion thereof. The similarities
between the “bundle of rights” and transfer formalities of the Fractional Interest
and a timeshare estate include, but are not limited to, the following:
(i) The length of time that a Fractional Interest Holder, or its successor, owns the
Fractional Interest is seventy-five (75) years. In reality, as with a timeshare
estate, this could be the lifetime of the Fractional Interest Holder and beyond, and
is significantly longer than the more limited time frames under most timeshare
licenses.
(ii) Grantors of most timeshare licenses retain all rights to the timeshare property
not specifically granted to the license holder by the timeshare license (including
the common elements, limited common elements, rights to rental revenue and to
operate the reservation system). In addition, the typical licensed interest reverts
to the grantor upon the expiration of the timeshare license. However in the
present case, as described above, Taxpayer retains nothing with regard to the
Fractional Interest (except the Limited Right of First Refusal to repurchase the
Fractional Interest, which only exists for a limited period of time …) with all
rights to the common elements, limited common elements, rights to rental revenue
and to operate the reservation system belonging solely to the Owners’
Association. Furthermore, the Fractional Interests as described above do not
revert to Taxpayer but rather revert to the [Ground Lessor].
(iii) Grantors of most timeshare licenses traditionally retain all rights to the entire
timeshare project that are not specifically granted to license holders by the
timeshare licenses, and those grantors reissue licenses for the timeshare interests
multiple times over the life of the timeshare project as such licenses expire, are
relinquished or are revoked. However, as described above, Taxpayer intends to
permanently convey all interests it has in the Fractional Property over time such
that Taxpayer may not actually hold any interest in the Fractional Property at the
time the Ground Lease and Fractional Sub-Ground Lease expire. After Taxpayer

Technical Assistance Advisement
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conveys a Fractional Interest to the initial Fractional Interest Holder, it will not
convey the Fractional Interest again (unless it reacquires the Fractional Interest
under the Limited Right of First Refusal).
(iv) Whereas a typical timeshare license is paid for in annual installments (like a
traditional lease) or is paid for based upon use of the timeshare license, the full
purchase price paid by Fractional Interest Holders to Taxpayer in the present case
will be paid in advance, at the time the Fractional Interest is granted to the
Fractional Interest Holder and regardless of use or future use of the Fractional
Interest by Fractional Interest Holder, similar to the purchase of a typical
timeshare estate or other real estate purchase. The purchase prices paid for the
Fractional Interests will range from $215,000 to $1,875,000, all payable in full at
closing.
(v) Similar to the recording of a deed to a timeshare estate, Taxpayer intends,
upon the granting of each Fractional Interest, to record a document in the public
real estate records of [County A] evidencing the Fractional Interest Holder’s
ownership of the Fractional Interest, against which a lien can be placed.
(vi) The Fractional Interest Holder will be enjoy many other indicia of ownership
similar to a timeshare estate, including: the right to freely sell, transfer, or assign
his or her Fractional Interest without any approval right, or other restrictions of
[LLC1] or Taxpayer (other than the Limited Right of First Refusal for a limited
period of time); the right to lease all or a portion of unused fractional time subject
to such rules, restrictions and limitations as may be imposed by the Owners’
Association as provided in the Fractional Use Plan; and the right to exclusive
retention of any rents derived from the rental of unused fractional time.
You cite Spanish River Resort Corporation et al. v. Walker et al, 497 So.2d 1299
(Fla. 4 DCA 1986), as a case addressing characteristics of timeshare estates. You cite
the following from the opinion: “The interval owner at Spanish River has all the “sticks”
which constitute the “bundle of rights” that is fee ownership of real estate; the complete
right to use (or not to use) the property during the period of ownership; the right to
exclude others during that period, and the right to mortgage, lease, sell, bequeath or give
away the time-share estate.”
th

Your request provides that these are characteristics of timeshare estates, which
position is further bolstered by the fact that transfers of the Fractional Interests are made
with the formalities and basic substance of transfers of real estate, similar to timeshare
estates. Taxpayer would like to highlight the fact that the Internal Revenue Service has
recognized that the transfers of timeshare interests made with the formalities and basic
substance of real estate are sales for U.S. federal income tax purposes. Your request cites
Technical Advisement Memorandum (“TAM”) 8531008 and Private Letter Ruling
(“PLR”) 8552017.

