Did a related company's rent-free occupancy create a taxable implied lease of Florida real property?

Plain-English summary

The Department found a taxable implied rental arrangement between a landowning LLC and a related operating company that used 100% of the property. A written lease was not required; the parties' conduct and financing documents could establish the landlord-tenant relationship.

The lender described the operator as the sole tenant and relied on rents, income, and profits from the property to repay the landowner's mortgage. The operator distributed funds to the common owners, who contributed funds to the landowner to pay its mortgage, property taxes, insurance, and other costs. The Department treated those indirect benefits as rental consideration.

The landowner therefore had to remit sales tax on funds received and used to pay the real-property costs associated with the operator's occupancy.

What this means for you

Related entities cannot avoid Florida commercial-rent tax solely by omitting a lease or routing occupancy payments through common owners. The Department looked to exclusive use, loan documents, economic benefits, and the source and use of funds.

Common questions

Was a written lease necessary? No. The Department found an implied lease from the facts and conduct.

Did it matter that the operator paid no money directly to the landowner? No. Related-party consideration could be indirect.

What amounts were treated as rent? Benefits derived from the operator's funds that paid the landowner's mortgage, property taxes, insurance, and other real-property costs.

Citations and references

• Fla. Stat. §§ 212.02, 212.031, 212.12(8), and 608.471(3); Fla. Admin. Code r. 12A-1.070(4), (19); Regal Kitchens v. Department of Revenue, 641 So. 2d 158 (Fla. 1st DCA 1994); and Cascella v. Canaveral Port Authority, 827 So. 2d 308 (Fla. 5th DCA 2002), as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 09A-048

Original ruling text

SUMMARY
QUESTION: Whether Taxpayer must collect tax on payments by Taxpayer’s owners to
Taxpayer.
ANSWER: Yes. Arrangement with Taxpayer and occupying related party was an
implied rental arrangement. Lender required an Assignment of rent, issues, and profits
from occupying related party to pay for loan mortgage. Funds from the operations of the
occupying related party were indirectly used to defray Taxpayer’s cost of operations.
September 29, 2009
XXX
Subject: Technical Assistance Advisement 09A-048
Sales and Use Tax
Real property license to use real property
XXX (“Taxpayer”)(“Landowner”)
FEIN: XXX
XXX (“Member A”)
XXX
XXX (“Member B”)
XXX
XXX (“Operator”)
FEIN: XXX
XXX (“Lender”)
Section 212.031, F.S.; Section 212.02, F.S.
Section 212.12(8), F.S.
Rule 12A-1.070, F.A.C.
Dear XXX:
This letter is a response to your petition dated August 6, 2008, 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 1211, 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
Landowner is organized under the laws of the State of Florida as a limited liability
company. Member A and Member B were the initial members of Landowner.

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Your request provides that Operator uses 100% of the real property owned by
Landowner. No written lease agreement between Landowner and Operator was
submitted. Member A owns ninety-nine percent of the shares of Operator and
Member B owns one percent of the shares of Operator.
Landowner borrowed $2,750,000.00 from Lender pursuant to a Commercial
Promissory Note (“Note”). The Note is secured by a Mortgage and Security
Agreement (“Mortgage”) encumbering real and personal property described by
the Mortgage. The Note provides that the Note is subject to the terms and
conditions of the Loan Agreement. Member A, Member B, and Operator signed
guaranty agreements.
The Commitment by Lender provides that the loan is conditioned by the terms of
the Commitment. The Commitment and Note reference the Loan Agreement,
which was not provided. However, the Commitment provides that the property
and collateral include the mortgage on the real property and improvements, and
the assignment of all rents and leases on real property and improvements. The
Commitment provides that Operator is the sole tenant of the building secured by
the Mortgage.
The Commitment required Landlord to execute at or after the closing the
following:
•
•
•

•
•

Note
Mortgage
Properly executed Uniform Commercial Code Financing Statements
which perfect Lender’s first lien or security interest in all personal
property pledged as collateral for the Loan, including but not limited to
leases, rents, issues and profits
A properly executed Assignment of Leases and Rentals in form and
content acceptable to Lender
Copies of Landlord’s financial statement including, but not limited to, an
income statement, balance sheet, and schedule of rents concerning the
operation of the Property.

