Was the electricity portion of shopping-center CAM charges exempt when a year-end reconciliation identified the tenant's share?

Plain-English summary

A shopping-center tenant paid common-area operating costs as additional rent. The charges included electricity and other CAM expenses. The landlord paid the utility bills and Florida sales tax, then passed each tenant its proportionate share without markup.

Florida found the electricity component exempt. The tenant supplied the utility bills and payment records, satisfying proof that the landlord paid tax. A year-end reconciliation and detailed recoverable-expense list separately identified electricity for the whole center, and the tenant's percentage made its share mathematically determinable. Passing the charge through at cost satisfied the final pricing condition.

Only the electricity component qualified. Other CAM charges remained taxable additional rent, and any markup on the utility amount would also be taxable.

What this means for you

A monthly invoice did not have to state the utility amount here because the year-end materials gave the tenant enough information to identify its share. The ruling required tax-paid proof, meaningful separate statement or reconciliation, and no markup.

Common questions

Was every CAM charge exempt? No. Only the qualifying electricity pass-through was exempt; the other operating-cost components remained taxable.

How was electricity separately stated? The year-end recoverable-expense list showed electricity for the entire center, and the tenant's stated pro-rata percentage allowed its amount to be calculated.

Did the landlord prove it paid utility tax? Yes. Bills and payment records showed the full amounts, including Florida sales tax, were paid.

Could the landlord add a markup? A markup would be taxable additional rent. The exception applied because the utility amount was passed through without markup.

Citations and references

• Fla. Stat. § 212.031(1), (7) (commercial rent and utility pass-through exception)
• Fla. Stat. § 212.05(1)(e)1.c. (electrical power)
• Fla. Admin. Code r. 12A-1.070(4)(d), (e) (CAM and utility charges)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 06A-044

Original ruling text

SUMMARY
QUESTION: Whether charges for utilities passed through to the Taxpayer by the Lessor as part of common area
maintenance ("CAM") charges are subject to sales and use tax.
ANSWER - Based on Facts Below: Section 212.031(7), F.S., and Rule 12A-1.070(4)(e), F.A.C., provide that utility
charges paid for the right to occupy real property are subject to tax unless the following three requirements are met:
(1) the lessor must have already paid sales tax on the purchase of the utilities from the utility provider; (2) the utilities
billed by the lessor to the tenant must be separately stated on the lessor's invoice to the tenant; and (3) the utility
charges billed to the tenant must be at the same or lower price as that billed by the utility company to the lessor. This
exemption applies to utility payments that are passed through to the tenant as a portion of the CAM charges.
The Taxpayer and Lessor entered into a Lease Agreement which provides that CAM charges are to be paid as
additional rent. A portion of the CAM charges constitutes the pass through utility charges to the Taxpayer. Under the
present circumstances, the three requirements provided by the above referenced rules have been met. The Taxpayer
met the first requirement by providing electricity bills from the utility provider and subsequent payments made by the
Lessor. The Taxpayer met the second requirement by providing a year-end reconciliation from the Lessor, which
included a detailed list of recoverable expenses for the entire Shopping Center. The list of recoverable expenses
included a line-item for electricity. Although the line-item provided the electricity charges for the entire Shopping
Center, those charges attributed to the Taxpayer can be calculated because their pro rata share of the expenses was
provided. This itemization is sufficient to meet the separately stated requirement because the Taxpayer is given notice
of the utility charges that are passed through as part of the overall CAM charges. The final requirement would be met
as long as the Lessor is passing through the utility charges at the same or lower price as that billed by the utility
company to the Lessor. This requirement is met because the Lessor is passing through the utility charges to the
Taxpayer without a mark up. Consequently, the Taxpayer is entitled to the reference exemption.

December 14, 2006

Re: Technical Assistance Advisement 06A-044
XX
(f/k/a XX) (the "Taxpayer")
FEIN: XX
XX (the "Lessor")
FEIN: XX
Pass Through Utility Charges
Sales and Use Tax
Sections 212.031 and 212.05, Florida Statutes ("F.S.")
Rule 12A-1.070, Florida Administrative Code ("F.A.C.")

