Which parts of a shipping company's Florida port lease qualified for the port-property sales-tax exemption?

Subject

License to Use Real Property; Lease from Port Authority

Plain-English summary

Florida allocated the port lease between exempt cargo-loading uses and taxable support uses. Transit Shed #2 and the throughput fees for docking, wharfage, terminal use, and included crane use were fully exempt because they related exclusively to docking, mooring, or loading and unloading cargo.

The container-handling area and the combined office/truck facilities were only partly exempt. Cargo spaces, the terminal gate, the operations portion of the office, and the car-carrier area qualified; equipment-storage spaces, the garage, general office and records areas, employee parking, the pump house, and other support facilities did not. The Department used square footage and actual usage to allocate the mixed rental consideration.

Separate charges for additional cranes were taxable rentals of tangible personal property. The ruling also warned that a 1997 statutory amendment changed the treatment of certain port payments and required apportionment of a payment made to cover a shortfall below the minimum cargo guarantee.

What this means for you

A port-authority landlord does not make every leased area exempt. The tenant and authority need records showing which spaces and charges are used exclusively for the protected vessel and cargo functions, and they must update the allocation when usage changes.

Common questions

Q: Which facilities were fully exempt? Transit Shed #2 and the qualifying throughput fees were fully exempt under the ruling.

Q: Were all container-yard and office charges exempt? No. Mixed facilities had to be divided between qualifying cargo-loading uses and taxable support uses.

Q: How did the Department allocate a combined facility charge? It used square footage for the office/truck facilities and the number and use of spaces for the container-handling area.

Q: Were separate extra-crane rentals exempt? No. The Department treated them as taxable rentals of tangible personal property.

Citations and references

• Fla. Stat. § 212.031(1)(a)8. — port-property lease exemption applied in the ruling
• Fla. Admin. Code r. 12A-1.070(1) — leases and licenses of real property
• Fla. Admin. Code r. 12A-1.071 — rentals of tangible personal property, including separate additional-crane charges
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-039

Original ruling text

SUMMARY

Discusses the application of the exemption for real property leased from a port authority provided for in Section 212.031(1)(a)8., Florida Statutes.

Jun 03, 1997

Re: TAA 97(A)-039
Sales and Use Tax; License to Use Real Property; Lease from Port Authority. Section 212.031(1), Florida Statutes. Rule 12A-1.070(1), Florida Administrative Code.

Dear :

I am writing in reply to XXX letter of July 11, 1995. In that letter he requested a Technical Assistance Advisement regarding some property that your company is leasing. His letter presented a lengthy factual scenario, which reads:

FACTS

XXX ("Taxpayer"), a XXX corporation, operates a fleet of oceangoing container vessels, and is a leading provider of port-to-port and intermodal maritime transportation services between the U.S. mainland and certain XXX locations.

The Taxpayer, as part of U.S. operations, leases certain vessel berthing, cargo handling and temporary cargo storage facilities ("Leased Facilities") from the XXX ("Authority") at XXX ("Terminal"), located in XXX, the Taxpayer has remitted a 6.5% sales tax to the Authority along with the monthly lease payment for the Leased Facilities....

Description of the Leased Property and its Usage

The Leased Facilities consist of the following:

I) 34.89 acres of container handling facilities

The container handling area XXX measures approximately 1,520,000 square feet, and comprises the major portion of the Leased Facilities. This is a lined, paved asphalt area, containing 1,250 spaces used for holding, processing, sorting and otherwise serving as a temporary storage area for containerized customer cargo while waiting to be loaded aboard the vessel or to be claimed by the customer. Less than 100 of the 1,250 available spaces are used for out-ofservice equipment that is awaiting repair.

The following structures and improvements are also included in the cargo handling area:

• Garage (22,131 square feet, XXX)

This is a permanently constructed building that serves as the taxpayer's maintenance facility where all equipment is repaired and maintained in a serviceable condition for use by the Taxpayer's customers.

