Could a travel agent use a hotel lease longer than six months to avoid tax on rooms included in vacation packages?

Subject

Bona Fide Written Lease for Greater Than Six Months by Travel Agent

Plain-English summary

The travel agent could not use a hotel-room lease longer than six months to avoid tax on rooms placed in short-term vacation packages. Although it proposed paying for a fixed block of rooms and obtaining contractual possession, most rooms would be assigned to customers for vacation stays under six months.

Florida's long-term transient-accommodation exemption required the lessee's exclusive use or possession. Assigning the rooms to vacation customers meant the travel agent did not meet that requirement. The Department therefore treated the hotel rooms as taxable components of the lump-sum packages.

Because the agent charged one unitemized price for airfare, hotel, and rental cars, it did not collect tax from the customer on the package sale. Instead, it had to pay tax when buying each taxable component. In theory, it could register as a dealer, give the hotel a resale certificate, and collect tax on a separately taxable room assignment, but that was not the proposed lump-sum arrangement.

What this means for you

A long contract term alone does not establish Florida's hotel-lease exemption. The lessee must retain the required use or possession and cannot rely on the exemption while routinely assigning short-term occupancy to package customers.

Common questions

Q: Did paying for unused rooms make the lease exempt? No. The decisive problem was assigning occupancy to short-term customers, not whether every reserved room was used.

Q: Was the lump-sum vacation package itself taxed to the customer? No. Under the ruling, the agent instead paid tax on the package's taxable components.

Q: Could a resale structure work? The ruling said the agent could theoretically register, buy the rooms for resale, and collect tax on the assignments, but its unitemized lump-sum package did not use that structure.

Citations and references

• Fla. Stat. § 212.03 — transient accommodations and leases longer than six months
• Fla. Admin. Code r. 12A-1.061(8), (15) — assignment and bona fide written-lease requirements
• Fla. Stat. § 212.04(1)(d); Fla. Admin. Code r. 12A-1.005(7) — taxable vacation-package components
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-070

Original ruling text

SUMMARY

A travel agent provides vacation packages to client for a
lump sum charge. Travel agents are required to pay tax on
the purchase of the taxable components of vacation packages
when such packages are sold to clients for a lump sum
charge. The travel agent may not enter into a bona fide
written lease agreement for the greater than six months in
duration to avoid tax on the purchase of transient
accommodations, because the travel agent will assign the
right to use those rooms to clients for periods of less
than six months.

Sep 09, 1998

Re: Technical Assistance Advisement 98A-070
Sales and Use Tax - Taxability of Bona Fide Written Lease
for Greater Than Six Months by Travel Agent
Sections: 212.02, 212.03 212.04, F.S.
Rules: 12A-1.060, 12A-1.061, F.A.C.
Petitioner: XXX (herein "Travel Agent")

Dear :

This letter is a response to your petition dated August 10,
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.

FACTS

From your request:

[Travel Agent], a foreign corporation located in XXX, sells

vacation packages consisting of air transportation to the
United States, hotel accommodations and rental cars for its
customers to utilize during their vacation in the U.S. The
fee paid to [Travel Agent] for the package is a lump sum
amount since there is no separate itemization of the price
of the airline ticket, hotel room and rental car. Payment
is made to [Travel Agent] in the currency of the country
where located (not U.S. dollars). The amount charged to the
customer equals [Travel Agent's] cost of the various items
included in the package plus a mark-up. [Travel Agent]
pays sales tax on their purchases of the various components
of the vacation packages whenever tax is due.

[Travel Agent] is proposing entering into a bona fide
written rental agreement with a hotel to lease a specific
number of rooms for a specified period greater than six
months. [Travel Agent] will be charged for all of the
rooms enumerated in the contract on a monthly basis,
regardless of whether each room is used each night.
Additionally, [Travel Agent] will have direct control over
the usage of the rooms. As part of the agreement, the
hotel will grant to [Travel Agent] the right to the
exclusive use, possession or occupancy of the rooms.
Furthermore, [Travel Agent] may enter upon any of the hotel
rooms included in the contract. [Travel Agent's] personnel
may use some of the hotel rooms when traveling to the U.S.
on business. However, most of the rooms will be used by
[Travel Agent's] customers as part of the vacation package
which was purchased in XXX.