Dear:
This response is in reply to your letter dated XX, requesting the Department's issuance of a Technical Assistance
Advisement ("TAA") pursuant to Section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding the Department's
position on the taxability of Pass Through Utility Charges. The initial request provided the following: (1) the Lease
Agreement between the Taxpayer and the Landlord, (2) the XX CAM Reconciliation provided by the Landlord to the
Taxpayer, and (3) a breakdown of Recoverable Expenses for the XX ("XX"). However, the request did not meet the
requirements for issuance of a TAA, because all of the documents relevant to the transaction were not provided.
On XX, the Department received the following additional document(s): (1) copies of the Lessor's bill from the utility
provider for the time period in question. With the additional documents and information provided, you have complied
with the statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting
your request for issuance of a TAA.
ISSUE
Whether charges for utilities passed through to the Taxpayer by the Lessor as part of common area maintenance
("CAM") charges are subject to sales and use tax.
Facts
The Lease Agreement between the Taxpayer and the Landlord, provides for the use of approximately XX square feet
of gross rentable area in the XX XX. The Landlord at the time the Lease Agreement was executed was XX, c/o XX
("Initial Landlord"). Subsequently, in XX, according to the XX records, the XX XX was purchased by Lessor, and it is
currently managed by XX ("XX Co."). The Taxpayer is requesting an official Technical Assistance Advisement with
respect to the sales tax charges on utilities billed by the Lessor.
The pertinent paragraphs of the Lease Agreement provide the following:
LEASE - FACE PAGE
LEASE DATE:

XX

INITIAL LEASE TERM:
XX years (subject to adjustment as set forth in Section 5)
FIXED ANNUAL RENT:
$XX for the XX year of the term of this Lease, subject to increase pursuant to this Lease.

LESSEE'S PROPORTIONATE
SHARE OF OPERATING COSTS*
(For XX lease year subject to increase
pursuant to this lease)
$XX Monthly
$XX Annually

• Estimated

6. RENT.
   6.1 FIXED ANNUAL RENT.
   6.1.1 LESSEE covenants and agrees to pay Lessor the FIXED ANNUAL RENT (as defined and set forth on the FACE
   PAGE) plus all sales and other applicable taxes required to be paid to LESSOR by applicable authorities... payable in
   advance in equal monthly installments without deductions or set-offs except as may be permitted hereunder....

6.2 ADDITIONAL RENT.
In addition to the foregoing FIXED ANNUAL RENT, all other payments to be made by LESSEE under this Lease shall
be deemed to be and shall become additional rent hereunder ("ADDITIONAL RENT") whether or not the same be
designated as such and shall be due and payable within XX days of LESSEE’s receipt of any written request or
demand, or invoice therefor, or if none, with the second succeeding installment of FIXED ANNUAL RENT (FIXED
ANNUAL RENT and ADDITIONAL RENT shall be collectively referred to as "RENT")....

7. COMMON AREAS, FACILITIES, AND MAINTENANCE THEREOF.
   All facilities furnished by LESSOR in the XX and designed for the general use, in common, for occupants of the XX,
   including LESSEE hereunder, their respective officers, agents employees, invitees and customers, including, but not
   limited to, any of the following which may have been furnished by LESSOR such as parking areas, driveways,
   entrances and exits thereto, employee parking areas, truck way or ways, truck courts and service courts, loading
   docks, package pick-up stations, pedestrian sidewalks and ramps, landscaped areas, exterior stairways, first aid
   stations, comfort stations, bus stops, taxi stands, malls, and other similar facilities shall at all times be subject to the
   exclusive control, administration, and management of LESSOR.... "COMMON FACILITIES" means all areas, space,
   equipment, if any, provided by LESSOR for the use of and benefit of the various occupants of the XX, their respective
   employees, agents, servants, customers and other invitees, including, without limitation, parking areas, access roads,
   driveways, retaining walls, landscape areas, truck service ways or tunnels, loading docks, pedestrian walks, courts

stairs, ramps and sidewalks, comfort and first aid stations, washrooms and parcel pick-up stations, if any, if the same
be provided....
7.2 LEASE YEAR.
... In each lease year, LESSEE shall pay to LESSOR, in addition to all rents specified in Section 6 as further
Additional Rent LESSEE's PROPROTIONATE SHARE (as hereinafter defined) OF OPERTING COSTS (as
hereinafter defined).
7.2.1. "Proportionate Share" means a fraction which has as its numerator the Gross Rentable Area of the Demised
Premises (as defined in Exhibit I) and as its denominator the Gross Rentable Area of the Shopping Center (as defined
in Exhibit I).
7.2.2 "Operating Costs" means any reasonable amounts paid or payable whether by the LESSOR or by others on
behalf of the LESSOR, arising out of LESSOR"s ownership, maintenance, operation, repair, and administration of the
XX including without limitation:... (v) the cost of all fuel, water, electricity, telephone and other utilities used in the
maintenance, operation or administration of the Common Facilities of the XX....

