How did Florida tax a 99-year ground lease with an upfront payment, automatic renewal, and a $1 purchase option?

Plain-English summary

Florida treated the 99-year ground lease as a transfer of a real-property interest for documentary stamp tax purposes but as an installment sale rather than a rental for sales-tax purposes.

The tenant made a reasonably determinable upfront payment, so documentary stamp tax applied to that consideration. The agreement automatically renewed for another 99 years unless the tenant declined and allowed the tenant to acquire subdivided property for $1, after which the landlord transferred all right, title, and interest.

Because possession did not revert to the landlord and the purchase option was nominal, Florida found an installment sale in substance. Real-property rental sales tax therefore did not apply to the payments.

What this means for you

Real-estate transaction teams

The label “ground lease” does not control. Duration, reversion, renewal, purchase rights, and economics determine the tax character.

Tax and closing teams

A transaction can owe documentary stamp tax as a property-interest transfer while avoiding rental sales tax because it is an installment sale.

Common questions

Was documentary stamp tax due? Yes, on the upfront consideration.

Was rental sales tax due? No.

Why was it an installment sale? Possession did not revert and the tenant had a nominal $1 purchase option.

Citations and references

• Fla. Stat. Sec. 201.02(1)(a)
• Fla. Stat. Sec. 212.031

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 19B4-002

Original ruling text

QUESTION: Is documentary stamp due on a 99-year ground lease based on an upfront
payment given to a lessor by a lessee?
ANSWER Documentary stamp tax is due on a ground lease based on the consideration equal to an
upfront payment from a lessee to a lessor as the ground lease represents a purchase of an interest in
real property for a tenure of time.

QUESTION: Is sales tax due on the payments required by an agreement referred to as a lease,
when the agreement provides for the transfer of title and the ownership interest in the real
property after a $1 nominal purchase option is exercised?
ANSWER: No. The agreement is an installment sale of the real property and not a lease.

October 24, 2019
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
Re:

Technical Assistance Advisement 19B4-002
Documentary Stamp Tax
Sections 201.02(1)(a), Florida Statutes (F.S.)
Sales and Use Tax
Section 212.031, F.S.
Rule 12A-1.070, Florida Administrative Code (“F.A.C.”)
XXXXX
XXXXX (“Seller A”)
XXXXX (“Seller B”)
XXXXX (“Seller C”)
XXXXX (Tenant)
XXXXX
Sellers A, B, and C (“Landlord”)

XXXXX
October 24, 2019
Florida Department of Revenue
Page 2

Dear XXXXX:
This is in response to your request dated August 22, 2019, for a Technical Assistance
Advisement (TAA) pursuant to s. 213.22, F.S., and Rule Chapter 12-11, Florida Administrative
Code (F.A.C.), concerning the application of Florida’s sales tax imposed by Chapter 212, F.S., and
documentary stamp tax, as imposed under sections 201.02(1)(a) F.S., on a certain ground 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.
FACTS AS PRESENTED BY PRACTITIONER
The documents presented for examination are as follows:
1.
2.
3.
4.

Ground Lease.
Purchase and Sale Agreement, dated September 20, 2017, between XXXXX and XXXXX.
Purchase and Sale Agreement, dated July 23, 2019, between XXXXX and XXXXX.
Amendments 1-6 of the Purchase and Sale Agreement, dated September 20, 2017,
between XXXXX and XXXXX

5. Pad Site Declaration of Covenants, Conditions, Restrictions, and Easements.
   Seller A, Seller B, and Seller C (jointly, “Sellers”) each act as landlords, and intend to enter into
   99-year ground leases with Tenant in order to effectuate the transfer of various Florida real
   properties to Tenant. A separate ground lease will be executed in conjunction with each
   property and the terms found in the Ground Lease will be the same in each of the separate
   ground leases. Seller A, Seller B, and Seller C will each receive one-time payments (“Payments”)
   from the Tenant upon the execution of each of their corresponding ground leases. The
   Payments were agreed upon in the above referenced Purchase and Sale Agreements. The
   ground leases will automatically renew for an additional 99 years unless the Tenant elects not
   to renew.
   Section 2.3 of the Ground Lease provides for Tenant’s Option to Purchase property. Any time
   after the property is subdivided by Landlord during the first 99-year term of the lease, Tenant
   may purchase the subdivided portion of the leased property for $1. Tenant may also purchase
   the subdivided property during the second term for $1. After the payment is made, Landlord is
   required to transfer all of Landlord’s right, title, and interest.
   REQUESTED RULINGS
   You requested that the Department confirm that the ground leases are subject to documentary
   stamp tax based upon the Payments given by the Tenant to the Sellers. You requested that the
   Department confirm that the sales tax imposed by section 212.031, F.S., does not apply.

XXXXX
October 24, 2019
Florida Department of Revenue
Page 3

LAW AND DISCUSSION
Documentary Stamp Tax
Section 201.02(1)(a), F.S., imposes documentary stamp tax 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 or her direction. In all counties except Miami-Dade the tax rate is 70 cents on
each $100 of the consideration or portion thereof, for the property interest transferred. For
purposes of this section, consideration includes, but is not limited to, the money paid or agreed
to be paid; the discharge of an obligation; and the amount of any mortgage, purchase money
mortgage lien, or other encumbrance, whether or not the underlying indebtedness is assumed.
In order for a deed or other document that transfers an interest in Florida real property to be
taxable, it must be given for a consideration that has a reasonably determinable value (Devore
v. Gay, 39 So.2d (Fla. 1949); Culbreath v. Reid, 46 So.2d 556 (Fla. 1953)).
Sales Tax
Section 212.031, F.S., provides that persons who lease real property engage in a taxable
privilege and are required to collect sales tax on the total rents received. Agreements that are
labelled as a lease of real property, but are in substance a mortgage or installment sale are not
subject to the tax imposed by s. 212.031, F.S. Bridgestone/Firestone, Inc. v. Department of
Revenue, DOAH Case Number 92-2483 (1993). A lease will require that possession of the lease
premises will revert to the landlord at the end of the term of the lease. A true lease does not
include a nominal purchase option clause.
DEPARTMENT’S POSITION
Documentary Stamp Tax
Documentary stamp tax is an excise tax on certain documents that transfer an interest in
Florida real property based upon the consideration for the transfer.
The value of the Payments are reasonably determinable. The Ground Lease represents a
purchase of an interest in real property for a tenure of time. Documentary stamp tax will be
due on the Ground Lease based on the consideration equal to the Payments from the Tenant to
the Sellers as long as the terms in each of the ground leases are the same as the terms in the
Ground Lease.

XXXXX
October 24, 2019
Florida Department of Revenue
Page 4

Sales Tax
The Ground Lease is in substance an installment sale because possession does not revert to
Landlord, and the Ground Lease includes a nominal purchase option provision. Therefore, the
sales tax does not apply to the payments made pursuant to the Ground Lease.
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
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 documents are public
records under Chapter 119, F.S., which are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Your name, address, and any other details, which might lead to
identification of the taxpayer, must be deleted before disclosure.
In an effort to protect the confidentiality of such information, we request you provide the
undersigned with an edited copy of your request for Technical Assistance Advisement, backup
material and response within fifteen days of the date of this advisement.
Sincerely,

Henry Small
Henry Small
Tax Law Specialist
Technical Assistance and Dispute Resolution

Chuck Wallace
Chuck Wallace
Conferee
Technical Assistance and Dispute Resolution
Record ID: 256257, 256339