• Terminal gate and covered concrete trailer terminal
  (18,750 square feet, XXX)

This portion of the facility includes the terminal access gate ("gate" refers only to the space within the terminal access area). Cargo must pass through this six-lane access area in order to exit the cargo holding area or enter to be loaded onto the Taxpayer's vessel docked at the pier. A security station located in the center of this trailer access area serves to protect customer cargo and Taxpayer's equipment, and restrict access to the leased facilities.

• Office building (9,124 square feet, XXX)

This one-story office building houses the following departments (percentage indicates the portion of the

building used by that department, based on square footage):

Accounting (5.5%), Documentation (7.3%), Office Services (53.3%), Port Management (5.4%), Risk Management/ Insurance (2.0%), Equipment Control (15.8%), and Sales (10.0%)

A portion of the facility (0.7% of the total square footage) is used by Operations personnel for the purpose of controlling and recording the cargo entering and exiting the Leased Facilities. This portion of the building is constructed with glass windows facing the terminal access gate area. As customer cargo moves into and out of the facility, these personnel maintain operational control over cargo entering and exiting the facility.

• Asphalt parking lot adjacent to office building (69,626
  square feet, XXX)

This asphalt parking lot is used by employees and visitors to the facility. No operational equipment or cargo is kept here.

• Two concrete block buildings (4,792 square feet, XXX)

These two adjacent buildings house the offices of Vessel Operations and Records Retention. While the vessel is in territorial waters, the vessel crew regularly receives directions from operational personnel located in these buildings. In addition, port engineers and clerical personnel are responsible for the operational maintenance and repairs of the vessels while in territorial waters. The records retention portion of the building is used only for records storage.

• One story frame pump house (155 square feet, XXX)

This small building shelters certain sewerage pumping

equipment which is part of the cargo transportation operation.

• Single concrete block building (1,026 square feet, XXX)

This one story building houses the Marine Operations and vehicular cargo operations (known as "car carrier" area). The managerial, supervisory and clerical personnel of Marine Operations maintain constant and full operational control over all cargo handling, cargo staging and docking procedures while the ship is in territorial waters. It is from this building that communication is maintained between operational personnel located at the terminal access gate, the Transit Shed and warehouse area, and the car carrier building to provide for the orderly movement of cargo to and from the vessel and within the terminal areas. Certain cargo containers are specifically designed and constructed to hold and carry automobiles and other similar vehicles. When customers ship vehicles from the Leased Facilities, the vehicular cargo arrives through the terminal access gate and is delivered to this area of the facility for processing and containerization. At this point, the vehicles are driven into the appropriate containers. The loaded containers are then staged and prepared for loading aboard the vessel. When vehicular cargo arrives at the facility via the vessel, the loaded containers are removed from the vessel and brought to this area to be unloaded and await pick-up by the customer.

II) Transit Shed #2

The Transit Shed is a structure owned by the Authority, and it is located outside of the 34.89 acre container handling portion of the Leased Facilities (the portion leased by the Taxpayer is 11,000 square feet, XXX). This area serves as a cargo transfer station and warehouse facility where certain customer cargo arrives via truck or other equipment not owned or leased by the Taxpayer. The cargo arriving in this manner is removed from the truck and transferred to

equipment that is suitable for loading onto the Taxpayer's vessels, namely cargo containers. This transfer facility also contains warehouse space where customer cargo can be staged and stored temporarily until it is loaded into a shipping container. Likewise, when a customer accepts delivery of their cargo in something other than the Taxpayer's equipment, the cargo is transferred from the shipping container to the customer's equipment at this point.

Once inbound cargo arrives at this facility and is accepted by the Taxpayer for transportation, the cargo is under the full operational control of the Taxpayer, and all risk of loss rests with the Taxpayer. Until cargo is accepted and received by the customer, it remains under the full operational control of the Taxpayer.

In addition to the information provided in the letter, XXX provided a copy of the lease agreement between the Taxpayer and the Authority. Exhibit B of that lease provides in part:

II. LEASED PREMISES RENTAL:

Annual

Monthly

A. XXX

$XX

$XX

B. XXX

$XX

$XX

*C. XXX

$XX

$XX

$XX

$XX

TOTALS

• The rental rate for the XXX facilities shall not be
  increased for the first ten (10) years of this Agreement.