Travel Agent was previously issued a Letter of Technical Advice
on this subject dated May 6, 1998.

REQUESTED ADVISEMENT

You endeavor to elicit advice whether the rental of a specific
number of hotel rooms by a travel agent for a period greater
than six months, pursuant to a written agreement, qualifies as a
transaction exempt from both Florida sales tax and local hotel
taxes pursuant to Section 212.03, F.S.

TAXPAYER'S POSITION

From your request:

Pursuant to Section 212.03(1), F.S., Florida sales tax, and
where applicable, local hotel tax, is imposed on the
renting, leasing, or letting of any living quarters or
sleeping accommodations in connection with any hotel,
apartment house, roominghouse, or tourist or trailer camp.
However, this section also provides an exemption from sales
tax for any person who has entered into a bona fide written
rental agreement for a period longer than 6 months in
duration for continuous residence at any one hotel. The
Department's rule 12A-1.061, F.A.C., further clarifies the
application of this exemption by stating clearly that the
lessee need not necessarily occupy the leased property,
provided the lease agreement conveys the intent of the
parties that the lessee will have possession or at least
have the right to use or possess the premises.

In a similar situation, the Department has previously ruled
[in TAA 93A-035] that when the lessee and the lessor have
in good faith executed a signed, written agreement that
provides for the tenant's right to occupy the living
accommodations for a period longer than six months, such
agreement is considered a "bona fide written lease for
longer than 6 months in duration" for purposes of the
exemption granted under s. 212.03, F.S. Additionally, the
Department has historically opined that if an airline or
other business enters into a bona fide written lease
agreement with a hotel for the continuous lease of a
certain number of rooms for a period longer than six
months, the rental payments for that number of rooms are
exempt from sales tax regardless of who actually uses the
room.

It is hereby submitted that the hotel, by execution of the
lease agreement, is granting to [Travel Agent] the right to
occupy the rooms for a period exceeding six months in
duration. It is conceivable, although not likely, that
[Travel Agent] personnel could use all of the hotel rooms

during the lease period. The fact that others, e.g.
[Travel Agent's] customers, will be using most of the rooms
should have no bearing on the exemption provided in s.
212.03(1), F.S. Further foundation is given to the fact
that the statute does not specify who must actually occupy
the room. The only requirement is that the person renting
the room be granted the right to occupy the room. By
virtue of the lease agreement, [Travel Agent] will be
granted the right to occupy all of the rooms, and could
occupy them at any time.

In summary, Section 212.03(l), F.S., provides, an exemption
from sales tax for rental of living accommodations for a
period of greater than six months pursuant to a bona fide
written agreement without any restrictions on who must
occupy the room. [Travel Agent] intends to execute such a
written agreement with a hotel. The facts in this case are
virtually identical to the Department's previous ruling
wherein it was determined that this exemption applies to
block rentals of hotel accommodations. Consequently,
Florida sales tax should not apply to the lease of the
hotel rooms by [Travel Agent] as described above. As an
exempt component of vacation packages, no sales tax or
hotel tax would be paid on the long term lease of the hotel
rooms. (emphasis in original)

DISCUSSION, ANALYSIS, AND CONCLUSION OF LAW

Section 212.02(12), Florida Statutes (1997), provides:

"Person" includes any individual, firm, copartnership,
joint adventure, association, corporation, estate, trust,
business trust, receiver, syndicate, or other group or
combination acting as a unit and includes any political
subdivision, municipality, state agency, bureau, or
department and the plural as well as the singular number.

