Did Florida's related-corporation lease rule exempt rent paid by a partnership to a trust whose owners partly overlapped?

Plain-English summary

The related-corporation rule did not exempt any part of the partnership's lease payments.

Two partners each held a 3% beneficial interest in the landlord trust, but the tenant was a partnership, not a corporation. The Department read Rule 12A-1.070(19)(c) strictly and limited it to related corporations. The full rent therefore remained taxable unless some other provision applied.

What this means for you

Common ownership and shared mortgage exposure were not enough to enter this exemption. Because the tenant failed the corporate-form requirement, the Department did not decide whether the parties were sufficiently related or equally liable on the debt.

Common questions

Q: Did partial common ownership qualify the lease for the rule?
A: No.

Q: Could the partnership rely on an earlier TAA that extended the rule to a limited partnership?
A: No. Section 213.22 denied that earlier advisement precedential value for anyone other than its recipient.

Q: Was any portion of the rent exempt under this rule?
A: No.

Citations and references

• Fla. Admin. Code r. 12A-1.070(19)(c) — related-corporation debt-payment rule
• Fla. Stat. § 213.22(1) — Technical Assistance Advisements lack third-party precedent
• Regal Kitchens, Inc. v. Florida Department of Revenue, 641 So.2d 158, 164 (Fla. 1DCA 1994)
• Bergh v. Department of Revenue, 15 FALR 5082 (Fla. Department of Revenue 1993), aff'd per curiam, 646 So.2d 204 (Fla. 4DCA 1994)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95A-009

Original ruling text

Title:

Real Property Lease Payments/Entities of Common
Ownership

Mar 15, 1995

Re: TAA 95A-009
Real property lease payments between entities which have a
degree of common ownership
Rule 12A-1.070(19)(c), F.A.C.

Dear :

This is a response, styled a Technical Assistance Advisement, to
your letter dated November 23, 1994, in which you ask whether
lease payments are subject to sales tax when made by a
partnership known as XXX (herein Partnership-Lessee), as lessee
of real property owned by a trust doing business under the name
XXX (herein Trust-Lessor), as lessor. Partnership-Lessee is
comprised of 2 individuals who each also hold a 3 percent
beneficiary interest in Trust-Lessor. You cite Rule 12A1.070(19)(c), F.A.C., as support for your argument that such
real property lease payments are not subject to sales tax by
stating that both partners are equally liable under the mortgage
because each partner not only guarantees his proportionate share
of the principal and interest, but that in the event of a
default of one of the other beneficiaries the "... remaining
beneficiaries would advance funds for those payments."

You frame your request for a Department response to these facts
by stating that with respect to lease payments made by
Partnership-Lessee, "[t]he lessees wish to determine whether the
exempt amount would be for their proportionate share of the
mortgage payments or, since they are liable to make up any
deficiencies by any other beneficiaries, whether this liability
extends to the entire mortgage due on the property. The lessees
further request a response as to whether the exempt amount
extends to both principal and interest payment."

You provided the Department with a copy of a contract which you

described as a "Proposed Lease" and a copy of an agreement which
you describe as an "original Trust Agreement which has not been
changed in any manner."

Department response

The Department finds that no portion of any lease payment made
by Partnership-Lessee to Trust-Lessor is exempt from sales tax
solely by operation of paragraph (19)(c) of Rule 12A-1.070,
Florida Administrative Code. This determination is bottomed on
the fact that Partnership-Lessee fails to meet the requirement
of paragraph (19)(c) of Rule 12A-1.070, F.A.C., that the lessee
and lessor must both have a corporate form. Partnership-Lessee
is not a corporation.

Thus, unless it is exempt, or not taxable under some other
provision of a statute, the entire payment made by PartnershipLessee to Trust-Lessor for the use and occupancy of the real
property described in the Proposed Lease is subject to tax.

The pertinent portion of paragraph (19)(c) reads as follows:

"However, such consideration is not rent but the payment of
a debt if the corporation furnishing the consideration is
as equally liable on the debt secured by the real property
as the related corporation."

You cite an earlier Technical Assistance Advisement (TAA 91A060) which extended the scope of the rule provision to include
related entities other than a corporation. In that
communication a limited partnership was considered within the
scope of the rule.

However, you are alerted that the provisions of s. 213.22(1),
F.S., deny precedential value to a Technical Assistance
Advisement to any person other the person to whom it was issued.
Further, in an appeal from a Declaratory Statement issued by the
Department which provided an interpretation of paragraph
(19)(c), the court in Regal Kitchens, Inc. v. Florida Department
of Revenue, 641 So.2d 158, 164 (Fla. 1DCA 1994), held that "[a]
tax exemption must be strictly construed against the party

claiming the exemption....If the exemption at issue is strictly
construed it must be limited to its terms and applied only to
related corporations. The Department has no duty, and arguable
no right, to extend the exemption beyond its terms so that it
applies to all related party leases." See, also Bergh v.
Department of Revenue, 15 FALR 5082 (Fla. Department of Revenue
1993), aff'd per curiam, 646 So.2d 204 (Fla. 4DCA 1994).

Consequently, Partnership-Lessee cannot claim refuge within the
exemption expressed in paragraph (19)(c) of Rule 12A-1.070,
Florida Administrative Code. Since the exemption is denied to
Partnership-Lessee because it is not a corporation, there is no
need to discuss whether the Partnership-Lessee may be "related"
or whether the Partnership-Lessee may be "...equally liable on
the debt..." as also required by the rule provision.

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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