Was the electricity portion of a shopping-center common-area maintenance charge taxable when the landlord separately identified actual utility cost?

Plain-English summary

Florida treated the separately identified common-area electricity pass-through as nontaxable, provided the landlord had paid sales tax to the utility and charged the tenant no more than its cost.

The tenant paid a percentage of shopping-center common-area costs as additional rent. Electricity was included in monthly estimated CAM payments and then separately shown as a line item in the detailed year-end reconciliation.

Although CAM and utility payments to a landlord are generally taxable rent, the Department applied the rule for electricity already taxed when purchased by the landlord. Separate year-end identification and reconciliation to actual cost preserved the exemption. Any markup, including an administrative charge, was taxable as rent and subject to the cited gross receipts tax.

What this means for you

• The landlord had to pay sales tax to the utility provider first.
• The electricity amount had to be separately identified and passed through at cost or less.
• Estimated monthly billing followed by an actual-cost reconciliation was acceptable.
• Markups and administrative charges were taxable.

Common questions

Q: Was the electricity portion of CAM taxable?
A: No, under the stated pass-through conditions.

Q: Did estimated monthly CAM billing prevent the exemption?
A: No, because the lease reconciled the estimate to actual year-end cost.

Q: Was a markup taxable?
A: Yes, as rent and under the cited gross receipts tax provision.

Citations and references

• Fla. Stat. § 212.031(1)(a), (c), (d) — commercial real-property rentals
• Fla. Admin. Code r. 12A-1.070(4) — rent, CAM, and utility charges
• Fla. Stat. § 203.01 — gross receipts tax
• Omni International of Miami, Ltd. v. Department of Banking and Finance, 444 So. 2d 540 (Fla. 3d DCA 1984)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-030

Original ruling text

Apr 29, 1996

Re: Technical Assistance Advisement 96A-030
Sales and Use Tax - Common Area Maintenance Charge Which
Includes Electricity For Common Areas
s. 212.031(1)(a)(c), F.S. and Rule 12A-1.070(4), F.A.C.
Parties: XXXX (herein the "Taxpayer or Landlord")
XXXX (Herein the "Tenant")

Dear :

This response is in reply to your December 18, 1995, 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 party. 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

The copy of the lease (the "Lease") executed by and between the
Landlord and Tenant submitted in support of your petition has
been carefully examined. We consult the following relevant
portions of Article VI of the Lease in addressing the issue
under advisement herein:

... Tenant agrees to pay to Landlord as Tenant's agreedupon share of the reasonable cost of maintaining parking
facilities and other common areas of the shopping center...
during the term hereof an annual charge, as additional
rent, equal to twenty-three and 07/100 percent (23.07%)
("Tenant's CAM Percentage") of such costs....
... [T]he foregoing charges shall be based upon Landlord's
actual charges for the most recent calendar year for which
such charges have been determined, exclusive of any
extraordinary charges applicable to such calendar year.

The foregoing charges shall be payable monthly together
with minimum rent and shall be recapturable out of
percentage rent, as provided in Section 5 of ARTICLE IV of
this lease.
Within Ninety (90) days after the end of each calendar year
during the term hereof, Landlord shall furnish to Tenant a
statement in reasonable detail setting forth the
computation of the foregoing total costs and expenses, and
setting forth Tenant's share thereof. Upon the request of
Tenant, Landlord shall also furnish to Tenant with its
statement back-up invoices, receipts and such other data as
shall be necessary in order for Tenant to verify the amount
of such costs and expenses. Tenant shall, within thirty
(30) days after receipt of Landlord's statement, pay to
Landlord or Landlord shall reimburse Tenant, as applicable,
the amount of any adjustment, to the end that Landlord
shall be entitled to receive Tenant's said share and no
more. A fair and equitable adjustment shall be made with
respect to any such payments due from Tenant to Landlord in
connection with the last period of the term of this lease,
since the same may not coincide with the payment periods
involved.

Included in the cost of maintaining the common area is
electricity for such area. A copy of the year-end statement for
the year ended December 31, 1995, detailing the component costs
of the total CAM costs, was also submitted for examination. The
statement contains a line item for the electric utility costs
which for 1995 totaled $6,868.00.

