What portions of ground-lease and master-lease rent for a hotel were subject to Florida sales tax?

Plain-English summary

Florida approved separate square-footage allocations for a hotel's ground lease and master lease because each covered different property.

Guest rooms and common areas principally provided for guests—such as lobbies, elevators, corridors, public restrooms, and guest grounds—were treated as exempt dwelling-unit space. Hotel offices, front desk, storage, housekeeping, electrical, elevator, and other operator-only areas were taxable. Subleased restaurant space was excluded from the allocation because tax was collected on that subrent.

For the ground lease, 104 operator-only square feet divided by 15,103.07 total square feet produced a 0.68% taxable share. For the master lease covering all floors, 154 taxable square feet divided by 33,134.07 produced a 0.46% taxable share.

Because the sublessor re-leased the entire ground-lease premises, it could register as a dealer, give the ground lessor a resale certificate, and collect tax from the hotel lessee on the taxable master-lease share. Base, incentive, additional rent, and owner-benefiting payments remained rental consideration.

What this means for you

Hotel leases can combine exempt dwelling areas with taxable operator space. Each lease tier needs its own supported numerator and denominator, and sublease credits or resale procedures prevent both pyramiding and underpayment.

Common questions

Were guest common areas taxable operator space? No, when principally provided for guests' enjoyment of the dwelling units.

What were the taxable percentages? 0.68% for the ground lease and 0.46% for the master lease.

Could the sublessor use a resale certificate? Yes, because it re-leased the entire ground-lease premises and registered as a dealer.

Citations and references

• Fla. Stat. § 212.031 and Fla. Admin. Code r. 12A-1.070, as quoted and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10A-004

Original ruling text

SUMMARY
QUESTIONS AND ANSWERS:
What portion of the rental payments from a lessee to a lessor is subject to Florida sales tax where
the lessee has leased both land and a hotel?
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,
because of the applicability of an exemption, such as Section 212.031(1)(a)2., F.S.
The Department’s interpretation of this statute provides in Rule 12A-1.070(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 exempt 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 such as a hotel. The equation multiplies
the total rent or license fee by a fraction, the numerator of which is the square footage used by
the lessee for its own purposes, and the denominator of which is the entire square footage of the
land demised by the lease.
February 5, 2010
XXX
XXX
XXX
Re:

Technical Assistance Advisement 10A-004
Sales and Use Tax –Taxable Portions of a Hotel Lease
Section 212.031, F.S. (Florida Statutes)
Rule 12A-1.070, F.A.C. (Florida Administrative Code)
XXX
XXX
XXX

Dear XXX:
This is a response to your letter dated August 10, 2009, for the Department's issuance of a
Technical Assistance Advisement (“TAA”) pursuant to s. 213.22, F.S., and Chapter 12-11,
F.A.C., regarding the above referenced matter and parties. An examination of your petition 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 issuance of a TAA.

Technical Assistance Advisement
Page 2
ISSUE
What portion of the rental payments from a lessee to a lessor is subject to Florida sales tax where
the lessee has leased both land and a hotel?
FACTS
On July 24, 2008, XXX (Lessor) and XXX (Sub-Lessor) entered into a 99 year Ground Lease
Agreement. At that same time Sub-Lessor subleased the property to (Lessee), whereas both
parties entered into a Master Lease Agreement.
The Ground Lease provides that Lessor has acquired approximately 15,000 square foot parcel of
land, in which a 42 room hotel is being built. This lease indicates that at all times during the
ground lease term, Sub-Lessor shall own the building with all appurtenances, and Lessor shall

have only a reversionary interest. The lease also provides that Lessor will lease the land to SubLessor.
The minimum annual rent payable under the Ground Lease for the first lease year is $XXX, or
$XXX per month. The lease stipulates that the minimum annual rent will increase by XXX %
each year. Additionally, the lease requires Sub-Lessor to pay all real estate taxes and
assessments against the land and building and all insurance required to be maintained by under
the Ground Lease.
Pursuant to the Master Lease Agreement, Sub-Lessor leased the land, building, and all other
improvements to Lessee, who will operate a hotel on the demised premises. Lessee agrees to
pay Sub-Lessor a base rent in the initial year of $XXX per month.
The ground floor of the hotel consists of guest rooms, restaurant, front desk, storage area,
manager’s office, elevator room, housekeeping room, electric room, and other common areas
typically found at a full service hotel. The second and third floor consists of rooms for guest
accommodations, and includes an electric room and a housekeeping maid area. You have
provided a copy of the Ground Lease and the Master Lease agreements, a drawing of the leased
property, and a drawing of the ground level floor plan.
TAXPAYER POSITION
You assert that Lessee has been collecting sales tax on room charges from hotel guests and
remitting the tax to the Department of Revenue, and remitting sales tax to Lessor each month on
the ground lease. Furthermore, you maintain these payments were made without taking into
consideration the portions of the ground lease that may be exempt under s. 212.031, F.S., as
property used exclusively as a dwelling unit. You also state that sales tax has also been collected
by Lessee for the portion of the premises that have been leased to a restaurant operator.

