Could an executive-suite operator give its landlord a resale certificate and collect Florida sales tax only from subtenants when it subleased nearly all the office space?

Plain-English summary

Florida sales tax was due only once on the office-space rental chain.

Because the executive-suite operator subleased the majority of the leased property, it could give the prime landlord a resale certificate instead of paying tax on the prime lease. The operator then had to collect and remit tax on its tenants' rental charges and pay use tax on the office it kept for itself.

Optional services such as secretarial and typing work were not taxable as rental income when tenants were not required to buy them and the charges were separately stated. Copying services were taxable as a separate transaction.

For previously overpaid tax, the operator had to obtain a refund from the landlord rather than directly from the Department. After refunding the operator, the landlord could claim a credit or seek its own refund. The ruling cited a three-year limitations period for taxes paid in error.

What this means for you

The no-pyramiding treatment depended on subleasing nearly all the premises and properly documenting the resale arrangement. Retained space remained taxable to the operator, and optional-service treatment depended on separate charges and genuine customer choice.

Common questions

Q: Could the operator stop paying tax to the prime landlord?
A: Yes. It could provide a resale certificate because it subleased most of the premises.

Q: Who collected tax from the office users?
A: The executive-suite operator collected tax from its individual tenants.

Q: Was the operator's own office tax-free?
A: No. The operator had to pay use tax on the rental charge attributable to that retained office.

Q: Were support services taxable as rent?
A: Optional, separately stated services were not rental income, but copying services were taxable separately.

Q: Could the operator request its overpayment directly from the Department?
A: No. It first had to secure the refund from the landlord that collected the tax.

Citations and references

• Fla. Stat. § 212.031(1)(a) and (2)(b) — tax on real-property rentals and no pyramiding
• Fla. Stat. § 212.12(12) — end-consumer and no-duplication rule
• Fla. Stat. § 215.26 — three-year refund limitation cited in the ruling
• Fla. Admin. Code r. 12A-1.070(4), (8), and (9) — rent tax, sublease credit, and resale election
• Fla. Admin. Code r. 12A-1.014(7) — refund from dealer
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95A-030

Original ruling text

Jul 21, 1995

Re: TAA 95A-030
Sales Tax
Real Property Lease and Subleases
s. 212.031, Florida Statutes

Dear :

This is in response to your letter dated April 27, 1995, in
which you request, on behalf of your client, XXXX (hereinafter
"Lessee"), the issuance of a Technical Assistance Advisement
concerning the taxability of a real property lease and
subleases. On April 12, 1995, a Letter of Technical Advice was
issued regarding the same issue.

Your letter of April 27, 1995, provides, in part, the
following information:

"1. This transaction is between [Lessee], XXXX (hereinafter
"Lessor"), XXXX, and numerous sub-tenants.

"2. [Lessee] leases XXXX square feet of office space from
[Lessor]. [Lessee] is in the business of providing
individual offices, more commonly referred to as `executive
suites', to corporations or individuals seeking to have an
office with common services provided.

"3. The office space is divided into 72 individual offices,
primarily consisting of 1 room offices with sizes of
approximately 120-150 square feet each, with the balance of
the total area consisting of common areas and a conference
room. [Lessee] maintains one office for [its] own use of
120 square feet. The remaining offices are rented to third
parties.

"4. Since the inception of the [Lessor]/[Lessee] lease on
02/01/93, [Lessee] has paid sales tax to [Lessor] on the

lease amount. [Lessee] has also imposed the sales tax on
its own tenants based on the amounts charged the individual
tenants. The individual tenant charges for use of the
space are considerably higher than the base rent [Lessee]
pays to [Lessor].

"5. The individual tenants of [Lessee] pay a `Base Charge'
monthly for the use of the space. Additionally, each
tenant may be invoiced for other services provided,
including secretarial, typing, copying, etc. However, the
tenants are not obligated to use these services and these
charges are incurred separate and apart from the charges
for the space. Some tenants use the other services
extensively, others not at all.

"6. Fl. Statutes 212.031(1)(a) and (2)(b) provide for the
taxation but not the duplication or pyramiding of the tax
on the use of the real property. This request is for a
determination that under these specific facts and
circumstances, that only one tax is due. Reference is also
made to Rule 12A-1.071 (8) & (9) of the F.A.C.

