Were utilities passed through by a tax-exempt church landlord to its for-profit tenant taxable as rent?

Plain-English summary

The Florida Department of Revenue concluded that utility charges passed through by a tax-exempt church landlord to its for-profit tenant were taxable as rental consideration.

Florida's pass-through exemption required the lessor to have paid sales tax to the utility provider, separately state the tenant charge, and bill it at the same or a lower price. The church bought utilities tax-free, so the first condition failed even though it separately billed the tenant.

The tenant and landlord were co-liable: the tenant had to pay the tax to the church, and the church had to collect and remit it.

What this means for you

Exempt organizations acting as landlords

Your exemption on the utility purchase can prevent the commercial-rental pass-through exemption from applying to your tenant's reimbursement.

Commercial tenants

A separately stated utility reimbursement is not automatically exempt; confirm that the landlord paid tax and met all statutory conditions.

Common questions

Q: Were the utility reimbursements taxable?
A: Yes.

Q: Why didn't the pass-through exemption apply?
A: The landlord had not paid sales tax on the utilities.

Citations and references

• Fla. Stat. § 212.031(1)(c), (3), and (7); Fla. Stat. § 213.22
• Fla. Admin. Code r. 12A-1.070(4)(e)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 12A-027

Original ruling text

Interim
Executive Director
Marshall Stranburg

QUESTION 1: The issue is whether utility charges, passed on to a lessee of real property,
constitute taxable rental consideration pursuant to section 212.031, F.S.
ANSWER: The utility charges, passed on to the lessee of real property, constitute taxable rental
consideration pursuant to section 212.031, F.S.

November 29, 2012

Re:

Technical Assistance Advisement - 12A-027
Sales and Use Tax - Pass Through Utility Charge
Section 212.031, Florida Statutes (F.S.);
Rule 12A-1.070, Florida Administrative Code (F.A.C.)
XXX(“the Taxpayer”)
FEI #: 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 certain utility charges passed on to lessees pursuant to a
real property lease. 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 I
The issue is whether utility charges, passed on to a lessee of real property, constitute taxable
rental consideration pursuant to section 212.031, F.S.
FACTS
The Taxpayer is a church with an exemption certificate. Accordingly, the Taxpayer does not pay
sales tax on its purchases of utilities for the church. Taxpayer leases certain areas of the church
property in Florida to a for-profit corporation. The Taxpayer separately states and bills the lessee
for sales tax on utility charges, as part of the total rental consideration for the use of the property.

Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Tony Powell, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Page 2
The tenant is refusing to pay the tax associated with these charges. Taxpayer requests advice on
whether the utility charge is taxable as part of the consideration paid for the use of real property.

The lease agreement, termed Commercial Lease (the Lease), provides in Article 3(A), “Lessee
shall be responsible for utilities and garbage collections attributable to its use of the Premises on
a pro rata basis as computed and invoiced by the Lessor.”
TAXPAYER POSITION
It is the Taxpayer’s position that the utility pass through charges are subject to sales and use tax.
The Taxpayer also requests that the Department charge the lessee for any interest and penalty
due to the lessee’s refusal to pay the tax.
LAW AND DISCUSSION
Section 212.031, Florida Statute (F.S.), provides that every person who engages in the business of
renting, leasing, letting, or granting a license for the use of any real property is exercising a taxable
privilege. This privilege is taxable at a rate of 6 percent of the total consideration due and payable
by the tenant for the use of real property for any purpose. S. 212.031(1)(c), F.S., Rule 12A1.070(4)(b), F.A.C.
As a general rule, charges for utilities that must be paid as "additional rent" by the lessee to the
lessor for the right or privilege to use or occupy real property are subject to tax. See Rule 12A1.070(4), F.A.C. However, s. 212.031(7), F.S., provides an exemption for utility charges "paid by a
tenant to the lessor and which are part of a payment for the privilege or right to use or occupy real
property . . . if the lessor has paid sales tax on the purchase of such utilities and the charges billed by
the lessor to the tenant are separately stated and at the same or a lower price than those paid by the
lessor."
Pursuant to section 212.031(7), F.S., and Rule 12A-1.070(4)(e), F.A.C, for pass through utility
charges to be exempt, the following three requirements must be met:

1. The lessor must have already paid sales tax on the purchase of the utilities from the utility
   provider;
2. The utilities billed by the lessor to the tenant must be separately stated on the lessor's
   invoice to the tenant; and
3. The utility charges billed to the tenant must be at the same or lower price as those billed by
   the utility company to the lessor.
   In the present case, the lessor did not pay sales tax on the purchase of the utilities from the utility
   provider; hence, the pass through utility charges to the tenant are not exempt from sales tax under s.
   212.031(7), F.S. The charge for utilities to the tenant is subject to sales tax as part of the
   consideration paid for the use of the real property, pursuant to s. 212.031(1)(c), F.S. and Rule 12A1.070(4)(e), F.A.C. With regard to your request that the Department collect the interest and penalty
   from the lessee, please be advised both the lessee and lessor are co-liable for any sales and use tax
   due the State of Florida. While the tenant is required to pay the tax to the Taxpayer, the Taxpayer is
   required to collect and remit such tax. See s. 212.031(3), F.S.

Page 3

RESPONSE
The utility charges, passed on to the lessee of real property, constitute taxable rental
consideration pursuant to section 212.031, F.S.
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# 133564