Which shopping-mall operating-cost pass-throughs and parking charges were taxable as Florida rent or parking, and how did the mall have to state tax?

Plain-English summary

Mandatory operating-cost pass-throughs were generally taxable as commercial rent, with a narrow exception for the landlord's actual electricity cost.

When the landlord separately billed a tenant only its proportionate actual electricity cost and had already paid sales tax to the utility, the reimbursement was not taxable rent even if the lease called it rent. Any electricity markup or administrative charge was taxable rent, and the ruling also subjected the markup to the stated gross receipts tax.

Other recurring operating expenses required as a condition of occupancy were taxable as rent, whether or not the landlord had paid sales tax when first purchasing them.

For parking, the fixed self-parking charge was taxable. An optional $2 valet service was nontaxable when separately itemized from the $1 parking-space rental and the customer could choose self-parking. At the stated 6.5% combined rate, the $1 tax-included price had to be shown as 93 cents parking rent and 7 cents tax, not 93.5 cents and 6.5 cents. Monthly liability had to be calculated from the actual number of parking transactions rather than by dividing aggregate receipts.

What this means for you

The ruling distinguished reimbursement of an already-taxed utility from other lease consideration and from a markup on that utility. It also required tax-included parking prices to follow the Department's bracket calculation and required optional services to be genuinely separable.

Common questions

Q: Was an actual electricity reimbursement taxable rent?
A: No, if separately billed at cost after the landlord paid the applicable sales tax.

Q: Was an electricity markup taxable?
A: Yes. The markup or administrative charge was taxable as rent and also subject to the stated gross receipts tax.

Q: Were other operating-cost pass-throughs taxable?
A: Yes when they were mandatory consideration for occupancy.

Q: Was the valet charge taxable?
A: No, if separately stated as an optional service while the parking-space rental remained taxable.

Q: How did the mall state a $1 tax-included parking charge?
A: As 93 cents rent and 7 cents tax under the stated rate and bracket.

Citations and references

• Fla. Stat. §§ 212.031, 212.05, 212.02 — commercial rent and sales tax
• Fla. Admin. Code rr. 12A-1.070, 12A-1.073, 12A-1.086, 12A-1.004 — rent, utilities, and tax statements
• Fla. Stat. § 203.01 — gross receipts tax on electricity markup
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95A-039

Original ruling text

Aug 10, 1995

Re: Technical Assistance Advisement 95A-039
Sales and Use Tax - Real Property Leases: Pass Through of
Operational Expenses
Statutes: 212.031, 212.05, 212.02, F.S.
Rules: 12A-1.070, 12A-1.073, 12A-1.086, 12A-1.004, F.A.C.
Petitioner: XXXX (herein "Taxpayer")
FEI: XXXX

Dear:

This is a response to your petition received June 15, 1995,
for the Department's issuance of a Technical Assistance
Advisement ("TAA") concerning the above referenced party and
matter. Your petition has been carefully examined and the
Department finds it to be in compliance with the requisite
criteria set forth in Chapter 12-11, F.A.C. This response to
your request constitutes a TAA and is issued to you under the
authority of s. 213.22, F.S.

DISCUSSION OF FACTS

You provided the Department with a lease agreement, parking
management agreement, and a closing agreement. This information
imparts the following discussion concerning the matter under
advisement:

[Taxpayer] is a Florida general partnership which owns and
operates a XXXX (hereafter "Mall"). The Taxpayer leases
spaces to tenants of the Mall pursuant to written lease
agreements. Said lease agreements, in addition to charging
a base rent, also pass through a pro rata share of certain
operational expenses, including but not limited to, common
area operational expenses, real estate taxes and insurance
premiums. The leases uniformly provide that all amounts
payable under the lease agreement, including pass through
operational expenses, are considered rent.

The Taxpayer passes through common area electricity costs
to tenants as a separately stated charge on monthly
billings. The common area electricity is separately metered
in the name of the Taxpayer. The Taxpayer pays the
electricity bill, including applicable sales tax, and
subsequently passes through the expense to the tenants of
the Mall.

In addition to leasing space to tenants, Taxpayer also has
a parking garage in the Mall whereby the general public can
self park at a fixed rate of $1.00. The signs at the Mall
and the receipts given those parking separately state the
$1.00 charge is 93.5 cents for parking space rental and 6.5
cent sales tax.

Valet parking by attendants is offered at the Mall to take
the car from the vehicle owner at a convenient location and
park the car within the Mall parking areas and then return
the car to the owner for a charge of $3.00. The signs and
the receipts separately state the $1.00 charge for rent,
the tax on $1.00, and the $2.00 charge on which no tax is
being charged.

