Was all property covered by the condominium ground lease exempt from Florida commercial-rent tax as dwelling units or common elements?

Plain-English summary

Only part of the condominium ground lease qualified for exclusion from Florida's tax on real-property rent.

Florida excludes property used exclusively as dwelling units, including associated residential common areas. It also exempts lease payments for qualifying recreational property or condominium common elements leased between the owner and the condominium association or unit owners.

The Department concluded that some portions of this lease met the common-element definition. But condominium property included in the ground lease that was neither used exclusively as a dwelling unit nor a common element remained taxable and had to be included in the taxable portion of the rent.

What this means for you

A ground lease beneath a condominium is not automatically exempt in full. The lease must be divided by actual legal classification and use. Florida may use square footage or another reasonable method based on the lease and available information to allocate taxable and excluded rent.

Common questions

Were qualifying common elements exempt? Yes, the Department found that some leased portions qualified.

Was the entire ground lease exempt? No. Other condominium property that was not a dwelling area or common element was taxable.

How should a mixed lease be divided? By a reasonable allocation using the lease and other available information; the cited rule gives square footage as one example.

Citations and references

• Fla. Stat. § 212.031(1)(a)-(c).
• Fla. Stat. § 718.108.
• Fla. Admin. Code r. 12A-1.070(1), (4), and (14).

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 23A-015

Original ruling text

Florida Department of Revenue Jim Zingale
Technical Assistance and Dispute Resolution Executive Director

EPARTMENT OF REVENUE

FLORIDA

5050 West Tennessee Street, Tallahassee, FL 32399 floridarevenue.com

QUESTION: Whether the leased property meets the statutory definition of a “common element”
under s. 212.031(1)(a)4., F.S.

ANSWER: Some portions of the leased property do meet the statutory definition of “common
element” under s. 212.031(1)(a)4., F.S. Condominium property included in the
ground lease, but not used exclusively as a dwelling unit or is not a common
element, is taxable and should be included in the taxable portion of the lease.

June 27, 2023

Via Email:

Re: Technical Assistance Advisement — 23A-015

ES (“Petitioner”)

Sales and Use Tax — Real Property Lease/Common Elements
Section(s) 212.031, 212.04 and 718.108, Florida Statutes - (“F.S.”)
Rule(s) 12A-1.070, Florida Administrative Code - (“F.A.C.”)

BP 1:

This is in response to your letter dated January 4, 2023, requesting this Department’s issuance of a
Technical Assistance Advisement (“TAA”) pursuant to Section(s.) 213.22, F.S., and Rule Chapter 12-
11 F.A.C, Florida Administrative Code, regarding the matter discussed below. Your request has been
carefully examined, and the Department finds it to be in compliance with the requisite criteria set
forth in Chapter 12-11, F.A.C. This response to your request constitutes a TAA and is issued to you
under the authority of s. 213.22, F.S.

REQUESTED ADVISEMENT

Whether the leased property meets the statutory definition of a “common element” under s.
212.031(1)(a)4, F.S.

Technical Assistance Advisement
June 27, 2023
Page 2

FACTS

Your request provides in part:

BEM limited partnership, as lessee, entered into an

(collectively, the | as so amended,

, , “Lease”). A copy of the lease and the various amendments are
attached hereto as Exhibit A.

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From (when the [Petitioner] was assigned the lease) until a,
EE id not impose Florida sales tax on rent paid under the lease. Beginning
a, owever, «began applying Florida sales tax to its invoices to
collect Florida state sales tax of Jj and yy surtax of Jj. Notwithstanding

’s change in its stance on the matter, it is the Association’s view that sales
tax should not apply to the lease.

Based upon the facts above, the Petitioner requests advisement on the following issue:

“Does Florida sales tax apply to payments of rent by the [Petitioner] to
under the lease? More specifically, the issue to be addressed is whether the leased
property meets the statutory definition of a “common element” under [s.]
212.031(1)(a)4., F.S.”

To support its position, the Petitioner references ss. 212.031(1)(a)4., 6. and 718.108, F.S. and Rule
12A-1.070(1)(a)9., F.A.C. and states in part:

Technical Assistance Advisement
June 27, 2023
Page 3

. although Rule 12A-1.070(1)(a)[9.], F.A.C., has substantially similar language to [s.]
212.031(1)(a)4., [F.S.] the F.A.C. uses slightly different language to describe the owner of
the property subject to lease. Despite this distinction, the only reasonable conclusion is
that Rule 12A-1.070(1)(a)[9.], F.A.C., must be interpreted in a manner consistent with the
Florida Statutes such that J must be considered the “owner” for purposes
of s. 212.031(1)(a)4., F.S. ...

