Were property taxes a commercial tenant paid directly to the taxing authority subject to Florida sales tax as rent?

Subject

Real Property Rental

Plain-English summary

The ad valorem taxes the commercial tenant paid directly to the taxing authority were part of taxable rent. The lease required the tenant to pay its proportionate share of assessments and real-property taxes as part of the occupancy arrangement.

The Department treated all consideration due for the right to use the property as rent. Direct payment to the government did not change the economic benefit flowing to the landlord. The landlord remained responsible for collecting sales tax from the tenant on those amounts.

What this means for you

Changing the payment path did not change the tax character of a lease-required expense paid for the landlord's benefit.

Common questions

Q: Were tenant-paid property taxes taxable? Yes.

Q: Did direct payment to the taxing authority avoid sales tax? No.

Q: Who had to collect the sales tax? The landlord.

Citations and references

• Fla. Stat. § 212.031 — commercial real-property rent
• Fla. Admin. Code r. 12A-1.070(4), including paragraph (b) — tenant-paid ad valorem taxes
• Natural Kitchen, Inc. v. American Transworld Corp., 449 So. 2d 855 (Fla. 2d DCA 1984)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93A-055

Original ruling text

Aug 04, 1993

Re: TAA 93A-055
Sales Tax; Real Property Rental - Ad Valorem Taxes Paid On
Behalf Of Landlord
Section 212.031, F.S.
Rule 12A-1.070, F.A.C.

Dear :

This reply is to your letter dated May 21, 1993, written on
behalf of your client, XXX, in which you requested the issuance
of a Technical Assistance Advisement, regarding the application
of sales tax on ad valorem taxes paid by a tenant directly to
the taxing authority. You have also enclosed a copy of portions
of the lease for which you request our advice.

RELEVANT AUTHORITY

Section 212.031, F.S., provides in pertinent parts:

"(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...
...
"(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.
...
"(2)(a) The tenant 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. (Emphasis Supplied)
"(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 or 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. The owner, lessor, or
person receiving the rent or license fee shall remit the
tax to the department at the times and in the manner
hereinafter provided for dealers to remit taxes under this
chapter...."

Rule 12A-1.070(4), F.A.C., which interprets the above
statute, describes the imposition of sales tax on all
considerations due and payable by the tenant in exchange for the
right to use or occupy the demised real property and
specifically states that ad valorem taxes paid by the tenant are
taxable. Rule 12A-1.070(4)(b), F.A.C. provides in part:

"(b) ... Ad valorem taxes paid by the tenant or other
person actually occupying, using, or entitled to use any
real property to the landlord or other person granting the
right to such tenant or person to occupy or use such real
property, including transactions between affiliated
entities, are taxable." (Emphasis Supplied)

DISCUSSION/RESPONSE

By operation of the above cited statute and administrative
rule, the sales tax is levied on all considerations due and
payable by the tenant for the privilege to occupy or use real
property, and this specifically includes payment for ad valorem
taxes. Further, under Section 212.031, F.S., it is the
responsibility of the lessor to collect the sales tax on such
payments of ad valorem taxes from its tenants. Moreover, we
agree with your conclusion that the case of Natural Kitchen,
Inc. v. American Transworld Corporation, 449 So.2d 855(Fla. 2d
DCA 1984), holds that sales tax must be paid on such ad valorem
taxes, whether paid directly to the taxing authority or to the
landlord.

The lease, which you have provided for our review, requires

the Lessee to pay sales tax on any rent or other charges:

"... imposed or levied against any rent or any other
charges or payment required hereunder to be made by Lessee
which has been imposed or levied by any governmental agency
having jurisdiction thereover."

Paragraph 4, page 4, of the lease requires the payment by
the tenant of "its proportionate share of all assessments, real
estate taxes, ad valorem taxes of any sort."

In the case of Seaboard Coast Line Railroad Company v.
Rueben O'D. Askew, Case No. 72-15 (2d Cir., 1972), the Court
made the following observation:

"This case turns upon a single question:

"When a lessee, pursuant to the covenants of a lease, pays
the ad valorem taxes upon leased real estate, is the amount
so paid `rent' within the meaning of the statute so as to
be subject to a sales and use tax under Section 212.031,
Florida Statutes?

"The Court answers this question in the affirmative."

The Court went on to observe that Section 212.031, F.S.,
imposes a tax on "the total rent charges" and "while taxes are
not specifically mentioned, this language indicates a
legislative intent to tax the full benefits flowing to the
landlord for the use of leased premises."

Therefore, it is the Department's position that sales tax
is due on the ad valorem taxes paid by the tenant directly to
the taxing authority.

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 confidential
information, we request you notify the undersigned in writing
within 15 days of any deletions you wish made to the request or
this response.

Sincerely,

Delores Overcash
Technical Assistant

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