Was a tenant's direct payment of the landlord's property taxes taxable as rent?

Subject

Collection and Payment of Sales Tax on Real Property Taxes

Plain-English summary

The tenant's direct payment of property taxes to the tax collector was subject to Florida sales tax as part of the rent. The payment did not escape tax merely because it went directly to the taxing authority instead of first passing through the landlord.

The lease made payment of the taxes a condition of occupying the premises and treated nonpayment as a default that could lead to eviction. The Department therefore treated the payment as consideration for the right to use the property and as a benefit paid on the landlord's behalf.

What this means for you

For the lease analyzed here, substance controlled over the payment route. A tenant-paid landlord expense can be part of taxable real-property rent when the lease requires it as consideration for occupancy.

Common questions

Did it matter that the tenant paid the tax collector directly? No. The Department said the recipient of the payment did not determine whether it was taxable rent.

Why was the property-tax payment treated as rent? The lease required it for continued occupancy and made nonpayment a default.

Does every tenant-paid property expense receive the same treatment? This ruling addressed the specific lease and property-tax obligation described in the request.

Citations and references

• Fla. Stat. §§ 212.031(1)-(2) and 213.22
• Fla. Admin. Code r. 12A-1.070(1), (4)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-052

Original ruling text

Title:

Collection and Payment of Sales Tax on Real Property
Taxes

Sep 14, 1994

Re: Technical Assistance Advisement 94(A)-052
Sales Tax - Ad Valorem Property Taxes
Petitioner: XXX (Herein the "Landlord")
Address: XXX
Sales Tax Number: XXX
Other Party: XXX (Herein the "Tenant")

Dear :

This response is in reply to your June 6, 1994, petition for the
Department's issuance of a Technical Assistance Advisement
("TAA") pursuant to s. 213.22, F.S. Your petition regards the
referenced matter and parties. The Department has carefully
examined your petition and finds it to meet the criteria set
forth in Chapter 12-11, F.A.C., requisite to issuance of a TAA.
Therefore, the Department is by this response issuing the
requested TAA.

DISCUSSION OF FACTS

Your petition imparts the following significant information
regarding the issues under advisement herein:

"This is a follow-up to a letter of opinion received from
Gail Williams, Taxpayer Assistance Specialist, Bureau of
Tax Information and Media Services[,] regarding the
collection and payment of sales tax on real property taxes.

"We are having a dispute with one of our tenants, [Tenant,]
over this matter. They are of the opinion that since their
Lease calls for the payment of real estate tax directly to
the taxing authority and not the landlord, there is no
sales tax due on such amount.

"According to our interpretation of opinions we have
received from the Department of Revenue and Rule 12A1.070(4)(a) and (b), FAC, the property tax is subject to
sales tax regardless of the fact that Ad Valorem taxes were
paid directly to the XXX.

"Enclosed please find a copy of our lease agreement with
[Tenant] and copies of correspondence with [Tenant] and the
Department of Revenue relating to this matter.

The document entitled "Lease Agreement" (the "Lease") submitted
in support of your petition contains the following terms and
conditions relevant to the issue under advisement herein:
Article 8 of the Lease: "... Tenant shall, and will, during the
term of this lease, pay and discharge all such duties,
taxes, assessments and payments, extraordinary as well as
ordinary, whether foreseen or unforeseen, as shall during
the term hereby demised be laid, levied, assessed or
imposed upon, or become due and payable, or liens upon the
Demised Premises, or any part thereof, or the leasehold
estate hereby created.... In any event, all such taxes and
assessments shall be paid by Tenant at least three (3)
months prior to the date on which the Demised Premises, or
any part thereof, might be sold or forfeited because of the
non-payment of said tax or assessment...."

Article 21 of the Lease: "Upon the happening of any one or
more of the following events:

"(a) Tenant's default in the payment of any rental or
other monies due hereunder for a period of ten (10)
days....

"Landlord, at its option, may exercise any one or more of
the following options:

"(1) Terminate tenant's right to possession under this
lease and re-enter and take possession of the Demised
Premises and relet or attempt to relet said
premises....
"(2) Declare this lease to be terminated, ended and

null and void, and re-enter upon and take possession
of the Demised Premises whereupon the term hereby
granted and all right, title and interest of Tenant in
the Demised Premises shall end...."

REQUESTED ADVISEMENT

You endeavor to elicit the Department's advice regarding the
issue of whether the Tenant is obligated to pay sales tax on the
ad valorem real property taxes it pays directly to the Tax
Collector on the demised premises on behalf of the Landlord
pursuant to the terms and conditions of the Lease.

