How did Florida tax a television producer's studio rent, office rent, equipment lease, purchase option, and production-equipment refund?

Plain-English summary

Florida separated the producer's qualifying production activity from its taxable office and equipment transactions. Rent for studio and production space used directly for qualified production services was exempt. Rent attributable to sales and administrative offices was taxable, including the related operating-cost and real-estate-tax components.

A properly executed motion-picture lease exemption affidavit relieved the landlord from collecting tax on qualifying space. The producer still had to accrue and remit tax for taxable uses.

The equipment lessor could buy for resale only with proper resale documentation. Its lease to the producer was an operating lease because the 10% purchase option was not nominal and the equipment otherwise returned to the lessor. Monthly payments, included interest, county ad valorem tax, and the separate option price were taxable. Any motion-picture-equipment exemption inured to the producer only through a documented Department refund.

What this means for you

Allocate real-property charges by actual use and document qualifying production space. Do not assume a production-equipment exemption lets a vendor or lessor omit tax at the point of sale; this ruling required the producer to use the statutory refund process.

Common questions

Q: Was all three-suite rent exempt? No. Only the studio and production space qualified; sales and administrative space did not.

Q: Did putting the producer's name on vendor invoices eliminate tax? No. The actual sales agreement and the lessor's resale certificate controlled.

Q: Were interest, county property tax, and the option price taxable? Yes, under the stated operating lease.

Q: How was the equipment exemption claimed? By applying to the Department for a refund with the documentation required by the cited rule.

Citations and references

• Fla. Stat. § 212.031(1)(a)9. — real property used for qualified production services
• Fla. Stat. § 212.08(5)(f)1. — motion-picture and video equipment exemption through refund
• Fla. Stat. §§ 212.02(15)(a), 212.05(1)(a)1.a., and 212.07(1)(b) — taxable sales, leases, and resale compliance
• Fla. Stat. § 215.26(2) — refund limitation periods stated in the 1999 ruling
• Fla. Admin. Code rr. 12A-1.038, 12A-1.070, 12A-1.071, and 12A-1.085 — certificates, lease tax, and refund procedure
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-067

Original ruling text

SUMMARY

QUESTION #1: Should property used as an integral part in
the performance of "qualified production services"
producing motion pictures pay sales tax to the landlord on
the base rent, building operating costs, and real estate
tax components of their rent?

ANSWER - Based on Facts Below: Normally, tax shall be paid
on all considerations paid by a lessee using real property,
including ad valorem taxes and operating costs as here.
Since the sales and administrative office suites were not
used in performing "qualified production services," tax is
due on those portions.

QUESTION #2: What documentary evidence should be furnished
to the landlord to substantiate the exemption from sales
tax for any and/or all of the components?

ANSWER - Based on Facts Below: The landlord is relieved
from collecting sales tax when a properly executed
affidavit is received by the tenant who qualifies for the
exemption. The tenant is required to accrue and remit the
tax on the property used for taxable purposes.

QUESTION #3: How far back may a tenant seek a refund of
past payments of sales taxes to their landlord?

ANSWER - Based on Facts Below: Unless an assignment of
rights is received from the landlord, a tenant must seek
the refund from their landlord. The refund of tax may be
sought for taxes remitted to the Department for a period
five years after the date the taxes were due, so long as
the taxes were due after September 30, 1994, and before
July 1, 1999.

QUESTION #4: Should a company leasing "motion picture or
video equipment used in motion picture or television
production activities" qualifying for the exemption from
sales tax be charged the tax by its vendors, even if the
lessee, a related company of the lessor, is named on the

invoice?

ANSWER - Based on Facts Below: The vendors must collect
sales tax when the equipment is sold to the lessor, unless
a properly executed resale certificate is obtained from the
lessor. If the sale takes effect after February 1, 2000,
the lessor must provide an annual resale certificate. The
lessor must charge tax to the lessee. The fact that the
lessee is the company listed on the invoice is not
controlling here, unless the sales agreement was between
only the vendors and the lessee.

QUESTION #5: Should the lessor charge sales tax to the
lessee on the monthly payment (inclusive of interest) and
the ad valorem tax levied by the County?

ANSWER - Based on Facts Below: The lessor must collect
sales tax on the gross proceeds received, including the ad
valorem tax levied by the County, because the lease is an
operating lease. The lease is an operating lease since the
purchase option is greater than one percent and the
possession of the equipment otherwise reverts back to the
lessor if the lease is not renewed.

QUESTION #6: Should the lessor charge sales tax on the
purchase option amount?

