Could an enterprise-zone business claim Florida's property-tax credit when an affiliated LLC owned the building and paid the assessed ad valorem tax?

Plain-English summary

The operating business could not claim the enterprise-zone property-tax credit. An affiliated LLC owned the building, the property tax was assessed in the LLC's name, the LLC funded the lender's tax escrow, and the receipt did not identify the operating business as the taxpayer.

The tenant's lease required rent plus an additional amount for property taxes, assessments, operations, and maintenance. Those payments did not establish that the tenant itself paid the assessed ad valorem tax required by the credit statute. Ownership overlap between the business and LLC did not shift the credit from one legal entity to the other.

What this means for you

For this credit, economic reimbursement through rent was not enough. The claimant had to substantiate that qualifying property was assessed to it and that it paid the tax with the statutory documentation.

Common questions

Q: Did the lessee qualify for the credit? No.

Q: Did it matter that some owners of the business also owned the landlord LLC? No. Stock or membership ownership did not determine which entity could claim the credit.

Q: Why did the additional lease payment not count? It covered several categories of expense and did not make the lessee the assessed taxpayer or holder of the required receipt.

Citations and references

• Fla. Stat. § 220.182 — enterprise-zone property-tax credit
• Fla. Stat. § 220.03(1)(k), (p), (u) — expanded, new, and rebuilt business definitions cited
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02C1-002

Original ruling text

SUMMARY

QUESTION: Is the lessor of a building eligible to claim the
enterprise zone property tax credit?

ANSWER - Based on Facts Below: No. Based on the facts
presented, the lessor of the building is ineligible to
claim the enterprise zone property tax credit.

Mar 15, 2002

Re: Technical Assistance Advisement 02C1-002
Corporate Income Tax - Enterprise Zone Property Tax Credit
s. 220.182, F.S.
XXX, hereinafter referred to as "A"

Dear :

Your letter of XX, requested a Technical Assistance Advisement
concerning eligibility to claim the enterprise zone property tax
credit against Florida corporate income tax. This response to
your request constitutes a Technical Assistance Advisement under
Chapter 12-11, Florida Administrative Code, and is issued to you
under the authority of s. 213.22, Florida Statutes.

FACTS

"A" is a XXX business. XXX of the XXX members who own "A"
formed a limited liability company (LLC), which leases a
building to "A". Under the lease agreement, "A" is required to
make monthly lease payments in the amount of XX plus an
"additional amount" to cover "real property taxes, assessments
and costs of operating and maintaining the Premises". The
"additional amount" to be paid by "A" may be adjusted by the
landlord at the end of each 12-month period. For the period
from XX to XX, the "additional amount" paid was XX per month.

The LLC took out a mortgage loan to pay for the building. The

terms of the mortgage require the LLC to place funds in escrow
with the lender, sufficient to pay the annual property taxes on
the building. These funds were used to pay the ad valorem tax
assessed on the building, owned by the LLC, in XX.

LAW

Paragraph 220.03(1)(p), F.S., states:

"New business", for the purposes of the enterprise zone
property tax credit, means any business entity authorized
to do business in this state as defined in paragraph (e),
or any bank or savings and loan association as defined in
s. 220.62, subject to the tax imposed by the provisions of
this chapter, first beginning operations on a site located
in an enterprise zone and clearly separate from any other
commercial or industrial operations owned by the same
entity, bank, or savings and loan association and which
establishes five or more new jobs to employ five or more
additional full-time employees at such location. The
provisions of this paragraph shall expire and be void on
June 30, 2005. (emphasis supplied)

Section 220.182, F.S., states, in pertinent part:

(1)(a) Beginning July 1, 1995, there shall be allowed a
credit against the tax imposed by this chapter to any
business which establishes a new business as defined in s.
220.03(1)(p), expands an existing business as defined in s.
220.03(1)(k), or rebuilds an existing business as defined
in s. 220.03(1)(u) in this state. The credit shall be
computed annually as ad valorem taxes paid in this state,
in the case of a new business; the additional ad valorem
tax paid in this state resulting from assessments on
additional real or tangible personal property acquired to
facilitate the expansion of an existing business; or the ad
valorem taxes paid in this state resulting from assessments
on property replaced or restored, in the case of a rebuilt
business, including pollution and waste control facilities,
or any part thereof, and including one or more buildings or
other structures, machinery, fixtures, and equipment....

