Was a percentage-of-sales fee remitted to a shopping-complex landlord for advertising and promotion taxable as rent?

Plain-English summary

The Florida Department of Revenue concluded that a retailer's percentage-of-sales fee paid to its shopping-complex landlord for advertising and promotions was taxable rent.

The lease required the retailer to collect or fund a one-percent fee and remit it monthly to the landlord. The landlord used the money for onsite entertainment and promotional expenses intended to attract customers, increasing the value of the leased premises. Failure to pay was a lease default.

The fee remained taxable rent even though the lease said it was not rent and the retailer also included it in the taxable sales price charged to customers. The two taxes applied to distinct privileges—retail sales and leasing real property—so the Department found no double taxation.

What this means for you

Shopping-center tenants and landlords

Percentage fees required by the lease can be rent even when earmarked for promotion and labeled otherwise.

Lease and tax reviewers

Examine who receives the benefit, whether payment is mandatory, and whether nonpayment affects occupancy rights.

Common questions

Q: Did the lease's “not rent” label control?
A: No.

Q: Was taxing both the retail sale and the rental fee double taxation?
A: No, because they were separate taxable privileges.

Citations and references

• Fla. Stat. §§ 212.031, 212.05, and 213.22
• Fla. Admin. Code r. 12A-1.070

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 13A-003

Original ruling text

Interim
Executive Director
Marshall Stranburg

QUESTION: WHETHER CERTAIN FEES CALCULATED ON A PERCENTAGE OF
SALES AND USED FOR ADVERTISING AND PROMOTIONAL PURPOSES ARE
SUBJECT TO THE SALES TAX ON REAL PROPERTY RENTALS.
ANSWER: YES. THE FEES ARE PERCENTAGE RENTS THAT ARE SUBJECT TO
SALES TAX.

January 9, 2013

Subject: Technical Assistance Advisement – TAA 13A-003
Sales and Use Tax
Rentals of Real Property – XXXXX Fee
Section 212.031, Florida Statutes (“F.S.”)
Rule 12A-1.070, Florida Administrative Code (F.A.C.)
XXXXXXX (“Taxpayer”)(“Tenant”)
Business Partner#: XXXXXX
XXXXXXX (“Landlord”)
XXXXXXX (“Shopping Complex”)

Dear XXXXX:
This letter is a response to your petition dated October 16, 2012, for the Department’s issuance
of a Technical Assistance Advisement (“TAA”) to XXXXX, concerning its XXXX Fee to
Landlord. Your petition has been carefully examined, and the Department finds it to be in
compliance with the requisite criteria set forth in Rule Chapter 12-11, F.A.C. This response to
your request constitutes a TAA and is issued to you under the authority of section 213.22, F.S.
Issue
Whether the XXXXX Fee paid to Landlord on a monthly basis is subject to sales tax as part of
the consideration for the rental of real property under section 212.031, F.S.?
Facts
Taxpayer operates a retail business located in XXXX, Florida. As required by the terms of its
lease agreement with Landlord, Taxpayer collects a 1% XXXXX Fee from all customers on
retail sales of taxable tangible personal property. The XXXX Fee is not collected on sales of
exempt items. Taxpayer includes the XXXX Fee as part of the sales price of the item sold to its
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