ANSWER - Based on Facts Below: Tax must be collected on the
option price, since it is a separate sale.

QUESTION #7: If the equipment qualifies for sales tax
exemption how is the refund of tax obtained?

ANSWER - Based on Facts Below: The taxpayer can only obtain
the refund of the tax from the Department, and only then by
sending the required additional documentation and following
the additional procedures as established by the Department.

Dec 07, 1999

Re: Technical Assistance Advisement 99a-067
Sales and Use Tax; Commercial lease of real property;
Motion Picture Equipment Lease
Sections 212.031, 212.08(5)(f), F.S.
Rules 12A-1.070, 12A-1.071, 12A-1.085, 12A-1.038, F.A.C.
XXX (Lessor)
FEI #: XX
XXX (Production Company), Petitioner
FEI #: XX

Dear :

This is in response to your letter dated XXX, requesting a
technical assistance advisement regarding a commercial lease of
office space and a lease of motion picture production equipment.

QUESTIONS REGARDING THE LEASE OF OFFICE SPACE

1. Given the nature of Production Company's business, should it
   be paying sales tax to the landlord on the base rent, building
   operating costs, and real estate tax components?

2. If not, what documentary evidence does Production Company
   need to furnish its landlord so as to substantiate its exemption
   from sales tax for any and/or all of the components.

3. If Production Company is exempt, how far back can it go to
   seek a refund of past payments of sales taxes?

FACTS

Production Company, a Florida corporation, produces educational
and shop-at-home television programming. These production
services include but are not limited to script writing, media
advertisement design, filming, directing, editing, dubbing,
mixing, and airtime procurement. The final product is a
videotape, which is aired on various television stations
throughout the country. Production Company does not engage in
direct broadcasting activities nor is it licensed by the Federal

Communications Commission. Lessor, a Florida corporation, acts
as a funding conduit for television production companies in
conjunction with the acquisition of television production
equipment by leasing or purchasing such equipment.

Production Company leases three suites located at one address.
One suite serves as a sales and administrative office and the
remaining two suites serve as a studio and production facility,
respectively. The lease provides, in addition to the base rent,
that the Production Company is liable for real estate taxes
based upon the ratio of the square footage of the suites to the
total leaseable square footage of the building. The landlord's
monthly invoice for each suite contains separate charges for
building operating costs, real estate taxes, and sales tax for
the base rent, building operating costs, and real estate taxes.
The invoices separately state the base rent, the portion of real
estate taxes due, and the sales tax.

APPLICABLE STATUTES AND RULES

Section 212.031(1)(a)9., F.S., provides:

(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 for the use of any real property unless such
property is:...

9. Property used as an integral part of the performance of
   qualified production services. As used in this
   subparagraph, the term "qualified production services"
   means any activity or service performed directly in
   connection with the production of a qualified motion
   picture, as defined in s. 212.06(1)(b), and includes:

a. Photography, sound and recording, casting, location
managing and scouting, shooting, creation of special and
optical effects, animation, adaptation (language, media,
electronic, or otherwise), technological modifications,
computer graphics, set and stage support (such as
electricians, lighting designers and operators, greensmen,

prop managers and assistants, and grips), wardrobe (design,
preparation, and management), hair and makeup (design,
production, and application), performing (such as acting,
dancing, and playing), designing and executing stunts,
coaching, consulting, writing, scoring, composing,
choreographing, script supervising, directing, producing,
transmitting dailies, dubbing, mixing, editing, cutting,
looping, printing, processing, duplicating, storing, and
distributing;

b. The design, planning, engineering, construction,
alteration, repair, and maintenance of real or personal
property including stages, sets, props, models, paintings,
and facilities principally required for the performance of
those services listed in sub-subparagraph a.; and

c. Property management services directly related to
property used in connection with the services described in
sub-subparagraphs a. and b.

Rule 12A-1.070(1)(c) and (4), F.A.C., provide in part:

(1)(c) Effective July 1, 1987, real property used as an
integral part of the performance of qualified production
services shall not be subject to tax. The term "qualified
production services" means any activity or service
performed directly in connection with the production of a
qualified motion picture. The term "qualified motion
picture" means all or any part of a series of related
images, either on film, tape, or other embodiment,
including, but not limited to, all items comprising part of
the original work and film-related products derived
therefrom as well as duplicates and prints thereof and all
sound recordings created to accompany a motion picture,
which is produced, adapted, or altered for exploitation in,
on, or through any medium or device and at any location,
primarily for entertainment, commercial, industrial, or
educational purposes and includes:...

