How much of a marina's $20,000 monthly master-lease payment was taxable when parts of the property were subleased or used for separately taxed boat storage?

Plain-English summary

Florida calculated $165.11 in monthly tax on the marina's $20,000 master-lease payment, rather than the marina's proposed $27.12.

The marina leased 4.53 acres containing boat-storage buildings and racks, a subleased repair-business area, office and retail space, ramps, decks, parking, landscaping, water and docks, and undeveloped mangrove land. It already collected tax on customer boat-storage charges and on its sublease.

The Department corrected the total leased area to 197,326 square feet. It treated the 21,780 square feet of undeveloped mangrove land as taxable because no statute exempted unused leased land. Eleven percent of the $20,000 rent, or $2,200, was allocated there, producing $132 of tax at the ruling's six-percent rate.

Of the remaining $17,800, the Department allocated 3.1 percent, or $551.80, to the marina's own office, restroom, and retail use. That produced another $33.11. The total was $165.11.

Areas subleased or used for boat storage were not taxed again under the master lease because Florida law intended only one tax on the property use. Ramps, decks, parking, landscaping, underwater access, and docks were treated as part of the marina operation rather than ignored.

What this means for you

• A mixed-use master lease required a supported allocation among taxable own-use, subleased, and separately taxed storage areas.
• Undeveloped land remained part of the taxable lease payment because there was no unused-land exemption.
• The Department used the property's actual acreage and its own corrected square-foot allocations rather than the taxpayer's calculation.

Common questions

Q: Why were boat-storage and subleased areas excluded from the master-lease tax? A: They were already subject to tax through the storage charges or sublease, and the statute barred pyramiding the same rental tax.

Q: Was the mangrove area exempt because it was undeveloped? A: No.

Q: What monthly tax did the Department calculate? A: $165.11 on the stated $20,000 monthly lease payment under the historical six-percent rate used in the ruling.

Citations and references

• Fla. Stat. § 212.02(10)(h) — real property definition
• Fla. Stat. § 212.03(6) — tax on boat storage at marinas
• Fla. Stat. § 212.031(1)(a), (b), (c), (2)(b) — real-property lease tax, allocation, and anti-pyramiding rule
• Fla. Admin. Code r. 12A-1.070 — real property rentals and licenses
• Fla. Admin. Code r. 12A-1.073 — parking, docking, and storage spaces
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-044

Original ruling text

Aug 12, 1996

Re: TAA 96A-044
Allocation of Real Property Lease Payment Sections 212.02(10)(h), 212.03(6), 212.031(1)(a), (1)(a)3., (1)(b), and (2)(b), F.S. Rules 12A-1.070, 12A-1.073, F.A.C.

Dear:

This is a response, styled a Technical Assistance Advisement, to your brief letter dated December 5, 1995, referring to and providing a copy of an earlier, more detailed, letter you sent to the Department dated June 30, 1995. The Department has no record of the receipt of the June 30, 1995 letter. In both pieces of correspondence you seek the Department's determination as to the imposition of sales or use taxes on payments made in exchange for various uses of real property.

In the June 30, 1995 letter you describe the real property as comprising approximately 4.53 acres of land, the owner and lessor of which is XXX (herein Lessor), which is leased to XXX (herein Taxpayer), on which Taxpayer operates, as you describe on the first page of your letter, a "... dry storage marina...." Taxpayer also maintains an office, and operates a small retail store from premises located on the property.

You provided the Department with a copy of the lease between Lessor and Taxpayer which contract is styled Lease Agreement, executed on April 26, 1984, and requires from the Taxpayer a monthly lease payment of $20,000. You also attached to the lease a copy of the boundary survey which depicts the property under lease and the uses to which the property is put.

You state, as also noted in more detail in several following paragraphs of this letter, that in the operation of the marina Taxpayer rents space to customers for the storage of their boats in what you describe as a "primary" building, as well as in "outside storage racks" which are separate from the "primary"

building.

You also provide the information that Taxpayer subleases "... approximately 7,000 square feet of land... to a boat and motor repair business known as XXX [herein Tenant], which is independently owned and operated by a business entity not related to the Taxpayer."

As to the sales tax imposed on such boat storage space, you state that Taxpayer collects and remits the applicable sales tax as imposed by s. 212.03(6), F.S., "... on the leases applicable to its boat storage rental spaces plus the sales tax... on retail sales by the Taxpayer of miscellaneous marina related supplies and equipment."

As to the sublease of space to Tenant, you assure the Department that Taxpayer reports and remits "... the appropriate sale
[sic]/use tax applicable under Section 212.031, F.S., to this rental income from said sublease."