III. THROUGHPUT:

A. Throughput rate: Includes Dockage, Wharfage, Terminal Use and Crane Rental.

1-25,000 loaded containers

$XX loaded container

25,001-30,000 loaded containers

$XX loaded container

30,001-35,000 loaded containers

$XX loaded container

Over 35,000 loaded containers

$XX loaded container

B. Minimum Annual Guarantee: Lessee shall guarantee a XXX Loaded container[s] shall cross Authority's docks each lease year. In the event Lessee does not meet the XXX loaded container minimum annual guarantee in any lease year, Authority shall invoice Lessee for the difference between the number of loaded containers Lessee handled across Authority's docks and XXX loaded containers.

REQUESTED ADVISEMENT

The purpose of this Request for Technical Assistance Advisement is to determine if the Taxpayer is being properly assessed sales tax on the lease of this facility. Based on a review of the Florida Statutes and Rules, as well as previously published Technical Assistance Advisements, the taxpayer believes a significant portion of the Leased Facilities are eligible for the exemption from Sales and Use taxes provided by Section 212.031(1) (a) [8., Florida Statutes]....

The Taxpayer respectfully requests the Department of Revenue to review the facts and the Taxpayer's position, and advise the Taxpayer whether or not the Taxpayer should be assessed sales tax on the applicable property.

APPLICABLE LAW

Section 212.031, Florida Statutes, 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 unless such property is:...

8. Property used at a port authority, as defined in s.
   315.02(2), exclusively for the purpose of oceangoing

vessels or tugs docking, or such vessels mooring on property used by a port authority for the purpose of loading or unloading passengers or cargo onto or from such a vessel, or property used at a port authority for fueling such vessels....

Rule 12A-1.070, Florida Administrative Code, provides in part:

(1)(a) Every person who rents or leases any real property or who grants a license to use, occupy, or enter upon any real property is exercising a taxable privilege unless such real property is:... 7.a. Property used at a port authority exclusively for the purpose of oceangoing vessels or tugs docking, or such vessels mooring on property used by a port authority for the purpose of loading or unloading passengers or cargo onto or from such vessels, or property used at a port authority for fueling such vessels. See Subsection (2). b. The term "port authority" means any port authority created by or pursuant to the provisions of any general or special law or any district or board of county commissioners acting as a port authority under or pursuant to the provisions of any general or special law....

TAXPAYER'S POSITION

Section 212.031(1)(a)[,) F.S.[,] provides that any person who engages in the business of renting, leasing, letting or granting a license for the use of any real property is exercising a taxable privilege, unless the property is exempt under sub-paragraphs 1 - 11 of Section 212.031(1)(a). Section 212.031(1)(a)[8.] provides that property used at a port authority (as defined in Section 315.02(2)) exclusively for the purposes of oceangoing vessels or tugs docking, or such vessels mooring on property used by a port authority for the purpose of loading or unloading passengers or cargo onto or from such vessel, or property used at a port authority for fueling such vessels, shall be exempt from taxes imposed by Section 212.031.

Section 315.02(2)[,] F.S. (1993)[,] defines "port authority" as any port authority in Florida created by or pursuant to the provisions of any general or special law or any district or board of county commissioners acting as a port authority under or pursuant to the provisions of any general or special law.

Based on the Taxpayer's understanding of the applicable Florida Sales and Use Tax laws, Rules and published Technical Assistance Advisements, the Taxpayer [contends] that the Leased Facilities exclusively used for the purposes of loading and unloading the Taxpayer's oceangoing vessels are exempted from the applicable tax under Section 212.031(1)(a)[8.], and the Taxpayer is entitled to a refund of taxes paid on the Leased Facilities. In addition, the Taxpayer should no longer be assessed the applicable tax on the monthly lease invoice from the Authority.

DEPARTMENT'S POSITION

Paragraph (1)(a) of s. 212.031, F.S., does provide that every person is exercising a taxable privilege who engages in the business of renting, leasing, letting, or granting a license to use any real property. The statute also provides certain enumerated exceptions, one of which is described in subparagraph (1)(a)8. of the statute (herein Subparagraph) as, "[p]roperty used at a port authority, as defined in s. 315.02(2), exclusively for the purpose of oceangoing vessels or tugs docking, or such vessels mooring on property used by a port authority for the purpose of loading or unloading passengers or cargo onto or from such a vessel, or property used at a port authority for fueling such vessels...." This statute is replicated in Rule 12A-1.070(1)(a)7., Florida Administrative Code.