4. A statement similar to the following should be presented
   to the lessor by the motion picture lessee at the time the

parties execute the lease.

LESSEE/LICENSEE/TENANT
BLANKET LEASE EXEMPTION CERTIFICATE
This is to certify that all real property leased, licensed,
or rented by _ (NAME OF LESSOR) on or after _
(DATE) to __ (NAME OF MOTION PICTURE LESSEE,
LICENSEE, or TENANT) is or was leased, licensed, or rented
to be used as an integral part of the performance of
qualified production services, exempt from sales or use tax
under the provisions of s. 212.031(1)(a)9., F.S.

This lease exemption certificate is to continue in force
unless revoked by lessee in writing, addressed to the
lessor named in this agreement.

LESSEE/LICENSEE/TENANT _
ADDRESS _
SALES TAX NUMBER (IF REGISTERED) _
SIGNATURE OF LESSEE/LICENSEE/TENANT _ DATE _
PRINT NAME _

5. When the property is used for any purpose other than the
   production of a qualified motion picture and the lease
   exemption certificate has been provided to the lessor, tax
   should be accrued and remitted to the Department of Revenue
   by the motion picture lessee, licensee, or tenant on the
   lease of the real property...

(4)(b) The tax shall be paid at the rate of 5 percent prior
to February 1, 1988, and 6 percent on or after February 1,
1988, on all considerations due and payable by the tenant
or other person actually occupying, using, or entitled to
use any real property to his landlord or other person for
the privilege of use, occupancy, or the right to use or
occupy any real property for any purpose.

(c) Ad valorem taxes paid by the tenant or other person
actually occupying, using, or entitled to use any real
property to the lessor or any other person on behalf of the
lessor, including transactions between affiliated entities,

are taxable... (Emphasis supplied)

Section 215.26(2), F.S., provides:

(2) Application for refunds as provided by this section
must be filed with the Comptroller, except as otherwise
provided in this subsection, within 3 years after the right
to the refund has accrued or else the right is barred.
Except as provided in chapter 198 and s. 220.23, an
application for a refund of a tax enumerated in s. 72.011,
which tax was paid after September 30, 1994, must be filed
with the Comptroller within 5 years after the date the tax
is paid, and within 3 years after the date the tax was paid
for taxes paid on or after July 1, 1999.

RESPONSE TO QUESTIONS

1. As provided by Rule 12A-1.070(4)(b) and (c), F.A.C., the tax
   shall be paid on all considerations paid by a lessee using real
   property, including ad valorem taxes and operating costs as
   here. So long as the production activities are the same as
   enumerated in section 212.031(1)(a)9., F.S., and Rule 12A1.070(1)(c), F.A.C., then the rent paid for the space used for
   those purposes is exempt from the tax. However, the portion of
   the rent paid involving the suite that provides sales support
   does not qualify for the exemption and is subject to the tax.

2. Production Company may furnish the landlord an affidavit as
   provided in Rule 12A-1.070(1)(c)4., F.A.C. Production Company
   would then accrue and remit the tax on the property used for
   taxable purposes.

3. As provided in section 215.26(2) F.S., a refund of tax due
   may be sought by the landlord for taxes refunded to you five
   years from the date the landlord remitted the tax, so long as
   the landlord's remittance were made after September 30, 1994,
   and before July 1, 1999.

QUESTIONS REGARDING THE LEASE OF THE PRODUCTION EQUIPMENT

1. As Lessor is an intermediary between Production Company and

the vendors, it would appear that the vendors should not be
charging Lessor sales tax. Would this be true if the vendor
invoices named Production Company as the customer, but the
vendors were paid with Lessor checks?

2. Should Lessor charge sales tax to Production Company on the
   monthly payment (inclusive of interest) and the ad valorem tax
   levied by the County?

3. Should Lessor charge sales tax on the purchase option amount?

4. If the equipment qualifies for sales tax exemption, based on
   the nature of the equipment and the nature of Production
   Company's business, and Lessor is obligated to charge Production
   Company sales tax, how does Production Company obtain a refund
   of such sales tax paid?

