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