The Taxpayer does not operate the parking garage or provide
the valet parking services at the Mall. The Taxpayer has
entered into a written agreement with XXXX, an independent
contractor (hereafter operator) to operate the parking
garage, provide valet services, collect the revenues, and
remit the proceeds to the Taxpayer. The Taxpayer pays the
operator a fee for the services provided, including but not
limited to, valet parking services.

REQUESTED ADVISEMENT

Your petition poses several questions in regard to the
above facts. I will restate your questions and follow with the
Department's position, which is predicated on the Florida
Statutes (F.S.) and the Florida Administrative Code (F.A.C.).

DISCUSSION, ANALYSIS AND CONCLUSION OF LAW

Question #1:

Are separately metered electricity charges which are paid
by the Taxpayer, including applicable sales and/or use tax
and passed through and separately stated on bills to the
tenants, subject to additional Florida sales and/or use tax
to be collected and remitted by the Taxpayer?

Response

In consideration of the Omni International of Miami, LTD.
v. Department of Banking and Finance. [444 So.2d 540, 1984
Fla. 3 DCA 225] decision, it is the Department's position
that, in the instance where the proportionate cost of the
electricity paid by the Taxpayer, and upon which the
Taxpayer has paid sales tax, is passed through to a tenant,
and the Taxpayer is simply reimbursed by the tenant for its
actual electrical consumption, such electricity billed the
tenant is not a taxable element of the payment for renting,
leasing, letting, or granting a license to use space in the
Mall. This position will be held irrespective of whether
the lease or license agreement designates such
proportionate electricity costs billed the tenant as part
of the rent or license fee. However, you are alerted to the
fact that in the event the electric utilities are marked up
on the pass through, then the residual amount of charge to
the tenants in excess of the Taxpayer's cost for such
electric utilities is subject to tax as rent. This includes
any amount designated as an administrative charge on the
pass through of the electric utilities. Moreover, the
amount of any mark up of the electric utilities would also
be subject to gross receipts tax at the rate of 2.5%
pursuant to s. 203.01, F.S.

Question #2:

Are recurring operational expenses, other than the
separately metered electricity charges, paid by the
Taxpayer, including applicable sales and/or use tax
thereon, and which is passed through and separately stated

on bills to tenants, subject to additional Florida sales
and/or use tax to be collected and remitted by Taxpayer?

Response

Section 212.031(1), 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...

"(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."

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

"(b) The tax shall be paid at the rate of 5 percent prior
to February 1, 1988, and 6 percent on or after February 1,
1988, 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."

The Department has not adopted a position of expanding the
scope of the Omni decision to embrace any other pass through

charges such as common area maintenance, insurance, etc. In
short, the scope of Omni has been confined to the single issue,
sales tax on the pass through of utilities (previously taxed).
Therefore, the various other pass through charges which are
denominated by the Lease as "rent", the nonpayment of which
constitutes a default under the terms and conditions of the
Lease, are taxable as mandatory rental consideration payable as
a condition of occupying the premises.

Section 212.031(1)(c), F.S., requires sales tax to be
imposed on the "... total rent... charged for such real property
by the person charging or collecting the rental... fee." This
statute is interpreted specifically in paragraph (4)(b) in Rule
12A-1.070, F.A.C. The rule provides that tax is due "... on all
considerations due and payable from the tenant...." Thus, sales
tax should be imposed on the "total rent" including any
recurring operational expenses, other than electricity charges,
if these expenses are mandatory rental consideration payable as
a condition of occupancy. This holds true whether the expenses
when first paid by Taxpayer were subject to Florida sales tax or
not.

In interpreting the provisions of s. 212.031(1)(d), F.S.,
which allows the payment of rent in forms other than cash, the
court in Seaboard Coast Line Railroad Company v. Reubin O'D.
Askew, Case Number 72-15 (Fla. Second Judicial Circuit 1972),
stated that "[w]hile 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 the leased
premises." See, also Attorney General Opinion 070-151.

It is clear in the instant situation that the operating
expenses are a factor in the computation of the consideration
required for the lease and are determinative of the
profitability of the property to the taxpayer.

Question #3:

Are recurring operational expenses which are not subject to
sales and/or use taxes and which are paid by the Taxpayer
and which are passed through and separately stated on bills

to tenants, subject to Florida sales and/or use tax to be
collected and remitted by Taxpayer?

Response

See the answer to Question #2. The lease provides that all
amounts payable under the lease agreement, including pass
through operational expenses, are considered rent.
Therefore, all operational expenses, whether subject to tax
or not when first paid by Taxpayer, are denominated as
rental consideration and are subject to tax under Section
212.031, F.S.

