Were payments under a bona fide one-year resident-hotel lease exempt from Florida transient rentals tax, including when unforeseen events ended the lease within six months?

Plain-English summary

Florida ruled that payments under the submitted one-year resident-hotel lease were exempt from transient rentals tax when the lease was bona fide and entered in good faith.

The corporation planned to convert a traditional short-stay hotel into long-term resident accommodations. Its written agreement ran for one year and automatically renewed for additional one-year terms unless either side gave 60 days' notice. Other termination provisions addressed death, disability, and unforeseen circumstances approved by the corporation.

The Department found objective evidence of a genuine long-term landlord-tenant relationship: automatic annual renewals, default remedies, and provisions anticipating that a resident might later need extended care. Because the agreement was for continuous residence longer than six months and was intended to be honored, section 212.03 did not tax the payments.

The Department also ruled that an unforeseen later event such as death or disability could end a lease within six months without retroactively making the payments taxable. The ruling did not approve a lease designed from the start for a shorter stay.

What this means for you

• The written term alone was not enough; the parties had to enter the lease honestly and intend to follow it.
• Unforeseen post-signing events could support an early termination without destroying the exemption.
• The hotel had to maintain records adequate to establish why each lease and payment was taxable or exempt.

Common questions

Q: Were payments under the one-year lease taxable? A: No, provided the lease was entered in good faith with intent to honor its terms.

Q: Did every termination within six months preserve the exemption? A: The ruling specifically protected early termination caused by unforeseen later events, such as death or disability.

Q: What records were required?
A: The corporation had to keep suitable records proving the taxable or nontaxable status of its lease transactions.

Citations and references

• Fla. Stat. § 212.03(1), (4) — transient rentals tax and bona fide written leases longer than six months
• Fla. Stat. § 212.12(6) — records of taxable sales, leases, and rentals
• Fla. Stat. § 212.13(2) — dealer books and records
• Fla. Stat. § 213.35 — retention of tax records
• Fla. Admin. Code r. 12A-1.061 — transient accommodations
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-047

Original ruling text

Aug 14, 1996

Re: Technical Assistance Advisement 96A-047 Sales and Use Tax and Transient Rentals Tax Section 212.03, F.S. Petitioner: XXXXX (the Corporation) XXXX (the Hotel) FEI#: XXXX

Dear Sir:

This is a response to your petition received May 16, 1996, 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.

STATED FACTS

You state, as follows:

... (the "Corporation")... was formed on October 30, 1995 for the purpose of acquiring... (the "... Hotel"). Prior to its acquisition by the Corporation, the... Hotel was operated as a traditional transient rental hotel, renting rooms to tourists on a short stay basis. The Corporation intends to convert the hotel into a resident hotel accommodating residents on a long-term basis pursuant to written "Occupancy Agreements" (the "Lease"). A draft copy of the Lease is attached hereto as Exhibit A. Section VII. A. of the Lease provides that it will run for an initial period of one year and be automatically extended for additional one year terms unless either the Corporation or the resident has given sixty (60) days notice of their intention not to extend the Lease. The Lease may otherwise

be terminated upon the death of the resident, the disability of the resident in accordance with the standards set forth in Section VIII. A. of the lease, or by the resident, upon the occurrence of unforeseen circumstances but only with the prior approval of the Corporation.

REQUESTED ADVISEMENT

You request an advisement on the following:

(i) Payments made by residents under the Lease are exempt from the Transient Rentals [t]ax set forth in Section 212.03, Florida Statutes, in accordance with the exemption from the tax for bona fide written leases longer that 6
[six] months in duration as set forth in Section 212.03(4), Florida Statutes; and

(ii) Termination of a Lease by a resident within six(6) months of its commencement in contravention of the Lease will not render the Lease retroactively taxable under Section 212.03(4), Florida Statutes.

LAW AND ANALYSIS

The tax on transient rentals is authorized under section 212.03, F.S.,(FN 1) which provides, in part:

212.03 Transient rentals tax; rate, procedure, enforcement, exemptions.-(1) It is hereby 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 to use any living quarters or sleeping or housekeeping accommodations in, from, or a part of, or in connection with any hotel, apartment house, roominghouse, or tourist or trailer camp. However, any person who rents, leases, lets, or grants a license to others to use, occupy, or enter upon any living quarters or sleeping or housekeeping accommodations in apartment houses, roominghouses, tourist camps, or trailer camps, and who exclusively enters into a bona fide written agreement for

continuous residence for longer than 6 months in duration at such property is not exercising a taxable privilege. For the exercise of such taxable privilege, a tax is hereby levied in an amount equal to 6 percent of and on the total rental charged for such living quarters or sleeping or housekeeping accommodations by the person charging or collecting the rental. Such tax shall apply to hotels, apartment houses, roominghouses, or tourist or trailer camps whether or not there is in connection with any of the same any dining rooms, cafes, or other places where meals or lunches are sold or served to guests....