Technical Assistance Advisement
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You contend that based on the methodology used in a prior Technical Assistance Advisement
(05A-014) issued by the Department, a portion of the lease payment from Lessee to Lessor is
exempt from sales tax based on the fact that a portion of the property is used as dwelling units.
Based upon your computation and analysis, you assert that the amount of the lease payment
subject to sales tax pursuant to s. 212.031, F.S., should be 0.46%.
You have provided drawings of the floor plans on each of the floors and a computation sheet
showing the areas that you consider as taxable and nontaxable. You have also provided a sales
tax remittance worksheet that indicates the amount of sales tax remitted by Lessee for its
transient rental tax and taxes collected for its sales and service, and the estimated sales tax due to
Lessor based on your determination of the taxable portion of the lease.
Below is a list of the spaces and square footage of the total property area and the areas that you
believe are taxable and non-taxable:
Total Property Area
Square Footage
Land and First Floor

XXX

2nd Floor
3rd Floor
Total

XXX
XXX
XXX

Taxable Area
First Floor

Square Footage

Front Desk
Storage
GM’s Office
Elevator Room
Housekeeping maid
Electric Room
Total Area

XXX
XXX
XXX
XXX
XXX
XXX
XXX

Second Floor
Electric Room
Housekeeping maid
Total Area

XXX
XXX
XXX

Third Floor
Electric Room
Housekeeping maid

XXX
XXX
XXX

Total Taxable Area

XXX

Non-Taxable Area (used by guests)

Technical Assistance Advisement
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Restaurant & Lounge
Public restrooms in lobby
Guest lobby and seating area
Guest rooms
Public grounds-Gardens
Driveway for guest dropoff/pickup
Public Corridors
Ice Machine area
Elevators
Stairwells
Total Non-Taxable Area XXX Square Feet

XXX %

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:

2. Used exclusively as dwelling units.

(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

Technical Assistance Advisement
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the tax due the state shall not be decreased by any such progression of transactions.
Rule 12A-1.070, F.A.C., provides in part:
(4)(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.
(8) When a tenant (lessee) or other person occupying, using, or entitled to use any real
property (licensee) sublets or assigns some portion of the leased or licensed property, he
may take credit on a pro rata basis for the tax that he paid to his landlord or other such
person on the space that he subleases or assigns. Proration shall be computed on square
footage or some other basis acceptable to the Executive Director or the Executive
Director's designee in the responsible program. . . .
(9) If a tenant or other person sublets or assigns his interest in all of the leased or licensed
premises, or retains only an incidental portion of the entire premises, then such tenant or
other person may elect not to pay tax on the prime lease or license, provided that such
tenant or other person shall register as a dealer and collect and remit tax due on the subrentals or assignments and pay the tax due on the portion of the rental charges or license
fees pertaining to any taxable space which he retains. If the tenant or licensee elects not
to pay the tax to his landlord, or other person granting the right to occupy or use such real
property, he should extend to his landlord or such other person a resale certificate.
(14)(a) When a rental, lease, or license to use or occupy real property involves multiple
use of such real property wherein a part of the real property is subject to tax, and a part of
the property is excluded from the tax, the Executive Director or the Executive Director's
designee in the responsible program shall determine from the lease or license and such
other information as may be available, that portion of the total rental charge or license fee
which is exempt from the tax. When, in the judgment of the Executive Director or the
Executive Director's designee in the responsible program, the amount of rent or license
fee stated in the lease or license arrangement for the taxable portion of the real property
does not represent true value, the Executive Director or the Executive Director's designee
in the responsible program shall make a determination of the proper amount of rent or
license fee applicable thereto for the purpose of determining the amount of tax due from
such other information as is available.
DEPARTMENT RESPONSE
The Department has not verified the square footage of the figures that were provided. This
response will communicate to you the proper usage of the methodology you are using to
calculate the taxable portion of your 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)2., F.S., excludes real property from the tax
when such property is “used exclusively as dwelling units.”

