Was an affiliate's no-charge use of another affiliate's Florida real property subject to sales tax when no landlord-tenant relationship existed?

Subject

Use of Real Property by an Affiliated Company

Plain-English summary

The Department concluded that the affiliated company's use of the Florida property was not subject to sales tax because no rent or other consideration was paid and no landlord-tenant relationship existed. The occupant entered no use agreement, paid nothing to the property-owning affiliate, and made no payment to another party for the owner's benefit.

The answer would change if the occupant transferred anything of value. Payments of the owner's real estate taxes or insurance, property, goods, merchandise, services, or another benefit would count as rental consideration and become taxable.

This ruling was a supplement to TAA 97A-001. The earlier advisement contained the background synthetic-lease transaction and treated the real-estate affiliate as the owner for federal income tax purposes and the lessee under a synthetic lease deemed to be a mortgage. This page addresses only the remaining affiliate-use issue.

What this means for you

Affiliation alone neither created nor removed rental tax. The Department looked for a landlord-tenant relationship and actual consideration for the use of real property.

Intercompany arrangements described as free use still required scrutiny for indirect value transfers. Paying expenses for the owner could be taxable rent even without a conventional monthly payment.

Common questions

Q: Was there a written occupancy agreement? No.

Q: Did the occupying affiliate pay the owner anything? No, and it also made no payment to another party for the owner's benefit.

Q: Would payment of property tax or insurance be taxable? Yes. The ruling identified both as rental consideration when paid by the occupant for the owner's benefit.

Q: Is this page the full synthetic-lease ruling? No. TAA 97A-017 expressly supplements TAA 97A-001 and addresses the affiliate's property use.

Citations and references

• Fla. Stat. § 212.031 — tax on renting, leasing, letting, or licensing real property
• Fla. Stat. § 212.031(1)(d) — consideration includes property, goods, services, or another thing of value
• Fla. Admin. Code R. 12A-1.070(4)(c) — tax due on receipt of rental payment
• Department of Revenue v. Ryder Systems, Inc., 406 So. 2d 1299 (Fla. 1st DCA 1981); Southern Paving Company v. Department of Revenue, 399 So. 2d 11 (Fla. 1st DCA 1981) — cases cited for no-tax treatment without rent or consideration
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-017

Original ruling text

SUMMARY

The use of real property, by an entity affiliated with the
owner of the real estate, where no consideration is paid
and no landlord-tenant relationship exists, would not be
subject to tax. Any payments made by the occupant/user, to
or for the benefit of the owner of the property (such as
real estate taxes and insurance) would be considered rental
consideration and be subject to sales tax. Such taxable
payments could be in the form of property, goods, wares,
merchandise, services, or any other thing of value. See
Section 212.031(1)(d), F.S.

Mar 18, 1997

Re: Technical Assistance Advisement 97A-017
(Supplement to TAA 97A-001)
Sales and Use Tax; Use of Real Property by an Affiliated
Company
Section 212.031, Florida Statutes
XXX ("Bank")

Dear :

You have presented, in your letter of January 13, 1997, a
supplemental issue which you request that the Department
address, as it relates to the facts and transactions discussed
in the TAA 97A-001 (dated January 8, 1997) issued to you,
regarding your client, Bank. The primary participants in the
transactions under review are Bank, XXX ["Services"], and XXX
["Real Estate"]. This response represents a Technical Assistance
Advisement pursuant to Section 213.22, F.S., and Chapter 12-11,
Florida Administrative Code.

The background facts are those set forth in TAA 97A-001. The
remaining issue is the taxable status of the use of real
property by a corporation (Services) affiliated with Real
Estate, the owner for federal income tax purposes (and lessee

under a synthetic lease deemed to be a mortgage in TAA 97A-001),
of the real estate. The applicable statute is Section 212.031,
F.S., which imposes sales tax on the business of "renting,
leasing, letting, or granting a license for the use of any real
property..."

Your letter states in part:

The issue involves the use of the Florida Improvements by
[Services].... No agreement will be entered into
concerning [Services'] use of the Florida Improvements.
Further, no payment or consideration of any form will be
paid to [Real Estate] by [Services] for the use of the
Florida Improvements. Finally, no payments will be made to
any other party by [Services] for or on behalf of [Real
Estate].

In support of your assertion that no sales or use tax would be
due on the above described transactions you refer to the
decision in Department of Revenue v. Ryder Systems, Inc. 406
So.2d 1299 (Fla. 1st DCA 1981) and cite as follows:

[i]n this case, the court below found no landlord and
tenant relationship in that Ryder Systems, Inc. was not
engaged in the business of renting, leasing, or letting any
real property. Since there was no finding a rental payment
was made, the trial court correctly disapproved the tax.

Additionally, you state:

... we wish to add the following citations as also
supporting the conclusion that no sales or use tax is due:
rule 12A-1.070(4)(c), Fla. Admin. Code (sales tax on real
property rentals is due only on the "receipt" of a rental
payment by the landlord); and Southern Paving Company v.
State of Florida, Department of Revenue, 399 So.2d 11 (Fla.
1st DCA 1981) (no sales tax is due where no consideration
was paid by related corporation).

FINDING

The use of real property, as described in the facts of this
case, by an entity affiliated with the owner of the real estate,
where no consideration is paid and no landlord-tenant
relationship exists, would not be subject to tax. Any payments
made by the occupant/user, to or for the benefit of the owner of
the property (such as real estate taxes and insurance) would be
considered rental consideration and be subject to sales tax.
Such taxable payments could be in the form of property, goods,
wares, merchandise, services, or any other thing of value. See
Section 212.031(1)(d), 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,

Jonathan E. Swift
Tax Law Specialist
Tax Policy and Dispute Resolution

Control #27596