The Mortgage provided that a security interest was provided in the property of
Landowner, including in part the following:
(A) All of the land [of Landowner] ….
(B) (i) all personal property and fixtures now or hereafter affixed to or located
on the property described in (A) …; (v) all those items described on
Exhibit B ….

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(C) All rents, issues, profits, revenue, income, proceeds, and other benefits
flowing or derived from the property described in paragraphs (A) and (B)
hereof, provided however, that permission is hereby given to Mortgagor
so long as no default has occurred hereunder, to collect, receive, and use
such benefits from the property as they become due and payable ….
Exhibit B of the Mortgage is a UCC-1 Attachment. The Exhibit was part of a
financing statement filed with the Clerk of the Circuit Court in XXXXX.
The Attachment provides in part the following:

All of Debtor’s [Landowner] interest as lessor or owner in and to
all leases or rental arrangements of the Real Property or any part
thereof heretofore made and entered into by Debtor during the life
of the security agreements or any extension or renewal thereof,
together will all rents and payments in lieu of rents together with
any and all guarantees of such leases or rental arrangements and
including all present and future security deposits and advance
rentals.

The financing statement provides in part the following:
This FINANCING STATEMENT covers the following collateral:
With respect to the Real Property described in Exhibit A attached
hereto (the “Land”), all appurtenances, improvements, tangible
property, rents, secondary financing, proceeds ….
The Assignment of Leases, Rents and Profits, also recorded in XXXX County,
provides in part:
[Landowner] …, hereinafter called “ASSIGNOR,” in consideration
of, and as further security for a mortgage loan made to
ASSIGNOR by Lender …, hereinafter called “ASSIGNEE”,
hereby assigns to ASSIGNEE all the rents, issues and profits,
arising from the premises described in Exhibit “A” annexed hereto,
but until default by ASSIGNOR in that certain Promissory Note …
in the sum of $2,750,000.00, together with interest, on the real
property mortgage encumbering the property described in Exhibit
“A” …, ASSIGNOR may continue in possession of the premises
describing in Exhibit “A” under its leasehold rights and may

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continue to collect such rents, issues and profits, and any tenants of
any portions of the said property may continue to pay rent to
ASSIGNOR.
PROVIDED HOWEVER, upon default by ASSIGNOR or
ASSIGNOR’S successors or assigns in any payment or act
required under the aforesaid promissory note and real property
mortgage ASSIGNEE shall be entitled to possession under the
leasehold rights of ASSIGNOR in and to the property described in
Exhibit “A” and to receive said rents, issues and profits therefrom
whether they arise under leases now existing or hereafter …, and
ASSIGNOR does hereby name and constitute ASSIGNEE as its
Attorney-in-Fact to transfer to ASSIGNEE or ASSIGNEE’S
designee the leasehold of ASSIGNOR to the property described in
Exhibit “A” and to sue for and to collect all rents, issues, and
profits due and which may become due relative to said leasehold
interests, and ASSIGNOR agrees that it shall promptly notify all
tenants of the premises to pay over such rents, issues and profits to
the ASSIGNEE upon demand.
The initial capital contribution by Member A and Member B to Landlord was
$1,000. The Operating Agreement provides that the initial manager of
Landowner was Member A. Article III, Section 4, of the Operating Agreement
provides that real or personal property owned or purchased by Landowner shall be
held and owned, and conveyances made, in Landowner’s name. The same section
provides that instruments and documents providing for the acquisition, mortgage,
or disposition of property of Landowner shall be valid and bind Landowner.
Article IV, Section 4, regarding distributions, provides available cash shall be
distributable to the members in proportion to their respective then existing nonreturned, contributed capital. The section defines “available cash” as:
(i) that sum of cash resulting from business operations, including
sales revenues, royalties, interest income and other income derived
from sale or use of products developed by this company plus funds
reserved in a previous fiscal year but released without expenditure,
less (ii) all cash expenditures, including, but not limited to real and
personal property taxes, principal and interest payments on all
loans made to the company, insurance, capital requirements,
accounting and legal fees and supplies, and less any amount which
the manager or managers may reasonably determine to be
necessary as a reserve for operating expenses, capital
improvements, security deposits, or contingencies, but not