Question #4:

Must the Taxpayer separately state and separate on bills to
tenants the costs not subject to sales and/or use tax and
the costs which are subject to sales and/or use taxes?

Response

Given the facts presented, electricity, if separately
billed or invoiced to the tenant, is not subject to tax,
even if designated as additional rent. This is the
Department's position as long as the Taxpayer simply passes
through to his tenants the electricity charges previously
paid to the power company on which Taxpayer has paid the
applicable sales tax.

Question #5:

Are the Taxpayer's signs and receipts in compliance with
Rule 12A-1.08[6]?

Response

Rule 12A-1.086, F.A.C., provides:

"A person engaged in any business taxable under Chapter
212, Part I, F.S., shall not advertise or hold out to the
public in any manner, directly or indirectly, that he will

absorb all or any part of the tax, or that he will relieve
the purchaser of the payment of all or any part of the tax,
or that, when added to the selling price, the tax or any
part thereof will be refunded either directly or indirectly
by any method whatsoever. The tax shall be added to the
sales price or rental and the amount of the tax shall be
separately stated as Florida tax on any charge tickets,
sales slips, invoices or other tangible evidence of sale or
rental, and shall be a debt from the purchaser or consumer
or lessee to the dealer or lessor until paid."

The Taxpayer's signs and receipts are in compliance with
Rule 12A-1.086, F.A.C.

Question #6:

Is the Taxpayer's allocating 6.5 cents to tax and 93.5
cents to rental of a total charge of $1.00 a sufficient
allocation, since an exact allocation would result in
93.8967136 cents rental and 6.1032864 cents tax?

Response

The taxpayer is operating a business in XXX. Currently,
the tax rate in XXX. The state tax rate is 6% and the
discretionary sales surtax rate for XXX is .5%. The
correct allocation for XXX is 7 cents to tax and 93 cents
to rental for a total charge of $1.00. You compute this by
dividing $1.00 by 1.065 to get the rental amount of 93
cents. The actual division results in a taxable amount of
.938967. However, when you consult Form DR-28, Sales Tax
Brackets on All 6 1/2% Taxable Transactions, the "Amount of
Sale" range is from .93 - 1.07 and the associated "Tax" for
this range is .07. To be mathematically correct using all
of the available information, the tax due should be 7 cents
and the taxable amount should be 93 cents.

Please note that to compute the monthly sales tax due on
receipts for parking, the Taxpayer must not divide the
total receipts received for the month by 1.065. The
Taxpayer must maintain records which indicate the actual

number of parking sales made. For example, if the taxpayer
has parking receipts for 50 parking sales, he should not
compute tax by dividing the total receipts ($50.00) by
1.065, because he would incorrectly remit tax of $3.05.
Instead, he should have records which would indicate that
50 parking receipts were issued. Based on this number, he
would compute the tax due by multiplying 50 times .07 (the
tax amount per parking rental sold, which is posted on the
sign and receipts) to get the total tax due of $3.50.

Question #7:

Is the $2.00 charge for the service of parking a patron's
car and retrieving same, subject to Florida sales and/or
use tax to be collected and remitted by the Taxpayer?

Response

As long as the total $3.00 charge is itemized to reflect a
$1.00 charge for parking and a $2.00 charge for valet
service, the $2.00 charge is not taxable. If the car owner
can retrieve his own car, the $1.00 is taxable. If the car
owner can elect to pay $2.00 for the valet service, then
this is a service and is not taxable.

Question #8:

Must the Taxpayer separately state on signs and/or receipts
the $2.00 charge for valet service, the 93.5 cent charge
for parking space rental and the 6.5 cent charge for tax on
the parking space rental?

Response

Yes, the Taxpayer must state on signs and/or receipts the
$2.00 charge for valet service, 93 cents for parking space
rental and 7 cents for tax on the parking space rental.

Question #9:

Are the Taxpayer's signs and receipts in compliance with

Rule 12A-1.008?

Response

The signs and receipts should reflect a total charge of
$3.00. The rental charge amount should be 93 cents, the tax
should be 7 cents, and the valet parking amount should be
$2.00, for a total of $3.00, to be in compliance with Rule
12A-1.086, F.A.C.

For your information and reference, I have enclosed copies
of all cites made in the body of this letter from the
Florida Statutes and the Florida Administrative Code. I
have also enclosed Attorney General Opinion 070-151 and
bracket cards for transactions ranging from 6% to 8%.

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 upon 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 from that
which is 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 that 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 this response.

Sincerely,

Leigh C. Lindsay

Technical Assistant

Enclosures
Control #21849