Could a hotel master tenant give the owner a resale certificate and tax only the back-of-house portion of rent under its whole-property sublease?

Plain-English summary

The owner leased the entire rehabilitated hotel to a tenant, and the tenant subleased the entire property to the hotel operator. Because the tenant sublet all the premises and would register as a dealer, it could give the owner a resale certificate instead of paying sales tax on the master-lease rent.

The hotel was mixed-use property for real-property rental tax purposes. Space used for transient guest accommodations was treated differently from hotel-only corridors, employee and engineering areas, offices, storage, and other back-of-house space.

The Department accepted the taxpayer's square-footage fraction—back-of-house space divided by total hotel space—as a reasonable method for identifying the taxable portion of sublease rent, assuming the hotel was developed as represented.

What this means for you

A whole-property sublease can support resale treatment at the master-lease level, while the sublease itself may require a supported allocation between taxable and excluded uses.

Common questions

Could the tenant give the owner a resale certificate? Yes, because it subleased the entire hotel and registered as a dealer.

What portion of sublease rent was taxed under section 212.031? The portion attributable to space not used for transient guest accommodations.

How was that portion measured? By the represented ratio of back-of-house square footage to total hotel square footage.

Citations and references

• Fla. Stat. § 212.031(1)(a)2. and Fla. Admin. Code r. 12A-1.070(9) and (14)(a), as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 12A-020

Original ruling text

Interim
Executive Director
Marshall Stranburg

September 7, 2012

Re:

Technical Assistance Advisement – TAA 12A-020
Taxability of a Hotel Real Property Lease
Sales and Use Tax – Real Property Rental
Section 212.031(1)(a)2., Florida Statutes (F.S.)
Rules 12A-1.070(9) & 12A-1.070(14)(a), Florida Administrative Code (F.A.C.)
XXX (Owner)
XXX (Tenant)
XXX (Subtenant)
FEI #s: XXX, XXX & XXX

Dear XXX:
This is in response to your letter dated XXX, 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 taxability of a lease and sublease of a of a hotel. 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
The issue is whether Tenant may issue a resale certificate to Owner and collect sales and use tax
from Subtenant on the taxable portion of multiple use property in the manner as described in
your request.
FACTS AS PRESENTED
Your letter provides, in part, the following:

Owner holds fee title to the Hotel. The Hotel is not yet in a condition to be operated as a
hotel. Owner will, at Owner's expense, rehabilitate the existing structure so that it will be
suitable to operate as a hotel.
Owner has entered into the Master Lease in order to lease the entire premises of the Hotel
to Tenant. A copy of the Master Lease is attached as Exhibit "A." Under the Master

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Technical Assistant Advisement
Page 2 of 4
Lease, Owner will lease the entire Hotel property to Tenant for a period of XXX years.
Under the Master Lease, [Owner] is required to make all improvements required to
rehabilitate the existing structure into an operating hotel, pursuant to a qualified
rehabilitation that will be eligible for a federal income tax credit for the rehabilitation of a
certified historic structure. Tenant will not be obligated to make any improvements to the
Hotel under the Master Lease. The initial lease payment due under the Master Lease will
not be paid to Owner until Owner has completed the improvements to the Hotel. Tenant
will register as a dealer with the Florida Department of Revenue prior to taking
possession and making the initial rental payment due under the Master Lease, so that
Tenant may issue a valid Florida sales tax resale exemption certificate in connection with
the lease payments that are required to be made under the Master Lease.
Tenant has entered into the Sublease in order to sublease the entire premises of the Hotel
to Subtenant. A copy of the Sublease is attached as Exhibit "B.'' Under the Sublease,
Tenant will sublease the entire Hotel Property to Subtenant for a period of XXX years.
Subtenant will be the operator of the Hotel, and will rent hotel rooms to the public, and
engage in other business activities that are customarily conducted by a hotel. Subtenant
will register with the Department of Revenue prior to engaging in the hotel business.
The total area of the Hotel, including exterior areas is XXX square feet. The areas of the
Hotel that will be available to guests and the public ("Public and Guest Area”) is XXX
square feet (interior public area of XXX square feet plus exterior public area of XXX
square feet). The areas of the Hotel that will not be open to the public ("Back of House"
or "BOH") is XXX square feet. The calculation of the Public and Guest Area and the
Back Of House square footage is set out in Exhibit "C", and a site plan and floor plan of
the Hotel are attached as Exhibits "D" and "E", respectively.