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customers that are subject to sales tax and remits sales tax to the Florida Department of Revenue
on a monthly basis. Taxpayer includes the XXXX Fee in its gross sales amount on its sales tax
returns. Taxpayer also remits the XXXX Fee to Landlord on a monthly basis. The lease
agreement states that the XXXXX Fee is not rent. However, the lease agreement also states that
the Taxpayer’s failure to collect and pay the XXXX Fee to Landlord is an event of default.
The lease agreement between Taxpayer and Landlord was provided. Section 6.5 of the lease
agreement provides the following:
Section 6.5 XXX Fee. The XXXXX Fee is designed to be assessed to, and
collected from Tenant’s customers; however, Tenant shall have the option of
paying the XXXX Fee from Tenant’s own revenues. Tenant agrees to collect
from Tenant’s customers the XXXX Fee to be used as provided below. The
XXXX Fee will be turned over to, and administered by, the Landlord to be used
by the Landlord for the purposes. Unless otherwise provided in procedures
developed by the Landlord and delivered to Tenant from time to time, the XXXX
Fee shall be accounted for and paid to the Landlord at such times as Tenant pays
Tenant’s sales tax to the State of Florida and shall be collected on all sales which
are subject to Florida State sales tax and not on sales which are exempt from such
tax. Within a reasonable time (in Landlord’s determination) after the end of each
such calendar year, Landlord shall deliver to Tenant a statement of expenditures
for onsite entertainment and promotional expenses and the amount of the XXXX
Fee collected. Failure of Landlord to provide the statement called for hereunder
within the time prescribed shall not relieve Tenant from its obligations hereunder.
The XXXX Fee is not Rent and shall be held by the Landlord for the collective
benefit of all parties in possession of a portion of XXXXXX to be used solely for
onsite entertainment and promotional expenses. However, the failure to pay[,]
collect[,] and turnover the XXXX Fee in the correct amounts shall constitute an
Event of Default under this Lease.
Taxpayer’s Position
Taxpayer believes that the XXXX Fee is not subject to sales tax as consideration for the rental
of real property imposed by section 212.031, F.S. Taxpayer asserts that the collection and
payment of sales tax on the XXXX Fee, which is applied on sales of taxable tangible personal
property, and the imposition of sales tax on the XXXX Fee, as consideration for the rental of real
property, is in violation of a United States law on double taxation.
Applicable Law and Discussion
Section 212.031(1)(a) and (c) and (3), F.S., provide:
(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….

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(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….

(3) The tax imposed by this section shall be in addition to the total amount of the
rental or license fee, shall be charged by the lessor or person receiving the rent
or payment in and by a rental or license fee arrangement with the lessee or
person paying the rental or license fee, and shall be due and payable at the time
of the receipt of such rental or license fee payment by the lessor or other person
who receives the rental or payment…. (Emphasis added)
Rule 12A-1.070(4), F.A.C., provides in part, the following:
(4)(a) The tenant or person actually occupying, using, or entitled to use any real
property from which rental or license fee is subject to taxation under Section
212.031, F.S., shall pay the tax to his immediate landlord…. granting the right to
such tenant … to occupy or use such real property.
(b) The tax shall be paid at the rate of … 6 percent on or after February 1, 1988, on
all considerations due and payable by the tenant or other person actually
occupying, using, or entitled to use any real property to his landlord or other
person for the privilege of use, occupancy, or the right to use or occupy any real
property for any purpose.
(c) Ad valorem taxes paid by the tenant or other person actually occupying, using,
or entitled to use any real property to the lessor or any other person on behalf of
the lessor….
(d) Common area maintenance charges paid by a tenant to the lessor for the privilege or
right to use or occupy real property are taxable. (Emphasis added)

Section 212.031(1)(a), F.S., provides 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. Section 212.031(3), F.S., provides that the tax is due and payable at the time of the
receipt of such rental payment by the lessor or other person who receives the rental or payment.
Section 212.031(1)(c), F.S., provides that the 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. This includes percentage rents.