*K

Petitioner asserts that a portion of the property included in the lease is J, a public street
used for transportation purposes pursuant to a perpetual jj easement and is therefore not
subject to sales tax pursuant to s. 212.031(1)(a)4., F.S.

Petitioner states that it has not located any case law interpreting s. 212.031(1)(a)4., F.S., but states
that TAA 92A-055, interprets the provision and illustrates how the Department previously has
interpreted portions of s. 212.031, F.S.

Referencing TAA 92A-055, Petitioner states in part:

.. the Florida Department of Revenue ... addressed the question of whether a lease of
certain recreational facilities ... met the exception from sales tax under [s.] 212.031(1)(a)4.,
[F.S.] or if such payments were taxable as “admissions” under the provisions of [s.] 212.04,
[F.S.] In determining that [s.] 212.031(1)(a)4., [F.S.] was controlling, the Department
confirmed that the facilities in question qualified as “recreational property,” exempt from
sales tax under [s.] 212.031(1)(a)4., [F.S.]. In making its determination, the Department
applied the following three-prong test:

It is with knowledge of this provision[] that the Department alerts you to the fact that s.
212.031(1)(a)4., F.S., allows for an exemption from the tax imposed by that section
under the condition that:

1. The Facilities are recreational property or the common elements of a
   condominium,

2. The lessor of the property is the Corporation as developer or owner of the
   property, and

3. The lessee is the condominium association in its own right, the association as
   agent for the unit owners, or the individual unit owners.

*K

It is Petitioner’s position that the JJ qualifies for the exemption provided under s.
212.031(1)(a)4., F.S. and the Association’s rent is not subject to sales tax. Petitioner states that
the three-prong test referenced in TAA 92A-055 provides a reasonable framework for the

Technical Assistance Advisement
June 27, 2023
Page 4

application of the exemption. In applying this test to the lease at issue, Petitioner contends that
each of the three requirements is met and the exception under s. 212.031(1)(a)4., F.S. would
apply.

With regard to the requirements set forth in s. 212.031(1)(a)4., F.S., Petitioner provides the
following explanations to support that it qualifies for the exemption:

1. The Facilities are recreational property or the common elements of a
   condominium.

Petitioner states that this requirement is broader than articulated in TAA 92A-055, which
addressed whether “facilities” that were not part of the common areas qualified for the
exception as “recreational property.” The test is more properly phrased as whether the leased
property qualifies as “recreational property” or “common elements” of the condominium.

It is Petitioner’s opinion that the leased property is the land (ground) underneath the aay

SE RE 25 wel! 25 2 portion 0
SE GE Wl RE MEE. However, itis noted that beginning on

, the I] EM assumed sole responsibility for the use and operation of
HE. '0 connection with this change, the Association will receive a discount against the
rent due. Petitioner states that the term “common elements” is not defined in Chapter 212,
F.S. Section 718.108, F.S., provides in part:

1. “Common elements” includes within its meaning the following:
   a. The condominium property which is not included within the units.
   b. Easements through units for conduits, ducts, plumbing, wiring, and other

facilities for the furnishing of utility services to units and the common
elements.

c. An easement of support in every portion of a unit which contributes to the
support of a building.

d. The property and installations required for the furnishing of utilities and
other services to more than one unit or to the common elements.

(2) The declaration may designate other parts of the condominium property as
common elements.

*#

Technical Assistance Advisement
June 27, 2023
Page 5

Referencing TAA 92A-055, Petitioner restates that “[i]t is a basic tenet of statutory construction
that, ‘every statute must be read as a whole with meaning ascribed to every portion and due regard
given to the semantic and contextual interrelationship between its parts.’”

It is Petitioner’s opinion that under this guidance the ground underneath the condominium as well
as the portion of MM, which is included in the lease through , are “[t]he
condominium property which was not included within the units” “and should therefore, qualify as
common elements for purposes of s. 212.031(1)(a)4., F.S.

2. The lessor of the property is the Corporation as developer or owner of the
   property

It is Petitioner’s opinion that the second requirement is satisfied — in that yy, the
lessor, is the owner of the property.

3. The lessee is the condominium association in its own right, the association as
   agent for the unit owners, or the individual unit owners

With regard to the final requirement, Petitioner states that the lease was assigned to the
Association by Jj — the Developer of the i EN through an aa

. The Association’s lease of the property is separate and distinct
from any rights of ownership of any improvements to the property including the condominium
building). Accordingly, the lessee in this case is the condominium association which satisfies the
third requirement.