Technical Assistance Advisement
Page 10

In addition to the original letter, you filed two supplemental letters. The first
supplemental request provides that the Fractional Interests should be taxed as a real
property interest subject to the Documentary Stamp Tax and not as personal property
subject to the Sales Tax, because the Fractional Interests are characteristically more
similar to a timeshare estate than a timeshare license. Also, the letter provides that the
Fractional Interests include a “bundle of rights” more similar to real property than
personal property, including: (i) the right to occupy a timeshare unit, coupled with an
estate for years with future interest in a timeshare property or a specific portion thereof
(in other words, not a transient accommodation, which is the focus of the Sales Tax when
it applies to timeshare licenses); (ii) the Fractional Interest Holder will have ownership
rights similar to those of a timeshare estate owner; (iii) the Fractional Interest Holder will
pay in full for his or her Fractional Interest at closing, (iv) the Taxpayer, as developer,
will retain no rights in the Fractional Property; and, (v) the transfer of the Fractional
Interests will be made with the formalities and basic substance of real estate transfers.
Taxpayer requests a substantive analysis of the Fractional Interests in the present case
similar to that performed by the Department in the TAA 99A-035. In addition, the letter
included additional citations demonstrating that for federal income tax purposes the sales
of timeshare interests are made with the formalities and basic substance of transfers of
real estate and are to be construed as sales. In addition you provided citation that the sale
of the licenses would be exempt for the Pennsylvania Hotel Occupancy Tax and subject
to the Pennsylvania Realty Transfer Tax on sales of interest in real property.
The second supplemental letter provides that a key factor in support of Taxpayer’s
position that the Fractional Interests are characteristically more similar to a timeshare
estate than a timeshare license is that the transfer of Fractional Interests will be made
with the formalities and basic substance of real estate transfers. You provided a copy of
the form of Evidence of Interest document that will be recorded to evidence the
Fractional Interest Holder’s ownership of the Fractional Interest.
Provisions of Law and Discussion
Issue #1
Whether Taxpayer’s rental of “Time Share Licenses” are “timeshare licenses” for
purposes of sections 212.02(10)(i), 212.03, and 721.05, F.S.
Section 212.03(1)(a), F.S., provides that every person who engages in the business of
renting, leasing, letting, or granting a license to use any timeshare resort is exercising a taxable
privilege. The term “License” is defined by section 212.02(10)(i), F.S. It provides, “License, as
used in this chapter with reference to the use of real property, means the granting of a privilege
to use or occupy a building or a parcel of real property for any purpose.” As provided by section
212.03(1)(a) and (2), F.S., the tax is levied on the total rental charged by the person charging or
collecting the rental, or in the case of a licensor, the license fee. This includes the Taxpayer or any