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including cost expenditures previously reserved against in a prior
fiscal year.
Although the schedules of rent referenced by the Commitment and Landowner
financial statements were not provided, copies of unsigned Landowner’s federal
income tax returns were provided for several years. The returns provide that the
principal business activity is real estate and that the business or activity by
Landowner is commercial rental. The returns provide that Landowner’s expenses,
including mortgage payments, property taxes, and insurance, were financed by
contributions of Member A and Member B. The federal income tax returns of
Member A and Member B provide that the primary and overwhelming source of
income was from distributions from Operator.
Operator’s financial statements reported distributions to Member A and B in
excess of $9,400,000, which also exceeded all Landowner’s expenses since
inception of Landowner. Assets reported on Landowner’s financial reports are
the property used by Operator. No direct payments to Landowner by Operator are
reflected on financial statements or federal income tax returns. Landowner’s
receipts and disbursements were in excess of $5,500,000.00 since inception.
Disbursements included mortgage payments, property tax payments, and
insurance payments.
REQUESTED ADVISEMENT
Landowner seeks a ruling that Florida sales tax is not due on the above described
arrangement.
TAXPAYER POSITION
Section 212.031, F.S., imposes the tax on real property rentals and is inapplicable
for several reasons. Specifically, no lease agreement exists between Operator and
Landowner. There has never been any consideration paid or recorded in any
fashion for the use of the real estate. Landowner is not engaged in the business of
renting real property. Operator has acquired no interest or rights with respect to
the occupancy of Landowner’s property. From inception, no tenants have ever
been considered to occupy the premises. There is no link between distributions
from Operator to Member A and Member B and the capital contributions of
Member A and Member B to Landowner that were ultimately used to pay the
expenses of Landowner.

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In St. Johns Trading Company v. Department of Revenue, DOAH Case Number
84-1652 (1985), and Department of Revenue v. Ryder System, Inc., 406 So.2d
1299 (Fla. 1st DCA 1981), no tax was found due when the occupant or tenant did
not pay rental consideration despite accounting entries reflecting rent expense by
the tenants or occupants for accounting purposes. The occupant in St. Johns
Trading Company reported as rent expense the real estate owner’s costs
associated with depreciation, interest, and taxes for the purpose of measuring
profitability of the stores.
Taxpayer cites Technical Assistance Advisement 04A-056 as support. Taxpayer
cites from the advisement the following:
“The Department recognizes that there may be situations wherein
‘income’ or ‘profit’ flowing between related entities, in an
arrangement such as the one before us, would not be ‘rental
consideration.’ Key to any determination on behalf of the
Department would be a review of the P.A.’s membership
agreement or other controlling documents. The Department would
be interested in the timing, amount and control of the distributive
shares of earnings or cash flow to the two persons identified above.
The Department would look to the membership agreement or other
controlling documents to ascertain: (1) that distributions do not
coincide with the time at which the property’s expense obligations
are due; (2) the amount of distributions does not coincide with the
amount of the property’s expense obligations; and (3) the
distributions are based on a true reflection of income or profit and
not on the amount of the property’s expense obligations.”
Operator’s distributions to the shareholders do not coincide with the time at which
Landowner’s expense obligations are due, the amount of the distributions does not
coincide with the amount of the expense obligations, and the distributions are
based on Operator’s profit and not on Landowner’s expense obligations.
For these reasons, Taxpayer respectfully requests that the Department find this
arrangement to be exempt from sales tax consistent with the aforementioned
rulings.
APPLICABLE STATUTES AND RULES
Section 212.02(10)(i), and (12), F.S., provide:

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(10)(i) "License," as used in this chapter with reference to the use of real
property, means the granting of a privilege to use or occupy a building or a
parcel of real property for any purpose.

