How did Florida apply sales and documentary stamp taxes to SEC-registered interests giving buyers recurring use and rental rights in hotel suites?

Plain-English summary

Florida reached different tax results for different parts of the hotel-interest program. Each SEC-registered interest gave its holder eight weeks of annual hotel-suite use through 2060, participation in a rental pool, exchange opportunities, and responsibility for common expenses.

The sale of the security itself and the holder's common-expense reimbursements were not subject to Florida sales and use tax. Because tourist development tax and discretionary surtax depended on a taxable Chapter 212 transaction, those taxes also did not apply to the interest sale.

Documentary stamp tax depended on the instrument and where it was issued or recorded. An interest accepted, signed, and issued outside Florida was not taxed as an original issue under section 201.05. The pay-over-time promise was not fixed and absolute because the holder could cancel and default could end future obligations, so section 201.08 did not apply unless the interest was filed or recorded in Florida.

Separately, the interest transferred a right in a Florida hotel suite. That real-property interest made the transfer document taxable under section 201.02 even though the holder did not receive full ownership of a particular suite.

Rental income remained taxable. Charges to transient guests for hotel-suite use were subject to sales tax, county tourist development tax, and discretionary surtax. If the licensee met Rule 12A-1.060, it could collectively register the suites and remit state sales tax and surtax for the holders; the self-administered county tourist tax still went directly to the county collector.

What this means for you

Hotel-interest and resort-program operators

Calling the interest a security did not answer every Florida tax question. It removed the security sale from Chapter 212 here, but the same instrument still conveyed Florida real-property rights and generated separately taxable rentals.

Buyers paying over time

The conditional payment promise was not taxed at execution because it was not fixed and absolute. Filing or recording the instrument in Florida changed the documentary-stamp analysis.

Accountants and tax professionals

Separate the security issue, payment obligation, real-property transfer, common-expense reimbursements, and guest rentals. Each was governed by a different provision and tax trigger.

Common questions

Q: Was the SEC-registered interest itself subject to sales tax? A: No. The Department found no Chapter 212 provision taxing the sale of a security.

Q: Were common-expense reimbursements taxable as rent? A: No. They were tied to the purchased real-property interest and were not treated as rental consideration.

Q: Was original-issue documentary stamp tax due? A: No when the interest was accepted, signed, and issued outside Florida.

Q: Was the installment promise taxable? A: Not at execution because the holder could be relieved of future obligations. Section 201.08 applied if the interest was filed or recorded in Florida.

Q: Why did section 201.02 apply?
A: The instrument transferred an interest in a Florida hotel suite even though it did not convey full ownership.

Q: Were guest rental charges taxable? A: Yes. Transient-rental sales tax, county tourist development tax, and discretionary surtax applied.

Q: Could the licensee remit taxes for the holders? A: Yes under Rule 12A-1.060 if its requirements were met, but the self-administered county tourist tax had to be paid directly to the county tax collector.

Q: Can another hotel-interest program rely on this TAA? A: Not automatically. The advisement states that it binds the Department only on the agreements, payment terms, issuance and recording locations, property rights, and rental administration described.

Citations and references

• Fla. Stat. § 201.05(1) — original issue of securities in Florida
• Fla. Stat. § 201.08(1) — written payment obligations and instruments filed or recorded in Florida
• Fla. Stat. § 201.02(1) — transfers of interests in Florida real property
• Fla. Stat. §§ 212.03 and 212.031 — transient rentals and real-property leases or licenses
• Fla. Admin. Code r. 12A-1.060(1)(c), (d) — collective registration and remittance for rental units
• Florida Power & Light Co. v. Green, 166 So. 2d 146 (Fla. 1964)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96M-003

Original ruling text

Nov 15, 1996

Re: Technical Assistance Advisement 96M-003 Sales and Use Tax Documentary Stamp Tax Sale of an Interest Taxpayers:

XXXX

FEI# XXXX
XXXX
FEI#: XXXX

Dear :

This response is to your petition of June 5, 1996, and revised petition of July 3, 1996, requesting the Department's issuance of a Technical Assistance Advisement (TAA) pursuant to s. 213.22, F.S., and Ch. 12-11, F.A.C., regarding the referenced Taxpayer and matter. Your letters and supporting documents provided the following pertinent information.

FACTS PRESENTED

XXXX, ("Owner") owns and manages the XXXX ("Hotel"). XXXX. ("Licensee") will obtain the right to sell "Interests" in Hotel suites pursuant to a Master License Agreement with Owner.

Licensee intends to sell an Interest to a purchaser ("Holder") pursuant to a Subscription and Purchase Agreement ("Agreement") which gives the Holder the right to the use of a Hotel suite for eight weeks a year (until December 31, 2060), and also the opportunity to exchange it with other participants in the XXXX. The Holder will be "obligated to assign his or her eight weeks of the right to use a Hotel suite to a rental pool arrangement and receive income or, upon proper notice, to use the suite for one or more weeks for the Holder's personal use or rental to others." At the time of purchase of the Interest the Holder may pay in full or may pay over time. The Securities and Exchange Commission (SEC) has given the opinion that the Interest is a

security and Licensee will register the Interests with the SEC.

