How was Florida sales tax allocated when a self-storage operator leased whole facilities and rerented most of the space?

Subject

Allocating Tax on a Self-Storage Master Lease

Plain-English summary

The self-storage operator had to allocate its master-lease payment by use, taxing the share attributable to its own office while avoiding a second layer of tax on space rerented to storage customers. The ruling applied Florida's rule that rental tax should not be pyramided through successive transactions involving the same property.

The allocation fraction was the office's square footage divided by the total square footage of improvements across both leased parcels. The employee apartment was excluded from the numerator because it was used as a dwelling. Storage units and the roadways and driveways serving customers were treated as part of the customer-rental activity.

The operator was to give the lessors a resale certificate, report the tax attributable to its office use on its own return, and collect state sales tax and any applicable local discretionary surtax on the storage rents paid by individual customers.

Source arithmetic note: the ruling's example allocates one-twelfth of a $12,000 monthly payment, correctly producing a $1,000 taxable amount, but then says a 6% rate yields $120. Six percent of $1,000 is $60. The official text is preserved below exactly as published; the stated method, not that inconsistent final number, is summarized here.

What this means for you

An operator that both occupies and rerents leased real property may need a defensible use allocation. Here, improved square footage supplied the allocation measure because the parcels had no undeveloped land and customer driveways served the taxable storage rentals.

The ruling also shows the documentation flow: the operator extended a resale certificate upstream and remitted tax on its own-use share while collecting tax from downstream storage customers.

Common questions

Q: Was the entire master-lease payment taxed to the operator? No. The operator's own office-use share was taxed at that level; the storage-customer share was taxed through the customer rentals.

Q: How was the office share calculated? Office square footage divided by the total square footage of all improvements, multiplied by the monthly master rent.

Q: Was the employee apartment included with the office? No. The ruling excluded it from the numerator because it was used as a dwelling.

Q: Did customers' storage rents remain taxable? Yes. The operator had to collect state tax and any applicable local discretionary surtax on those payments.

Q: Is the ruling's $120 example reliable? No. The source's final arithmetic is inconsistent with its stated 6% rate and $1,000 tax base.

Citations and references

• Fla. Stat. § 212.031(1)(a) — tax on leasing or licensing real property
• Fla. Stat. § 212.031(2)(b) — one-tax and anti-pyramiding rule
• Fla. Admin. Code r. 12A-1.070(9) — resale certificate for real-property rentals
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-009

Original ruling text

SUMMARY

When in the lease of real property, a portion of which is
used for lease to individual storage unit customers, and a
portion is used by the lessee for its own purposes, the
sales tax on the payment made pursuant to the lease of real
property is determined by finding the percentage of the
square footage used for storage and that used for the
lessee's own purposes, as to the entire lease, and then
multiplying the percentage times the monthly lease payment
which product is then multiplied by the sales tax rate.

Mar 05, 1998

Re: Technical Assistance Advisement 98A-009
Lease of Land and Rental of Self-Storage Units
Section 212.031(1)(a), and (2)(b), F.S.
Rule 12A-1.070(9), F.A.C.
L.G. 75 Limited Partnership (herein Lessor)
L.G. 78 General Partnership (herein Lessor 2)

Dear :

This is a response, styled a Technical Assistance Advisement, to
your letter dated November 25, 1996, wherein you inquired as to
the sales tax liability which arises when Lessor, a limited
partnership, and Lessor 2, a general partnership, as owners of
separate self-storage facilities, form a limited liability
company (herein Operator) for the purpose of leasing and
operating both facilities. You state that Operator, as lessee
of both facilities, will retain for its own use, an apartment
and an office in one of the facilities. The storage units in
both facilities will be rented to individual customers by
Operator.

Department Response

Section 212.031(1)(a), F.S., imposes sales tax on the privilege

of engaging in the business of leasing and of granting a license
to use any real property. Rule 12A-1.070, F.A.C., interprets
this statute. The tax, as imposed by the statute, applies to
the payments given by Operator to Lessor and Lessor 2
(collectively Lessors), in accordance with any agreement between
these parties as to the lease of the land and the facilities.
The tax is also imposed on the lease or rental of the storage
units to individual customers.