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person collecting the rental, including management companies and assignees of the rent payments,
even if the rental is collected on behalf of the landlord or licensor. Section 212.03(1)(a) and (4),
F.S., also provide that any person who rents, leases, lets, or grants a license for others to use,
occupy, or enter upon any timeshare resort and who exclusively enters into a bona fide written
agreement for continuous residence for longer than 6 months in duration at such property is not
exercising a taxable privilege. Here, the agreements do not permit continuous residence for
longer than 6 months, even though the term of the license agreement may continue for 75 years.
The agreements only provide for a 1/8th (one-eighth) interest in a timeshare unit for a maximum of
approximately 45 days use within a year.
Section 212.03(1)(b)2., F.S., provides that consideration paid for the purchase of a
“timeshare license” in a “timeshare plan,” as defined in section 721.05, is rent subject to taxation
under this section. Here, the documentation provided identifies the sale of the Timeshare Licenses
in this instance as being a “Timeshare License” as defined by section 721.05, F.S. Section
721.05(37), F.S., (2009), and section 721.05(35), F.S. (2003), define "Timeshare license" to
mean a right to occupy a timeshare unit, which right is not a personal property timeshare interest
or a timeshare estate. Also, as provided above, section 212.03, F.S., provides that licenses of
timeshares are subject to the tax.
The Taxpayer maintains that the “Timeshare Licenses” here are not in substance a
“Timeshare License,” as defined by Chapter 721, F.S., but are a timeshare estate and not subject to
the tax imposed by section 212.03, F.S., and as provided by Rule 12A-1.061(3)(h)14., F.A.C. The
Rule provides that the consideration paid by a timeshare owner for purchase of a timeshare estate,
as defined in Section 721.05, F.S., is not subject to the tax and that consideration paid under a
timeshare license, as defined in Section 721.05, F.S., is rental charges or room rates and is
subject to tax.
Section 721.05(34), F.S., defines, "Timeshare estate" to mean a right to occupy a
timeshare unit, coupled with a freehold estate or an estate for years with a future interest in a
timeshare property or a specified portion thereof. The statute also provides that the term shall
also mean an interest in a condominium unit pursuant to s. 718.103, F.S., an interest in a
cooperative unit pursuant to s. 719.103, F.S., or an interest in a trust that complies in all respects
with the provisions of s. 721.08(2)(c)4., F.S., provided that the trust does not contain any
personal property timeshare interests. Since interests in condominiums, cooperative units, and
trusts were not addressed in the facts, only section 721.05(34), F.S., can possibly apply. Section
721.05(34), F.S., provides that a timeshare estate is a parcel of real property under the Florida
law.
In this instance, it has not been demonstrated that the “Timeshare Licenses” were treated
as a parcel of real property under Florida law for property tax or other purposes. In addition,
there is no future interest held by each licensee. The only other interest sold to the Timeshare
licensees was a membership interest in Association, a nonprofit corporation. Such interests are
equitable ownership interests in the corporation and not an interest in the property owned by the
Association. Therefore, the bundle only includes the “Timeshare License” and the membership

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interest. Furthermore, the “Timeshare Licenses” sold are not a “freehold estate,” as required by
Florida Statutes to be considered a “Timeshare estate.” The term “freehold” is defined by
Black’s Law Dictionary (Special Deluxe 5th edition) as:
An estate for life or in fee…. A “freehold estate” is a right of title to land…. An estate
in land or other real property, of uncertain duration; that is, either of inheritance or which
may possibly last for the life of the tenant at the least (as distinguished from a leasehold)
…. An estate to be freehold must possess these two qualities: (1) Immobility, that is, the
property must be either land or some interest issuing out of or annexed to land; and (2)
indeterminate duration, for if the utmost period of time to which an estate can endure be
fixed and determined, it cannot be a freehold.
Here, the title to the land is held by Ground Lessor. In addition, the term of the
agreements is certain. As such, the interest conveyed by the Taxpayer is not a freehold. Also, in
addition to characterizing the “Timeshare Licenses” sold as “Timeshare Licenses” for purposes
of section 721.05, F.S., the documents furnished also characterizes the property interest held by
LLC1 as a leasehold estate and not a freehold, as is required by the definition of “timeshare
estate.”
Here, the Ground Lessor has the future interest in that all interests in the leasehold,
including the leasehold improvements, revert to the Ground Lessor at the end of the term of the
Ground Lease. The owner’s rights in the “Timeshare Licenses” do not have a future interest.
As provided by section 721.05, one major difference in the bundle of rights of a “timeshare
estate” and a “timeshare license” is that a “timeshare license” does not include a future interest,
such as the reversionary interest which is the interest of a freehold owner in fee simple who
grants the use of property by a leasehold, as in this instance with Ground Lessor. Here, the
Ground Lessor receives all interest in the real property on the land leased at the end of the
ground lease term. Furthermore, Chapter 212, F.S., provides the definitions to be used for
leasing and licenses. The definitions only require the grant of a privilege to use either real
property or transient accommodations owned by the landlord or licensor. Green v. Panama City
Housing Authority, 115 So.2d 560 (Fla.1959); Gaulden v. Kirk, 47 So.2d 567 (Fla.1950); Florida
Department of Revenue v. Maas Brothers, Inc., 226 So.2d 849 (Fla. 1st DCA 1969); and Kirk v.
Western Contracting Corp., 216 So.2d 503 (Fla. 1st DCA 1968).
Furthermore, the Taxpayer’s interest is a subleasehold estate as evidenced by the
documents and in substance. Thus, the fractional interest received with the “timeshare license”
can be no greater than the subleasehold estate. In this instance there is no future interest in
addition to the subleasehold estate.
The Taxpayer maintains that the “Timeshare License” is real property. Section
212.02(10), F.S., defines “Real property.”
The definition includes the surface land,
improvements thereto, and fixtures, and is synonymous with "realty" and "real estate." The
Taxpayer’s position is that the “bundle of rights” in the “time share license” in this instance is
essentially that of a “timeshare estate,” which is defined by section 721.05(34), F.S., and is