Petitioner contends that based on the plain language of s. 212.031(1)(a)4., F.S. and the guidance
from s. 718.108, F.S. and TAA 92A-055, it is clear that the rental of “common elements” of a
condominium, when subject to a lease between the owner of the real property, iy,
and the condominium association, Petitioner, is not subject to Florida sales tax; since the property
meets the statutory definition of a “common element,” payments of rent by the Association (the
lessee) to MM (the lessor and owner of the Property) satisfies the requirements for the
exception under s. 212.031(1)(a)4., F.S. Therefore, Florida sales tax should not apply to the lease,

which is consistent with MS Non-application of sales tax to the lease from aay
s ° .

Upon review of the i! [iii ES, the following

points are noted:

C. Assignee is the Condominium Association established to govern and operate
the Condominium, all as more particularly described in the Declaration.

D. Assignor now desires to assign to Assignee, and Assignee now desires to obtain
from Assignor, each and every of the obligations under the Lease.

Technical Assistance Advisement
June 27, 2023
Page 6

2. Assignor does hereby assign unto Assignee, the following (collectively, the
   “Assigned Rights and Obligations”):

(a) each and every of the obligations of the lessee under the Lease, whether
financial or otherwise, and/or attributable to the leasehold estate under the Lease,
including without limitation, the obligation for the payment of the aggregate annual
Minimum Rent and additional rent due J and/or any successor to the
landlord’s interest in and to the Lease and the posting and maintaining of any
security deposits required under the Lease,...

3. Assignee does hereby accept the Assigned Rights and Obligations and
   assumes and agrees to perform all of the obligations, liabilities, covenants,
   agreements terms, provisions and conditions of the Lease on the part of the lessee
   to be performed therein arising after the date of this Assignment, but solely as they
   relate to Phase Il.

According to the Declaration of i, A Condominium (‘Declaration’), x!

Technical Assistance Advisement
June 27, 2023
Page 7

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The “Submission Statement” found in RY of the Declaration, provides in part:

Additionally, the “Submission Statement”, provides that

Technical Assistance Advisement
June 27, 2023
Page 8

ee ”

The following relevant definitions related to the Declaration are provided in aay:

FP defines “Association” or “Condominium Association” to mean

Ree. 2 Florida corporation not for profit, the sole entity responsible for

the operation of the Condominium.

Po defines “Common Elements” to mean and include:

a. The portions of the Condominium Property which are not included within either the
Units and/or the Association Property, which includes, without limitation, the Jj and
the portions of Vacated jij ij IJ contained within the Condominium Property.

b. All structural columns and bearing walls regardless of where located.

c. Easements through Units for conduits, ducts, plumbing, wiring and other facilities
for furnishing of utility and other services to Units, the Common Elements and/or the
Association Property.

d. An easement of support in every portion of a Unit which contributes to the support
of the Building.

e. The property and installations required for the furnishing of utilities and other
services to more than one Unit or to the Common Elements and/or the Association
Property.

f. Any and all portions of the Life Safety Systems ... regardless of where located within
the Condominium Property.

g. Any other parts of the Condominium Property designated as Common Elements in
the Declaration, which shall specifically include the surface water management system,
if any serving the Condominium.

The term “Condominium Property” as defined by J of the Declaration means “the
leasehold estate in the Land, improvements and other property or property rights described in

| ”

a ctincs a, its successors, nominees, affiliates, and such
of its assigns as the “developer” to which the rights of Developer are specifically assigned.
Developer may assign all or a portion of its rights hereunder or all or a portion of such rights in
connection with specific portions of the Condominium. In the event of any partial assignment, the

Technical Assistance Advisement
June 27, 2023
Page 9

assignee shall not be deemed the Developer, but may exercise such rights of the Developer as are
specifically assigned to it. Any such assignment may be made on a nonexclusive basis. Any
assignment (partial or in full) of the Developer’s rights, the assignee shall not be deemed to have
assumed any of the obligations of the Developer unless, and only to the extent that it expressly
agrees to do so in writing.

The term “improvements” as defined under MM, means “all structures and artificial
changes to the natural environment (exclusive of landscaping) located or to be located on the
Condominium Property, including, but not limited to, the Building.”

states that the term “land” shall have the same meaning given to it in xy
Wl - which states in part, “the Developer is the owner and holder of a leasehold estate in certain

land located in is”

Regarding “Limited Common Elements,” EY of the Declaration provides in part:

If applicable, any other portion of the Common Elements which, by its nature, cannot
serve all Units but serves one Unit or more than one Unit (i.e., any hallway and/or elevator
landing serving a single Unit or more than one (1) Unit owned by the same Owner) shall be
deemed a Limited Common Element of the Unit(s) served and shall be maintained by said
Owner. In the event of any doubt or dispute as to whether any portion of the Common
Elements constitutes a Limited Common Element or in the event of any question as to
which Units are served thereby, a decision shall be made by a majority vote of the Board of
Directors of the Association and shall be binding and conclusive when so made.