A Holder must also reimburse Licensee for expenses which will be assessed as his or her share of common expenses. If the Holder fails to reimburse the Licensee for the expenses or fails to make the Pay Over Term payments as they become due, the Holder will be denied the revenue from renting a suite, denied from the right to use the suite, and also be denied from exchanging it in the RCI Travel Plan. If the Holder's default continues for the period described in the Agreement, the Agreement may be cancelled by Licensee and the Holder will forfeit all payments made and will have no further payment obligations. The Licensee "will have no other remedies against the Holder for the described payments."

In addition, the Holder may cancel his or her Interest at any time and have no further obligations to make any payments.

REQUESTED ADVISEMENT

Issue 1 Whether the sale of an Interest by Licensee will be subject to Florida Documentary Stamp tax imposed by section 201.05, F.S., when the sale of the Interest is accepted, signed and issued in XXXX.

Statutory Authority

Section 201.05(1), F.S., provides the following:

On each original issue, whether organization or reorganization, of certificates of stock or shares however designated issued in the state or of certificates of profits or interest in property or accumulations, by any corporation or by any joint stock company or other association as set forth in subsection (2), on each $100 of face value or faction thereof the tax shall be 35 cents; provided that when a certificate is issued without face value, the tax shall be 35 cents on each $100 of actual value or fraction thereof. The stamps representing the tax imposed by this section shall be attached to the stock books and not to the certificates issued. The provisions

of this section do not apply to any stock or share issued in this state of an open-end or closed-end management company or unit investment trust registered under the Investment Company Act of 1940, as amended. (Emphasis supplied)

Discussion

The SEC has given the opinion that the Interests under review are securities, and Licensee will register them with the SEC. The above cited statute taxes original issues of securities which are issued in this State.

The information you have provided in the revised petition indicates that the sale and issue of the Interests will be accepted, signed and issued in XXXX. You have also cited Florida Supreme Court case Florida Power and Light Co., State ex rel., v. Green, 166 So.2d 146 (1964), as support for your position that the Interests sold and issued in XXXX would not be taxable under s. 201.05, F.S.

The Department agrees with your analysis and acknowledges that the issue of the Interests will not be taxable when accepted, signed and issued in XXX.

Issue 2 Whether the written promise to pay that is created when a Holder agrees to pay for the purchase of the Interest over time is taxable pursuant to s. 201.08, F.S., when it is executed, delivered or recorded in Florida.

Statutory Authority

Section 201.08(1), F.S., provides in pertinent part:

On promissory notes, nonnegotiable notes, written obligations to pay money, or assignments of salaries, wages, or other compensation made, executed, delivered, sold, transferred, or assigned in this state, and for each renewal of the same, the tax shall be 35 cents on each $100 or fraction thereof of the indebtedness or obligation evidenced thereby. On mortgages, trust deeds, security agreements, or other evidences of

indebtedness filed or recorded in this state, and for each renewal of the same, the tax shall be 15 cents on each $100 or fraction thereof of the indebtedness or obligation evidenced thereby.... (Emphasis supplied)

Discussion

The above statute taxes written obligations to pay money that are made, executed or delivered in Florida. It also taxes security agreements that are filed or recorded in this State. There is a written promise to pay on Page 2 of the Subscription and Purchase Agreement for those Holders who wish to pay over time.

The Subscription and Purchase Agreement contains a Purchaser's default clause in paragraph 7 on page 3 which provides that under certain circumstances the purchaser can be relieved of all obligations. In that the written promise to pay money is not fixed and absolute at the time of execution it is not subject to tax unless it is recorded in Florida. If any of the Interests are recorded in the State of Florida, they would be subject to tax pursuant to s. 201.08, F.S.

Issue 3 Whether the sale of the Interests will be taxable pursuant to s. 201.02, F.S.

Statutory Authority

Section 201.02(1), provides:

On deeds, instruments, or writings whereby any lands, tenements, or other real property, or any interest therein, shall be granted, assigned, transferred, or otherwise conveyed to, or vested in the purchaser or any other person by his or her direction, on each $100 of the consideration therefor the tax shall be 70 cents. When the full amount of the consideration for the execution, assignment, transfer, or conveyance is not shown in the face of such deed, instrument, document, or writing, the tax shall be at the rate of 70 cents for each $100 or fractional part thereof for the consideration therefor. For purposes of

this section, consideration includes, but is not limited to, the money paid or agreed to be paid; the discharge of an obligation; and the amount of any mortgage, purchase money mortgage lien, or other encumbrance, whether or not the underlying indebtedness is assumed. If the consideration paid or given in exchange for real property or any interest therein includes property other than money, it is presumed that the consideration is equal to the fair market value of the real property or interest therein.

