Did an airline hotel-room agreement qualify as a bona fide written lease for Florida's historical transient-rental exemption?

Plain-English summary

Florida found that the airline hotel-room agreement was not a bona fide written lease. It did not call itself a lease, did not commit the airline to a fixed minimum number of rooms, and allowed termination without cause or penalty.

Even a qualifying written lease would have exempted only the minimum specified number of continuously rented rooms. Here, the guaranteed room count varied by day and month, and the airline paid only for rooms actually occupied.

The airline could receive the historical continuous-residency exemption after paying tax on six months of continuous occupancy, limited to the minimum number of rooms continuously rented. The first six months remained taxable and generated no refund.

What this means for you

Hotels and corporate-room buyers should document a genuine term, fixed commitment, payment obligation, termination limits, and continuous room count. Preferential rates or recurring use alone did not establish lease treatment.

Common questions

Q: Did the agreement qualify as a lease?
A: No.

Q: Why not?
A: It lacked a fixed minimum commitment and allowed penalty-free termination without cause.

Q: Could rooms become exempt later?
A: The minimum continuously rented number could qualify after six taxed months.

Q: Was tax from the first six months refundable?
A: No.

Citations and references

• Fla. Stat. § 212.03 — historical transient-rental tax
• Fla. Admin. Code r. 12A-1.061(15) — lease and continuous-residency rules
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 03A-030

Original ruling text

SUMMARY

QUESTION: Does the Agreement that Taxpayer has entered into

with Airline constitute a bona fide written lease?

ANSWER - Based on Facts Below: No. The Agreement does not

contain a minimum number of rooms that Airline must rent,
and it allows either party to terminate the Agreement at

any time without cause or penalty.

Jun 30, 2003

Re: Technical Assistance Advisement 03A-030
Sales and Use Tax - Transient Rental Accommodations -
Airlines
Sections: 212.03, F.S.
Rules: 12A-1.061, F.A.C.
Petitioner: XXX (herein "Taxpayer")
FEI: XX

Dear:

This letter is a response to your undated petition received May
19, 2003, 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

The petition sets forth the following information:

[Taxpayer] is a full service hotel located in...
Florida. [Taxpayer] rents rooms to individuals, groups,

corporations, and other entities both for a short and long

term.

[Taxpayer has] entered into an agreement with [Airline] on
February 1, 2002 to provide rooms for their personnel for
the period specified in Section 1., Terms of the...

[A]lgreement.

[Airline] has taken the position that the new agreement is

a bona fide written agreement that would allow for the
exemption of rented rooms from the inception of the
agreement as explained under Rule 12A-1.061(15), [Florida

Administrative Code].

This is contrary to [Taxpayer's] opinion that the airline
is only obligated to pay for rooms that are occupied by
their personnel on a daily basis, and that [Taxpayer has]
only guaranteed that rooms will be charged at the rate of

$XX per night. [Section 2.a. of the Agreement.]

The Airline is billed monthly, and pays only for rooms
occupied on a daily basis. The airline does not pay for
rooms that are not occupied by airline personnel. [Section

13. of the Agreement.]

Section 1.a. of the Agreement sets forth the number of rooms to
be made available by Taxpayer, but the number varies depending
on the month of the year and the day of the week. As noted by
Taxpayer, regardless of the terms of section one, Airline is

only obligated to pay for the actual number of rooms occupied.

Section 15. of the Agreement provides that "[e]ither party may
terminate this Agreement at any time, with or without cause[,]
by providing the other [party] with thirty (30) days written

notice."

Section 2.d. of the Agreement provides that after 181 days, all
sales taxes shall be refunded to Airline for rooms that have

been continuously occupied by the Airline.

The Agreement covers a two-year period. The Agreement does not

indicate that it is a lease.

REQUESTED ADVISEMENT

Taxpayer requests advice on the taxability of the Agreement.

LAW AND DISCUSSION

Section 212.03, Florida Statutes, 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.

KKK

(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. Notwithstanding other provisions of this
chapter, no tax shall be imposed upon rooms provided guests
when there is no consideration involved between the guest
and the public lodging establishment. Further, any person
who, on the effective date of this act, has resided
continuously for 6 months at any one hotel, apartment

house, roominghouse, tourist or trailer camp, or
condominium, or, if less than 6 months, has paid the tax
imposed herein until he or she shall have resided
continuously for 6 months, shall thereafter be exempt, so
long as such person shall continuously reside at such
location. The Department of Revenue shall have the power to
reform the rental contract for the purposes of this chapter

if the rental payments are collected in other than equal

daily, weekly, or monthly amounts so as to reflect the

actual consideration to be paid in the future for the right

of occupancy during the first 6 months. (Emphasis Supplied)

In order to receive an exemption from tax, a person must have
entered into a bona fide written lease for continuous occupancy
in excess of six months' duration, or it must have resided
continuously for a period in excess of six months' duration, and
paid the tax on the first six months’ occupancy. If a person
resides continuously for a period in excess of six months’
duration, and paid the tax on the first six months' occupancy,
the rental will become exempt. However, there is no provision

for a refund of tax paid for the first six months.

Rule 12A-1.061, Florida Administrative Code, discusses transient
rentals and the exemption for continuous residence and bona fide

written leases, and it states in pertinent part as follows:

(14) EXEMPTION FOR CONTINUOUS RESIDENCE.

(a) When any person has continuously resided at any
transient accommodation for a period of longer than six
months and has paid the applicable tax due on the rental

charges or room rates for the first six months, that person

is exempt from tax on the rental charges or room rates due
for that transient accommodation after the first six months
of the continuous rental period. When that person ceases to
rent that transient accommodation, the exemption for
continuous residence for that person at that accommodation

no longer applies.