DISCUSSION AND ANALYSIS OF LAW

The following statutory, administrative, and case law is
consulted as relevant to addressing the issue under advisement
herein:

Section 212.031, F.S.: "Lease or rental of or license in
real property.-"(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.
"(d) When the rental or license fee of any such real
property is paid by way of property, goods, wares,
merchandise, services, or other thing of value, the tax
shall be at the rate of 6 percent of the value of the
property, goods, wares, merchandise, services, or other
thing of value.
"(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...." (Emphasis Supplied)

In ascertaining the legislative intent for the scope of the term
"rent" as used in s. 212.031(1)(c), F.S., above, we must adhere
to the following fundamental principles for statutory
construction established by the Florida Supreme Court:

It is a fundamental principle of statutory construction
that legislative intent and policy concerns must control
our construction of statutes and that the determination as
to the intent of the legislature is based upon the plain
and ordinary meaning of the language in the statute itself.
See Holly v. Auld, 450 So.2d 217 (Fla. 1984).

In the matter of St. Petersburg Bank & Trust Co. v. Hamm,
414 So.2d 1071 (Fla. 1982), the Florida Supreme Court held
that while legislative intent controls construction of
statutes, that intent is determined primarily from language
of the statute; plain meaning of statutory language is
first consideration.

In the matter of S.R.G. Corp. v. Department of Revenue, 365
So.2d 687 (Fla. 1978), the Florida Supreme Court held that
legislative intent must be determined primarily from
language of statute, as the legislature must be assumed to
know the meaning of the words and to have expressed its
intent by the use of the words found in the statute.

The denotative meaning of the word "rent" represents its plain
and ordinary meaning. To this end we consult Black's Law
Dictionary, Sixth Edition, which defines the word "rent" as
follows:

"Rent. Consideration paid for use or occupation of
property...."

Article 8 under the Lease requires the Tenant's payment of the
property taxes in order to use or occupy the demised premises.
Failure on the part of the tenant to pay the property taxes
constitutes an act of default under Article 21 of the Lease and
subjects the Tenant to eviction at the Landlord's discretion.
Accordingly, the property taxes under such circumstances clearly

come within the scope of the term "rent" in s. 212.031(1)(c),
F.S., intended by the Legislature.
Rule 12A-1.070, F.A.C.: "Leases and Licenses of Real Property;
Storage of Boats and Aircraft.
"(1)(a) Every person who rents or leases any real property
or who grants a license to use, occupy, or enter upon any
real property is exercising a taxable privilege....
"(4)(a) The tenant or person actually occupying, using, or
entitled to use any real property from which rental or
license fee is subject to taxation under s. 212.031,
F.S.,... 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.
"(b) The tax shall be paid at the rate of... 6 percent...
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. 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)

An agency's administrative interpretation of a statute by rule
has been accorded great deference by the courts, and will not be
overturned unless the agency's interpretation of the statutes is
clearly erroneous; reviewing court will defer to any
interpretation within the range of possible interpretation. See
Pershing Industries v. Department of Banking, 591 So.2d 991, 993
(Fla. 1 DCA 1991); Eager v. Florida Keys Aqueduct Authority, 580
So.2d 771 (Fla. 3 DCA 1991); Natelson v. Department of Ins., 454
So.2d 31 (Fla. 1 DCA 1984); State ex rel. Szabo Food Serv., Inc.
of N.C. v. Dickinson, 286 So.2d 529 (Fla. 1973), reh. den. Jan.
9, 1974.

An agency rule cannot enlarge, modify, or contravene the statute
it interprets. See s. 120.52(8), F.S.; Florida Marine Fisheries
Commission v. Organized Fishermen of Florida, 610 So.2d 92 (Fla.

1 DCA 1992); State, Bd. of Trustees v. Lost Tree Vill., 600
So.2d 1240, 1244 (Fla. 1 DCA 1992); Cataract Surgery Center v.
Health Care, 581 So.2d 1359, 1361 (Fla. 1 DCA 1991), reh. den.
July 16, 1991; Adam Smith Ent. v. Dept. of Env. Reg., 533 So.2d
1260, 1266 (Fla. 1 DCA 1989), reh. den. Jan. 10, 1990; U.S. Shoe
Corp. v. Dept. of Prof. Reg., 578 So.2d 376, 379 (Fla. 1 DCA
1991).