REQUESTED ADVISEMENT

You request that the Department rule on the issue of whether the
pass through of electric utility costs as part of the CAM charge
to the Tenant under the Lease is subject to sales or use tax.

DISCUSSION OF LAW

Section 212.031, F.S., provides in relevant part the following:

(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. (Emphasis Supplied)

Additionally, Rule 12A-1.070, F.A.C., provides in relevant part
the following:

(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.
(c) Ad valorem taxes paid by the tenant or other person
actually occupying, using, or entitled to use any real
property to the lessor or any other person on behalf of the
lessor, including transactions between affiliated entities,
are taxable.
(d) Common area maintenance charges paid by a tenant to the
lessor for the privilege or right to use or occupy real
property are taxable.
(e) Utility charges paid by a tenant to the lessor for the
privilege or right to use or occupy real property are
taxable, unless the lessor has paid the sales tax to the
utility company on such utilities consumed by the tenant,

and the utilities billed by the lessor to the tenant are
separately stated on the lessor's invoice to the tenant at
the same or lower price as that billed by the utility
company to the lessor.... (Emphasis Supplied)

Relevant to this issue is the decision rendered in Omni
International of Miami, Ltd. v. Department of Banking and
Finance, 444 So.2d 540 (Fla. 3 DCA 1984). The court in Omni
considered a fact pattern wherein:

[The lessor] had twice paid sales taxes on the consumption
by its tenants of electricity received through a single
master meter; first, when it itself paid those amounts
after being billed by the power company, and again when it
transmitted the same taxes after being reimbursed by the
tenants.

The court affirmed the hearing officer's findings that the
landlord did not collect double tax from its tenants, but rather
had twice paid sales taxes on consumption by its tenants of
electricity passed through a single master meter.

In application of the Omni decision, the Department takes the
position, in the instance where commercial premises are served
by a single or master meter and the proportionate cost of the
electricity paid by the lessor, and upon which the lessor has
paid sales tax, is passed through to a tenant, and the lessor is
simply reimbursed by the tenant for its actual electrical
consumption, that such electricity billed the tenant is not a
taxable element of the payment for renting, leasing, letting, or
granting a license to use real property. Thus, in such
instance, the electricity costs borne by the tenant shall not be
included within the taxable total rent or license fee charged
for the occupancy or use of real property as provided in s.
212.031(1)(c), Florida Statutes. This position will be held
irrespective whether the lease or license agreement designates
such proportionate electricity costs billed the tenant as part
of the rent or license fee.

However, in practical application of the Omni decision, the
Department has held by rule (12A-1.070(4)(e), F.A.C., above) and

policy that in order for the pass through charge from the
landlord to tenant for electricity on which the Landlord has
already paid tax to be exempt, such charges must be separately
stated at the same or lower price as that billed by the utility
company to the landlord by way of invoice or within the lease or
both. Where there is a mark up of the electricity pass-through
charge, the marked-up portion is subject to sales tax and gross
receipts tax.

CONCLUSIONS OF LAW

With regard to the portion of the CAM charge attributable to the
Landlord's pass through of electric utility costs for the common
areas, we find that such portion of the CAM charge does come
within the scope of the Omni decision, supra, and Rule 12A1.070(4)(e), F.A.C., provided that the Landlord has paid sales
tax to the utility provider on the electricity. This is due to
the fact that, pursuant to Article VI, Section 4., of the Lease,
the Landlord provides the Tenant a year end statement which
details the various cost components of the CAM charge and which
specifically breaks out as a line item the portion of the CAM
charge resulting from electric utility costs incurred by the
Landlord. We do not consider the procedure and methodology
embodied in the Lease, whereby the CAM charge (including
electric utilities for common areas) is paid by the Tenant to
the Landlord in monthly installments based on the prior calendar
year's cost as an estimate and reconciled at year end based on
actual cost, to taint or compromise the nontaxable nature of the
portion of the CAM charge attributable to the pass through of
the Landlord's cost for electric utilities.

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 Tenant in excess of the
Landlord'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.

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
Tax Policy and Dispute Resolution

DW/
Control No. 24263