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therefore real property and not personal property. Freehold estates in land and buildings are
classified in the common law as real property. Florida Jurisprudence, Property, section 7-8;
Black’s Law Dictionary (5th Special Edition) @ 1096 defining “property.” Leasehold interests in
real property such as land are considered at common law to be personal property. Willams v.
Jones, 326 So.2d 425 (Fla. 1975) and DeVore v. Lee, 30 So.2d 924 (Fla. 1947). Nevertheless,
rentals from such interests must include Sales Tax, as required by section 212.031, F.S., and
section 212.03, F.S. The same is true for licenses to use real property of timeshare resorts, even
though a contract for the license to use real property is also considered personal property, as are
other contract rights.
The words “bundle of rights” or “collection of rights” are used in relation to property
law, including the definition of the word “property.” For example, Black’s Law Dictionary
(Deluxe 8th ed. 2004), @ 1252, defines the term “property” to mean: “1. The right to possess,
use, and enjoy a determinate thing (either a tract of land or a chattel); the right of ownership ….
Also termed the bundle of rights…. 2. Any external thing over which the right of possession,
use, and enjoyment are exercised….” Property is the sum of all the rights and powers incident to
ownership. Jerome Sheip Co. v. Amos, 130 So. 699 (Fla. 1930); 42 Florida Jurisprudence 2d,
Property §1.
You cite Spanish River Resort Corporation et al. v. Walker et al., 497 So.2d 1299 (Fla.
4th DCA 1986), including the following from the opinion: “The interval owner at Spanish River
has all the ‘sticks’ which constitute the ‘bundle of rights’ that is fee ownership of real estate; the
complete right to use (or not to use) the property during the period of ownership; the right to
exclude others during that period, and the right to mortgage, lease, sell, bequeath or give away
the time-share estate.” Although, Spanish River describes the different rights associated with
property owned in fee, the case related to whether the property tax assessment could be made
against the individual unit owners instead of against the property of all of unit owners combined.
The rights referenced from the opinion in Spanish River are also present with leasehold
and subleasehold interests in real property and other types of property, whether personal
property or real property; tangible personal property or intangible personal property. For
example a patent right may be sold, licensed, or mortgaged, and the owner may exclude others
from using the patent. One right not present is that the patent cannot be physically possessed.
Therefore, the right of alienability (i.e., the right to sell and lease the interest or a portion
thereof), the right to possession and use, the right to enjoy, the right to exclude unauthorized
persons from using the property, and the right to mortgage are not specific to real property only.
American Jurisprudence, Property, Sections 1, 3, and 27. Here, the leasehold and subleasehold
interests were actually mortgaged, sold as fractional interests, and leased. The right to exclude
trespassers is also present with a lease and an exclusive license, as with the “timeshare license.”
Thus, ownership of a single right, such as the right to exclude others from land, is not the same
as ownership of a freehold estate in the land. However, the fee owner may convey the right by
agreement, creating a license to use the land as a beneficial use to the buyer. Such right owned
by the licensee is still a beneficial use of the land, because access to the land may be restricted by
the licensee, and the Sales Tax would be charged on the license fee for the use of the real