7.3 Lessee shall monthly pay to LESSOR the monthly payment of LESSEE's PROPORTIONATE SHARE OF
OPERTING COSTS (as provided on the FACE PAGE); such additional payment shall be made simultaneously with
the respective monthly payments of the FIXED ANNUAL RENT. Within XX days after the end of each lease year,
LESSOR shall deliver to LESSEE a statement showing the LESSEE's PROPORTIONATE SHARE OF OPERATING
COSTS for such lease year and a detailed statement reflecting the breakdown of cost and the calculation of
LESSEE's PROPORTIONATE SHARE of Operating Costs certified by an officer of LESSOR... to be a true and
accurate accounting thereof....

9. SALES USE AND TAXES.
   LESSEE shall pay LESSOR any and all sales or use tax or excise tax imposed or levied by any state or local
   government against rentals or any other charge or payment required under this Lease to be made by LESSEE which
   has been imposed or levied on or against the same by any governmental agency having, or purporting to have,
   jurisdiction thereover which is required to be paid directly to LESSOR. At the present time there is a 6.5 % state and
   local sales tax on rentals in... County, Florida.

25. EVENTS OF DEFAULT.
    A default by LESSEE shall be deemed to have occurred hereunder if and whenever: (i) any RENT is in arrears after 5

days written notice or demand for payment has been made by the LESSOR and LESSEE has failed to pay the RENT
within such 5 day period....

The XX CAM Reconciliation provided by the Landlord to the Taxpayer provides that the Taxpayer's Prorata Share of
Expenses is 11.55%.
TAXPAYER'S POSITION
The pertinent portions of your letter dated XX, provide the following:
[Taxpayer] is taking the position that sales tax should not be paid on utility charges billed by the Landlord based on
Fla. Stat. s. 212.031(7) which states, "Utility charges subject to tax that are paid by a tenant to the lessor as part of the
rent are exempt from tax if the lessor has paid sales tax on the purchase of utilities and the charges billed to the
tenant are separately stated and are the same or lower than those paid by the lessor."
[Taxpayer] is requesting a written response as to whether the above statute applies to their current Lease Agreement
with the Landlord.
APPLICABLE STATUTES AND RULES
Section 212.031, F.S., provides, in pertinent part, the following:
(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....

(c) For the exercise of such privilege, a tax is levied in an amount equal to 6 percent of and on the total rent or license
fee charged for such real property by the person charging or collecting the rental or license fee. The total rent or
license fee charged for such real property shall include payments for the granting of a privilege to use or occupy real
property for any purpose and shall include base rent, percentage rents, or similar charges....

(d) When the rental or license fee of any such real property is paid by way of property, goods, wares, merchandise,
services, or other thing of value, the tax shall be at the rate of 6 percent of the value of the property, goods, wares,
merchandise, services, or other thing of value.

(7) Utility charges subject to sales tax which are paid by a tenant to the lessor and which are part of a payment for the
privilege or right to use or occupy real property are exempt from tax if the lessor has paid sales tax on the purchase of

such utilities and the charges billed by the lessor to the tenant are separately stated and at the same or a lower price
than those paid by the lessor.

Section 212.05(1)(e)1.c., F.S., provides, in pertinent part, the following:
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:
(e)1. At the rate of 6 percent on charges for:...
c. Electrical power or energy, except that the tax rate for charges for electrical power or energy is 7 percent.
Rule 12A-1.070, F.A.C., provides, in pertinent part, the following:
(4)(a) The tenant or person actually occupying, using, or entitled to use any real property from which rental or license
fee is subject to taxation under Section 212.031, F.S., shall pay the tax to his immediate landlord or other person
granting the right to such tenant or person to occupy or use such real property.
(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.