(12) "Person" includes any individual, firm, copartnership, joint adventure,
association, corporation, estate, trust, business trust, receiver, syndicate, or
other group or combination acting as a unit and also includes any political
subdivision, municipality, state agency, bureau, or department and includes
the plural as well as the singular number.
Section 212.031(1)(a) and (c), (2)(a), and (3), F.S., provide:
(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….

(2)(a) The tenant or person actually occupying, using, or entitled to the use
of any property from which the rental or license fee is subject to taxation
under this section shall pay the tax to his or her immediate landlord or other
person granting the right to such tenant or person to occupy or use such real
property.

(3) The tax imposed by this section shall be in addition to the total amount
of the rental or license fee, shall be charged by the lessor or person
receiving the rent or payment in and by a rental or license fee
arrangement with the lessee or person paying the rental or license fee,
and shall be due and payable at the time of the receipt of such rental or
license fee payment by the lessor or other person who receives the rental or
payment…. (Emphasis added)
Section 212.12(7) and (8), F.S., provide:
(7) In the event the dealer has imported tangible personal property and he
or she fails to produce an invoice showing the cost price of the articles, as
defined in this chapter, which are subject to tax, or the invoice does not

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reflect the true or actual cost price as defined herein, then the department
shall ascertain, in any manner feasible, the true cost price, and assess and
collect the tax thereon with interest plus penalties, if such have accrued on
the true cost price as assessed by it. The assessment so made shall be
considered prima facie correct, and the duty shall be on the dealer to show
to the contrary.
(8) In the case of the lease or rental of tangible personal property, or other
rentals or license fees as herein defined and taxed, if the consideration
given or reported by the lessor, person receiving rental or license fee, or
dealer does not, in the judgment of the department, represent the true or
actual consideration, then the department is authorized to ascertain the
same and assess and collect the tax thereon in the same manner as above
provided, with respect to imported tangible property, together with
interest, plus penalties, if such have accrued.
Section 608.471(3), F.S., provides in part:
(3) Single-member limited liability companies and other entities that are
disregarded for federal income tax purposes must be treated as separate
legal entities for all non-income-tax purposes….
Rule 12A-1.070(4) and (19), F.A.C., provide in part:
(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 … 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. (Emphasis added)
(c) Ad valorem taxes paid by the tenant or other person actually
occupying, using, or entitled to use any real property to the lessor or any
other person on behalf of the lessor, including transactions between
affiliated entities, are taxable.