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property, not the interest itself being taxed.
Taxpayer argues that the Department must review the substance of the agreements and not
the form of the agreements. The words found in a contract are to have a meaning attributed to them,
and the best evidence of the intent of the meaning of the contracting parties is the language used in
the agreements. Jacobs v. Petrino, 351 So.2d 1036, 1039 (Fla. 4th DCA 1976). Accordingly, in
determining intent, courts initially look to the agreement between the parties and honor that
agreement, unless the provisions of an agreement or the actual practice of the parties indicate
otherwise. Keith v. News & Sun Sentinel Co., 667 So.2d 167, 171, (Fla. 1995).
It is well settled that where the terms of a contract are unambiguous, the parties’ intent must
be determined from within the four corners of the document. Barakat v. Broward County Housing
Authority, 771 So.2d 1193, 1194-1195 (Fla. 4th DCA 2000). Another well settled principle is that a
contract is ambiguous only when it is of uncertain meaning and may fairly be understood in more
ways than one. Atlas Sewing Center, Inc. v. Belk’s Department Store, Inc., 162 So.2d 274, 275 (Fla.
2nd DCA 1964). In the absence of ambiguity, the language itself is the best evidence of the parties’
intent and its plain meaning controls. Misala, Inc. v. Eagles, 662 So.2d 1389 (Fla. 4th DCA 1995).
This fundamental principle of contract interpretation has been applied to cases involving
construction of lease agreements. Misala (citing Walgreen Co. v. Habitat Dev. Corp., 655 So.2d 164
(Fla. 3rd DCA 1995)).
Tax authorities have long been permitted to discount the form in which a transaction is cast,
and determine tax consequences based upon the transaction’s substance. See Parker v. The Hertz
Corporation, 544 So.2d 249, 250 (Fla. 2nd DCA 1989)(citing Helvering v. F&R Lazurus &
Company, 308 U.S. 252, 255 (U.S. 1939)). While a taxpayer is free to organize his affairs as he
chooses, nevertheless, once having done so, he must accept the tax consequences of his choice,
whether contemplated or not [citations omitted], and may not enjoy the benefit of some other route
he might have chosen to follow but did not. Commissioner v. National Alfalfa Dehydrating &
Milling Co., 417 U.S. 134, @ 149 (1974); North American Company v. Green, 120 So.2d 603, 610
(Fla. 1959)(“We are not privileged to make the taxability of a transaction dependent upon any
consideration of some alternative procedure which might not have been taxable.”). Also, see
Department of Revenue v. McCoy Motel, Inc., 302 So.2d 440, 443 (Fla. 1st DCA 1974).
Because taxpayers have been accorded less freedom than tax authorities to disavow the form
they have chosen, they are generally bound to the tax consequences that follow from their choice.
See Bradley v. United States, 730 F.2d 718, 720 (11th Cir. 1984); Illinois Power Co. v.
Commissioner, 87 T.C. 1417, 1430 (1986), aff’d 896 F.2d 580 (D.C. Cir. 1990). This rule seeks to
avoid the uncertainty that would result from allowing the taxability of a transaction to depend on
whether an alternative exists under which more favorable tax consequences would result. National
Alfalfa, supra, @ 149. Thus, the form in which the parties cast a transaction generally determines its
substance for tax purposes.
In regard to whether the form of the agreements should be ignored for sales tax purposes, in
Regal Kitchens v. Department of Revenue, 641 So.2d 158 (Fla. 1st DCA 1994), the court