(d) Common area maintenance charges paid by a tenant to the lessor for the privilege or right to use or occupy real
property are taxable.
(e) Utility charges paid by a tenant to the lessor for the privilege or right to use or occupy real property are taxable,
unless the lessor has paid the sales tax to the utility company on such utilities consumed by the tenant, and the
utilities billed by the lessor to the tenant are separately stated on the lessor's invoice to the tenant at the same or
lower price as that billed by the utility company to the lessor....

DISCUSSION
You have requested an advisement regarding the taxability of Pass Through Utility Charges charged to the Taxpayer

by the Lessor as a portion of the overall CAM charges. The utility charges and the appropriate Florida sales tax are
paid by the Lessor to the utility provider and subsequently passed through to the tenants.
Every person who engages in the business of selling tangible personal property at retail in this state is exercising a
taxable privilege. See generally Section 212.05, F.S. The sale of electrical power or energy is subject to tax at a rate
of 7 percent. See Section 212.05(1)(e)1.c., F.S. The initial purchase of electrical power by the Lessor from the utility
company constitutes such a purchase. When such charges and the appropriate sales tax, paid by the lessor, are
passed through to the lessee and are required to be paid as "additional rent" in a lease, the nature of the transaction
changes from a sale of tangible personal property to a lease requirement that must be complied with for the right to
use or occupy real property. The taxable consequences of leasing real property are addressed in Section 212.031,
F.S. This Section is further interpreted by Rule 12A-1.070, F.A.C.
The Florida Statutes generally provide that every person engaging in the business of renting, leasing, letting, or
granting a license to use real property is exercising a taxable privilege. See Section 212.031(1)(a), F.S. This privilege
is taxable at a rate of 6 percent of the total rent charged for the use of the property, which may include base rent,
percentage rents, or similar charges. See Section 212.031(1)(c), F.S. This tax rate is applicable to "all considerations
due and payable by the tenant" as a requirement of occupancy. See Rule 12A-1.070(4)(b), F.A.C.
Paragraph 6.1 of the Lease Agreement between the Taxpayer and the Lessor provides that a fixed annual rent
(subject to annual increase) is required to be paid in monthly installments. Paragraph 6.2 provides that "all other
payments to be made by lessee under this lease shall be deemed to be and shall become additional rent hereunder...
whether or not the same be designated as such...." This paragraph further provides that fixed annual rent and
additional rent shall be collectively referred to as "rent." Paragraph 25 provides that a default will result if the Lessee
does not pay his or her rent within a given period of time. Therefore, payments other than the fixed annual rent made
by the Taxpayer would constitute "additional rent" and would be subject to tax under Section 212.031, F.S.
As a general rule, charges for utilities or common area maintenance that must be paid as "additional rent" by the
lessee to the lessor for the right or privilege to use or occupy real property are subject to tax. See Rule 12A1.070(4)(d) and (e), F.A.C. However, Section 212.031(7), F.S., and Rule 12A-1.070(4)(e), F.A.C., provide an
exemption for such charges under certain circumstances. In order for pass through charges for electricity to be
exempt, the following three requirements must be met: (1) the lessor must have already paid sales tax on the
purchase of the utilities from the utility provider; (2) the utilities billed by the lessor to the tenant must be separately
stated on the lessor’s invoice to the tenant; and (3) the utility charges billed to the tenant must be at the same or lower
price as that billed by the utility company to the lessor. See Section 212.031(7), F.S., and Rule 12A-1.070(4)(e),
F.A.C.
Although Rule 12A-1.070(4)(d), F.A.C., provides that CAM charges paid by the lessee for the right or privilege to use
or occupy real property are subject to tax, it has been determined by the Department that the portion of CAM charges
attributable to the lessor’s pass through of electric utility costs may be exempt if the requirements set out by Section
212.031(7), F.S., and Rule 12A-1.070(4)(e), F.A.C., are met. In the present case, the overall CAM charges, referred to
in the Lease Agreement as operating costs, include the cost of electricity as well as other operating costs relating to
the common facilities of the Shopping Center. However, of the different components that make up the CAM charges,

