What share of a mixed-use port-authority ground lease was subject to Florida commercial-rent tax?

Plain-English summary

The cement distributor leased 12.12 acres containing vessel-unloading, storage, railroad, outbound-loading, and administrative areas. Florida accepted a square-footage allocation as a reasonable method for dividing taxable and exempt rent under a mixed-use lease.

At the time of the ruling, only the operating 0.86-acre cement dome was used exclusively to hold dry cement as it was discharged from oceangoing vessels. Subtracting that area left 11.26 taxable acres, or 92.9% of the total rental consideration.

The aggregate facility and two future domes were not yet operational, so they were not then exempt. The ruling said their treatment could change once they became operational and were used exclusively for loading or unloading vessel cargo.

What this means for you

Mixed-use port rent can require a fact-specific allocation. A planned future use did not qualify; the area had to be operational and actually used for the exempt purpose.

Common questions

How much of the rent was taxable? 92.9%, based on the taxpayer's figures.

Why was only 0.86 acre exempt? That was the only area then used exclusively for unloading and temporarily holding vessel cargo.

Did the Department verify the acreage? No. It expressly limited the ruling to the allocation methodology and supplied figures.

Citations and references

• Fla. Stat. §§ 212.031(1)(a)8, (1)(b), (1)(c), and 315.02(2) and Fla. Admin. Code r. 12A-1.070(14)(a), as discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 09A-032

Original ruling text

SUMMARY
QUESTION:
What portion of the Taxpayer’s rent payments will be subject to sales tax under section 212.031,
Florida Statutes?
ANSWER:
Section 212.031(1)(b), F.S., and Rule 12A-1.070(14)(a), F.A.C., provide that the Department shall
identify those portions of “rent” that are taxable and those that are tax-exempt. In reaching this
determination, the Department must develop a case-by-case approach that is reasonable. There are
several approaches that may be used to reach a reasonable determination. Which approach is most
reasonable is a decision that must be made depending on the facts and circumstances of the
individual taxpayer.
July 1, 2009
XXX
Re:

Technical Assistance Advisement 09A-032
Taxable Portions of a Port Authority Lease
Sales and Use Tax
Sections 212.031, 315.02, Florida Statutes (F.S.)
XXX (“Taxpayer”)

Dear XXX:
This is in response to your letter dated December 22, 2008, requesting this Department’s issuance of
a Technical Assistance Advisement (TAA) pursuant to section 213.22, F.S., and Rule Chapter 1211, F.A.C., regarding the above referenced matter and party. An examination of your letter has
established that you have complied with the statutory and regulatory requirements for issuance of a
TAA. Therefore, the Department is hereby granting your request for a TAA.
ISSUE
What portion of the Taxpayer's rent payments will be subject to sales tax under section 212.031,
Florida Statutes?
FACTS
Your letter provides in part:

Technical Assistance Advisement
Page 2 of 6
Taxpayer operates a cement distribution business located on land adjacent to XXX at the
XXX XXX XXX [“Port”] subject to a ground lease agreement with the Authority. The
property leased is located at XXX XXX XXX XXX XXX, Florida. The Taxpayer has
remitted 6.5% sales tax to the Authority [and was assessed] the full amount of the monthly
lease payment for the leased property.

Description of the Leased Property and its Usage:
The Taxpayer leases a total of 12.12 acres from the Authority. On XXX, the Taxpayer, a
XXX corporation authorized to do business in the State of Florida . . . entered into a Ground
Lease Agreement to lease approximately 12 acres from the Authority. On XXX a First
Amendment to Ground Lease Agreement became effective that increased the total acreage
to 12.12 acres . . . .
The leased area consists of three distinct areas as follows [See Exhibit B - Aerial Photograph
of the subject property and Exhibit C - Survey of the subject property]:

