How did Florida sales tax apply to a $1 monthly sublease, optional tenant improvements, and the authority's $1 annual head lease?

Plain-English summary

The tenant's $1 monthly rent was taxable, but its optional improvements were not additional rent.

At the then-current 6% state rate, each $1 monthly sublease payment produced 6 cents of tax. The lease let the tenant install and maintain additional heating or air conditioning at its own cost, but the Department found those improvements were optional, solely for the tenant's benefit, and not a condition whose breach would terminate the lease.

The authority's separate $1-per-year lease from the owner could be treated as a purchase for resale if the authority issued the owner a resale certificate.

What this means for you

Tenant-paid work was not treated as rent merely because it improved leased property. The obligation, benefit, and default terms mattered. The ruling also rejected the claimed Chapter 159 exemptions because section 212.08(13) superseded them for sales-tax purposes.

Common questions

Q: How much state tax applied to the $1 monthly rent?
A: Six cents under the 1995 rate used in the ruling.

Q: Were optional heating and air-conditioning improvements taxable as rent?
A: No, on these lease terms.

Q: Was the authority's $1 annual head-lease payment taxable?
A: The authority could issue a resale certificate so the owner treated that lease payment as tax exempt for resale.

Citations and references

• Fla. Stat. § 212.031(1)(c) — sales tax on real-property rent
• Fla. Stat. § 212.08(13) — sales-tax exemptions and superseded Chapter 159 provisions
• Fla. Stat. §§ 159.15, 159.31, and 159.50 — claimed development-related exemptions
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95A-008

Original ruling text

Mar 06, 1995

Re: TAA 95A-008
Real Property Lease Payment - Repair or Installation of
Fixtures
Sections 212.031(1)(c), 212.08(13), F.S.

Dear :

This is a response, styled a Technical Assistance Advisement, to
your letter dated January 5, 1995, in which you seek affirmation
of the Department's previous determination as to the taxability
of certain proposed payments to be made pursuant to a lease and
subsequent sublease of real property as expressed in a Letter of
Technical Advice dated December 16, 1994. The same facts are at
issue in both instances.

You ask whether sales tax is applicable to a lease of real
property, owned by XXX, to the XXX (herein Authority), which
then proposes to sublease the property to XXX (herein Tenant),
for, as you state on page 1 of your letter dated January 5,
1995, "...the purpose of providing [Tenant] with a temporary
facility until their permanent facility is constructed."

You provided the Department with copies of two documents: 1) a
lease (herein Lease) executed by Tenant, in which the lessor is
identified as Authority, and the lessee as Tenant, a subsidiary
of XXX, and 2) a copy of an executed contract styled Interlocal
Agreement Between XXX and [Authority] in which Authority is
obligated to pay $1 per year to XXX in exchange for the lease of
the property which, as described above, is to be subleased to
Tenant.

The property at issue is described as the "XXX," which is a part
of the XXX, containing 15,000 square feet. Included in the
demised property are 150 vehicle parking spaces for the
exclusive use of Tenant. The term of the lease is to commence
on March 1, 1995, and continue through the last day of February,
1996. Tenant, as lessee, by provisions in section 4. of the

Lease, is to pay $1 per month rent to Authority.

In your letter dated November 16, 1994, you also mention that
permanent improvements may be made by Tenant to the demised
property. Thus, the taxability of these optional real property
improvements is at issue.

You also refer to a previous telephone conversation by stating
that you were informed by the Department that s. 212.08(13),
F.S., supersedes the tax exemption provisions that are provided
in ss. 159.15, 159.31, and 159.50, F.S., relative both to the
issuance of revenue bonds, and to matters connected with
industrial development activities. Thus, it is your impression
that the tax exemption provisions in the cited sections of
Chapter 159, F.S., are not applicable to the levy of sales and
use tax as imposed by Part I, Chapter 212, Florida Statutes.

Department Response

Section 4. of the Lease requires the payment, by Tenant to
Authority, of $1 per month during the term of the contract.
Consequently, the extent of the state sales tax liability of
either Authority or Tenant, for each such month, is 6 cents,
which is derived by multiplying $1 times 6 percent. The tax is
imposed by s. 212.031(1)(c), Florida Statutes. As you are
aware, XXX has chosen not to levy a discretionary sales surtax.

As to the alteration or repair of the demised real property by
Tenant, Section 5.02(c) of the Lease states, in full, that
"[l]essee shall at its sole cost and expense, install and keep
in good order and repair, any additional air conditioning and
heating necessary for Lessee's operation."

The Department interprets this provision as not requiring Tenant
to make such improvements to the demised premises, and that any
improvements would be for the sole benefit of Tenant during the
term of the lease. The Department finds that this provision
would not, on the default of Tenant to make such alteration or
repair, terminate the contract. Thus, the amount, if any, paid
by Tenant in making such alteration or repair would not be
payment for the right to use or occupy the real property subject

to the Lease.

The Department next affirms its previous opinion that the tax
exemption provisions in ss. 159.15, 159.31, and 159.50, F.S.,
are superseded by s. 212.08(13), Florida Statutes. Thus, as
previously stated to you, these sections in Chapter 159, F.S.,
provide no shield from the imposition of sales tax on payments
made by Tenant for the use and occupancy of the real property
subject to the Lease.

In regards to the lease agreement between Authority and XXX, you
are informed that Authority should issue a resale certificate to
XXX. This resale certificate will immunize from sales tax the
lease payment of $1 per year required to be made by Authority to
XXX pursuant to the Interlocal Agreement executed by these two
entities.

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,

Robert G. Parsons
Tax Law Specialist

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