Did an airline's cancellable hotel-room agreement qualify as a bona fide lease, and was tax on the first six months refundable?

Plain-English summary

Florida found that the airline's hotel agreement was not a bona fide written lease and denied a refund of tax paid during the first six months. The agreement did not bind the airline to a stable minimum room count, and either party could terminate at any time without cause or penalty on 30 days' notice.

The contract failed the lease test

The cited rule looked for lease language, identified accommodations, a complete agreement, stated rent and payment details, meaningful termination conditions and consequences, and signatures. It specifically disfavored a clause allowing cancellation without penalty absent a significant change in circumstances.

The airline agreement varied room counts by weekday, weekend, and season and did not require the airline to rent every room the hotel made available. Even a qualifying lease would exempt only the minimum number of rooms continuously rented.

Six months created only prospective relief

Without a bona fide lease longer than six months, the airline could qualify after actually occupying rooms continuously for more than six months and paying tax for the first six. Only the minimum number continuously rented for the entire period became exempt going forward. The statute provided no refund for the first six months.

What this means for you

Airlines and other employers arranging recurring lodging should distinguish room availability from a binding continuous-occupancy commitment. Cancellation rights, varying room counts, and the exact rooms continuously rented determine whether and when an exemption begins.

Common questions

Q: Was the two-year contract term enough?
A: No. The unrestricted termination clause and variable commitment prevented bona fide lease treatment.

Q: Did every room become exempt after six months?
A: No. Only the minimum number actually rented continuously for the six-month period qualified prospectively.

Q: Was the first six months' tax refunded?
A: No. The ruling said the statute contained no such refund provision.

Citations and references

• Fla. Stat. § 212.03 — transient accommodation tax and continuous-residence exemption
• Fla. Admin. Code r. 12A-1.061(15) — bona fide written leases and continuous occupancy
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 03A-046

Original ruling text

SUMMARY

QUESTION ONE: Does the Agreement that Taxpayer has entered
into with Hotel constitute a bona fide written lease?

ANSWER - Based on Facts Below: No. The Agreement does not
contain a minimum number of rooms that Taxpayer must rent,
and it allows either party to terminate the Agreement at
any time without cause or penalty.

QUESTION TWO: Is Taxpayer entitled to a refund of tax paid
on the first six months of occupancy?

ANSWER - Based on Facts Below: No. Taxpayer may qualify
for an exemption from tax after it has continuously
occupied rooms for six months and has paid tax on those
rooms. The exemption will only be available for the number
of rooms continuously rented for the six month period. The
statutes do not make any provision for a refund of tax paid
on the first six months' occupancy.

Sep 18, 2003

Re: Technical Assistance Advisement 03A-046
Sales and Use Tax - Transient Rental Accommodations Airlines
Section 212.03, F.S.
Rule 12A-1.061, F.A.C.
Petitioner: XXX (herein "Taxpayer")
FEI: XX

Dear :

This is a response to your letter dated August 15, 2003, in
which you have requested clarification regarding the taxability
of hotel rooms rented by an airline for its employees. 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 reply constitutes a Technical
Assistance Advisement ("TAA") and is issued to you under the
authority of Section 213.22, F.S.

Stated Facts

On February 1, 2002, Taxpayer entered an agreement with Hotel,
for the rent of a minimum of 38 rooms at any time during the
year. After the first six-months of the contract, Taxpayer asked
the hotel for a refund of the first six months paid on taxes.
Hotel did not agree with the refund.

You ask clarification on the following issues: 1) What is
considered a bona fide written lease[?,] and 2) [I]s our
contract considered a bona fide written lease? If the response
to these questions is NO, then why specifically is it not
considered a bona fide written lease? Also, are the first sixmonths refundable or not under the scenario?...

You enclosed copies of Taxpayer's contract with Hotel (herein
"Agreement"). Portions of Agreement relevant to the discussion
below state:

1. TERMS

a. Hotel hereby agrees to provide to [Taxpayer] the
exclusive use of [Taxpayer] flight/in-flight
personnel: (1) for the period between December 1st to
March 30th, thirty-eight (38) rooms on weekends and
thirty-three (33) rooms on weekdays for cabin crew and
seventeen (17) rooms for pilots and (2) for the period
between April 1st to November 30th, twenty-nine (29)
for cabin crew and fifteen (15) rooms for pilots
located on Hotel's premises ...

b. The number of rooms may be amended by [Taxpayer] by
up to an additional fifteen (15) guaranteed rooms per
day.

2. PAYMENTS/COSTS

[Taxpayer] agrees to pay the following sum(s) to Hotel:

a. Guaranteed flight/in-flight crew guestrooms at the
rate of $52.50 per room.

[b.] Based on availability, extra flight guestroom(s),
as requested under the above terms, at the same rate.

[c.] All sales taxes shall be fully refundable to
[Taxpayer] One Hundred and Eighty One (181) days after
the commencement of this Agreement for the number of
rooms that have been occupied continuously and
consistently by [Taxpayer], including but not limited
to the number of guaranteed rooms, so long as such
continuous occupancy creates a tax exemption for the
hotel. Thereafter, no taxes shall be levied against
[Taxpayer] for the above stated guestrooms described
in Sections 1 and 2 of this Agreement. The hotel will
adhere to all applicable State of Florida and County
of Miami-Dade tax codes.

15. This Agreement shall become effective on February 1,
    2002 and shall continue in force until February 1, 2004
    unless terminated earlier as provided herein. Either party
    may terminate this Agreement at any time, with or without
    cause[,] by providing the other with thirty (30) days
    written notice. No termination hereof shall affect any
    rights or obligations of either party which may have arisen
    or occurred under this Agreement prior to such termination.
    The premature termination of this Agreement will in no way
    relieve the parties of any liabilities, obligations, costs
    or charges which may have accrued prior to the date of
    termination. (Emphasis supplied)

Applicable Authority and Discussion

Section 212.03, F.S., states in 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.

(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)

Rule 12A-1.061, F.A.C., states in relevant part:

(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.

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.

(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....

(c) For the purposes of this subsection, a "bona fide
written lease" is a written document that clearly
demonstrates that the parties' intent is that the lessee
will have the exclusive use or possession, or the right to
the exclusive use or possession, of the transient
accommodations to which the lease applies.

(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., longterm 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:

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. (Emphasis supplied)

Advisements

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 a person 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 pays 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.

In applying the provisions of Rule 12A-1.061(15), F.A.C., 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. 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 Agreement paragraph
15.

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 Taxpayer 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 Taxpayer has rented rooms continuously for a sixmonth period and paid tax on those rentals, the minimum number
of rooms rented for six months will qualify for the continuous
residency exemption from that point forward. Taxpayer is not
entitled to nor due a refund of tax paid during the first six
months of continuous occupancy on the minimum number of rooms.

Closing Statement

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, 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.

If you have any further questions with regard to this matter and
wish to discuss them, you may contact me directly at (850) 4889669.

Sincerely,

Tammy S. Manke
Attorney
Technical Assistance & Dispute Resolution

TSM\
Control No: 56520