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