At issue here is the meaning of the phrase in the Subparagraph which provides an exception from sales tax on "... property used at a port authority... exclusively... for the purpose of loading or unloading passengers or cargo...."

First, the Department finds that Lessor is a "port authority" within the meaning and intent of Section 315.02(2), F.S., and that the leased facilities are located at the port authority.

As such, the Department concludes that the exception provided in the Subparagraph is applicable to all payments made by Lessee on the condition that the space is used exclusively for the loading or unloading of cargo. The word "exclusively" applies only to the function of that space, and does not propose that in the event an entire area is not used exclusively for the purpose of cargo loading and unloading that no space within such area may be excluded from the tax.

Thus, the Department, by square foot measure, will consider as excluded from the tax any space devoted "exclusively" to the function of loading and unloading cargo from oceangoing vessels. As a consequence, the exception from the tax will not extend to, for example, any office space not devoted exclusively to such loading and unloading of cargo, nor to any use of the property as a site for a maintenance facility, nor to any space used for the storage of equipment. Similarly, the space used for other business activities such as controlling the movements of the oceangoing vessels in territorial waters shall not be excluded from the tax.

It will be necessary to examine each part of the leased facilities separately in order to determine which portions are exempt from the sales tax. The rental consideration paid for the portions of the property which are used exclusively for exempt purposes will be exempt. For the purpose of this discussion, the rental consideration due in July 1995 will be considered. For other time periods, calculations should be done in the same manner based upon the rental consideration then due.

CONTAINER HANDLING FACILITIES

The XXX of the container handling facilities are divided into XXX available spaces. Of these spaces XXX are used exclusively for holding, processing, and sorting of cargo containers. This portion of the facility is exempt since it is used exclusively for the loading and unloading of cargo. Up to XXX are used to

store out-of-service equipment awaiting repair. This area is not used exclusively for the purpose of loading and unloading cargo and, as such, it remains taxable. The monthly rental consideration paid for the entire container handling facility was $XX. Since XXX of the facility is exempt, sales tax should be paid on XXX of the rental consideration ($XX), for a total tax due of $XX in that month on the lease of the container handling facilities.

TRANSIT SHED #2

The Transit Shed, which is a cargo transfer station and temporary storage facility, is used exclusively for the purposes of loading and unloading cargo. As such, the entire rental consideration ($XX) for this facility is exempt.

OFFICE/TRUCK FACILITIES (XXX square foot total)

Under the lease, a monthly rental consideration of $XX is being paid for the lease of a number of buildings and small facilities. Since only a portion of these facilities is exempt, it will be necessary to allocate this rental payment among the facilities in order to determine the tax due on this payment. The Department has chosen to allocate the lease consideration based on square footage. The exemption statuses of the individual buildings and facilities are as follows:

Garage (XXX square feet)

The garage serves as the Taxpayer's maintenance facility. It is not a direct part of the cargo loading and unloading operation. Thus, it is not exempt from the sales tax. As such, tax will be due on the rental consideration for this property

Terminal Gate (XXX square feet)

The terminal gate is used to manage the flow of cargo from the cargo handling facilities to and from the docked ship and other cargo areas. The personnel stationed in this area serve only to regulate the flow of cargo being loaded and unloaded. As such the total consideration for this facility is exempt.

Office Building (XXX square feet)

The majority of this facility is used for office services, equipment control, and other non-exempt purposes. However, XXX of the building (or XXX square feet) is used by operations personnel for controlling and recording the entry and exit of cargo from the facility. This portion of the office building is exempt.

Asphalt Parking Lot (XXX square feet)

The asphalt parking lot is used by employees of and visitors to the facility. It is not a part of the cargo operation and is not exempt.

Two Concrete Block Buildings (XXX square feet)

These buildings house the offices of vessel operation personnel and the records retention area. These buildings are not involved in the loading and unloading of cargo. Thus, the consideration paid for the lease of this facility is taxable.