1. Unloading or Loading Oceangoing Vessels: This area measures 363,033 square feet or
   8.33 acres. It is comprised of two areas. The first area, measuring 263,558 square feet, or
   6.05 acres, known as the Aggregate Facility, is used for unloading sand, gravel and stone
   directly from the oceangoing vessels and held until it can be shipped to customers. The
   second area, measuring 99,475 square feet or 2.28 acres, is the location of the Domes
   where the dry cement is unloaded from the oceangoing vessels and held until it can be
   shipped to customers. [Replacing period with comma, where appropriate.]
2. On XXX, the . . . County authorized and issued a permit for the construction of three
   domes for the unloading and temporary storage of dry cement. The domes are used to
   hold the dry cement as it is discharged from an oceangoing vessel until it is transferred
   to the Cement Outbound Loading Area. Dome #1 was placed into service when the first
   oceangoing vessel arrived on XXX. Adjacent to Dome #1 is an equipment room and an
   electrical room. The electrical room supplies power distribution to power the ship
   unloading equipment and related equipment which is located in the equipment room and
   on the equipment room roof, and to the dock/dome area for shipside safety and security
   lighting. The electrical room distributes power to equipment room for a) air blowers for
   the dome which are used to level the dome cargo in preparation for unloading the vessel
   or after the vessel departure to manipulate the material in the dome and b) one of two
   compressors which supply transport air to move the material away from the dome over
   to the Cement Outbound Loading building. The area where Dome #1 and the equipment
   and electrical rooms are located measures 37,656 square feet, or .86 acres. Future Dome

2 and Future Dome #3 have had preliminary development that was completed on XXX.

The square feet for the locations of Future Dome #2 measures 31,475 square feet or .72

Technical Assistance Advisement
Page 3 of 6
acres and Future Dome #3 measures 30,5444 square feet, or 0.70 acres. [Replacing
period with comma, where appropriate.]

On XXX, Taxpayer signed a contract with XXX XXX XXX [“Contractor”] to install the
ship unloading equipment and construct the Aggregate Facility used for holding the
unloaded sand, gravel and stone as it is discharged from an oceangoing vessel until it is
transferred to the Cement Outbound Loading Area. Permitting is underway, with
intention of having the Aggregate Facility to be available for use in the 2nd quarter of
2009. (emphasis added.)

3. Railroad Right of Way: This area measures 0.41 acres. It is used for the movement of
   railroad cars.
4. Aggregate Outbound Loading Area and Cement Outbound Loading Area: This area
   measures 3.38 acres. It is used for the outbound loading of the dry cement as well as
   sand, gravel and stone onto railroad cars and trucks. Located within this area are a rail
   yard with several railroad tracks, a two story building housing loading equipment with
   an attached silo, and a trailer used as the administrative office for the onsite operations.
   TAXPAYER POSITION
   Your letter provides in part:
   Under applicable Florida Statues and the Florida Administrative Code, the Taxpayer
   contends that it is leasing property from a "port authority", a portion of which is used
   exclusively for the purposes of loading and unloading cargo from oceangoing vessels. The
   size of the property subject to the lease is 12.12 acres.
   Upon an examination of each area of the leased property separately, the Taxpayer believes
   that the following 8.33 acres are devoted exclusively to the unloading of cargo: 0.86 acre for
   existing Dome #1; 0.72 acre for future Dome #2; .070 [sic] acre for future Dome #3, and
   6.05 acres for the Aggregate Facility.
   The remaining 3.79 acres are used in connection with the outbound shipment of the
   unloaded materials to customers. Such acreage includes the area for the pipeline that
   transports the dry cement from the dome to the area used for outbound loading onto railroad
   cars and trucks, the area used for outbound loading of the aggregate (sand, gravel and stone)
   onto railroad cars and trucks, a rail yard where railroad cars can be located on several
   railroad tracks, and a railroad right of way.
   Consequently, the Taxpayer believes that 68.73 percent (8.33 acres divided by 12.12 acres)
   of the lease payments submitted to the Authority are excluded from Florida sales tax
   pursuant to Section 212.031(1)(a)8., F.S., and the Taxpayer should be assessed Florida sales

Technical Assistance Advisement
Page 4 of 6
tax on only 31.27% of the monthly lease invoice from the Authority since the
commencement of actual ship unloading operations on December 5, 2006.
APPLICABLE STATUTES AND RULES
Section 212.031, F.S., provides in part:
(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:

8.a. Property used at a port authority, as defined in s. 315.02(2), exclusively for the purpose
of oceangoing vessels or tugs docking, or such vessels mooring on property used by a port
authority for the purpose of loading or unloading passengers or cargo onto or from such a
vessel, or property used at a port authority for fueling such vessels, or to the extent that the
amount paid for the use of any property at the port is based on the charge for the amount of
tonnage actually imported or exported through the port by a tenant. (emphasis added.)
b. The amount charged for the use of any property at the port in excess of the amount
charged for tonnage actually imported or exported shall remain subject to tax except as
provided in sub-subparagraph a.