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determined the following in part:

Section 212.031, Florida Statutes (1993), provides in part 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." Regal Kitchens
maintains that the transaction in this case is not taxable because 8600 Associates is
not engaged in the business of leasing property. We disagree. 8600 Associates
was established for the sole purpose of taking title to the property and leasing it
back to Regal Kitchens. On these facts it appears that 8600 Associates is in the
business of leasing property. In fact, that is its only business.
The term "business" is defined in subsection 212.02(2), Florida Statutes (1993), as
"any activity engaged in by any person, or caused to be engaged in by him, with
the object of private or public gain, benefit, or advantage, either direct or indirect."
This definition is broad enough to encompass many different forms of rental
arrangements, including the transaction in this case. See, e.g., Kirk v. Western
Contracting Corp., 216 So.2d 503 (Fla. 1st DCA), cert. denied, 225 So.2d 535
(Fla.1969). The stockholders of Regal Kitchens would not have titled the property
in the name of a partnership and leased it back unless there was some benefit
inherent in that arrangement. Nothing in subsection 212.02(2) Florida Statutes
(1989), suggests that the term "business" is limited to those who engage in regular
course of dealing with different clients or customers. A person who rents a single
duplex unit is engaged in business as is the owner of an apartment who rents
thousands of units.

Regal Kitchens contends that the payments cannot be regarded as "rent" because
8600 Associates is merely the "alter ego" of Regal Kitchens. Specifically, Regal
argues that "[t]he effect of the relationship between the parties and the 'lease
arrangement' is that four individuals own and 'lease' the subject real estate to
themselves and pay the mortgage indebtedness represented by a first and second
mortgage." This argument puts Regal Kitchens in the unusual position of a
corporation attempting to pierce its own corporate veil. Having set up a
corporation, ostensibly for the purpose of establishing itself as a separate legal
entity, Regal now argues that it is actually not distinct from the related partnership,
8600 Associates. Regal's characterization of the transaction is inconsistent with the
corporation laws and the terms of the lease itself.
Those who seek the protection afforded by incorporation must also accept the
burdens. Individuals may incorporate to shield themselves from personal liability,
or for many other reasons, but they may not then disavow the existence of the
corporation for the purpose of obtaining a tax advantage. This is not a case in

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which nominal parties to a business venture are "paying rent to themselves" as
Regal argues. On the contrary, this is a case in which a corporation is paying rent
to a general partnership.
The argument that Regal Kitchens is merely an "alter ego" of 8600 Associates is
also belied by the language of the lease. Paragraph 27 states: "[i]t is expressly
understood that the Landlor[d] shall not be construed or held to be a partner or
associate of the Tenant in the conduct of its business. The relationship between
the parties hereto is and shall remain at all times that of Landlord and Tenant."
Having characterized its own relationship strictly as that of a "tenant" of 8600
Associates, Regal Kitchens is not in a position to argue that the Department of
Revenue is powerless to collect sales taxes due the State of Florida for the rental
income. Nor should the court participate in an effort to recharacterize Regal
Kitchen's status as a tenant, for that would only assist the owners in avoiding the
consequences of their own decision to incorporate. (Emphasis added)
Based on the decision in Regal Kitchens, the Taxpayer cannot disavow the existence of
the licensor and licensee relationship it intended as expressed in the documents and intended by
Ground Lessor, Sublessor, Taxpayer, and licensees. As the parties in Regal Kitchens could not
disavow the form of the agreement agreed upon, the parties in this instance cannot disavow the
intent of all parties involved, including fact that Ground Lessor only conveyed a ground lease
and not title in fee to the land. The membership interests do not convey an interest in the
“Timeshare Unit” to the “Timeshare licensee” resulting in creation of a future interest. The
Association is a separate “person” from the Taxpayer and “Timeshare Licensee,” as section
212.02(12), F.S., provides for corporations, associations, and individuals to be considered
separate persons for purposes of applying Chapter 212, F.S. Thus, the Taxpayer’s sales of the
license to use timeshare resort property to “Timeshare Licensees” are construed separately from
conveyances to the Association. Also, limited liability companies are not treated for Sales Tax
purposes as a disregarded entity. See section 608.471(3), F.S.
In addition to the decision in Regal Kitchens, when agreements are made to comply with
federal and State law, or a party in an unrelated multiple party transaction requires a certain
structure as to the form of the transaction, such requirements should be viewed in most cases as
the substantive basis for the transaction and not as a sham. Frank Lyon Co. v. United States, 435
U.S. 561 (1978). For example, if a bank requires a loan applicant to create a bankruptcy-remote
legal entity whose sole purpose is to lease the mortgaged assets to the loan applicant, the
requirement by the bank is to be viewed as substantive and consistent in the intent of the parties
as the form of the transaction required by the bank. Here, Ground Lessor could not sell the land
outright to LLC1. Such requirement by Ground Lessor to convey only a leasehold estate in
substance is consistent with the form of the agreements.