FACTS

Production Company is looking to expand its production
capabilities and is therefore about to acquire approximately
$250,000 worth of cameras and studio equipment from various
vendors; However, Production Company does not have the financial
strength to purchase the equipment outright. Production Company
has approached Lessor to serve as lessor, whereby Production
Company would make 12 monthly payments to Lessor for
approximately 90% of the cost of the equipment and have the
option to purchase the equipment at the end of the lease for 10%
of original cost. The lease is noncancellable and irrevocable.
At the end of the lease, Production Company may also renew the
lease or return the equipment to the Lessor. Production Company
would be required to make the first month's payment in advance
and could pay the purchase option amount at the time of making
the first month's payment as a means of reducing the effective
interest rate. Lessor will pay the vendors of the equipment in
accordance with the purchase order price and terms negotiated by
Production Company (generally 30 days after installation or
use). This would be Lessor's first transaction, as it was
formed circa August 1999 and is in the process of applying for a
Sales Tax Identification Number with the Department.

APPLICABLE STATUTES AND RULES

Section 212.05(1)(a)1.a., F.S., provides:

It is hereby declared to be the legislative intent that
every person is exercising a taxable privilege who engages
in the business of selling tangible personal property at
retail in this state, including the business of making mail
order sales, or who rents or furnishes any of the things or
services taxable under this chapter, or who stores for use
or consumption in this state any item or article of
tangible personal property as defined herein and who leases
or rents such property within the state.

(1) For the exercise of such privilege, a tax is levied on
each taxable transaction or incident, which tax is due and
payable as follows:

(a)1.a. At the rate of 6 percent of the sales price of each
item or article of tangible personal property when sold at
retail in this state, computed on each taxable sale for the
purpose of remitting the amount of tax due the state, and
including each and every retail sale.

Section 212.02(15)(a), F.S., provides:

(15) "Sale" means and includes:

(a) Any transfer of title or possession, or both, exchange,
barter, license, lease, or rental, conditional or
otherwise, in any manner or by any means whatsoever, of
tangible personal property for a consideration.

Section 212.07(1)(b), F.S., provides:

(1)(b) A resale must be in strict compliance with the rules
and regulations, and any dealer who makes a sale for resale
which is not in strict compliance with the rules and
regulations shall himself or herself be liable for and pay
the tax...

Section 212.08(5)(f)1., F.S., provides:

(f) Motion picture or video equipment used in motion
picture or television production activities and sound
recording equipment used in the production of master tapes
and master records.-

1. Motion picture or video equipment and sound recording
   equipment purchased or leased for use in this state in
   production activities is exempt from the tax imposed by
   this chapter upon an affirmative showing by the purchaser
   or lessee to the satisfaction of the department that the
   equipment will be used for production activities. The
   exemption provided by this paragraph shall inure to the
   taxpayer only through a refund of previously paid taxes...

Rule 12A-1.038, F.A.C., provides in part:

(1) It is the specific legislative intent that each and
every sale, admission, use, storage, consumption, or rental
is taxable under Chapter 212, F.S., unless such sale,
admission, use, storage, consumption, or rental is
specifically exempt. The exempt status of the transaction
must be established by the dealer. Unless the dealer shall
have taken from the purchaser a certificate signed by the
dealer or the dealer's authorized representative to the
effect that the property or service was purchased for
resale and bearing the date, the name and address of the
purchaser, the effective date of the certificate, and the
number of the dealer's certificate of registration, or a
certificate signed by an authorized representative of the
organization bearing the number of the organization's
consumer's exemption certificate, the effective date of the
certificate, and the expiration date of the certificate,
the sale shall be deemed to be a taxable sale at retail...

(3)(a) A resale certificate is required from every
purchaser who purchases tangible personal property or
service for resale, subject to the provisions of subsection
(1) of this rule. Otherwise, the dealer will be required to
collect and remit the tax to the Department of Revenue...

Rule 12A-1.071(1), F.A.C., provides in part:

(1)(c) For an operating lease, tax applies to the gross
proceeds derived from the lease of tangible personal
property for the entire term of the lease when the lessor
of such property is an established business, part of an
established business, or leasing tangible personal property
is incidental or germane to the lessor's business.

1. The "gross proceeds derived" means the total
   consideration agreed to by the parties for the lease of the
   tangible personal property. Sales tax is due and payable by
   the lessee to the lessor when the lessee's obligation
   arises to pay to the lessor each agreed payment,
   irrespective of whether the lessee has complied with the
   obligation to pay the agreed payment(s) to the lessor.

2. Gross proceeds for purposes of this rule include, in
   addition to the amount attributable to the rental of
   tangible personal property:

a. Any interest charges whether or not separately stated,
unless the interest charges are clearly imposed for late
payment or other defaults under the lease.

b. Ad valorem taxes due by the lessee or other person
actually using, or entitled to use the tangible personal
property to the lessor or any other person on behalf of the
lessor, including transactions between affiliated
entities...