With regard to Percentage Ownership and Shares in Common Elements, J of the
Declaration, provides in part:

The undivided percentage interest in the Common Elements and Common Surplus, and the
percentage share of the Common Expenses, appurtenant to each Unit, is as set forth on
Exhibit “3” ..., same having been determined based upon the total square footage of the
applicable Unit in uniform relationship to the total square footage of each unit.

The real property lease at issue has been amended J — with the J amendment to the
Agreement of Lease being dated MJ. Under the terms of the “Amended Lease” Petitioner
is tenant for a portion of the leased premises. Additionally, Petitioner is responsible for a portion of

and currently pays rent based on the area occupied by the jas well as a portion of
the property occupied by another tenant. It is Petitioner’s opinion that pursuant to the Amended
Lease, it is not liable for sales tax on the real property lease as those portions of the lease are
believed to be common elements.

LAW AND DISCUSSION

Technical Assistance Advisement
June 27, 2023
Page 10

Section 212.031(1)(a), F.S., declares it is the legislative intent that every person is exercising a
taxable privilege who engages in the business of renting, leasing, letting or granting a license to use
real property. For the exercise of such privilege, tax is levied at the rate of 5.5 percent (5.5%) of the
total rent charged for the use and occupancy of real property, by the person charging or collecting
the rental fee. See s. 212.031(1)(c), F.S. The total rent or license fee includes “all considerations due
and payable by the tenant ... to his landlord ... for the privilege of use, occupancy or the right to use
or occupy any real property for any purpose.” See Rule 12A-1.070(4)(b), F.A.C. However, s.
212.031(1)(a)2., F.S., excludes real property from the tax when such property is “used exclusively as
dwelling units.” This includes the residential units and common areas.

Section 212.031(1)(a)4., F.S., provides an exemption for recreational property or the common
elements of a condominium “when subject to a lease between the developer or owner thereof and
the condominium association in its own right or as agent for the owners of individual condominium
units or the owners of individual condominium units.” Section 212.031(1)(a)4., F.S., continues:
“However, only the lease payments on such property shall be exempt from the tax imposed by this
chapter, and any other use made by the owner or the condominium association shall be fully
taxable under this chapter.”

Section 212.031(1)(b), F.S., addresses situations in which the leased property is multi-use property
that includes areas that are not subject to the tax, such as property used exclusively as a dwelling
unit, and other areas that are subject to the tax imposed by s. 212.031, F.S. Section 212.031(1)(b),
F.S., provides that the allocation is based on the lease agreement and other available information.
Although, an allocation using square footage information is used as an example in Rule 12A-1.070,
“F.A.C.”, the Department will use reasonable methods to determine the taxable rental amount. See
Rule 12A-1.070(14)(a), F.A.C.

Petitioner opines that the leased property, which in this case is the “ground” underneath the
condominium meets the statutory definition of “common elements” of the condominium when
subject to a lease between ME — the owner of the real property and Petitioner - the
condominium association; therefore, the payments for rent would be exempt from sales tax.
However, while the definition of “common elements” does include portions of the condominium
property that is not included in the units,” the condominium property which is “the lands,
leaseholds, and personal property that are subjected to condominium ownership, whether or not
contiguous, and all improvements thereon and all easements and rights appurtenant thereto
intended for use in connection with the condominium,” any condominium property that is included
in the ground lease, but not used exclusively as a dwelling unit or is not a common element as
contemplated by MJ of the Declaration, is taxable and should be included in the
taxable portions of the lease.

CONCLUSION

Some portions of the leased property do meet the statutory definition of “common element” under
s. 212.031(1)(a)4., F.S. Condominium property included in the ground lease, but not used

Technical Assistance Advisement
June 27, 2023
Page 11

exclusively as a dwelling unit or is not a common element is taxable and should be included in the
taxable portion of the lease.

This response constitutes a TAA 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 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 TAA, 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 ten (10) 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)717-6701.

Sincerely,

Shundia McClean

Shundra McClean

Tax Law Specialist

Technical Assistance & Dispute Resolution
(850)717-6701

Record ID: 7000898936

cc:

Technical Assistance Advisement

June 27, 2023

Page 12

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Tax type: Sales and Use Tax
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