Section 212.03, F.S. (1997), provides in pertinent part:

(1) It is hereby 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 any living quarters or sleeping
or housekeeping accommodations in, from, or a part of, or
in connection with any hotel, apartment house,
roominghouse, or tourist or trailer camp. However, any
person who rents, leases, lets, or grants a license to
others to use, occupy, or enter upon any living quarters or
sleeping or housekeeping accommodations in apartment
houses, roominghouses, tourist camps, or trailer camps, and
who exclusively enters into a bona fide written agreement
for continuous residence for longer than 6 months in
duration at such property is not exercising a taxable
privilege. For the exercise of such taxable privilege, a
tax is hereby levied in an amount equal to 6 percent of and
on the total rental charged for such living quarters or
sleeping or housekeeping accommodations by the person
charging or collecting the rental. Such tax shall apply to
hotels, apartment houses, roominghouses, or tourist or
trailer camps whether or not there is in connection with
any of the same any dining rooms, cafes, or other places
where meals or lunches are sold or served to guests.

(4) The tax levied by this section shall not apply to, be
imposed upon, or collected from any person who shall have
entered into a bona fide written lease for longer than 6
months in duration for continuous residence at any one
hotel, apartment house, roominghouse, tourist or trailer
camp, or condominium, or to any person who shall reside
continuously longer than 6 months at any one hotel,
apartment house, roominghouse, tourist or trailer camp, or
condominium and shall have paid the tax levied by this
section for 6 months of residence in any one hotel,
roominghouse, apartment house, tourist or trailer camp, or
condominium....

Section 212.04(1), F.S. (1997), provides in pertinent part:

(a) It is hereby declared to be the legislative intent that
every person is exercising a taxable privilege who sells or
receives anything of value by way of admissions.

(d) No additional tax is due on an admission if the
admission is incorporated as part of a package sold by a
travel agent; if the package includes admissions and
transient rentals, transportation, or meals; and if there
is no separate itemization of the admission, transient
rental, transportation, or meal in the sales price of the
package. This paragraph does not apply if the actual price
charged for the admission by the dealer to a travel agent
is less than the price charged to unrelated parties under
normal industry practices and the dealer and the travel
agent are members of the same controlled group of
corporations for federal income tax purposes. (Emphasis
Supplied)

Rule 12A-1.061, Florida Administrative Code, provides in
pertinent part:

(1) ... [E]very person is exercising a taxable privilege
when engaging in the business of renting, leasing, letting,
or granting licenses to others to use transient
accommodations, unless the rental charges or room rates are
specifically exempt.

(8) SUBLEASES OR ASSIGNMENTS.

(a) Any person who has the right to the use or possession
of any transient accommodation and who subrents, subleases,
sublets, or licenses a portion of the accommodation is
required to register as a dealer and collect and remit the
applicable tax due on all such subrents, subleases,
sublets, or licenses to the proper taxing authority, except
as provided in subsection (1) of this rule.

(b) The dealer may elect to issue a resale certificate to
the property owner or the property owner's representative
to purchase transient accommodations exempt from tax or
take a credit for the tax that was paid to the owner or
owner's representative for transient accommodations when:

1. the transient accommodations are subrented, subleased,
   sublet, or licensed by the dealer to other guests or

tenants; and

2. the dealer collects the applicable tax from the guest or
   tenant.

(c) Dealers must remit the applicable tax due to the proper
taxing authority on the portion of the rental charges
pertaining to any transient accommodation that was
purchased tax exempt but is used by the dealer.

(15) BONA FIDE WRITTEN LEASES.
(a) Transient accommodations that are leased under the
terms of a bona fide written lease for periods longer than
six months for continuous residence by the individual or
entity leasing the transient accommodations to which the
written lease applies are exempt. The exemption will not be
allowed or disallowed based on the number of days in the
rental period, but will be disallowed if the rental period
is not longer than six "months," as defined in paragraph
(b).

(c) For the purposes of this subsection, a "bona fide
written lease" is a written document that clearly
demonstrates that the parties' intent is that the lessee
will have the exclusive use or possession, or the right to
the exclusive use or possession, of the transient
accommodations to which the lease applies.

(g) A "bona fide written lease" for periods longer than six
months for continuous residence by the individual or entity
leasing the transient accommodations to which the written
lease applies will not be constituted when:

2. the lease contains a provision that would entitle the
   lessor of the leased transient accommodations to sublease,
   subrent, sublet, or license the accommodations to other
   persons for periods of six months or less;

3. the lease does not provide the lessee with the right to
   occupy the transient accommodations for the entire duration
   of the lease period;... (Emphasis Supplied)

Rule 12A-1.005, F.A.C., provides in pertinent part:

(7) SALES OF VACATION PACKAGES.
(a) A dealer owes tax on purchases of any taxable
components of a vacation package which he sells. Such
taxable components may include, but are not limited to,
admissions, transient rentals, rental cars, and meals.

