How should a tenant calculate its sales-tax credit when a medical-office subtenant used different rooms for limited hours and days?

Subject

Credit on Sublease of Real Property

Plain-English summary

The medical-office tenant's sales-tax credit had to account for both the space and time actually made available to the subtenant, not just the number of days used. The subtenant had priority use of examination rooms, bathrooms, waiting room, and kitchen for eight hours every Tuesday, the doctor's office for three hours on those days, and no access to the secretarial area.

The Department's formula weighted each area's square footage by the allowed usage fraction, divided by total rentable square footage, multiplied by the tenant's lease payment, multiplied by the fraction of monthly working days used, and then applied the sales-tax rate.

The tenant remained required to register as a dealer and collect tax on the sublease; the formula determined the credit for tax already paid to the landlord on the shared space.

What this means for you

For nonstandard shared-space arrangements, Florida allowed a reasonable proration that matched actual space and time rather than forcing a square-footage-only method.

Common questions

Q: Was a days-only formula accepted? No.

Q: Which factors did the approved method use? Square footage, hours of access, working days used, primary rent, and the tax rate.

Q: Did the tenant still collect tax on the subrent? Yes.

Citations and references

• Fla. Admin. Code r. 12A-1.070(7)(a), (8) — tax on subrentals and prorated credit
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93A-059

Original ruling text

Sep 03, 1993

RE: TAA 93A-059
Sales Tax - Calculation of Credit on Sublease of Real
Property
Rule 12A-1.070(7)(a) and (8), F.A.C.

Dear :

This is in response to your letter dated May 26, 1993, in
which you request a Technical Assistance Advisement (TAA)
seeking the Department's approval of your method of prorating
sales tax on a basis other than on square footage on a sublease
of real property located at XXX. The primary lease is between
XXX (hereinafter "Landlord") and XXX (hereinafter "Tenant").
The "Tenant" subleases a portion of the property to XXX
(hereinafter "Subtenant"). In your letter you state in part:

"As more fully described in Attachment A (Lease Agreement...
between Landlord' andTenant' dated May 1, 1991) and
Attachment B (Sublease between Tenant' andSubtenant' dated
July 1, 1992), `Tenant' is both the tenant and sublessor of
certain medical office space.... Unlike standard commercial
subleases, however, the sublease in Attachment B does not grant
the subtenant... full time, exclusive use of a specified amount
of office square footage.... Rather, the sublease in Attachment
B grants the subtenant priority use of almost the entire [real
property location] on specific days/ times during the month.

"Thus, it is not possible to prorate the sales tax... based on
square footage as is done in standard commercial subleases.
Accordingly, I am requesting your approval to compute the
monthly sales tax credit on the sublease in Attachment B as
follows:

"Sales tax on

of Days Subtenant

Primary Lease

X

in Attachment A

Uses [real property]
During the Month

Total Business

Monthly

Sales Tax
Credit on

Sublease

Days in Month

"... I believe that the above method equitably prorates the
sales tax burden between the parties using [the real property]
because it prorates the tax on the same basis that the tenant
and subtenant utilize [the real property]. Further, [Rule]
12A-1.070(8)[, F.A.C.,] allows such a basis to be used if it is
acceptable to the Department of Revenue.... To date, I have
claimed no sales tax credit on the subject sublease."

REGULATORY AUTHORITY

Rule 12A-1.070(7)(a) and (8), F.A.C., provides in pertinent
part:
"(7)(a) Where a tenant or person occupying, using, or
entitled to use any real property which is subject to tax
sublets or assigns and collects rentals or license fees on
a taxable portion of the leased or licensed premises, such
tenant or other person shall be required to register as a
dealer and collect and remit the tax on all such
sub-rentals or assignments....
"(8) When a tenant (lessee) or other person occupying,
using, or entitled to use any real property (licensee)
sublets or assigns some portion of the leased or licensed
property, he may take credit on a pro rata basis for the
tax that he paid to his landlord or other such person on
the space that he subleases or assigns. Proration shall be
computed on a square footage or some other basis acceptable
to the Executive Director or... designee in the responsible
division...."

DETERMINATION

The lease agreement between "Landlord" and "Tenant"
provides that the leased area is 1,521 gross rentable square
feet. The sublease agreement between "Tenant" and "Subtenant"
provides that of the total gross rentable square feet,
"Subtenant" is permitted to use examination rooms, bathrooms,
the waiting room, and the kitchen for 8 hours on every Tuesday
of the month; the doctor's office for 3 hours on those same days
of the month; but the "Subtenant" is not allowed to use the

secretarial area. Therefore, square footage, as well as the
hours which the "Subtenant" is allowed to use the premises, is a
factor in determining the allowed credit. The following formula
represents the method of calculating the amount of credit
"Tenant" is allowed against the sales tax that is collected on
the sublease of the premises:

Square Feet in

Square Feet in

Secretarial Area
X

+

Square Feet in Exam

Doctor's Office + Rooms, Bathrooms,
X

Waiting Room,

Kitchen
Zero

3/8
Gross Rentable Square Feet

MULTIPLIED BY: "Tenant's" Lease Payment to "Landlord"

MULTIPLIED BY: Number of Days "Subtenant" Uses the
Premises During the Month
Total Working Days During the Month

MULTIPLIED BY: Sales Tax Rate

EQUALS:

MONTHLY SALES TAX CREDIT ON SUBLEASE

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,

Sharon Gallops
Technical Assistant

/sg
Cont. #9140