TAXPAYER POSITION
You further provide, in your letter:
(A)

Master Lease:

No sales tax will be due on the payment from Tenant to Owner under the Master Lease,
because the Tenant will be leasing the Hotel under the Master Lease for the purpose of
subleasing the entire Hotel premises to Subtenant, and the Tenant will issue a valid resale
exemption certificate at the time the initial rent payment is made to Owner under the
Master Lease.
(B)

Sublease:

Only a portion of the Sublease payments, equal to a fraction where the numerator is the
Back Of House square footage (XXX square feet) and where the denominator [is] the
total square footage of the hotel (XXX square feet) will be subject to sales tax, so that

Technical Assistant Advisement
Page 3 of 4
only XXX% of the amount due from Subtenant to Tenant under the Sublease will be
subject to Florida sales tax.

LAW AND DISCUSSION
Section 212.031(1)(a), F.S., provides, in part: “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 . . . [u]sed
exclusively as dwelling units. . . .”
Rule 12A-1.070(9), F.A.C., provides:
If a tenant or other person sublets or assigns his interest in all of the leased or licensed
premises, or retains only an incidental portion of the entire premises, then such tenant or
other person may elect not to pay tax on the prime lease or license, provided that such
tenant or other person shall register as a dealer and collect and remit tax due on the subrentals or assignments and pay the tax due on the portion of the rental charges or license
fees pertaining to any taxable space which he retains. If the tenant or licensee elects not
to pay the tax to his landlord, or other person granting the right to occupy or use such real
property, he should extend to his landlord or such other person a resale certificate.
Rule 12A-1.070(14)(a), F.A.C., provides:
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.
Because Tenant has entered into a Sublease to sublease the entire premises of the Hotel to
Subtenant, Tenant can issue a resale certificate to Owner in lieu of paying sales and use tax on
the Master Lease. Further, as the Hotel property will represent multiple use property, only space
not utilized for transient accommodations is subject to tax imposed by Section 212.031, F.S.
Transient accommodations are subject to tax under Section 202.03, F.S. Accordingly, Tenant
would then collect and remit sales and use tax from Subtenant on the space not utilized by
guests of the Hotel.

Technical Assistant Advisement
Page 4 of 4
You have indicated the total square footage under the Sublease that will not be utilized by hotel
guests as XXX square feet. This includes: hotel use only corridors; employee support areas;
engineering, guest services areas; housekeeping areas; office areas; and storage areas. You have
further indicated that the total square footage of the property under the Sublease is XXX 1.
Accordingly, the portion of the total rent or license fee due from Subtenant to Tenant under the
Sublease that is taxable is XXX% (XXX/XXX) 2 pursuant to Section 212.031, F.S. Therefore,
the Department finds the methodology employed in your request to be reasonable. This response
is predicated on the assumption the Hotel is developed as specified in your request.
RESPONSE
The Tenant may issue a resale certificate to Owner and collect sales and use tax from Subtenant
on the taxable portion of multiple use property in the manner as described in your request.
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 Section 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,

R. Clay Brower
Revenue Program Administrator
Technical Assistance and Dispute Resolution
(850) 717-6306
RCB/
Ctrl# 127316

1
2

Your request letter indicated XXX square feet, however, backup material indicates XXX.
XXX/XXX = XXX = XXX%, when rounded to nearest hundredth.