(d) Where a contract designated as a lease transfers
substantially all the benefits, including depreciation, and
risks inherent in the ownership of tangible personal
property to the lessee, and ownership of the property
transfers to the lessee at the end of the lease term, or
the contract contains a purchase option for a nominal
amount, the contract shall be regarded as a sale of
tangible personal property under a security agreement
(commonly referred to as a conditional-sale type lease)

from its inception. The purchase option shall be regarded
as a nominal amount if it does not exceed $100 or 1 percent
of the total contract price, whichever is the lesser
amount...

Rule 12A-1.085(2)(g), F.A.C., provides:

(g) The exemption on account of use afforded motion picture
equipment, video equipment, and sound recording equipment
in this subsection inures to the producer only through
refund of previously paid taxes. Such application for
refund may be made on a quarterly calendar year basis or
after the completion of the production activities... The
right to receive any refund is not assignable, except to
the executor by the producer or administrator, or to the
receiver, trustee in bankruptcy, or assignee in an
insolvency proceeding. In addition to the application for
refund, the producer must submit the information below and
upon approval of a complete application, the Executive
Director or the Executive Director's designee in the
responsible program shall, within 30 days, certify to the
Comptroller such information necessary for issuance of a
refund directly to the applicant of said taxes.

1. A statement executed by the producer declaring the
   motion picture equipment, video equipment, or sound
   recording equipment for which the refund is claimed was
   purchased or leased for use in this state exclusively as an
   integral part of production activities and for no other
   purpose. The statement shall include the producer's name,
   address, and evidence of authority to do business in this
   state, such as the producer's occupational license number,
   if applicable, or any other substantial proof to do
   business in this state. The statement shall be signed and
   dated by the producer and shall include the following
   statement "Under the penalties of perjury, I declare that I
   have read the foregoing and the facts alleged are true to
   the best of my knowledge and belief."

2. The primary production location where the items were
   used for which the refund is claimed.

3. A description of each such item and the purpose for
which such item was acquired.

4. Copies of the invoices of items for which a refund is
   being claimed. No refund will be allowed unless the seller
   or lessor has executed an invoice as provided in paragraph
   (h).

5. A summary schedule of invoices related to the production
   activity in which the tax was paid by the producer to a
   dealer or accrued by the producer. The summary schedule
   shall reflect the county where possession of the equipment
   was taken, invoice date, invoice number, dealer's name,
   amount of refund claimed on taxes paid to a dealer, amount
   of refund claimed on taxes accrued by the producer and the
   total amount of the refund claimed.

6. Any other information that is required by the Executive
   Director or the Executive Director's designee in the
   responsible program in order to verify the authenticity of
   the refund application.

RESPONSE TO QUESTIONS

1. The vendors must collect sales tax when the equipment is sold
   to either Production Company or Lessor as required by section
   212.05, F.S., and section 212.02(15)(a), F.S., unless Lessor
   provides a resale certificate to the seller in conformance with
   section 212.07(1)(b), F.S., and Rule 12A-1.038, F.A.C. Lessor
   is then liable to collect the tax from Production Company when
   the equipment is resold. If the sale takes effect after
   February 1, 2000, Lessor must obtain an annual resale
   certificate. The fact that Production Company is the company
   listed on the invoice is not controlling here, unless a sales
   agreement between only the vendors and the Production Company
   were made.

2. As required by Rule 12A-1.070(1)(c), F.A.C., the Lessor must
   collect sales tax on the gross proceeds received, including the
   ad valorem tax levied by the County. Provided that Lessor is

the true purchaser, the lease is an operating lease as provided
by Rule 12A-1.070(1)(d), F.A.C., since the purchase option is
greater than one percent and the possession of the equipment
otherwise reverts back to the Lessor if the lease is not
renewed.

3. Tax must be collected on the option price, since it is a sale
   as provided by section 212.05(1), F.S. and section
   212.02(15)(a), F.S.

4. The taxpayer can only obtain the refund of the tax from the
   Department, using the procedure as provided by Rule 12A1.085(2)(g), F.A.C., and only if the documentation as required
   by the Rule is submitted.

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 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 advise is based, may subject
similar future transactions to a different treatment than
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., and are subject to disclosure to the public under the
conditions of s. 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.

Sincerely,

Charles Wallace

Senior Tax Specialist
Technical Assistance and Dispute Resolution
(850) 922-4734

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