Was rent under a long-term motel ground lease fully exempt as property used exclusively for dwelling units?

Subject

Real Property Lease and Sublease

Plain-English summary

The long-term motel lease was only partly exempt under Florida's dwelling-unit rule. Guest rooms, lobbies, hallways, common areas principally provided for guests, and parking spaces equal to the number of motel rooms counted as property used exclusively as dwelling units.

Other portions served the motel operator's business rather than guests' dwelling use. The equipment room, mechanical room, housekeeping office, and parking spaces beyond the room count were taxable portions of the real-property lease.

The Department also warned that a commercial shop or an area used to charge guests a separate fee—such as a fee for pool use—would not qualify for the dwelling-unit exemption. Because the requester did not provide enough measurements and documents, the ruling did not calculate the exact taxable rent.

What this means for you

A motel, apartment, or other residential-use lease is not necessarily all exempt when the leased premises also contain operator-only, commercial, or separately monetized areas. Each portion must be classified by actual use.

The rule described a square-footage allocation for mixed-use property. The taxable fraction generally used non-dwelling and lessee-only space in the numerator and the relevant total leased land and improvement area in the denominator, applied to total rent or license fees.

Common questions

Q: Were motel guest rooms exempt? Yes. The ruling treated them as dwelling-unit space.

Q: Which common areas were exempt? Lobbies, hallways, guest common areas, and parking up to one space per room were included with the dwelling use.

Q: Which identified areas were taxable? Equipment and mechanical rooms, the housekeeping office, and parking beyond the number of rooms.

Q: Did the Department determine an exact taxable percentage? No. It said the submitted information was insufficient and described the general allocation method instead.

Citations and references

• Fla. Stat. § 212.031(1)(a)2. — exemption for real property used exclusively as dwelling units
• Fla. Admin. Code r. 12A-1.070(14)(a) — allocation where only part of mixed-use leased property is excluded from tax
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-034

Original ruling text

SUMMARY

In this TAA, a Lessor leased a Lessee land and a motel in
exchange for consideration. The taxpayer sought advisement
on whether this transaction as subject to tax. Pursuant to
s. 212.031(1)(a)2., F.S., property used exclusively as
dwelling units is specifically exempt from tax. However,
any taxable use made by the Lessee would be subject to tax.
The lease indicated that the equipment room, mechanical
room, housekeeping office, and all spaces in the parking
lot in excess of the number of rooms was not used
exclusively as dwelling units. Consequently, the portions
of the lease of these areas was deemed to be taxable.

May 08, 1998

Re: Technical Assistance Advisement 98A-034
Sales and Use Tax - Real Property Lease and Sublease
Petitioner: XXX (herein "Taxpayer")
FEI: XXX
Section: 212.031(1)(a)2., F.S.
Rule: 12A-1.070(14)(a), F.A.C.

Dear :

This letter is a response to your petition dated March 13,
1998, 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

In your letter, the attachments to your letter, and in our
telephone conversations, you presented the following:

XXX (hereinafter Lessor) and XXX (hereinafter Lessee)
entered into a lease agreement (hereinafter Agreement) in
1963. This Agreement stated that the Lessor would lease to
the Lessee land and a motel (hereinafter Premises)
consisting of about 50 units (including a manager's
apartment) to be placed thereon by Lessee. The Agreement
stated that the lease term would be for the period of
forty-nine years (plus the partial month, if any,
immediately following commencement date). The Agreement
provided that the Lessee pay the Lessor five hundred
dollars per month and an annual percentage rent of Lessee's
gross receipts from the operation of its business on the
Premises in excess of a certain amount. The Agreement
further provided that the Lessee shall pay all taxes and
assessments on the premises by any state, county or local
government during the term before delinquency. As for
assignments and subletting, the Agreement provided that the
Lessee may assign or sublet its interest or any part
thereof without securing Lessor's consent.

On January 1, 1964, the Agreement was amended to reflect
the true lease term agreed upon by the Lessor and Lessee.
The true lease term stated in the amendment was fifty-five
years. In 1979, Lessee assigned an undivided 50% interest
in the lease to XXX who have operated the Premises
continuously as a motel.

Requested Advisement

Is the above described transaction exempt under s.
212.031(1)(a)2., F.S.?

Department's Determination

Section 212.031, F.S., provides 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 to use real property unless such property is: ...

2. Used exclusively as dwelling units.

Pursuant to s. 212.031(1)(a), F.S., sales tax is imposed on
the privilege of renting, leasing, letting or granting a license
to use real property, unless such property is specifically
exempt. A specific exemption for property used exclusively as
dwelling units is provided in s. 212.031(1)(a)2., F.S. Because
this specific exemption only applies to that portion of the
Premises "used exclusively as dwelling units," any taxable use
made by the Lessee would be subject to tax.

The taxability of any portion of the Premises turns on
whether these portions are used solely in connection with the
operation of a motel. If the Lessee operates a commercial shop,
charges a fee to any guest for the use of the pool, etc., such
portions of the Premises are not used exclusively as dwelling
units. The specific exemption provided in s. 212.031(1)(a)2.,
F.S., may not be extended to the operation of such portions of
the premises.

From the information presented, the equipment room,
mechanical room, housekeeping office, and all spaces in the
parking lot in excess of the number of rooms are not used
exclusively as dwelling units and the portions of the lease of
these areas are accordingly taxable. The guest rooms, common
areas, parking spaces equal to the number of rooms, and all
lobbies and hallways would be included within the area used
exclusively as dwelling units.
Rule 12A-1.070(14)(a), F.A.C., provides that the Department
will determine through a review of pertinent documents what
portion of the rental or license payments are subject to tax in
the instance where part of multiple use property is excluded
from the tax. Adequate information to make such a determination
has not been provided. In general, the portion of the lease
payments subject to tax would be found by multiplying the total
rental or license fee by a fraction, the denominator of which is
the total square footage of the land demised, to which is added
the total square footage of all floors or levels of all
improvements which are above the lowest floor or level. The
numerator is the total square footage of the premises which is

used exclusively by the lessee for its own purposes, plus all
other square footage which is not the guest rooms, or the common
areas principally provided for the use of the guests, and other
areas the use of which is taxable under some other provisions of
Chapter 212, 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 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.

Sincerely,

Leigh L. Ceci
Tax Law Specialist

Enclosure
Control #33413