Pump House (XXX square feet)

This facility contains the sewage pump which is used to meet the sewage needs of all the facilities. As this pump does not exclusively serve facilities used in the cargo loading and unloading operations, the rental consideration paid on it will be taxable.

Car Carrier Area (XXX square feet)

In the car carrier area, automobiles and other cargo are loaded into and unloaded from cargo containers. In addition, operational personnel located in this building maintain communication between the terminal access gate, the transit shed, and the warehouse area in order to facilitate the orderly movement of cargo to and from the ship. Since these uses are all direct parts of the cargo loading and unloading operations, the rental consideration for this facility is exempt.

Thus, XXX square feet of the XXX square foot Office/Truck Facilities are exempt from the sales tax. With XXX of the square footage of these facilities being exempt, XXX of the consideration paid for those facilities ($XX a month) will also be considered exempt. To simplify, sales tax of $XX is due on
$XX of the consideration paid for the use of the Truck/Office Facilities during XXX.

DOCKAGE, WHARFAGE, TERMINAL USE AND CRANE RENTAL

The throughput fees paid to the Authority for "Dockage, Wharfage, Terminal Use and Crane Rental" may be considered an additional fee for the license to use real property. It is understood that these throughput fees are paid for the license to use real property within the port authority exclusively for the purposes of docking, mooring, and loading and unloading passengers and cargo. As such, these throughput fees also fall within the exception provided by Section 212.031(1)(a)8., Florida Statutes, and sales tax will not need to be remitted upon them.

The Department recognizes that the rental payments include the use of certain items of tangible personal property, but the department considers this tangible personal property to be incidental to the use of the real property. As such, the tangible personal property will not be separately considered.

It should be noted that payments of the separate fees discussed in exhibit B, item IV of the lease agreement for the use of additional cranes, must be considered payments for the use of tangible personal property. Sales tax will need to be remitted on these payments under the provisions of Rule 12A-1.071, F.A.C.

CAVEAT

This response is based on the Florida Statutes at the time the request for technical assistance was made. However, during the recent 1997 session, the Florida Legislature passed House Bill

915. This legislation, enacted as Chapter 97-221, Laws of
     Florida, amends the relevant Statute.

Section 4 of Chapter 97-221, L.O.F., modifies Section 212.031(1)(a)8., F.S., by adding the following underlined language:

8.a. Property used at a port authority, as defined in s. 315.02(2), exclusively for the purpose of oceangoing vessels or tugs docking, or such vessels mooring on property used by a port authority for the purpose of loading or unloading passengers or cargo onto or from such a vessel, or property used at a port authority for fueling such vessels, or to the extent that the amount paid for the use of any property at the port is based on the charge for the amount of tonnage actually imported or exported through the port by a tenant.

b. The amount charged for the use of any property at the port in excess of the amount charged for tonnage actually imported or exported shall remain subject to tax except as provided in sub-subparagraph a.

Under the modified Statute, if taxpayer does not meet the minimal annual guarantee of XXX loaded containers passing through the port, and makes a payment to the authority in order to compensate for falling below the minimum annual guarantee, that payment will need to be apportioned in the same manner as the rest of the lease payments.

CONCLUSION

Under the exception from the sales tax on leases for the use of real property provided in Section 212.031(1)(a)8., Florida Statutes, the throughput fees and lease payments on transit shed

2 are fully exempt. The lease payments for the truck/office facilities and the container handling facilities are both partially exempt. As a result, the Authority should have collected sales tax of $XX from the Taxpayer on the lease of these facilities for XXX. If the tax paid to the Authority was in excess of this amount, a credit may be taken against future tax liability or a refund could be applied for. In either case, after refunding tax paid to Taxpayer, the Authority must take

the credit or apply for the refund from the Department of Revenue, since it is the party remitting the tax to the Department.

In the future, Taxpayer will need to keep the Authority apprised of any changes in the usage of the property, specifying which parts of the property are being used for exempt purposes. This will allow the Authority to correctly calculate and collect the amount of tax due.

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,

Kama Schultz
Senior Tax Specialist

KDS\
Control No. 22348