In describing all the land and its uses in more detail, which is leased to Taxpayer by Lessor, you provide the following description:

The primary structure located upon the premises... consists of a 100 ft. x 300 ft. four story in/out dry storage marina facility plus a small enclosed area approximately 30 ft. x 50 ft. attached thereto containing men and women's restrooms plus a small ships' store and office space. A portion of the remaining land included in the Lease, approximately .50 acres, is occupied by mangrove trees; 1.43 acres of the total area cover [sic] by the Lease is under water with portions thereof containing rock ric-rap, piers and four wooden docks used by the Taxpayer's marina storage customers; additionally 4,500 square feet is occupied by outside storage racks which are also rented by the Taxpayer to its customers."

You add that, "[t]he remaining land of approximately 1.61629 acres or 70,257 square feet of land under said Lease is principally occupied with asphalt and concrete ramp and deck

space...; paved parking lot[s]...; small landscaped areas...; and other uses related to the Taxpayer's in/out dry storage business."

You state that the area leased by Taxpayer from Lessor, including the principal structure plus the land, "... represents a total of 287,327 square feet of rented space." Then you assert that, "... at the most 75 percent of the 1,500 square feet of office/ships store/restroom space is used for the carrying on activities which are not totally in/out storage space rental in nature." You add that "... an estimated 5,000 square feet of land has, from time to time been used for the boat and motor sales activity which has occurred periodically during the terms of the Taxpayer's operating the in/out dry storage marina business."

You conclude, in an effort to limit the square footage which is subject to the tax imposed by s. 212.031(1)(a), F.S., that, "... only a total of no more than 6,500 square feet of space, excluding the space sublet to the [Tenant], was used for activities which were not totally directly involved with the Taxpayer's principal business [of operating the dry storage marina]."

This square footage you compute as representing, "... 2.26 percent of the 287,327 square feet under lease." Then you compute the monthly amount of sales tax applicable to this lease as $27.12, which is the product of the sales tax rate of 6 percent times .0226, times the monthly lease payment of $20,000.

You state on page 3 of your June 30, 1995 letter, that "[t]axpayer has recently settled an audit assessment with the
[Department] for the period ended May 31, 1990." You bottom the request for a Technical Assistance Advisement on the desire, "... to facilitate a settlement with the [Department] prior to audit and/or assignment of additional Florida sales and use tax for the period April 1, 1990 through June 30, 1995...."

Department Response

The ultimate question presented here is the standard to be used

for delimiting the imposition of the tax on the lease or license of real property under s. 212.031(1)(c), F.S., when a portion of the property is not taxable as provided by s. 212.031(1)(a)3., F.S., because it is used for parking, docking, or storage spaces which use is taxable as mandated by s. 212.03(6), Florida Statutes.

Real property is defined in s. 212.02(10)(h), F.S., as the surface land, improvements thereto, and fixtures, and is synonymous with "realty" and "real estate."

Sales tax is imposed by s. 212.031(1)(c), F.S., on the privilege of engaging in the business of leasing, or granting a license to use, real property, except that the tax under that statute does not extend to the privilege of leasing or licensing real property used for parking, docking or storage spaces when taxed for such uses under s. 212.03(6), Florida Statutes. This statute imposes tax, among other uses, on the storage of boats at marinas. Rule 12A-1.070, F.A.C., and Rule 12A-1.073, F.A.C., interpret these statutes.

In sum, the Taxpayer has leased real property, a portion of which the Taxpayer subleases to Tenant. The Taxpayer uses a portion of the real property for dry storage of boats for which Taxpayer receives rental payment from the boat owners. Taxpayer also uses part of the property for its own uses including office and restroom spaces and a site on which a retail store is operated.

Other portions of the property are covered by asphalt, concrete ramps and deck space, parking lots, and landscaped areas, all connected, as the Taxpayer asserts, with the conduct of the boat dry storage business. Also included within this class of property is the area identified by you as "... under water with portions thereof containing rock ric-rap, piers and four wooden docks used by the Taxpayer's marina storage customers...." Such under water area is as much used in the conduct of the business as are the ramps, deck space, parking lots and landscaped areas. A clarifying note is made that it is understood that there is no charge made for the use of the four docks. The sole remaining portion of the property is that of the mangrove tree growth,

that is undeveloped land.

Thus, the property is taxed under s. 212.031(1)(c), F.S., as to the lease payments made by the Taxpayer to the Lessor and by the payments received by the Taxpayer from the Tenant. The space used for boat storage is exempted from the tax imposed under s. 212.031, F.S., but such storage is subject to tax by operation of s. 212.03(6), Florida Statutes.

However, s. 212.031(2)(b), F.S., expresses the intention of the Legislature "... that only one tax be collected on the rental or license fee payable for the occupancy or use of any such property, [and] that the tax so collected shall not be pyramided by a progression of transactions...."

Section 212.031(1)(b), F.S., grants to the Department, in the instance of real property also subject to s. 212.03(6), F.S., the authority to "... determine, from the lease or license and such other information as may be available, that portion of the total rental charge which is exempt from the tax imposed by [s. 212.031, Florida Statutes.]