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Rule 12A-1.070(4), F.A.C., provides that all consideration paid for the use of real property is
rent subject to the tax, including payments for property tax and common area maintenance.
Payments for advertising and entertainment to promote the mall for the benefit of the tenants is
similar to common area maintenance in that the use of the funds benefit all tenants of the mall.
Rent is defined as “consideration paid, usually periodically, for use or occupation of property.”
Cascella v. Canaveral Port Authority, 827 So.2d 308, 310 (Fla. 5th DCA 2002)(Citing Black’s
Law Dictionary 1299 (7th ed. 1999)). Consideration includes either a benefit to the promisor or
a detriment to or obligation upon the promise. Detriment to an acquiring party may constitute
consideration for a transfer of assets. Consideration is not limited to a money consideration and
may include an assumption of liability or other thing of value. 68 Am.Jur. 2d Sales and Uses
Taxes §66.
See also Seaboard Coastline Railroad Company v. Askew, Case #72-15 (Fla. Cir. Ct., 2nd Cir.,
Leon Co., 1972) (hereinafter “Seaboard Coastline”). The court in Seaboard Coastline addressed
the issue of what is included as rental consideration and held as follows:
The consideration paid by the tenant for the privilege conferred by the lease is
“rent.” Rent may be payable in cash, or in some commodity, or by rendering
specified services. Rent may be payable directly to the lessor or to some other
person either specified in the lease or directed by the lessor…. Section
212.031 imposes a tax upon “the total rent charged” for the “renting, leasing or
letting” of real estate.... While taxes are not specifically mentioned, this language
clearly indicates a legislative intent to tax the full benefits flowing to the
landlord for the use of leased premises.... The payment of these taxes by the
lessee is the payment of money for account of the owner and for his benefit.... A
tax [sales tax] is imposed upon a transaction and measured by the rent. In every
rental transaction the amount of taxes upon the rented property is necessarily
considered by the parties in determining the rent to be charged and paid whether
the taxes be paid by the landlord from a fixed monthly or annual rental or paid for
the landlord by the tenant. (Emphasis Supplied)
As with the property owner in Seaboard Coastline, the funds or other benefits flowing to a
property owner may be rental consideration regardless of the manner or description attached to
funds or benefits received. Therefore, the designation of the XXXX Fees by the Landlord and
Tenant is not controlling. See Attorney General Opinion (“AGO”) 70-151 (October 27, 1970).
In that opinion funds that were paid to the landlord or merchant association by the tenant and
used for advertising and promotion of a mall for the benefit of the tenants of a mall were
considered rent payments. Also see AGO 73-429 (November 26, 1973) and Rule 12A1.070(17), F.A.C. In the instant case, the XXX Fee is calculated using a percentage of the sales
subject to sales tax.

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Section 212.031(1)(c), F.S., provides that “total rent or license fee” charged includes “payments
for the granting of a privilege to use or occupy real property . . . .” The lease agreement clearly
provides that continued occupancy is conditioned upon payment of the XXXX Fee, because
failure to pay the XXXX Fee is considered an event of default of the lease, which can lead to
eviction. Therefore, payment of the XXXX Fees to the Landlord is a condition to occupy the
property and included in the “total rent or license fee” charged.
Furthermore, section 212.031(1)(d), F.S., provides that when a rental or license fee is paid by
way of something of value, the tax is on the value of that thing. The use of the funds for
advertising and promotion of the mall is designed to attract customers to the mall. By increasing
the number of potential buyers for the tenants, the tenant’s leased premises in the mall has more
value due to the prospect of increased sales. Here, the Landlord is receiving the ultimate value
of the XXXX Fee and the XXXX Fee is subject to sales tax.
There is no double taxation. Mall retail tenants ultimately pay rent from sales proceeds that may
be subject to sales tax. This also includes percentage rents. The sales tax imposed on sales to
Taxpayer’s customers is taxed under section 212.05, F.S., which is a tax on the privilege of
engaging in the business of selling tangible personal property. The sales tax is measured upon
the sales price of the items sold. The sales tax imposed on the rental of real property to Taxpayer
is taxed under section 212.031, F.S., as a percentage rental, which is a tax on the privilege of
leasing, licensing or renting real property. It is well settled in Florida that when tax is imposed
on separate taxable privileges, such as the sale of tangible personal property under section
212.05, F.S., and the lease, license or rent of use real property under section 212.031, F.S., no
duplication of tax occurs. See Florida Hotel and Motel Association, Inc. v. Department of
Revenue, 635 So.2d 1044 (Fla. 1st DCA 1994); American Video Corp. v. Lewis, 389 So.2d 1059
(Fla. 1st DCA 1980); Department of Revenue v. Air Jamaica Ltd., 522 So.2d 446 (Fla. 1st DCA
1988); Ryder Truck Rental, Inc. v. Bryant, 170 So.2d 822 (Fla. 1964). Therefore, the XXXX
Fee which is a percentage rental and is also itemized on Taxpayer’s sales receipts is included in
the taxable amount for two distinct taxable privileges. Such inclusion is not double taxation.
Conclusion
The XXXX Fee paid to Landlord on a monthly basis is subject to sales tax as part of the
consideration for the rental of real property under 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.

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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 10 days of the date of this
letter.

Respectfully,

Chuck Wallace
Technical Assistance & Dispute Resolution
850-717-7541
Record ID: 133763