(b)1.a. When a number of transient accommodations within a
multiple unit structure are rented to any one person or
entity for its own use for periods longer than six months,
the rental charges or room rates for the lowest number of
transient accommodations continuously rented at that
structure for periods longer than six months are exempt
from tax, effective for those rental charges or room rates
due for such accommodations after the first six months of
the continuous rental period. To qualify for this

exemption, the person or entity must pay the applicable tax
due on the rental charges or room rates for the first six
months of the continuous rental period and must rent the
accommodations for periods longer than six continuous
months.

KKK

2.a. Any person who enters into a bona fide written lease,

as provided in subsection (15), to lease a specified number

of transient accommodations at a multiple unit structure

each night during the lease period for its own use, is

exempt from tax due on the rental charges or room rates

applicable to the specified minimum number of

accommodations. If that person rents more than the

specified number of accommodations stated in the lease, the

provisions of subparagraph 1. apply.

b. Example: Company B enters into a bona fide written lease
for one year with a hotel to lease at least 10 hotel rooms
each night to house its employees. The lease requires that
Company B pay the room rates for 10 rooms for the entire
year, even when the rooms are not occupied. On several
nights during the year, Company B rents more than 10 rooms
at the hotel. Company B is exempt from tax on the room
rates for 10 rooms during the entire one year lease period.

The additional hotel rooms rented by Company B are subject

to tax, until the rental charges or room rates for those

rooms qualify for exemption.

3. There is no requirement to lease or rent the same room
   or unit within a multiple unit structure each night or to
   occupy the rented or leased room or unit to qualify for the
   exemption described in this paragraph....

KKK

(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...

KKK

(d) The written lease must contain:

1. The length of time for which the transient
   accommodations are being occupied, including both the exact

commencement and exact termination dates; and

2. A statement that the lessor is giving the lessee the
   right to complete and exclusive use or possession of the
   transient accommodations for the entire duration of the

lease period.

(e) A "bona fide written lease" is executed in or with good
faith, without deceit or fraud. The Department will examine
the lease document, as well as all surrounding facts and
circumstances, to determine the parties’ objective intent

at the time of execution of the lease. In examining the

lease document, the Department will consider and be guided

by the following lease contents:

1. Language that indicates the written document is a lease;

2. A sufficient description of the leased transient

accommodations;

3. A statement that the lease contains the complete and

sole agreement between the parties for occupying the

transient accommodations;

4. A provision that the lessee will pay an agreed amount of

rental charge or room rate;

5. A statement containing the due date, the frequency, and
   the remittance address for payment of each rental charge or

room rate;

6. A statement specifying what conditions or acts will
   result in early termination of the lease, the rights and
   obligations of the parties upon the occurrence of the
   terminating conditions or acts, and any penalties that will

result from early termination; and

7. The signatures of the named parties, or in the case of
   corporate parties, the signature of the authorized

corporate representatives.

(f)1. A lease does not cease to be a bona fide written

lease when the lessor or lessee has experienced a
significant change in circumstances and the lessor releases
the lessee, with or without penalty, from the obligations

under the lease.

2. A lease does not cease to be a bona fide written lease
   when the lessor has evicted the lessee for violation of the

lease agreement.

3. A lease does not cease to be a bona fide written lease
   if the lessor is in violation of a fire or safety code such

that the lessee is forced to move to another location.

4. For the purposes of this paragraph, the term

"significant change in circumstances" means the occurrence
of an event, not contemplated at the time of the signing of
the lease, such as an illness, death, bankruptcy,

significant change in business circumstances (e.g., long-
term strike or the ceasing of doing business in the

locality), loss of job, or job transfer, that would cause

the lessor or lessee to suffer a hardship if the lessor or
lessee were forced to honor the lease until its stated

termination date.

(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:

KKK

4. The lease contains a provision that allows the lessee to

cancel the lease, without penalty, at any time when the

lessee has had no significant changes in circumstances; or

5. The lease contains a provision that would allow the
   lessee to avoid full payment of the stated amount of the

rental charge or room rate.

In applying the provisions of Rule 12A-1.061(15), Florida
Administrative Code, to the Agreement, the Agreement fails to
meet some of the criteria to qualify as a bona fide written

lease. The Agreement does not identify itself as a lease. See
Rule 12A-1.061(15)(e)1., Florida Administrative Code. More
importantly, the Agreement contains a provision that allows the
lessee to terminate the lease at any time, without penalty, when
the lessee has had no significant change in circumstances. See

Rule 12A-1.061(15)(g)4., Florida Administrative Code.

Furthermore, even if the Agreement did constitute a bona fide
written lease, the exemption would only apply to the minimum
specified number of rooms that are continuously rented. The
Agreement does not require the Airline to rent all of the rooms
guaranteed pursuant to the Agreement, and the number of rooms
guaranteed by the Agreement varies depending on the day of the

week and the month of the year.

Since the Agreement does not constitute a bona fide written
lease, once the Airline has rented rooms continuously for a six-
month period and paid tax on those rentals, the minimum number
of rooms rented for six months will begin qualifying for the
continuous residency exemption. Airline is not entitled to or

due a refund of tax paid during the first six months of

continuous occupancy on the minimum number of rooms.

CONCLUSION

The Agreement does not constitute a bona fide written lease.
Airline may receive an exemption after six months’ continuous
occupancy, upon which it has paid tax, on the minimum number of
rooms it has rented. No refund is due on the tax paid on the

first six months of occupancy.

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, 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,

Sara D. Faulkenberry

Tax Law Specialist

Technical Assistance and Dispute Resolution

850/414-9838

Control #55349