Could a Florida tenant subleasing an entire property stop paying sales tax to its landlord after providing a resale certificate?

Plain-English summary

The tenant could stop paying sales tax to its landlord after furnishing a substantially compliant resale certificate. Because it subleased the entire property, the tenant could elect to treat the prime lease as a purchase for resale, while continuing to collect and remit tax on the rent charged to the subtenant.

The certificate itself lacked a date and the registration certificate's effective date. Florida nevertheless found substantial compliance because the attached registration certificate supplied its registration date and the transmittal letter showed when the resale certificate was mailed.

What this means for you

The cited rule aimed to prevent tax pyramiding when a tenant subleased all or nearly all of a property. The tenant had to be registered as a dealer, furnish the landlord a resale certificate, and tax the sublease. The ruling also said the certificate rules were changing in 2000, so its paperwork discussion is tied to the law then in effect.

Common questions

Q: Did the tenant have to sublease the whole property? The alternative applied when all, or all but an incidental portion, of the premises was subleased.

Q: Who collected the tax after the election? The tenant collected and remitted tax on the subtenant's rent instead of paying tax to the prime landlord.

Q: Was a Department-prescribed certificate form required? No. The ruling said no particular form was prescribed, although required information still had to be supplied.

Citations and references

• Fla. Stat. § 212.031(1)(c), (2)(b) — taxable rent and nonpyramiding
• Fla. Stat. § 212.12(12) — tax on the final retail transaction
• Fla. Admin. Code r. 12A-1.070(4), (8), (9) — lease and sublease tax treatment
• Fla. Admin. Code rr. 12A-1.038, 12A-1.039 — resale certificates
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-041

Original ruling text

SUMMARY

A lessee of real property who subleases the entire property
for an amount that exceeds the rent paid by the lessee to
the lessor may elect to give the lessor a resale
certificate and thereby not pay sales tax on the rental
payments. The lessee must collect and remit sales tax on
the amounts received from the subtenant.

Aug 24, 1999

Re: Technical Assistance Advisement 99A-041
Sales and Use Tax; Real Property Lease and Sublease
Sections 212.031(1)(c); 212.05; 212.08(6), F.S.
Rules 12A-1.038; 12A-1.070(9), F.A.C.
XXX ("Taxpayer")
F.E.I. No. XX

Dear :

This is in response to your letter dated XX, for the
Department's issuance of a Technical Assistance Advisement
("TAA") concerning the above referenced party and matter. Your
letter 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 section
213.22, F.S.

Facts

In your letter, you state that Taxpayer has leased a restaurant
property in XXX, since XXX and that Taxpayer pays rent of
$2,916.67 plus sales tax each month. In XX, Taxpayer sublet the
entire property and began collecting rent from the subtenant
that exceeded the rent that Taxpayer paid on the property.
Taxpayer has collected sales tax every month, in addition to the
rent, from the subtenant.

By letter dated XX, Taxpayer furnished its landlord with a
"Resale Certificate". The Resale Certificate contained
Taxpayer's business name, location address, "reason for exempt
purchase," and tax number. The Resale Certificate was signed by
the president of Taxpayer. Attached to the Resale Certificate
was a photocopy of Taxpayer's Certificate of Registration
(Florida Department of Revenue Form DR-11).

With the rental payment due in October 1998, Taxpayer stopped
paying sales tax on its rent to the landlord. The landlord then
notified Taxpayer that it considered the failure to pay sales
tax on the rent to be a default under the lease and demanded
full payment of the sales tax for the months of October,
November, and December of 1998, and January and February of
1999. Because Taxpayer was concerned about a potential default
and because Taxpayer wanted to avoid a controversy with its
landlord, Taxpayer resumed payment of sales tax to the landlord
with its March 1999 rental payment.

Issue

Taxpayer seeks advisement as to whether it is correct in its
assumption that after the date of furnishing its landlord the
resale certificate described above, Taxpayer is no longer
subject to sales tax on rental payments made to its landlord.

Discussion

Section 212.031(1)(c), F.S., imposes sales tax on the total rent
or license fee charged for the right to use or occupy real
property. However, section 212.031(2)(b), F.S., provides:

It is the further intent of this Legislature that only one
tax be collected on the rental or license fee payable for
the occupancy or use of any such property, that the tax so
collected shall not be pyramided by a progression of
transactions, and that the amount of the tax due the state
shall not be decreased by any such progression of
transactions.

Section 212.12(12), F.S., states that whenever there might be a
question respecting a duplication of the tax, it is the
legislative intent that the end consumer, or the last retail
sale, be the consumer or sale intended to be taxed.

The Department has adopted rules intended to further those
statutory provisions. Rule 12A-1.070(4), F.A.C., provides that
the tenant shall pay the tax to his immediate landlord on all
considerations due and payable for the use or occupancy of the
property, and Rule 12A-1.070(8), F.A.C., provides that when a
tenant sublets or assigns some portion of the leased property,
the tenant may take credit on a pro rata basis for the tax that
he may have paid to his landlord.

Rule 12A-1.070(9), F.A.C., provides an alternative to the credit
mechanism: if a tenant has sublet all, or all but an incidental
portion, of the entire premises, the tenant may elect not to pay
tax to his landlord on the prime lease, provided that the tenant
shall register as a dealer and collect and remit tax due on the
sublease. The Rule goes on to state:

... If the tenant or licensee elects not to pay the tax to
his landlord, or other person granting the right to occupy
or use such real property, he should extend to his landlord
or such other person a resale certificate.

Rule 12A-1.038, F.A.C., sets forth the required elements of a
resale certificate. A certificate shall contain a statement to
the effect that a purchase is for resale and contain the date,
purchaser's name, address, dealer's certificate of registration
number and effective date of the certificate, and the dealer's
signature (or that of his authorized representative).

The Department does not prescribe any particular form for a
resale certificate. Rule 12A-1.039, F.A.C., sets forth a
suggested form, but use of the suggested form is not required.

The "Resale Certificate" that Taxpayer prepared and provided to
its landlord is missing both a date and the effective date of
the Certificate of Registration. However, a photocopy of the
Taxpayer's Certificate of Registration was attached to the

Resale Certificate, and the Certificate of Registration does
contain the Registration Date. Additionally, the Taxpayer's
letter to the landlord enclosing the Resale Certificate contains
the date that it is being mailed.

It therefore appears that Taxpayer has substantially complied
with all of the requirements of a resale certificate. Rental
payments made by Taxpayer to its landlord after the date of
furnishing that certificate to the landlord should not be
subject to sales tax.

For your information, some of the requirements concerning resale
certificates have been changed, effective January 1 and February
1, 2000. The Department will issue an annual resale certificate
to the Taxpayer, as well as to each active dealer. The Taxpayer
will then provide a copy of that resale certificate to its
landlord, who will be required to retain a copy of the resale
certificate in its files.

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 advise, 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, your request and
related backup documents 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. Confidential information
must be deleted before public disclosure. In an effort to
protect confidentiality, we request you provide the undersigned
with an edited copy of your request for Technical Assistance
Advisement, the backup material and this response, deleting
names, addresses and any other details which might lead to
identification of the taxpayer. Your response should be
received by the Department within 15 days of the date of this

letter.

Should you have any further questions concerning this matter,
please do not hesitate to contact me.

Sincerely,

Robert D. Heyde
Senior Attorney
Control # 38453