Was a city-owned pier's lease to a concessionaire exempt from rental tax, and were separately charged electricity and gas also exempt?

Subject

Real Property Rental

Plain-English summary

The Department concluded that the city's lease of pier space to the food-and-drink concessionaire was exempt from Florida real-property rental tax. The publicly owned pier offered fishing, observation decks, a museum, a recreational center, live entertainment, and commercial stores, so it qualified as a public recreational facility under the exemption.

The lessee also had to provide both food and drink. A vendor selling only food or only drink would not fit the statutory concessionaire language applied in the ruling.

The utility charges were different. The city supplied electricity and gas that were not separately metered, and the city itself had not paid sales tax because of its exempt status. Electricity was taxable tangible personal property, and the gas was not used for an exempt residential purpose. The city therefore had to collect tax from the concessionaire on both utility sales.

What this means for you

The concession exemption applied to the rented pier space, not automatically to everything the public owner billed. Separately supplied utilities retained their own tax treatment.

The ruling also distinguished a lease from a license: the cited rule preserved tax on licenses for concession space even while exempting qualifying leases, subleases, and rentals.

Common questions

Q: Why did the pier qualify as a recreational facility? It provided public recreation and attractions including fishing, observation decks, a museum, recreation space, and entertainment.

Q: Could a concessionaire selling only food qualify? No. The Department required sales of both food and drink.

Q: Were electricity and gas treated as additional rent? No. The Department treated them as separate utility sales.

Q: Why did the city have to collect tax on electricity? The city had not previously paid tax on the power, and electricity was taxable tangible personal property when resold to the lessee.

Citations and references

• Fla. Stat. § 212.031(1)(a)10. and (1)(c) — concessionaire lease exemption and total rent
• Fla. Admin. Code R. 12A-1.070(1)(a)8. — food-and-drink concessionaire space at public recreational facilities
• Fla. Stat. §§ 212.05(1)(a)1.a. and 212.02(20) — electricity as taxable tangible personal property
• Fla. Stat. § 212.08(7)(j) — residential gas exemption discussed as inapplicable
• Omni International of Miami, Ltd. v. Department of Banking and Finance, 444 So. 2d 540 (Fla. 3d DCA 1984) — master-meter utility reimbursement case discussed by the Department
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-011

Original ruling text

SUMMARY

This TAA involved the determination of the taxability of a real property lease of a concessionaire located on a pier. It was held that such a location did qualify for the exemption found in Section 212.031(1)(a)10., F.S. It was further determined that the concessionaire must sell both food and drink to quality for the exemption. In addition, it was held that the city (lessor) should collect tax on the sales of electricity and gas as these are not components of "rent".

Mar 03, 1997

Re: Technical Assistance Advisement 97(A)-011 Sales & Use Tax - Real Property Rental Sections: 212.031, F.S., 212.05, F.S. Rule: 12A-1.070, F.A.C. XXX (herein "City") XXX (herein "Lessee") XXX (herein "Pier")

Dear :

This is a response to your petition received October 24, 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.

DISCUSSION OF FACTS

The City owns the Pier and rents space on the pier to various businesses. The Pier provides on the premises: fishing, observation decks, a museum and a recreational center. The Pier

routinely has live entertainment. In addition, the Pier houses various commercial shopping stores. You provided a copy of a lease between City and Lessee, a food and drink concessionaire which leases space on the Pier. In addition to rent, the agreement indicates an obligation of Lessee to pay City for utilities not separately metered.

REQUESTED ADVISEMENTS

1) Should City collect tax on the rental of space to Lessee?

2) Should City collect tax on the sales of electricity and gas?

3) Must food and drink (as opposed to food or drink) be sold to qualify for the exemption provided in Section 212.031(1)(a)10., F.S., and Rule 12A-1.070(1)(a)8., F.S.?

DISCUSSION AND ANALYSIS OF LAW

Section 212.031(1)(a)10., F.S., states in pertinent 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 unless such property is:

10. Leased, subleased, or rented to a person providing food
    and drink concessionaire services within the premises of a movie theater, a business operated under a permit issued pursuant to chapter 550, or any publicly owned arena, sports stadium, convention hall, exhibition hall, auditorium, or recreational facility....

Further guidance can be found in Rule 12A-1.070(1)(a)8., F.A.C., which states as exempt:

Effective July 1, 1987, property leased, subleased, or rented to a person providing food and drink concessionaire services within the premises of a movie theater, a business operated under a permit issued pursuant to Chapter 550,

F.S. (dog and horse racing), or any publicly owned arena, sports stadium, convention hall, exhibition hall, auditorium, or recreational facility; however, licenses for such spaces have been taxable since July 1, 1986, and remain taxable.

It is clear, based on a review of the submitted lease, that City's lease with Lessee would qualify for the exemption provided above, with regard to the rented space. This exemption is not provided, however, for vendors not selling food and drink (see advisement request 3). The question then turns to the sales of the electricity and gas.

The court in Omni International of Miami, Ltd. v. Department of Banking and Finance, 444 So.2d 540 (Fla. 3 DCA 1984), considered a fact pattern wherein:

[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 hearing officer's findings 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.

In application of the Omni decision, the Department has taken the position, in the instance where commercial premises are served by a single or master meter and the proportionate cost of the electricity paid by the lessor, and upon which the lessor has paid sales tax, is passed through to a tenant, and the lessor is simply reimbursed by the tenant for its actual cost of electrical consumption, that such electricity billed the tenant is not a taxable element of the payment for renting, leasing, letting, or granting a license to use real property. Thus, in such instance, the electricity costs borne 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. This position will be held irrespective whether the lease or license agreement designates such proportionate electricity costs billed the tenant as part of the rent or license fee.

Accordingly, the question is whether City should collect tax on these sales since tax was not previously paid (City is exempt from the tax)? The sale of electricity is taxable as a sale of tangible personal property under Section 212.05(1)(a)1.a., F.S., since the definition of "tangible personal property" in Section 212.02(20), F.S., includes "electric power and energy." Likewise, gas is taxable unless used for residential purposes (see Section 212.08(7)(j), F.S.). As the Department has taken the position that utilities do not fall within the purview of Section 212.031, F.S., City would be required to collect the tax from Lessee on the sales of electricity and gas.

CONCLUSIONS OF LAW

Response 1. Rental payments made by Lessee would qualify for the exemption provided in Section 212.031(1)(a)10., F.S.

Response 2. City should collect tax on the sales of electricity and gas.

Response 3. Concessionaire must sell both food and drink to qualify for the exemption.

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 upon 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 from that which is 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 that 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 this response.

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

Sincerely,

R. Clay Brower
Tax Law Specialist
Tax Policy & Dispute Resolution
904-922-4837

RCB/
Control #: 26907