Thus, in ascertaining the proper application or Rule 12A1.070(4)(b), F.A.C., to the instant case, the provisions of such
rule must be construed in pari materia together with the
provisions s. 212.031(1)(c), F.S. The provisions of Rule 12A1.070(4)(b), F.A.C., cannot be construed in such manner as to
conflict with s. 212.031(1)(c), F.S. Although an agency may by
rule interpret and administer statutory provisions, its rules
cannot enlarge, modify or contravene the provisions of a
statute. Department of Business Regulation v. Salvation Ltd.,
452 So.2d 65 (Fla. 1 DCA 1984); Department of Insurance v.
Insurance Services Offices, 434 So.2d 908 (Fla. 1 DCA 1983),
pet. denied, 444 So.2d 416 (Fla. 1984); Department of Health and
Rehabilitative Services v. McTigue, 387 So.2d 454 (Fla. 1 DCA
1980); 4245 Corp. v. Division of Beverage, 371 So.2d 1032 (Fla.
1 DCA 1978). Administrative agencies entrusted with authority
to carry out statutory provisions are prohibited from giving the
statute an amendatory construction. Florida Growers Coop.
Transport v. Department of Revenue, 273 So.2d 142 (Fla. 1 DCA
1973), cert. denied, 279 So.2d 33 (Fla. 1973). Contrary to the
above case law, the rule construction asserted by the Tenant,
that payment to the Landlord is the deciding factor as to the
application of tax, requires a construction of the term "rent"
narrower in scope than that afforded by the plain and ordinary
meaning of such word. Thus, such construction violates the
above noted rules of construction set out by Florida courts.

Additionally, the Tenant's preferred construction of the Rule,
which has the application of tax turn on whether or not an
amount is paid directly to the Landlord, seeks to exalt form
over substance. Florida courts have rejected the notion that a
taxpayer can exalt the form in which an agreement or transaction
is cast over its substance. The substance of an agreement or
transaction and not the form dictates its tax consequences. See

Dept. of Revenue v. Seaboard Coastline RR. Co., 480 So.2d 1349,
1353 (Fla. 1 DCA 1985), reh. den. Jan. 28, 1986, 492 So.2d 1331
(Fla. 1986), rev. den. June 13, 1986; Dept. of Revenue v.
Anheuser-Busch, 527 So.2d 877, 883 (Fla. 1 DCA 1988), reh. den.
Aug. 1, 1988. In substance, the Tenant must pay the property
taxes as a condition of occupancy of the premises. Failure to
do so results in default.

Lastly, the issue of taxability of property taxes as rent was
specifically addressed in the matter of Seaboard Coast Line
Railroad Company v. Askew, No. 72-15 (Fla. 2nd Cir. Ct. 1972).
In this case, the court held as follows:

"The consideration paid by the tenant for the privilege
conferred by the lease is rent.' Rent may be payable in cash, or in some commodity, or by rendering specified services. Rent may be payable directly to the lessor or to some other person/specified in the lease or directed by the lessor.... Section 212.031 imposes a tax uponthe total
rent charged' for the renting, leasing or letting' of real
estate.... While taxes are not specifically mentioned,
this language clearly indicates a legislative intent to tax
the full benefits flowing to the landlord for the use of
leased premises.... The payment of these taxes by the
lessee is the payment of money for account of the owner and
for his benefit.... A tax [sales tax] is imposed upon a
transaction and measured by the rent. In every rental
transaction the amount of taxes upon the rented property is
necessarily considered by the parities in determining the
rent to be charged and paid whether the taxes be paid by
the landlord from a fixed monthly or annual rental or paid
for the landlord by the tenant." (Emphasis Supplied)

CONCLUSIONS OF LAW

The facts and circumstances of the instant matter, as
represented by your petition, the Lease, and other supporting
documentation, clearly establish the contractual obligation of
the Tenant to pay the property taxes on behalf of the Landlord
on the demised premises as a condition of occupying the premises
for the Lease term. Further, the Lease establishes beyond

dispute that failure on the part of the Tenant to pay the
property taxes constitutes an act of default which the Landlord
at its discretion may view as cause to institute action to evict
the Tenant from the premises. Moreover, Tenant's strained
construction of the rule (12A-1.070(4)(b), F.A.C.), that the
application of sales tax to the property tax is somehow barred
under the circumstance where the Tenant pays the property tax
directly Tax Collector on behalf of the Landlord rather than to
the Landlord, violates and infringes on the established rules of
construction set out by Florida courts as discussed in the
foregoing analysis of law. Lastly, as held by the court in
Seaboard Coastline, supra, who the tenant pays the property
taxes to is not determinative as to whether such amounts
constitute taxable rental consideration.

Accordingly, we find that the Tenant's payment of property taxes
on the demised premises directly to the Tax Collector on behalf
of the Landlord pursuant to the terms and conditions embodied in
the Lease is subject to sales tax as a component, in the words
of Rule 12A-1.070(4)(b), F.A.C., of "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."

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,

Daniel M. Wagner, Jr.
Tax Law Specialist

DW/
Control No. 16036