However, s. 212.031(2)(b), F.S., expresses the intention of the
legislature "... that only one tax be collected on the rental or
license fee payable for the occupancy or use of any such
property, [and] that the tax so collected shall not be pyramided
by a progression of transactions...."

Thus, the ultimate question presented here is the standard to be
used for delimiting the imposition of the tax on the lease of
the real property by Operator from Lessors when a portion of the
real property is also leased or rented to individual storage
unit customers from whom Operator is obligated to collect sales
tax on each such individual storage lease or rental payment.

You will find, in the following discussion, both that this
allocation has been made, and the basis for the allocation.

In the instant factual pattern, the surfaces of both parcels of
land are improved by the two facilities both of which are leased
to Operator. One of these buildings is divided solely into
separate storage areas leased or rented to individual storage
customers. The other building is similarly comprised of such
individually leased or rented storage units, but also contains
space used by Operator as an apartment and as an office utilized
in the operation of the business.

All of the remaining portions of the land are hard covered as
roadways and driveways used by the storage unit customers in
ingressing and egressing both the land and the individually
leased or rented storage units. Thus, the land use is only
between that utilized by the individual customers and the
portion of one building which is used as an apartment and an
office by Operator.

The land used in connection with the lease or the rental of the
individual storage units is not taxable under the lease between
Operator and Lessors because it is subject to tax to be
collected by Operator from the individual storage customers.
The method of allocating the portions of the lease payments made
by Operator to Lessors between that area Operator uses for its
own purposes and the area used in connection with the operation
of the individual storage rental business is explained as
follows:

(1) Find the percentage of the square footage used by
Operator as an office to the total square footage of the
improvements situated on both parcels of the leased land. In
determining such a fraction the denominator is the square
footage of the improvements.

This is determined by computing the square footage of the floor
which is on the same grade as the land under lease to which is
added the total square footage of any floors or levels both
above and below the same grade floor. For example, assuming
that both buildings were of the same size and construction, in
that square footage of the same grade floors were 1,000 square
feet and the buildings each contained 2 floors above the same
grade floor with each such floor having an area of 1,000 square
feet, the total square footage of each building would be 3,000
square feet. The total of both buildings would be 6,000 square
feet which would be the value of the denominator.

As to the computation for finding the portion of the lease
payment to be borne by Operator with respect to the square
footage used for its own purposes, the numerator will be
comprised solely of the square footage of the office. The area
of the apartment since it is used as a "dwelling" by the
Operator's employee, is not part of the numerator. If the
office contains 500 square feet the fraction to be multiplied by
the lease payment is 500 over 6,000 or one-twelfth of the lease
payment. If the lease payment were $12,000 per month, Operator
would owe tax on $1,000 which would be the portion used by
Operator for its own purposes.

(2) Multiply the fraction in (1) above (one-twelfth), times
the monthly lease payment made by Operator, which an assumption
is made is $12,000.00. Since there is no undeveloped land under
lease the entire lease payment is used in the multiplication.

(3) The product of (2), (one twelfth times $12,000), equals
the taxable lease payment made by Operator of $1,000, which,
when multiplied by the State sales tax rate of 6 percent, yields
a sales tax liability of Operator of amount of $120.00.

There may be, as well, a liability of Operator for a local
discretionary sales surtax applicable to this portion of the
lease payment. Further, Operator is liable for the collection
of State sales tax, and any applicable local discretionary sales
surtax, on the monthly lease or license payments made to
Operator by the individual storage units customers.

Finally, as provided in Rule 12A-1.070(9), F.A.C., Operator
should register and extend a resale certificate to Lessors which
removes the obligation of Operator to pay sales tax to Lessors
on the total lease payments made by Operator. Of these total
lease payments, Operator need only remit to the Department, on
its own sales tax return, the sales tax allocated to the use of
the office as described above.

Operator shall, as well, remit the applicable sales tax on the
lease or rental payments it collects from the individual storage
unit customers.

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,

Robert G. Parsons
Tax Law Specialist
Tax Policy and Dispute Resolution

Ctrl. No. 27137