You will find, in the following discussion, both that this allocation has been made, and the basis for such allocation.

The Department first must correct the figure which is provided by the Taxpayer as the total square footage under lease. The Taxpayer gives that figure on page 2 of the June 30, 1995 letter as 287,327 square feet.

However, according to the boundary survey, the leased property is approximately rectangular. The length of the longer parallel boundary lines is 600 feet. The length of the shorter parallel boundary lines is approximately 350 feet. Thus, the square footage under lease cannot total 287,327 square feet as asserted in the June, 1995 letter.

Consequently, the Department shall use the figure of 4.53 acres as provided by the Taxpayer as the total area under lease. This measure, 4.53 acres, when multiplied by 43,560, the number of square feet per acre, equals 197,326 square feet. This figure

will be used by the Department as the total square footage under lease.

You are also alerted that the Department has altered some of the square footage assigned by the Taxpayer to the various uses of the leased land. These changes were necessary because it appears that the Taxpayer incorrectly computed some of the square footage allocations.

The following table provides information as to the use of each portion of the property and the area of each such use in square footage and by acre measurement:

Subleased to Tenant (XXX)

6,970 sq. ft. - .16 ac.

Rented to customers-boat storage:
primary building

30,056 sq. ft. - .69 ac.

outside racks

4,356 sq. ft. - .10 ac.

Used by Taxpayer for retail space and
for rest rooms (30x50 building) 1,307 sq. ft. - .03 ac. Area of mangrove trees

21,780 sq. ft. - .50 ac.

Area covered by ramps, deck space,
parking lots, landscaped areas, and
the under water portion used for
dockage and boat travel

132,857 sq. ft. 3.05 ac.

Total area under lease

197,326 sq. ft. 4.53 ac.

The allocation of the lease payment made by the Taxpayer to the Lessor is computed in the following manner:

Total area under lease is 197,326 square feet, or 4.53 acres. Of this area 21,780 (.50 acres) is undeveloped in that it is the site of mangrove tree growth. This area is still subject to sales tax because there is no exemption granted by statute which exempts land from the tax on real property because such land is not utilized by the Taxpayer. This land is considered leased to the Taxpayer and is not used by the Tenant or by the Tenant's customers.

Thus, 11 percent (21,780 divided by 197,326) of the total monthly lease payment of $20,000 is allocated to this portion of the leased parcel. This allocation equals $2,200. Sales tax on

this amount equals $132.

The remaining portion of the lease payment, $17,800 ($20,000 minus $2,200), must be allocated over the other uses of the property.

The other uses include the subleased space to the Tenant, two locations used for rental to customers for the storage of boats, and the space used by the Taxpayer for office and retail space. All of the improvements which are subleased, rented or used by the Taxpayer equal 42,679 square feet. This figure is computed by adding 6,970 square feet subleased to Tenant; 34,402 square feet utilized for dry storage of boats; and 1,307 square feet used by the Taxpayer for office area and a retail store.

Since the improvements located on the land total 42,679 square feet of which 41,382 square feet is used for the purpose of rental to customers for boat storage, and for sublease to Tenant, the computation reveals that 96.9 percent of the improvements are used for such purposes. Thus, 3.1 percent of the improvements are used by the Taxpayer for its own use. This percent when multiplied by $17,800 equals $551.80 which is the portion of the remaining lease payment allocated to the square footage utilized by the Taxpayer for its own purposes. The tax of 6 percent of this allocated lease payment equals $33.11.

The total sales or use tax owed by the Taxpayer on the entire area under lease equals $165.11 which is the tax of $132 on the lease payment allocated to the undeveloped portion of the leased area plus the tax of $33.11 on the portion of the improvements utilized by the Taxpayer for its own uses.

In the above computation process the area undeveloped is an element of the taxable portion of the lease payment. The improvements which are subleased or otherwise taxed under s. 212.03(6), F.S., are not subject to tax under s. 212.031, F.S., except that portion used by the Taxpayer. In this instance the Taxpayer uses an office, restrooms, and a retail space. Consequently, the total square footage of the improvements is divided into that area used by the Taxpayer. The percent derived from this calculation is applied to the remainder of the

lease payment after the undeveloped area is removed.

The determination expressed herein is that the land covered by asphalt, concrete ramps and deck space, parking lots, landscaped areas, and that portion which is underwater but available for docking and water travel purposes, is all used in connection with the operation of the marina. As a consequence, this land is subject to tax to the extent that the square footage utilized for those purposes is included within the lease allocation of
$17,800 against which the 3.1 percent is applied as explained in a previous paragraph.

Therefore, the Department does not accept, as posited by the Taxpayer, that the space "... occupied by mangrove trees; [and] 1.43 acres" which is "under water with portions thereof containing rock ric-rap, piers and four wooden docks..." are excluded from the tax imposed by s. 212.031(1)(c), Florida Statutes.

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
Tax Policy and Dispute resolution

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