only the electricity charges are subject to the statutory exemption.
It has already been established that the operating costs are subject to tax as additional rent under Paragraph 6 of the
Lease Agreement. In order to determine whether the utility component of those charges is exempt from sales tax, it is
necessary to apply the three requirements referenced in Section 212.031, F.S., and Rule 12A-1.070, F.A.C. The first
requirement that must be established is that the lessor has paid the sales tax to the utility provider on the utilities
consumed by the tenant. The Taxpayer has provided electricity bills from the utility provider and payments made by
the Lessor for the period of May 2004 to April 2005. The payments made by the Lessor constitute the entire sum due,
including the Florida sales tax charged by the utility provider. The amount of Florida sales tax due is clearly stated on
the utility provider’s bill to the Lessor. Therefore, this requirement has been met.
The second requirement that must be established is that the Pass Through Utility Charges, are separately stated on
the Lessor's invoice to the Taxpayer. The Department has determined that instead of separately stating the Pass
Through Utility Charges in the monthly statement to the lessee, this requirement can also be satisfied by providing a
year end reconciliation statement. The lessee's Pass Through Utility Charges can be based on an estimate that is
determined based on the prior year's expenses. A year end statement must be provided to reconcile any difference
between the estimated costs on which the lessee's periodic payments are based and the actual cost paid by the
lessor for the CAM utility charges. However, in order for this reconciliation statement to satisfy the "separately stated"
requirement for the utilities exemption, the statement must detail the various cost components of the CAM charges
and specifically break out as a line item the portion resulting from electric utility costs incurred by the Lessor.
Paragraph 7 of the Lease Agreement in question provides for the monthly payment of the Lessee's proportionate
share of operating costs relating to the common areas, facilities, and maintenance thereof. Sub-subparagraph 7.2.2(v)
provides that "operating costs" include the cost of electricity used in the operation of the common facilities.
Subparagraph 7.3 provides that the Landlord will provide to the Taxpayer a year end reconciliation of the Taxpayer's
proportionate share of the operating expenses. The Taxpayer's proportionate share of estimated operating costs ($XX
monthly; $XX annually) appears in the Face Page of the Lease Agreement. According to Sub- subparagraph 7.2.1,
the lessee's proportionate share is determined by a "fraction which has as its numerator the gross rentable area of the
demised premises... and as its denominator the gross rentable area of the Shopping Center." The year end
reconciliation provided by the Lessor states that the Taxpayer's pro rata share of expenses is XX%. The XX CAM
Reconciliation provided by the Taxpayer provides a general reconciliation of the estimated CAM charges billed to the
Taxpayer and the actual CAM charges, but it does not provide a line item for the utility charges passed through to the
Taxpayer. However, with the CAM Reconciliation, the Taxpayer has also provided a detailed list of Recoverable
Expenses for the entire Shopping Center, which does provide a line item for electricity. This document provides a
detailed, line item listing of all the expenses that make up the total CAM charges for the Shopping Center. These
amounts are based on the actual CAM expenses paid by the Lessor. This document also provides a reconciliation of
the Taxpayer's pro rata share of these expenses less the estimated charges that were billed throughout the year.
Although the line item for electricity charges is for the entire Shopping Center, the Taxpayer's share of that amount
can be mathematically deduced with the knowledge that the Taxpayer's pro rata share of expenses is XX%.
Consequently, the itemization of CAM charges provided in this document is sufficient to meet the "separately stated"
requirement in Section 212.031, F.S., and Rule 12A-1.070, F.A.C., since the Taxpayer is given notice of the utility
charges that are passed through as part of the overall CAM charges.

The final requirement provides that the utility charges billed to the lessee must be at the same or lower price as that
billed by the utility company to the landlord. In other words, if the utility charges paid by the Lessor are passed through
directly to the Taxpayer, and do not include a mark up by the Lessor, this requirement would be met because sales
tax was already paid on this amount when the Lessor paid his or her utility bill. However, if there is a mark up in the
price of the utilities, this additional amount would be subject to tax because it was not taxed at the time the Lessor
initially paid the utility bill.
CONCLUSION
In conclusion, based on the facts provided, the Pass Through Utility Charges would not be subject to tax, since the
requirements for the exemption under Section 212.031, F.S., and Rule 12A-1.070, F.A.C., have been met. However,
please be advised that if the Lessor marks up the utility charges, the amount of the mark up would be subject to tax
under Section 212.031, F.S., as additional rent paid as a condition 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 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 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.
If you have any further questions with regard to this matter and wish to discuss them, you may contact me directly at
(850) 922-4839.
Sincerely,
Melissa Soriano
Attorney
Technical Assistance & Dispute Resolution
Record ID: 25614