Were rental-income insurance proceeds paid to shopping-center landlords after Hurricane Andrew subject to Florida tax on commercial rent?

Subject

Real Property Lease Payments

Plain-English summary

The rental-income or rental-value insurance proceeds were not taxable commercial rent. Hurricane Andrew damage made the shopping-center property unfit for occupancy, tenants stopped paying rent, and the landlords received replacement payments directly from their insurers under policies for which the landlords paid the premiums.

The Department distinguished those insurance proceeds from taxable consideration paid by a tenant for the privilege of using or occupying real property. The insurer received no occupancy right, so its payment was not rental income under the cited statute and rule.

What this means for you

The ruling focused on who made the payment and what the payment purchased. Replacement proceeds from the landlord's insurer were not treated as rent when no tenant occupancy right was involved.

Common questions

Q: Were the proceeds taxable merely because they replaced lost rent? No.

Q: What fact distinguished them from rent? They came from the landlord's insurer and were not consideration for use or occupancy of the property.

Q: Did the ruling address ordinary tenant rent paid during occupancy? No. It addressed insurer payments during untenantability.

Citations and references

• Fla. Stat. § 212.031(2)(a) — tax on commercial real-property rent paid by the occupant
• Fla. Admin. Code r. 12A-1.070(4)(b) — taxable consideration for use or occupancy
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93A-044

Original ruling text

Jul 20, 1993

RE: TAA 93A-044
Sales Tax - Insurance Covering Real Property Lease Payments
Rule 12A-1.070, F.A.C.
Section 212.031, F.S.

Dear :

This is in response to your letter of February 4, 1993,
requesting the issuance of a Technical Assistance Advisement
concerning the taxability of insurance proceeds paid to the
landlords of shopping centers due to the untenantability of the
real property caused by Hurricane Andrew.

Your letter states in pertinent part:

"This law firm represents the captioned taxpayers, each of which
is a shopping center landlord in XXX (hereinafter, collectively,
the `Landlords'). We are writing on behalf of the Landlords to
request a Technical Assistance Advisement by the Department of
Revenue pursuant to Rule 12-11, Florida Administrative Code as
to whether the sales tax on rental of non-residential real
property applies to proceeds of rental income/rental value
insurance.

"Each of the shopping centers owned or managed by the Landlords
suffered damage by Hurricane Andrew and, as a result, the rents
ordinarily payable by certain tenants of those centers ceased to
be paid. Each Landlord is insured under policies providing for
rental income and/or rental value coverage. A sample policy
provision is enclosed for your reference. Under the Rental
Value/Rental Income section of the enclosed specimen, the
insurer must pay rental value losses during the period of
untenantability.

"We have reviewed Chapter 212 Fla.Stat. and the regulations
promulgated thereunder and Section 212.031 in particular. When
read together, Section 212.031(1)(c) and (2)(a) appear to tax

only rents or license fees received from a tenant and do not
appear to embrace insurance proceeds received in lieu of rents
or license fees...

"Please furnish a Technical Assistance Advisement as to the
taxability of such insurance proceeds under Chapter 212
Fla.Stat."

Additional information you supplied per our telephone
conversations confirmed that the policy for this coverage is
between the landlords and the insurance company and that the
premiums are paid by the landlords. The insurance proceeds are
received by the landlords from the insurance company.

STATUTORY AND REGULATORY AUTHORITY

Section 212.031(2)(a), Florida Statutes, states:

"(2)(a) The tenant or person actually occupying, using, or
entitled to the use of any property from which the rental
or license fee is subject to taxation under this section
shall pay the tax to his immediate landlord or other person
granting the right to such tenant or person to occupy or
use such real property."

Rule 12A-1.070(4)(b), Florida Administrative Code, provides
in part:

"(4)(b) The tax shall be paid... 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...."

CONCLUSION

The proceeds the landlord receives from the insurance
company during the time in which the property is not fit for
occupancy would not be considered taxable rental income, because
those proceeds do not represent consideration paid by the tenant

for the privilege to occupy or use the real property.

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 and your request
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 by the Department
before disclosure. In an effort to protect the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Bonnie Everton
Technical Assistant
/e
Cont. #6876