Was a tenant's reimbursement of electricity through a common-area maintenance charge subject to Florida sales tax?

Plain-English summary

The Florida Department of Revenue concluded that a commercial tenant's reimbursement for actual electricity use was not taxable rent under the submitted arrangement. The property used a master meter, the landlord had paid sales tax to the utility, and the tenant's electricity charge was separately stated without a markup.

Florida generally taxed common-area maintenance charges and utility charges paid to a landlord for the right to occupy commercial real property. The electricity rule created a narrower exception when the landlord had already paid sales tax and billed the tenant separately at the same or a lower price than the utility charged the landlord.

The ruling made the result expressly contingent on the absence of a markup. Any increase in the electricity pass-through charge was subject to sales tax and gross receipts tax. The landlord also had to maintain records adequate to establish which transactions were taxable or nontaxable.

What this means for you

Commercial landlords

A master-meter electricity reimbursement could be excluded from taxable rent only when the landlord paid the utility tax, separately stated the tenant's charge, and passed it through without a markup.

Commercial tenants

The label "CAM charge" did not alone determine taxability. The ruling distinguished the separately stated, at-cost electricity component from common-area maintenance charges generally.

Accountants and property managers

Keep utility bills, tenant invoices, leases, and allocation records showing actual consumption, tax paid to the utility, separate statement, and the absence of a markup.

Common questions

Q: Are common-area maintenance charges generally taxable as commercial rent?
A: Yes. The cited rule treated CAM charges paid for the right to use or occupy real property as taxable.

Q: Why was the electricity reimbursement excluded here?
A: The landlord had paid sales tax to the utility, separately billed the tenant for actual consumption, and charged no more than the utility charged the landlord.

Q: What if the landlord marked up the electricity charge?
A: The ruling states that any markup or increase was subject to sales tax and gross receipts tax.

Q: What records did the Department require?
A: Records sufficient to establish the taxable or nontaxable status of the transactions, including pertinent invoices and other books and papers.

Citations and references

• Fla. Stat. § 212.031(1)(a), (c), and (d) — tax on commercial real-property rent and consideration
• Fla. Admin. Code r. 12A-1.070(4)(a)-(e) — tenant tax collection, taxable CAM charges, and the utility pass-through exception
• Omni International of Miami, Ltd. v. Department of Banking and Finance, 444 So. 2d 540 (Fla. 3d DCA 1984) — cited concerning duplicate tax on master-meter electricity reimbursed by tenants
• Fla. Stat. §§ 212.12(6), 212.13(2), and 213.35 — recordkeeping
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-066

Original ruling text

Dec 26, 1996

Re: Technical Assistance Advisement - 96(A)-066
Sales and Use Tax - Common Area Maintenance Charge Which
Includes Electricity For Common Areas
Section 212.031(1)(a)(c), F.S. and Rule 12A-1.070, F.A.C.
Parties: XXXX Herein the "Taxpayer" or "Landlord")
Taxability of Common Area Maintenance Payments

Dear :

This response is in reply to your October 18, 1996, 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.

STATED FACTS

Landlord manages commercial real property. The property is
served by a master electrical meter. According to the example
invoices provided, the charges for electricity are separately
stated to the tenant. According to the lease provided, the
tenant must reimburse the landlord for tenant's actual
electrical consumption.

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 a tenant under the Lease is subject to sales or use tax.

LAW AND ANALYSIS

The law on the taxability of consideration paid for the use of

commercial real property is provided under s. 212.031, F.S. That
section 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. (Emphasis Supplied)

The Department, by law, is authorized to adopt rules in order to
administer Florida Statutes. Section 213.06(1), F.S., provides:

213.06 Rules of department; circumstances requiring
emergency rules.-(1) The Department of Revenue is granted authority to adopt
such rules as are necessary to carry out the intent and
purposes of this chapter and all other revenue laws
administered by the department, and it may amend such rules
to conform to legislation or departmental policy changes
made in the absence of any legislation. (E.S.)

Accordingly, the Department has adopted Rule 12A-1.070, F.A.C,
which provides in part:

(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)

In Omni International of Miami, Ltd. v. Department of Banking
and Finance, 444 So.2d 540 (Fla. 3 DCA 1984), court considered a
situation where:

[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 finding 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.

Under Omni, where commercial real property is served by a single
meter and the proportionate cost of the electricity and Sales
tax is paid by the lessor, and the landlord is merely reimbursed
by the tenant for its actual electrical consumption, the

electricity billed to the tenant is not a taxable element of the
payment for renting, leasing, letting, or granting a license to
use real property. The electricity paid for 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.

Furthermore, under Rule 12A-1.070(4)(e), F.A.C., in order for
the pass through electrical charge from the landlord to tenant
on which the landlord has paid tax to be excluded, the charges
must be separately stated at the same or lower price as that
billed by the utility company to the landlord on an invoice or
within the lease or both. Any mark up, or increase in
consideration of the electricity pass-through charge by the
landlord is subject to sales tax and gross receipts tax.

Here, it is the Department determination that the electricity
billed to the tenant by landlord is not a taxable element of the
payment for renting, leasing, letting, or granting a license to
use real property as provided for under s. 212.031, F.S. This
determination is expressly contingent upon there not being any
markup by the landlord in its charge for reimbursement from
tenant.

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:

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, Taxpayer must maintain
records adequate to establish the taxable or nontaxable status
of its 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.

Control No. 26889