Your final argument relates to whether a property interest is subject to the tax imposed by
section 212.03, F.S. As the rental income from a leasehold and subleasehold, both of which are

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interests in property, are subject to the tax, as provided by section 212.03, F.S. (and section
212.031, F.S.), the rentals received here are subject to the tax. Also, section 721.05(36), F.S.,
provides that both a timeshare license and timeshare estate are a "Timeshare interest." In
addition, section 721.05(38), F.S., defines "Timeshare period" to mean the period or periods of
time when a purchaser of a timeshare interest is afforded the opportunity to use the
accommodations of a timeshare plan. Therefore, since the income from an interest in real
property may be subject to the tax imposed under Chapter 212, F.S., the fact that the “timeshare
license” is an interest in real property does not by itself affect whether the rental payments in this
instance are subject to the tax. As to the formalities required for transfers of property interests,
section 689.01, F.S., requires the formalities for any estate or interest in a freehold, including a
leasehold interest. While a taxing statute may specifically relate to instruments affecting
transfers of interests of real property, section 212.03, F.S., and section 212.031, F.S., relate to the
business privilege of leasing and licensing real property, as defined by section 212.02(10), F.S.,
and transient accommodations.
As such, the timeshare license agreements must be respected where the parties intended
to create and arrange for a licensor and licensee relationship as to the timeshare units. Thus, the
agreements intended to provide for a “timeshare license” and are subject to the tax for the
reasons stated herein.
Issue #2
Whether the “Time Share Licenses” are transfers of interests in real property for purposes
of section 201.02, F.S.
Section 201.02(1), F.S., imposes Documentary Stamp Tax on deeds or other writings that
transfer or convey real property or interests in real property. A Timeshare Interest may be an
interest in real property, depending on whether the interest is held as a Timeshare Estate or
Timeshare License. Timeshare Interest that is an estate will be treated as an interest in real
property, and Documentary Stamp Tax will be imposed. However, a Timeshare License is not
considered real property.
The Fractional Interests presented in this inquiry possess several properties of a
Timeshare Estate. However, documentation evidences that the Fractional Interests are indeed
issued as Timeshare Licenses. In such case, the statutes provide that such licenses are not
transfers of interests in real property, as provided for Timeshare Estates. Thus, for Documentary
Stamp Tax purposes, tax would not apply, and the Fractional Interest will be taxed as Timeshare
Licenses subject to Sales Tax.
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

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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,

Charles Wallace
Senior Attorney
Technical Assistance and Dispute Resolution
CG/tlg
Record ID#: 54572

Celestine Grantham Turner
Tax Law Specialist
Technical Assistance and Dispute Resolution