Did Florida transient rentals tax apply when DOT charged former occupants rent for two or three months after acquiring their homes through eminent domain?

Plain-English summary

The Florida Department of Revenue concluded that transient rentals tax did not apply when the Department of Transportation let displaced occupants remain briefly in homes DOT had acquired through eminent domain for a road-widening project.

One tenant would remain for two months after surrendering a leasehold interest, and one former homeowner would remain for three months after the state acquired the home. DOT required written leases at the existing or market rent so the occupants could find replacement housing and DOT could secure their departure afterward.

Ordinarily, the ruling said, the occupants' prior residence alone would not satisfy the statutory exemption because they had not also paid transient rentals tax for six months. The decisive point was instead that section 212.03 taxed a person engaged in the business of renting transient accommodations. DOT took the property for a public highway purpose and was constitutionally unable to use eminent domain to enter a private rental business. The short leases supported relocation rather than a rental enterprise.

What this means for you

Displaced owners and tenants

The Department did not tax these specific short-term arrangements merely because the post-acquisition leases lasted six months or less. The public-purpose acquisition and DOT's limited relocation role controlled the result.

Government property managers

The ruling rested on the stated eminent-domain facts: acquisition for road widening, brief occupancy while people relocated, and no purpose of operating rental property.

Tax professionals

Do not read the result as a general exemption for any short lease by a government owner. The advisement distinguished these transactions because DOT was not engaged in the rental business within section 212.03.

Common questions

Q: Had the occupants lived at the properties for more than six months? A: Yes, but the ruling said they had not also paid the transient rentals tax for six months, so the ordinary continuous-residence exemption would not have resolved the issue.

Q: Why did DOT require leases?
A: The leases gave the occupants time to relocate and helped DOT remove them promptly if they stayed beyond the allowed period.

Q: Why was no tax due?
A: DOT acquired the property for a public road project and was not engaged in the business of renting transient accommodations.

Citations and references

• Fla. Stat. §§ 212.03(1), (4), (7)(b), 213.22, and 337.27
• Fla. Admin. Code r. 12A-1.061(5)(a)-(b)
• Fla. Const. art. I, § 9, and art. X, § 6(a)
• U.S. Const. amend. XIV

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-008

Original ruling text

SUMMARY

Since constitutional provisions prevent DOT from using eminent domain proceedings to enter the rental business, DOT's transactions with the occupants of the condemned properties are not subject to tax under s. 212.03, F.S.

Feb 05, 1997

Re: TAA 97A-008
Transient Rentals Tax
Property Acquired by Eminent Domain
Section 212.03, Florida Statutes
XXX (Representative)

Dear :

This is in response to your letter dated September 16, 1996, in which you request, as representative for the Florida Department of Transportation, the issuance of a Technical Assistance Advisement pursuant to s. 213.22, F.S., concerning the taxability of certain specified transactions involving property acquired by the Florida Department of Transportation (DOT) through eminent domain proceedings. On September 13, 1996, a Letter of Technical Advice was issued regarding the same issue. Your request 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. Therefore, the Department is herewith granting your request for the issuance of a TAA and the ensuing discourse shall embody said ruling.

STATED FACTS

The facts of your request, as you provide them, are as follows:

[Representative] represents the Florida Department of Transportation for land acquisition, relocation and property management in District IV. As we discussed on the telephone today, I am requesting specific information on

whether or not to charge State Sales Tax on the following two scenarios;

1. Property is needed by the State of Florida Department of
   Transportation (Department) for a road widening project. The subject property is a residential rental property currently occupied by a tenant with a lease for one year. The eminent domain action by the Department requires the current tenant to quit claim deed his leasehold interest back to the owner of the property so a closing can take place and the State can take unencumbered title to this property. The tenant is allowed by the Department to remain in the property as a lessee for two months until he finds suitable housing. The Department requires a lease for these two months at the same or market rent....

2. Residential Property owner (single family) is required
   to sell his property to the State of Florida for a road widening project. Said property owner has resided in the property for, say, two years. Upon the State acquiring his property, he is allowed by the State to remain for three months to allow him time to relocate. The State (now the new owner) requires a written lease, at market rent, for the former owner to stay during this time....

REQUESTED ADVISEMENT

With regard to paragraph 1 above you ask: "Is the tenant required to pay State Sales Tax on this lease since it is six months or less even though he can prove he has occupied same property for well over six months?"