"7. The tax due should be the tax collected by [Lessee]
from [its] tenants. This tax is currently being collected
and paid monthly.

"8. [Lessee], by virtue of [its] operation as a `retailer'
of office space, should not pay sales tax on [its] lease
with [Lessor]. A resale certificate should be given to
[Lessor] by [Lessee] to exclude future payments and a
refund sought for the period since the inception of the
lease to the current period. This refund would be in
accordance with Rule 12A-1.014(7) F.A.C....

"Enclosed with this request are copies of the [Lessor]/
[Lessee] primary lease, which reflects the assessment of
sales taxes, and a copy of a sub-lease with a tenant of
[Lessee] for use of a portion of the same space. As stated
above, at any given time 65-70 of these agreements are in
place with numerous tenants, but all use the same form.
Tenants are not allowed to vary the basic terms. The sub-

leases are titled `Office Services Agreements' solely
because the agreement does cover items other than the use
and occupancy of the real property. Also, the tenants do
not have the right to any of these services except at these
premises and have the right to occupy only designated
individual offices."

Relevant Authority

Section 212.031(1)(a), F.S., provides in part:

"(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...."

Section 212.031(2)(b), F.S., provides:

"(b) It is the further intent of this Legislature that only
one tax be collected on the rental or license fee payable
for the occupancy or use of any such property, that the tax
so collected shall not be pyramided by a progression of
transactions, and that the amount of the tax due the state
shall not be decreased by any such progression of
transactions."
Section 212.12(12), F.S., states:

"(12) It is hereby declared to be the legislative intent
that, whenever in the construction, administration, or
enforcement of this chapter there may be any question
respecting a duplication of the tax, the end consumer, or
last retail sale, be the sale intended to be taxed and
insofar as may be practicable there be no duplication or
pyramiding of the tax."

Rule 12A-1.070(4), F.A.C., provides in part:

"(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...."

Rule 12A-1.070(8),(9), F.A.C., provides:

"(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 square footage or some other basis acceptable
to the Executive Director or... designee in the responsible
division. For example, A' leases 200 square feet of floor space for $400 and pays his landlord $24 rental tax.A'
subleases 100 square feet, or one half, of the space to B' for $300 and collects $18 tax which he remits to the State, less a credit of $12 for tax that he paid to his landlord on the space that he subleased toB.' (One half of $400 is
$200 and 6 percent of this amount is $12.)

"(9) If a tenant or other person sublets or assigns his
interest in all of the leased or licensed premises, or
retains only an incidental portion of the entire premises,
then such tenant or other person may elect not to pay tax
on the prime lease or license, provided that such tenant or
other person shall register as a dealer and collect and
remit tax due on the sub-rentals or assignments and pay the
tax due on the portion of the rental charges or license
fees pertaining to any taxable space which he retains. If
the tenant or licensee elects not to pay the tax to his
landlord, or other person granting the right to occupy or
use such real property, he should extend to his landlord or
such other person a resale certificate."

Response

Based on the above statutory and regulatory authority, tax
is due only once on the lease of the office space. In the
instant case, where the majority of the leased property is
subleased, your client should extend a resale certificate to the
prime lessor (owner) of the buildings and then collect tax from
the individual tenants. Your client (sublessor) is required to
pay tax on the rental office which it uses in the form of a use
tax.

In accordance with Rule 12A-1.070(4)(b), F.A.C., sales tax
is due on the total consideration paid for the right to occupy
or use real property. If, as presented in your letter, the
services offered by your client to its tenants are an option to
the tenants and the charges are separately stated, the services
would not be taxable as rental income. (You should note,
however, that the charge for copying services is taxable as a
separate transaction.)

Rule 12A-1.014(7), Florida Administrative Code, states:

"A taxpayer who has overpaid tax to a dealer, or who has
paid tax to a dealer when no tax is due, must secure a
refund of the tax from the dealer and not from the
Department of Revenue."

Once the tax has been refunded to your client, the prime
lessor would then be allowed to claim a credit on a subsequent
sales and use tax return or apply for a refund directly from the
department.

Section 215.26, F.S., provides a three year statute of
limitations for obtaining a refund of taxes paid in error.

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,

Bonnie Everton
Technical Assistant
/e
Cont. #21988