Discussion

Documents that transfer any interest in real property are taxable. Even though the sale of the Interest does not transfer full ownership of a Hotel suite to the Holder, the sale of the Interest does transfer an interest in a Hotel suite to the Holder. Therefore, the Interest is a taxable document pursuant to s. 201.02, F.S.

Issue 4 Whether the sale of an Interest or the collection of the reimbursed expenses is taxable pursuant to Chapter 212 (Florida Sales and Use Tax), F.S.

Discussion and Law

Major categories of the State taxes imposed by section 212 of the Florida Statutes are as follows: admissions (s. 212.04, F.S.), transient rentals (s. 212.03, F.S.), lease or rental of or license in real property (s. 212.031, F.S.), sales or rentals of tangible personal property and the provision of certain services (s. 212.05, F.S.), and service warranties (s. 212.0506, F.S.).

There is no provision in Chapter 212, F.S., to tax the sale of a security. The issue of a security is taxable for Documentary Stamp tax purposes pursuant to Chapter 201, F.S., as discussed previously.

The county tourist development taxes and the county discretionary surtaxes are only imposed when sales and use tax is applicable. The sale of the Interest is not subject to sales

tax and, therefore, is also not subject to tourist development tax or for discretionary surtax.

The purchase of the Interest is a payment for purchase of an interest in real property and for a right to receive rental income, and is not a lease or license to use real property within the meaning of s. 212.031, F.S. Therefore, the reimbursement of the expenses associated with the common areas by the Holder to the Licensee would not be deemed rental consideration and is not subject to the tax.

The Interest does provide a right for the Holder to rental income from the rental of the Hotel suite, and such rental charges are taxable for purposes of s. 212.03, F.S., which taxes transient rentals. The tourist development tax imposed by the county pursuant to s. 125.0104, F.S., and the discretionary surtax imposed by the county pursuant to s. 212.054, F.S., is also applicable, as you have noted in your petition. You have indicated that the Owner is currently collecting and remitting those taxes.

Issue 5 Whether the Licensee can collect and report the State sales and use tax, the county tourist development tax and the county discretionary tax on behalf of the Holders for the rental charge for the use of a Hotel suite.

Regulatory Authority

Rule 12A-1.060(1)(c) and (d), F.A.C., provides in part:

(c)1.a. Any agent or management company which is licensed with the Department of Business and Professional Regulation under Chapter 475, F.S., as a broker, and any agent who rents, leases, lets, or grants a license to others to use, occupy, or enter upon any resort condominium, who has entered into a written agreement with a property owner to collect the rental, lease, or license payments on any living quarter or sleeping or housekeeping accommodation that is rented, leased, let, or in which a license to use has been granted to others and who has obtained a dealer's

certificate of registration as provided in subparagraph (a)1., above, may collectively register such properties or time-share units located in a single county by filing an Application for Collective Registration for Rental of Living or Sleeping Accommodations (Form DR-1C, incorporated by reference in Rule 12A-1.097, F.A.C.) for each county. b. For the purposes of this part, "agent" means any person who has the authority to collect any payment for the renting, leasing, or letting of living quarters or sleeping or housekeeping accommodations in any hotel, motel, apartment house, multiple unit structure (e.g., duplex, triplex, quadraplex, condominium), roominghouse, tourist or mobile home court (e.g., trailer court, R.V. camp), single family dwelling, garage apartment, beach house or cottage, cooperatively owned apartment, condominium parcel, or mobile home subject to the provisions of Chapter 212, F.S., on behalf of the property owner. c. For purposes of this part, "resort condominium" means any unit or group of units in a condominium or time-share plan which is rented, leased, let, or in which a license has been granted to others to use, occupy, or enter upon such property for periods of six months or less....

Discussion

If Licensee meets the requirements of Rule 12A-1.060, F.A.C., the Licensee may collectively register the Hotel suites, and collect and remit the Sales and Use Tax and Discretionary Surtax to the Department of Revenue on behalf of the Holders. Procedures are described in the rule. However, XXXX self administers the Local Option Tourist Development Tax, and that tax would have to be remitted directly to the county tax collector. You would have to contact the county tax collector for the county registration requirements.

Miscellaneous

You have inquired about other taxes that may be triggered by the transactions described. Since Licensee is a new Florida corporation doing business in Florida, it is probable that the Florida Corporate Income Tax will be applicable. Also, it is

probable that the promises to pay created in the Subscription and Purchase Agreement will create receivables for Licensee that are taxable for the Florida Intangible Tax. You acknowledged on the phone that you are aware of both of these taxes.

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,

Edith Sapp
Tax Law Specialist
Tax Policy & Dispute Resolution

Jimmy Silvey
Tax Law Specialist
Tax Policy & Dispute Resolution

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