With regard to paragraph 2 above you ask: "Since the lease is now less that six months, but the owner has resided in the same property for two years, clearly establishing residency, is he required to pay sales tax?"

LAW AND ANALYSIS

Section 212.03(1), (4), (7)(b), F.S., 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.... 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....

(4) The tax levied by this section shall not apply 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.... 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....

(7)(b) It is the intent of the Legislature that this subsection provide tax relief for persons who rent living accommodations rather than own their own homes, while still providing a tax on the rental of lodging facilities that primarily serve transient guests.... (E.S.)(FN 1)

Under the above law, for the tax to not be due a tenant must fulfill two requirements. First, the tenant must have resided continuously longer than 6 months at any one location. Under the facts you have provided both tenants have fulfilled this

requirement. Secondly, that tenant must also have paid the tax under section 212.03, F.S., for 6 months of the residence.

In the two fact scenarios you provide it is clear that the tenants have not fulfilled the above, second requirement. Consequently, under ordinary circumstances, tax would be due under s. 212.03, F.S., above, until such a time as the tenants shall have paid the tax for a six month period, while continuously residing at their respective locations.

We would note, however, that under section 212.03, F.S., tax is imposed on a person engaged in the business of renting, leasing, letting, or granting a license to use transient facilities. As will be explained below, the fact that the subject properties were acquired by DOT via eminent domain proceedings prevents DOT from being able to be engaged "in the business of" renting transient rental accommodations for periods of six months or less. Consequently, DOT's transactions with its lessees are not subject to the tax imposed by section 212.03, Florida Statutes. Sections 212.03(1) and (7)(b), F.S.

The purpose behind eminent domain is to allow a sovereign to take private property for public use, without the owner's consent, on the payment of just compensation. See 21 Fla Jur 2d, Eminent Domain, s. 1. The power of eminent domain is constitutionally limited. The chief limitations are: (1) Article X, s. 6(a) of the Florida Constitution, which provides that no private property can be taken except for a public purpose, and upon payment of full compensation; and (2) the Due Process clauses set forth in Article I, s. 9 of the Florida Constitution and Amendment 14 of the U.S. Constitution, both of which provide that no person shall be deprived of property without due process of law.

In the instant situation, the entire purpose for which DOT is acquiring the two properties at issue is for a road widening project, which is a "public purpose." [Section 337.27, Florida Statutes, specifically allows the Department of Transportation to utilize the power of eminent domain to acquire lands related to the establishment and maintenance of a state highway system.] DOT is not trying to acquire the properties for purposes of

rental to tenants. In fact, DOT is constitutionally prohibited from utilizing the power of eminent domain to acquire properties to engage in the rental business, as the rental of transient rental facilities to private individuals would clearly be a private, and not a public, purpose.

When there is a taking of private property for a public purpose, there must be a payment of full and just compensation. See 21 Fla Jur 2d, Eminent Domain, s. 84. What constitutes "just compensation" is determined by equitable principles, and varies with the facts of each situation. Id. In the case of living quarters, while the receipt of fair market value for the property by the displaced homeowner would be the receipt of adequate compensation for the property taken, the property owner still suffers an additional loss, as he or she must go through the time of packing, finding new living accommodations, and moving. These activities can consume several weeks or months. Thus, it may not be equitable to that individual to order him to vacate immediately once the state acquires title to the property after an eminent domain proceeding. In the instant situation, DOT, recognizing the need for some time for the occupants of the condemned properties to find new housing, has provided for leases having a short duration (2 or 3 months). This very short duration of the leases further evidences the fact that DOT is not interested in being in the business of renting property -it merely wants to be fair to those individuals who lost their dwellings because of public necessity.

It is the case that DOT has required the occupants of the condemned premises to enter into lease agreements. Doing so, however, helps DOT to have the ability to remove the occupants quickly if they do not wish to leave after the period of time DOT has given them. For example, if there is a landlord-tenant relationship, summary dispossessory proceedings provided by Chapter 51, F.S., may be available.

Since constitutional provisions prevent DOT from using eminent domain proceedings to enter the rental business, DOT's transactions with the occupants of the condemned properties are not subject to tax under s. 212.03, 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 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,

Bonnie Everton
Senior Tax Specialist

/e
Cont. #26502

FOOTNOTE 1. Please see also, Rule 12A-1.061(5)(a) and (b), F.A.C.