(emphasis supplied)

(3) The credit shall be available to a new business for a
period not to exceed the year in which ad valorem taxes are
first levied against the business and the 4 years
immediately thereafter. The credit shall be available to
an expanded existing business for a period not to exceed
the year in which ad valorem taxes are first levied on
additional real or tangible personal property acquired to
facilitate the expansion or rebuilding and the 4 years
immediately thereafter. No business shall be entitled to
claim the credit authorized by this section, except any
amount attributable to the carryover of a previously earned
credit, for more than 5 consecutive years. (emphasis
supplied)

(4) To be eligible for an enterprise zone property tax
credit, a new, expanded, or rebuilt business shall file a
notice with the property appraiser of the county in which
the business property is located or to be located. The
notice shall be filed no later than April 1 of the year in
which new or additional real or tangible personal property
acquired to facilitate such new, expanded, or rebuilt
facility is first subject to assessment. The notice shall
be made on a form prescribed by the department and shall
include separate descriptions of: ... (emphasis supplied)

(5) When filing for an enterprise zone property tax credit
as a new business, a business shall include a copy of its
receipt indicating payment of ad valorem taxes for the
current year. (emphasis supplied)

(7) The receipts described in subsections (5) and (6) shall
indicate the assessed value of the property, the property
taxes paid, a brief description of the property, and an
indication, if applicable, that the property was separately
assessed as expansion-related or rebuilt property.

(9) It shall be the responsibility of the taxpayer to
affirmatively demonstrate to the satisfaction of the
department that he or she meets the requirements of this

act.

DISCUSSION

Section 220.182, F.S., provides for a property tax credit
against Florida corporate income tax, to businesses that
establish a new business, expand an existing business, or
rebuild an existing business, as those terms are defined in s.
220.03, F.S., in an enterprise zone, establish and maintain five
new jobs, and meet the other criteria therein. Paragraph
220.182(1)(a), F.S., states that the credit for a new business
will be the amount of ad valorem taxes paid in Florida, and the
credit for an existing business will be the additional ad
valorem taxes paid in Florida resulting from acquiring
additional real or tangible personal property to facilitate the
expansion. The maximum annual credit a business may claim is
$25,000, or $50,000 if the employment requirements are met.

As stated in subsection 220.182(3), F.S., the credit is
available to the new or expanded business when ad valorem taxes
are first levied on its property located in an enterprise zone.
To receive the credit the new, expanded, or rebuilt business is
required, by subsection 220.182(4), F.S., to file a notice with
the county property appraiser of the county in which the
business property is located, by April 1 of the year in which
the property first becomes subject to assessment. Additionally,
subsection 220.182(5), F.S., requires a new business to include
a copy of its receipt indicating payment of ad valorem taxes for
the current year. As stated in subsection 220.182(7), F.S.,
such receipt must state the assessed value of the property, the
property taxes paid, a description of the property, and, if
applicable, whether the property was separately assessed as
expansion-related or rebuilt property.

The wording of the statute indicates that the ad valorem taxes
on the property acquired to facilitate the expansion of a
business or creation of a new business are to be assessed in the
name of the applicant for the credit. Likewise, the receipts
indicating payment of such ad valorem taxes are to be issued in
the name of the applicant for the credit.

The request for this Technical Assistance Advisement states that
because s. 220.182, F.S., contemplates consideration of leased
property in determining eligibility for enterprise zone tax
credits, it is considered for all enterprise zone incentives.
In fact, the only other enterprise zone incentives which
consider leased property in determining eligibility are the
refund of sales tax paid on the purchase of building materials
used in an enterprise zone, and the electrical energy exemption
for electricity used in an enterprise zone. None of the other
enterprise zone incentives are available to lessees.

The ad valorem taxes appearing on the notice for XXX, issued by
XXX, are assessed against the LLC on the building it owns, and
which the LLC leases to "A". The check issued by the mortgagor,
in payment of the ad valorem taxes assessed against the LLC, was
paid from funds placed in escrow by the LLC. The receipt
indicating payment of ad valorem taxes, required by the statute,
was not issued to "A". Additionally, as the lease agreement
requires "A" to pay an "additional amount" for "real property
taxes, assessments and costs of operating and maintaining the
Premises", the payments made by "A" in excess of its regular
rent payments are allocated to expenses other than ad valorem
taxes. Further, the credit does not inure to the shareholders,
nor does stock ownership determine what entity is entitled to
claim this credit.

In this instance, the ad valorem taxes were not assessed against
"A". "A" did not pay the ad valorem taxes to the property
appraiser, and "A" does not possess the documentation, required
by the statute, to show eligibility for the enterprise zone ad
valorem property tax credit. Accordingly, "A" is ineligible to
claim the enterprise zone ad valorem property tax credit.

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
based on those facts and 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, 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,

Suzanne C. Paul
Technical Assistance and
Dispute Resolution

SCP/
Control No.: 47990