(b) When a lease involves multiple use of real property wherein a part of the real property
is subject to the tax herein, and a part of the property would be excluded from the tax under
subparagraph (a)1., subparagraph (a)2., subparagraph (a)3., or
subparagraph
(a)5.,
the
department shall determine, from the lease or license and such other information as may be
available, that portion of the total rental charge
which is exempt from the tax imposed by this
section. . . .
(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. . . . In the case of a
contractual
arrangement that provides for both payments taxable as total rent or license fee
and payments not subject to tax, the tax shall be based on a reasonable allocation of
such
payments and shall not apply to that portion which is for the nontaxable payments.

(2)(b) It is the further intent of this Legislature that only one tax be collected on the rental
or license fee payable for the occupancy or use of any such property,
that the tax so collected
shall not be pyramided by a progression of transactions,
and that the amount of the tax due the
state shall not be decreased by any such
progression of transactions.

Technical Assistance Advisement
Page 5 of 6
Section 315.02(2), F.S., provides:
(2) The term "port authority" or the word "authority" shall mean any port authority in
Florida created by or pursuant to the provisions of any general or special law or any district
or board of county commissioners acting as a port authority under or pursuant to the
provisions of any general or special law.
DISCUSSION
The Department has not verified the square footage of the figures that were provided.
This response is regarding the methodology you are using to calculate the taxable portion of the
Taxpayer's lease agreement.
Section 212.031(1)(a), F.S., imposes sales tax on the privilege of engaging in the leasing of, or the
granting of a license to use real property. Section 212.031(1)(c), F.S., imposes the tax on the total
rent or license fee charged for such real property by the person charging or collecting the rental or
license fee. However, Section 212.031(1)(a)8., F.S., excludes real property “used at a port authority
. . . exclusively . . . on property used by a port authority for the purpose of loading or unloading
passengers or cargo onto or from [vessels] . . . ."
Section 212.031(1)(b), F.S., authorizes the Department to determine the taxable portion of
the total rent payment when, in a lease of real property, there are multiple uses of such
property and a portion of the property is subject to the tax while another portion is not
subject to the tax. The Department's interpretation of this statute provides, in Rule 12A1.070(14)(a), F.A.C., that the Department shall determine, from the lease or license agreement, or
other pertinent information available, that portion of the rental charge that is excluded from
tax.
The following equation is a reasonable method useful for calculating the taxable portion of a
lease payment under a lease for multiple use property. The equation multiplies the total rent
or license fee by a fraction, the numerator of which is the taxable square footage used, and
the denominator of which is the entire square footage of the land demised by the lease.
The facts provide that Taxpayer's lease is for real property located at a port authority as
defined in Section 315.02(2), F.S. Therefore under this lease, the real property exclusively
used for the purpose of loading or unloading passengers or cargo onto or from vessels is
excluded from sales tax.
The facts provide Dome #1 is the only area currently used to hold the dry cement as it is
discharged from an oceangoing vessel. Therefore, this area, or 0.86 acres, is exempt under
Section 212.031(1)(a)8., F.S. To calculate the numerator, the total area minus the excluded
area gives the taxable area: 12.12 acres – 0.86 acres = 11.26 acres. This results in 92.9% of
the total rental consideration being subject to sales tax.

Technical Assistance Advisement
Page 6 of 6
Currently, the Aggregate Facility, Dome #2, and Dome #3 are unimproved areas that are not
exclusively used in the loading or unloading of cargo. However, as these areas become
operational and are used exclusively for the loading or unloading of cargo from vessels, then
the areas will become excluded from sales tax under Section 212.031(1)(a)8., F.S., and the
numerator will change.
CONCLUSION
Currently, only the area of Dome #1 is excluded from sales tax, as it is the property used
exclusively for the purpose of loading or unloading oceangoing vessels. Based on the figures
provided, a taxable percentage of 92.9% is a reasonable determination and therefore the
portion of the rent subject to sales tax.
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
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,

H. French Brown, IV
Attorney
Technical Assistance and Dispute Resolution
(850) 922-4708
HFB/lp
Ctrl# 56405