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(19)(a) The lease or rental of real property or a license fee arrangement to
use or occupy real property between related "persons," as defined in s.
212.02(12), F.S., in the capacity of lessor/lessee, is subject to tax.
(b) The total consideration, whether direct or indirect, payments or credits,
or other consideration in kind, furnished by the lessee to the lessor is
subject to tax despite any relationship between the lessor and the lessee.
(c) The total consideration furnished by the lessee to a related lessor for the
occupation of real property or the use or entitlement to the use of real
property owned by the related lessor is subject to tax, even though the
amount of the consideration is equal to the amount of the consideration
legally necessary to amortize a debt owned by the related lessor and
secured by the real property occupied, or used, and even though the
consideration is ultimately used to pay that debt. (Emphasis added)
RESPONSE
Section 212.031(1)(a), F.S., provides 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. Section 212.02(10)(i), F.S., defines “License,” with reference to the
use of real property, as the granting of a privilege to use or occupy a building or a parcel
of real property for any purpose. A license may be created by a written or oral agreement
by implication based on the actions of the parties. See 20 Fla. Jur 2d §47. Section
212.02(10), F.S., defines “Lease,” “let,” or “rental” to include the leasing or renting of
real property. Section 212.02(10)(h), F.S., states that “Real property” means the surface
land, improvements thereto, and fixtures, and is synonymous with “realty” and “real
estate.”
The term “lease” is defined by Black’s Law Dictionary @ 907 (Deluxe 8th edition, 2004)
as, “A contract by which a rightful possessor of real property conveys the right to use and
occupy the property in exchange for consideration, usu. rent.” It also means, “To grant
the possession and use of (land, buildings, rooms …) to another in return for rent or other
consideration.” Id. @ 909. In regard to parol leases, it also includes, “A lease based on
an oral agreement; an unwritten lease.” Id. @ 909. It also includes a contract for
exclusive possession of lands or tenements for a determinate period and a contract for
possession and profits of lands and tenements either for life or for certain period of time,
or during the pleasure of the parties. See Black’s (Special Deluxe 5th edition, 1979) @

800. Also, a lease or license may be implied by the conduct of the parties. 17A Am Jur
     2d Contracts § 12. First Nat’l Bank v. Green, 132 Ill. App. 2d 322, 270 NE2d 493 (Ill. 1st
     DCA 1971) (An implied tenancy may arise where a party has used another’s premises,
     accepting the benefits of such use.).

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Thus, a lease includes, but is not limited to, any agreement that gives rise to a relationship
of landlord and tenant, and it does not require the existence of a written lease agreement.
Therefore, the tax provided for by section 212.031, F.S., is imposed on the consideration
received pursuant to the exclusive possession of real property. In addition, the tax is
imposed on the grant of a privilege to use real property. The use may be for any purpose.
In this instance, the request provides that Operator used 100% of the real property owned
by Landowner. As provided by the Commitment, the Lender made the loan with the
express understanding that Operator was the sole tenant. Lender also relied upon
Operator’s revenue and income to repay the loan, as evidenced by the Mortgage, the
Commitment, and the Assignment. The word, “tenant” is defined by Blacks (8th edition)
@ 1506, as “One who holds or possesses lands or tenements by any kind of right or title.
See TENANCY.” The word, “tenancy” is defined as, “The possession or occupancy of
land under a lease; a leasehold interest in real estate.” Id. @ 1505. Therefore, based on
the characterization of the relationship with the parties required by the Commitment and
information submitted by the request, the relationship between Landowner and Operator
created a lease for purposes of section 212.031, F.S.
Section 608.471(3), F.S., requires entities disregarded for federal income tax purposes to
be construed as separate legal entities for sales tax purposes. The term “person” is
defined by section 212.02(12), F.S., broadly to include “any individual, firm,
copartnership, joint adventure, association, corporation, estate, trust, business trust,
receiver, syndicate, or other group or combination acting as a unit.” As such,
Landowner, Operator, Member A, and Member B are separate persons for purposes of
Chapter 212, F.S.
Section 212.02(2), F.S., defines the term “Business” to mean, “any activity engaged in by
any person, or caused to be engaged in by him or her, with the object of private or public
gain, benefit, or advantage, either direct or indirect….” The opinion from Regal Kitchens
v. Department of Revenue, 641 So.2d 158 (Fla. 1st DCA 1994), @ 162-163, provides in
part the following:
This definition is broad enough to encompass many different forms of
rental arrangements, including the transaction in this case. See, e.g., Kirk
v. Western Contracting Corp., 216 So.2d 503 (Fla. 1st DCA), cert. denied,
225 So.2d 535 (Fla.1969). The stockholders of Regal Kitchens would not
have titled the property in the name of a partnership and leased it back
unless there was some benefit inherent in that arrangement. Nothing in
subsection 212.02(2) Florida Statutes (1989), suggests that the term
"business" is limited to those who engage in regular course of dealing with
different clients or customers. A person who rents a single duplex unit is
engaged in business as is the owner of an apartment who rents thousands
of units.

