Was electricity separately billed by a tax-exempt county airport to its tenants taxable as rent?

Plain-English summary

Florida treated electricity separately billed by a county airport to its tenants as part of taxable rent.

The county was an exempt governmental purchaser and had not paid tax when buying electricity from the utility. The exclusion for separately stated utility charges therefore did not remove the tenant charge from rent, because that treatment depended on the landlord having paid tax on the utility purchase.

Common questions

Did separate billing keep electricity out of rent? No, because the county had purchased the electricity tax-free.

Why did governmental exemption matter? It meant no tax had been paid upstream on the electricity purchase.

Citations and references

• Fla. Stat. § 212.031(1)(a), (1)(c), (7)
• Fla. Stat. § 212.05(1)(e)1.d.
• Fla. Admin. Code R. 12A-1.070(4)(e)
• Fla. Stat. § 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-012

Original ruling text

SUMMARY

Electricity is a taxable element of the total rent or
license fee as described in s. 212.031(1)(c), F.S., when
charged by a county airport to its tenants, because the
county airport, as an exempt governmental entity, had not
paid the tax on the purchase of the electricity from the
utility.

Title:

Sale of Electricity by Airport

Mar 18, 1999

Re: Technical Assistance Advisement TAA-99A-012
Section 212.031(1)(a), (1)(c), and (7), F.S.
Section 212.05(1)(e)1.d., F.S.
Rule 12A-1070(4)(e), F.A.C.
XXX (herein County)
XXX (herein Airport)

Dear :

This is a response, styled a Technical Assistance Advisement, to
your letter dated XX, in which you asked two questions on behalf
of the County, which administers the Airport:

(1) Whether a separately identified charge for electricity
when made by the Airport on Airport tenants which is not
included in any amount designated as "rent," is subject to sales
or use tax, and,

(2) Whether, if the electricity is subject to sales tax
when separately billed to the airport tenants, the tax rate is 6
percent or 7 percent?

You note that a sales and use tax audit conducted by the
Department for the period XX, through XX, included an assessment
of $5,231.34. This tax liability was characterized as having

arisen from the failure of the Airport to collect the tax rate
of 7 percent on the sale of electricity by the Airport to the
Airport tenants as mandated by s. 212.05(1)(e)1.d., Florida
Statutes.

You also provide the information that the Airport contracts
directly with the utility for the electric service. The
Department learned during a telephone conversation on XXX, that
the electricity is provided through the Airport's master meter
and the consumption of electricity by each Airport tenant which
requires electricity, including airline companies, is measured
by a proportionate square footage computation. It is the
understanding of the Department that this "pass through" charge
for electricity is designed to apportion the cost of the
electricity to the tenants at an amount equal to that cost paid
by the Airport to the utility.

It is also the understanding of the Department that the
electricity cost so apportioned to each tenant appears as a
separately stated and identified amount and that this charge
appears on an invoice which itself represents a billing of the
tenants for the rental amount agreed to be paid by the tenants.
You clarify in your letter on page 2 that while the electric
charge is included on the rental invoice the charge is "... not
included within any `rental amount.'"

You attached to your letter a copy of a lease which is
representative of agreements executed between County and the
tenants of the Airport.

Department Response

As you note, s. 212.031(1)(c), F.S., establishes the sales or
use tax rate of 6 percent on the privilege of engaging in the
business of leasing or of the granting of a license to use real
property. Section 212.05, F.S., which taxes the privilege of
engaging in the sale or lease of tangible personal property, and
the sale of certain enumerated services, provides in subsubparagraph (1)(e)1.d. that the rate of sales or use tax on the
privilege of selling electricity is 7 percent.

The Department has long acceded to the decision in Omni
International of Miami Ltd v. Department of Banking and Finance,
444 So. 2d 540 (Fla 3DCA 1984), and the reach of that decision
is found in Rule 12A-1.070(4)(e), F.A.C., wherein electricity
billed to a commercial tenant by the lessor is taxable as part
of the payment given for the lease or license to use real
property "... unless the lessor has paid the sales tax to the
utility company on such utilities consumed by the tenant, and
the utilities billed by the lessor to the tenant are separately
stated on the lessor's invoice to the tenant at the same or
lower price as that billed by the utility company to the
lessor." This language is now found in subsection (7) of s.
212.031, Florida Statutes. The subsection was added effective
July 1, 1998, by s. 3, Ch. 98-140, Laws of Florida.

Therefore, there are four elements to be considered if the
electricity billed the commercial tenant is not to be considered
to be a part of the taxable "total rent or license fee" as
specified in s. 212.031(1)(c), Florida Statutes. These are: the
payment of utility charges by the tenant when such payment is
given as a part of the consideration for the right to use or
occupy the real property; the charge for the electricity is
passed on to the tenant as a separately identified item on the
billing invoice to the tenant; the charge for the electricity
billed to the tenant is at the same or lower price than paid by
the landlord, and lastly, the payment of the sales tax by the
landlord on the purchase of electricity from the utility.

The first element, that of the payment given for the right to
use or occupy the real property, is satisfied in that in the
representative lease the charges for utilities, as expressed in
Article 6.3, are included within the fees and charges to be paid
by the tenant. Failure to pay such charges as specified in
Article 7.1(a) would trigger the default provisions which
include in Article 7.2(a) the remedy of "immediate right of reentry" by the County.

The second and third elements are satisfied in that the Airport
separately identifies the charge for electricity within the
rental invoice to the tenant, and that the cost billed to the
tenant is at a same or lower price than that paid to the utility

by the Airport.

However, the fourth element has not been satisfied. Airport has
not paid the sales tax on its purchases of electricity from the
utility.

Consequently, the Omni decision provides no shield to the
taxability of the electric charge as an element of the
consideration given for the right to use or occupy real
property. Further, s. 212.031(7), F.S., which has clarified the
Omni decision, requires, when the elements as described above
are not met, that the charge for electricity is a part of the
taxable lease or license payment.

Section 212.031(1)(a), F.S., mandates that a payment required of
a tenant for the right to use or occupy real property is subject
to sales tax. Section 212.031(1)(c), F.S., imposes sales tax on
the "... total rent or license fee charged for such property by
the person charging or collecting the rental or license fee." An
element of the "total rent or license fee" is the charge for the
electricity billed to the tenant.

In answer to your second question, the tax is imposed by s.
212.031(1)(c), F.S, at the rate of 6 percent.

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
Technical Assistance and Dispute Resolution
Ctrl No. 36106