(b) No tax is due on the sale of a vacation package unless
the selling dealer itemizes the taxable components and
sells the taxable components for more than was paid for
them. If the itemized components are sold for more than the
dealer paid for them, he must register and collect and
remit tax on the itemized taxable components, and may take
a credit for taxes previously paid. (Emphasis Supplied)

Section 212.04(1)(d), F.S., implies, and Rule 12A-1.005(7)(a),
F.A.C., specifically states that a travel agent must pay tax on
the purchase of taxable components of vacation packages.
Section 212.03(4), F.S., and Rule 12A-1.061(15)(a), F.A.C.,
provide an exemption for the rental of living accommodations in
hotels when the person renting the accommodations enters into a
bona fide Rule 12A-1.061(15)(c), F.A.C., describes in part what
constitutes a bona fide written lease. The lessee, in this case
the travel agent, must have exclusive use or possession of the
leased premises. Rule 12A-1.061(8), F.A.C., provides that a
lessee who assigns the right to use the transient accommodations
to a third party must register as a dealer and collect tax from
the tenant. Clearly, if the travel agent is assigning the use
of the accommodations to its customers during the course of the
travel agent's business in providing vacation packages, the
travel agent itself does not have exclusive use or possession of
the leased accommodations. Therefore, the travel agent may not
enter into a written lease for greater than six months in
duration to avoid the tax. The travel agent could, in theory,
register as a dealer, extend a resale certificate to the hotel
for its purchase of the accommodations, then collect and remit
tax on the subsequent assignment to its customers.

However, under the proposed situation, the travel agent intends

to make a lump sum charge to the client. The lump sum charge
would not separately itemize the charge for the room. The
travel agent is not required to collect tax on lump sum charges
for travel packages, but is required to pay tax on the taxable
components thereof, including the transient accommodations.
Rule 12A-1.005(7), F.A.C.

Technical Assistance Advisement #93A-035, referenced by the
taxpayer in its request, is dissimilar to the situation
contemplated by the taxpayer. It discussed whether payments
pursuant to a written lease agreement for greater than six
months in duration for transient accommodations become taxable
if the tenant breaks the lease before six months pass. The TAA
was issued prior to the rewrite of Rule 12A-1.061, F.A.C., which
became effective November 30, 1997. Additionally, a technical
assistance advisement is only binding to the party and specific
set of circumstances that it addresses.

The taxpayer has asserted that the Department has "historically
opined" that an airline or other business could obtain an
exemption on transient accommodations by entering into a lease
agreement for greater than six months in duration regardless of
who actually uses the room. The taxpayer did not provide
reference to any particular instance in which this assertion has
occurred. Additionally, this author is not aware of any such
opinions issued where occupancy by anyone other than the
business's own employees was contemplated. Furthermore, as
stated previously, a technical assistance advisement is only
binding to the party and the specific set of circumstances that
it addresses.

The travel agent is renting transient accommodations for sale as
part of a lump sum vacation package. The travel agent assigns
the use of the room to its client. The travel agent is required
to pay tax on the taxable components of lump sum travel packages
that it sells. A person may only avoid paying tax on the
purchase of transient accommodations, the use of which is
assigned to a third party, by registering as a dealer, and
collecting tax on the payment received for such assignment. The
travel agent is not receiving payment for the right to use the
accommodation; it is selling lump sum travel packages with no

separate charge for the transient accommodations. Therefore, a
travel agent may not enter into a bona fide written lease of
greater than six months, and obtain an exemption from sales tax
on transient accommodations.

This response constitutes a Technical Assistance Advisement
under Section 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 Section 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 Section 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,

Sara D. Faulkenberry
Tax Law Specialist
Technical Assistance and Dispute Resolution
850/414-9838
[email protected]

Control #35011