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Those who seek the protection afforded by incorporation must also accept
the burdens. Individuals may incorporate to shield themselves from
personal liability, or for many other reasons, but they may not then
disavow the existence of the corporation for the purpose of obtaining a tax
advantage….
Here, Landowner’s sole property is the property used by Operator. The federal
tax returns provide Landowner is in the business of commercial rental. The
Commitment provides that Operator is the sole tenant of the property. Landowner
has no other business activity than providing use of the property for Operator. In
addition, the property is shielded from potential liability from Operator’s business
activity, which could benefit Member A, Member B, and Lender. Therefore,
Landowner is a person engaged in the business of leasing for purposes of section
212.031, F.S.
Section 212.031(2)(a), F.S., provides that the tenant or person actually occupying, using,
or entitled to the use of any property from which the rental or license fee is subject to
taxation under this section shall pay the tax to his or her immediate landlord or other
person granting the right to such tenant or person to occupy or use such real property.
As such, Operator, as the tenant, is required to pay the tax on consideration paid to
Landlord.
Section 212.031(1)(c), F.S., provides that the 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. Section 212.031(3), F.S., provides that
the tax is due and payable at the time of the receipt of such rental or license fee payment
by the lessor or other person who receives the rental or payment. This includes
Landowner as the lessor. It also includes Member A and Member B as the other person
who receives the rental payment by virtue of receipt of Operator’s distributions. Rule
12A-1.070(4), F.A.C., provides that all consideration paid for the use of real property is
rent subject to the tax, including payments for property tax. Rule 12A-1.070(19), F.A.C.,
provides that this includes any amount paid by a tenant to a related party and
consideration paid or received directly or indirectly. Section 212.12(8), F.S., provides
that the Department may determine the true consideration paid when the rental amounts
are not accurately reflected by a dealer.
Rent is defined as “consideration paid, usually periodically, for use or occupation of
property.” Cascella v. Canaveral Port Authority, 827 So.2d 308 (Fla. 5th DCA
2002)(Citing Black’s Law Dictionary 1299 (7th ed. 1999)). Consideration includes either
a benefit to the promisor or a detriment to or obligation upon the promise. Detriment to
an acquiring party may constitute consideration for a transfer of assets. Consideration is

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not limited to a money consideration and may include an assumption of liability or other
thing of value. 68 Am.Jur. 2d Sales and Uses Taxes §66.
In Trailer Conditioners, Inc. v. Huddleston, 897 S.W. 2d 728 (Tenn. Ct. App. 1995),
appeal denied (May 1, 1995), the court determined that consideration may be either a
benefit to one related party or a detriment to or obligation upon the other related party.
The benefit and detriment included the regular transfer of substantial funds from one
related party to another related party’s bank accounts to pay for expenses of transferee
related party. The transfer constituted consideration even though the related party did not
earn a profit from such transfer because other benefits were obtained. Accounting,
bookkeeping, and other services provided by a related party also constituted
consideration. Although the consideration was not explicitly provided for by agreement,
the transfer was implied consideration inferred from the party’s actions. Therefore, the
fact that amounts received are denominated as rent or consideration does not alter
whether funds paid are in substance rent.
The fact that the amounts are not paid directly to Taxpayer by the licensee is not
controlling. Rule 12A-1.070(19)(b), F.A.C., provides that consideration may be indirect
payments or credits. Here, since Member A and Member B may control and direct the
funds of Operator and Landowner, the manner of receipt of funds by Landowner is not
controlling as to whether receipts are rental consideration. A property owner may direct
the manner in which a tenant makes rental payment. See Seaboard Coastline Railroad
Company v. Askew, Case #72-15 (Fla. Cir. Ct., 2nd Cir., Leon Co., 1972). The court in
Seaboard, addressed the issue of what is included as rental consideration and held as
follows:
The consideration paid by the tenant for the privilege conferred by the
lease is “rent.” Rent may be payable in cash, or in some commodity, or by
rendering specified services. Rent may be payable directly to the lessor or
to some other person either specified in the lease or directed by the
lessor…. Section 212.031 imposes a tax upon “the total rent charged” for
the “renting, leasing or letting” of real estate.... While taxes are not
specifically mentioned, this language clearly indicates a legislative intent
to tax the full benefits flowing to the landlord for the use of leased
premises.... The payment of these taxes by the lessee is the payment of
money for account of the owner and for his benefit.... A tax [sales tax] is
imposed upon a transaction and measured by the rent. In every rental
transaction the amount of taxes upon the rented property is necessarily
considered by the parties in determining the rent to be charged and paid
whether the taxes be paid by the landlord from a fixed monthly or annual
rental or paid for the landlord by the tenant. (Emphasis Supplied)

