Was a large transaction fee required to enter a Florida sub-sublease taxable as rental consideration?

Plain-English summary

The Florida Department of Revenue concluded that a transaction fee required under this proposed sub-sublease was subject to sales tax as rental consideration.

The contract required a substantial per-acre fee at closing in addition to separately stated annual rent. Although the documents labeled and separated the fee, it purchased the right and privilege to enter the sub-sublease and occupy the property.

Florida taxes all consideration paid for the privilege of using or occupying real property. The ruling therefore treated the transaction fee as rent rather than as a purchase price subject to documentary stamp tax.

What this means for you

Commercial landlords and tenants

Labels and payment timing do not control. Upfront, closing, access, transaction, or similar fees can be taxable rent when required for occupancy rights.

Real-estate transaction teams

Separate a true conveyance of a beneficial ownership interest from consideration paid merely to enter a lease or sublease.

Accountants and tax professionals

Review every required payment under the lease documents, not only recurring base rent.

Common questions

Q: Was the transaction fee separately stated from rent?
A: Yes.

Q: Did that make it nontaxable?
A: No.

Q: Was it treated as a real-property purchase price?
A: No.

Citations and references

• Fla. Stat. §§ 201.02(1), 212.031(1)(c), and 213.22
• Fla. Admin. Code r. 12A-1.070(4)(b)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 16A-002

Original ruling text

Executive
Director
Marshall Stranburg

QUESTION: IS A TRANSACTION FEE, REQUIRED UNDER A LEASE OF REAL PROPERTY,
SUBJECT TO SALES AND USE TAX?
ANSWER: YES
February 17, 2016
Re:

Technical Assistance Advisement 16A-002
Commercial Rental
Sales & Use Tax
Section 212.031(1)(c), Florida Statutes (F.S.)
Rule 12A-1.070(4)(b), Florida Administrative Code (F.A.C.)

Dear XXX:
This is in response to your letter dated December 4, 2015, requesting this Department’s issuance of a
Technical Assistance Advisement (“TAA”) pursuant to Section 213.22, F.S., and Rule Chapter 12-11,
Florida Administrative Code (F.A.C.), regarding the taxability of a real property lease in Florida. 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 concerns the taxability of a transaction fee required in an agreement to sub-sublease real
property.
FACTS AS PRESENTED
Sub-Sublessor and Sub-Sublessee entered into an agreement entitled “Agreement to Sublease By and
Between XXX and XXX (the Contract).”1
Your request for TAA provides in part the following:
The Contract provides for the payment of a transaction fee in the amount of $400,000.00 per acre
(the “Transaction Fee”) as consideration for the right and privilege to enter into the proposed SubSublease Agreement (“Sub-Sublease”), a copy of which proposed Sub-Sublease is attached as an
Exhibit to the Contract. The Transaction Fee is estimated to be approximately $4,648,000.00 based
1

This is a sub-sublease and there exists (i) a prime ground lease (the “Prime Lease”) between the XXX and XXX, an
independent special district established pursuant to Chapter 189, Florida Statutes, and (ii) a sublease between XXX and XXX of
a portion of the lands leased to XXX under the Prime Lease, which lands include the premises which are the subject of the
Contract and the proposed Sub-Sublease.
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

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

Technical Assistance Advisement
Page 2
on the anticipated acreage of the lands being sub-leased. The Transaction Fee is treated in the
Contract and the proposed Sub-Sublease separately from the rental amounts payable under the
proposed Sub-Sublease, which rental amounts are set forth in Section 2 of Article III. The initial
annual rental payable under the Sub-Sublease (the “Initial Annual Rental”) is $937.73 per acre
(subject to annual adjustment as provided in the Contract and the proposed Sub-Sublease). Based
on the anticipated acreage being sub-leased, the Initial Annual Rental is expected to be
approximately $14,112.84 per year. . . .
Article III, of the Contract, provides the requirement that Sub-Sublessee shall pay a transaction fee, at the
time of closing the subject agreement. The transaction fee is defined in Article I, of the Contract as “. . .
the sum of Four Hundred Thousand and No/100 Dollars ($400,000.00) per acre . . . .”
RULINGS REQUESTED
The issue is whether the Transaction Fee constitutes a purchase price which would be subject to
documentary stamp taxes for the privilege of entering into the proposed Sub-Sublease or if the fee
constitutes rental consideration upon which sales tax would be due.
LAW AND DISCUSSION
Under Section 212.031, Florida Statutes (F.S.), sales tax is due on the lease or rental of real property. A tax of
six percent, plus applicable county surtax, is levied on the total rent or license fee charged. The statute is
clear that tax is due on the total rent charged including “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.” §
212.031(c), F.S. Additionally, Rule 12A-1.070, Florida Administrative Code, further clarifies that the tax is
due “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.” Rule 12A-1.070(4)(b)(emphasis added).
Documentary stamp taxes are due when there is a transfer of a beneficial or ownership interest of real
property. Pursuant to section 201.02(1), F.S., a tax is imposed on 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 direction. The amount of the tax
is $.70 on each $100.00 of consideration paid therefor.
RESPONSE
The transaction fee is subject to sales and use tax. The transaction fee contemplated in the sub-sublease
agreement is paid in conjunction with the lease of real property as opposed to a transfer of ownership in real
property. Section 212.031, Florida Statutes, provides that sales tax is due on the total rent charged and rule
12A-1.070(4)(b), F.A.C., further clarifies that tax shall be paid on all considerations due and payable by
the tenant. Accordingly, this fee is subject to sales and use tax pursuant to Section 212.031 as it is part of the
total rent charged and is paid in consideration by the sub-subtenant.

Technical Assistance Advisement
Page 3
Under section 201.02, F.S., documentary stamp taxes are due on the deeds and other instruments relating to
a conveyance of an ownership interest in real property. The transaction fee is not related to a transfer of an
ownership interest and documentary stamp tax would not be due on the subject fee.
This response constitutes a Technical Assistance Advisement under Section 213.22, F.S., which is binding
on the Department only under the facts and circumstances described in the request for this advice as
specified in Section 213.22, F.S. Our response is predicated on those facts and the specific situation
summarized above. You are advised that subsequent statutory or administrative rule changes, or judicial
interpretations of the statutes or rules, upon which this advice is based, may subject similar future
transactions to a different treatment than expressed in this response.
You are further advised that this response, your request and related backup documents are public records
under Chapter 119, F.S., and are subject to disclosure to the public under the conditions of s. 213.22, F.S.
Confidential information must be deleted before public disclosure. In an effort to protect confidentiality,
we request you provide the undersigned with an edited copy of your request for Technical Assistance
Advisement, the backup material and this response, deleting names, addresses and any other details which
might lead to identification of the taxpayer. Your response should be received by the Department within
15 days of the date of this letter.
If you have any further questions with regard to this matter and wish to discuss them, you may contact me
directly at (850) 717-6306.
Sincerely,

R. Clay Brower
Revenue Program Administrator
Technical Assistance & Dispute Resolution
Record ID: 208964