(4) The tax levied by this section shall not apply to, be imposed upon, or collected from any person who shall have entered into a bona fide written lease for longer than 6 months in duration for continuous residence at any one hotel, apartment house, roominghouse, tourist or trailer camp, or condominium, or to any person who shall reside continuously longer than 6 months at any one hotel, apartment house, roominghouse, tourist or trailer camp, or condominium and shall have paid the tax levied by this section for 6 months of residence in any one hotel, roominghouse, apartment house, tourist or trailer camp, or condominium. Notwithstanding other provisions of this chapter, no tax shall be imposed upon rooms provided guests when there is no consideration involved between the guest and the public lodging establishment. Further, any person who, on the effective date of this act, has resided continuously for 6 months at any one hotel, apartment house, roominghouse, tourist or trailer camp, or condominium, or, if less than 6 months, has paid the tax imposed herein until he or she shall have resided continuously for 6 months, shall thereafter be exempt, so long as such person shall continuously reside at such location. The Department of Revenue shall have the power to reform the rental contract for the purposes of this chapter if the rental payments are collected in other than equal daily, weekly, or monthly amounts so as to reflect the actual consideration to be paid in the future for the right of occupancy during the first 6 months. (E.S.)

The term "bona fide" is not defined in the Florida Statutes; therefore, we must look to its plain and ordinary meaning. Black's Law Dictionary, sixth edition, defines that term as follows:

Bona fide. In or with good faith; honestly, openly, and sincerely; without deceit or fraud.... (E.S.)

Accordingly, with regard to your specific questions, and in light of the above statute and definition:

(1) In answer to inquiry (i), above, tax imposed under s. 212.03, F.S., is not applicable to the payments made by residents under the lease you have submitted, which lease is in writing and has a lease term of one year, provided the lease is entered into in good faith, with the intent to honor the lease terms. In this situation, there are factors which objectively demonstrate such an intent, where a tenant agrees to be subject to all the lease's terms. These factors demonstrate that a long-term relationship (not only longer than six months, but probably longer than one year) between the corporation and its guests is being established. They include the fact that the lease is automatically renewed for successive one year periods; the lease contemplates a landlord-tenant relationship and provides remedies for default; and the lease contemplates that the physical condition of the tenant may deteriorate during the existence of that lease, thereby necessitating the moving of the tenant to an extended care facility.

(2) With respect to your inquiry number "(ii)" tax will not apply to any lease payments made under a particular subject lease in the case of early termination of such lease, provided that the lease was executed containing the initial lease term of one year, and early lease termination occurred due to subsequent events (such as death or disability) that were unforeseen at the time of the lease's execution. There is no express indication in the statute that the legislature intended to impose a tax on bona fide written leases entered into for more than six months, which later are terminated for reasons not foreseen at the time

of the leases's execution.

RECORD KEEPING

According to Florida law, every taxpayer has the legal obligation to maintain adequate books and records.

Section 212.13(2), F.S., provides in part:

(2) Each dealer, as defined in this chapter, shall secure, maintain, and keep as long as required by s. 213.35 a complete record of tangible personal property or services received, used, sold at retail, distributed or stored, leased or rented by said dealer, together with invoices, bills of lading, gross receipts from such sales, and other pertinent records and papers as may be required by the department for the reasonable administration of this chapter; all such records which are located or maintained in this state shall be open for inspection by the department at all reasonable hours at such dealer's store, sales office, general office, warehouse, or place of business located in this state.... Any dealer subject to the provisions of this chapter who violates these provisions is guilty of a misdemeanor of the first degree, punishable as provided in s. 775.082 or s. 775.083. (E.S.)

Section 213.35, F.S., provides, in part:

Each person required by law to perform any act in the administration of any tax enumerated in s. 72.011 shall keep suitable books and records relating to that tax, such as invoices, bills of lading, and other pertinent records and papers, and shall preserve such books and records until expiration of the time within which the department may make an assessment with respect to that tax pursuant to s. 95.091(3). (E.S.)

Section 212.12(6), F.S., expressly provides, in part:

(6)(a) ... It shall be the duty of every person required to make a report and pay any tax under this chapter,... to

keep and preserve suitable records of the sales, leases, rentals, license fees, admissions, or purchases, as the case may be, taxable under this chapter; such other books of account as may be necessary to determine the amount of the tax due hereunder; and other information as may be required by the department.... (E.S.)

As clearly provided by the above law, here, the Corporation must maintain records adequate to establish the taxable or non taxable status of its lease transactions.

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.

Should you have any further questions concerning this matter, please do not hesitate to contact me.

Sincerely,

Eric A. de Moya, Esq.
Tax Law Specialist
Tax Policy and Dispute Resolution

(904) 922-4714

NOTICE UNDER THE AMERICANS WITH DISABILITIES ACT

Persons needing an accommodation to participate in any proceeding before the Department of Revenue, should contact the Department at (904)488-0717 (voice), or 1-800-DOR-8331 (TDD), at least five working days before such proceeding. You may also call via the Florida Relay System at 1-800-955-8770.

FOOTNOTE 1 See also Rule 12A-1.061, F.A.C.