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Therefore, as with the property owner in Seaboard Coastline, the funds or other benefits
flowing to a property owner may be rental consideration regardless of the manner or
description attached to funds or benefits received. As such, benefits received by the
Landowner, either in Landowner’s bank account or paid to Lender or other parties as
Landowner or Members of Landowner deems, derived originally indirectly or directly
from Operator’s funds even if labeled as distributions to shareholders, are rent. Here, the
federal income tax returns reflected that Member A’s and Member B’s only source
sufficient to pay Landowner’s expenses was from Operator’s distributions. These funds
were used to pay for Landowner’s costs, including the mortgage payments, property
taxes, insurance, and other costs of Landowner. As in Huddleston and Seaboard
Coastline, the funds received by Landowner were consideration. As such, the payments
are rent and subject to the tax.
The loan required Landowner to assign its interest in any lease and all rents, issues, and
profits from such lease to Lender. The Assignment provides that Lender will accrue rent
upon default. Black’s Law Dictionary (Deluxe 8th edition, 2004) defines the words,
“Rents, issues, and profits” as “The total income or profit arising from the ownership or
possession of property.” Also, see Bay Realty Corporation v. Becker, 157 So.2d 91 (Fla.
3rd DCA 1963)(“Rents, issues, and profits” means and refers to rents collected by the
debtor in possession or the net profits accruing to him from said property.). Generally,
rents and profits are income generated from the occupation or use of the realty and not
income generated from general business operations. Profits are synonomous with rents
and not used in the sense of excess of income over expense in business operations. In re
Flower City Nursing Home, Inc., 38 Bankr. 642 (Bankr. W.D.N.Y. 1984). The
requirement of Lender that Landowner provide the Assignment prior to closing further
demonstrates that amounts received by Landowner were rent in that Lender sought to
obtain the repayment of the loan from Operator’s use of Landowner’s property for its
business operations.
Also, Operator, Member A, and Member B were guarantors of Landowner’s loan.
Section 607.06401(3), F.S., limits distributions to shareholders to the extent that the
corporation can pay its debts as they become due in the usual course of business or when
the corporation’s total assets are less than the sum of its total liabilities after the
distribution. Since Operator was liable as guarantor, the distributions in part to Member
A and Member B were required to be used to pay Landlord’s mortgage payments and
were liabilities. As such, the entire amount could not be profit distributions.
The request provides that Landowner’s arrangement is consistent to prior TAA opinions.
As provided by Rule 12-11.007(1), F.A.C., a TAA is only binding to the person to whom
it was issued. Furthermore, a TAA is based on very specific facts. Facts in the TAA
referenced are not precisely identical to the facts here.

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Therefore, for the reasons provided herein, the Landowner is required to remit sales tax
on funds received used to pay Landowner’s costs related to real property used by
Operator.
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 10 days of the date of this letter.
Sincerely,

Charles Wallace
Senior Attorney
Technical Assistance and Dispute Resolution
(850) 922-4734
CW/
Ctrl#: 49644