Technical Assistance Advisement
Page 6

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,
because of the applicability of an exemption, such as Section 212.031(1)(a)2., F.S. The
Department’s interpretation of this statute provides in Rule 12A-1.070(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 exempt from tax.
In this instance there is ground lease between Lessor and Sub-Lessor, and a master lease
agreement between Sub-Lessor and Lessee. In the Ground Lease, the Lessor is leasing only the
land, and in the Master Lease Agreement the Sub-Lessor is leasing the land, buildings, and any
other improvements. Because there are two leases, we must calculate the taxable portion for each
separately.
The following equation is a reasonable method useful for calculating the taxable portion of a
lease payment under a lease for multiple use property such as a hotel. The equation multiplies
the total rent or license fee by a fraction, the numerator of which is the square footage used by
the lessee for its own purposes, and the denominator of which is the entire square footage of the
land
demised by the lease.
Computing the numerator on the Ground Lease
The numerator is comprised of the total square footage of the premises that is used exclusively
by
the Lessee for its hotel related purposes (e.g., offices, maintenance areas). Excluded from the
numerator are common areas principally provided for use of the guests which either: (a) the
Lessee does not impose a charge for the use of such areas (e.g., a lounge providing
complimentary food and drinks); or the Lessee imposes a separate charge for the use of an area
and that charge is subject to tax under a provision of Chapter 212, F.S., other than Section
212.031, F.S. (e.g., a health club requiring an additional charge). Also, the numerator would
include any land demised under the lease, whether developed or undeveloped, and used
exclusively by the lessee. This includes areas of land that cannot be developed due to certain
restrictions and cannot be used by the hotel guests.
The numerator would not include any areas that can be considered as being used “exclusively as
dwelling units,” as such areas are exempt from tax pursuant to s. 212.031(1)(a)2., F. S. Those
areas would be: guest rooms; common areas of the premises (e.g., lobbies, elevators, and
hallways); and any other areas principally used by the guests in the enjoyment of the dwelling
units.
The areas you have listed as nontaxable areas that should not be included in the numerator
include subleased areas, such as the restaurant, of which sales tax on the rental amount is
collected, guest rooms, corridors, public restrooms, and other common areas used by the guests.
The ground lease only covers the land and first floor of the hotel. You indicate in your letter the

Technical Assistance Advisement
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land and first floor comprise a total square footage of 15,103.07. You also provide the total
square footage of the land and first floor that guest are not entitled to use is 104 square feet.
(Front desk, storage, GM’s office, elevator room, housekeeping maid, and electric maid). Your
calculation of taxable square footage does not include any of the land surrounding the hotel that
is not usable by the guest, therefore it is presumed that all of the surrounding land is used by the
hotel guests. If any of the undeveloped land or other areas are not used by the guest, this area
should be included in the numerator.
Based on the facts presented, your proposed 104 taxable square footage on the land and first
floor divided by 15,103.07 total square footage of the ground lease, results in a taxable
percentage of .0068. Multiplying this percentage by the total rent due on the ground lease would
be the taxable rental amount.
Computing the Numerator on the Master Lease
All exempt areas under the ground lease are likewise exempt under the master lease. However,
the master lease covers every floor of the building, therefore the numerator and denominator will
change.
The denominator is the total square footage demised under the master lease, which includes all
land and each floor of the hotel. The total square footage of the master lease is 33,134.07.
The numerator is comprised of the total square footage of the premises that is used exclusively
by
Lessee for its hotel related purposes, plus any other square footage used by Lessee that is not
used as guest rooms or common areas principally provided for use of the guests, and for which
either: (a) Lessee does not impose a charge for the use of such areas (e.g., a lounge providing
complimentary food and drinks); or (b) Lessee imposes a separate charge for the use of an area
and that charge is subject to tax under a provision of Chapter 212, F.S., other than Section
212.031, F.S. (e.g., a health club requiring an additional charge).
In the instant situation, the areas you list as taxable areas are the various areas that appear to be
either areas used exclusively by Lessee, or areas used by Lessee which do not constitute guest
rooms or common areas principally provided to the guests. Such areas include Lessee's offices
and front desk, storage areas used by Lessee, and various maintenance areas, such as an elevator
room, a housekeeping room, and an electric room. Under the Master Lease provided by you, the
total taxable area is 154 square foot.
Based on the facts presented, your proposed 154 taxable square footage on the Master Lease
divided by 33,134.07 total square footage of the master lease, results in a taxable percentage of
.0046. Multiplying this percentage by the total rent due on the master lease would be the taxable
rental amount.
The provisions in Section 212.031(1)(b), F.S., provide the intent of the legislature that only one
tax be collected on the rental or license fee, and that the tax 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. Rule 12A-1.070, (8) and (9), F.A.C., describe the manner

Technical Assistance Advisement
Page 8
of prorating the tax when the lessee of real property sublets or assigns some portion of the leased
property.
Under both subsections (8) and (9) of Rule 12A-1.070, F.A.C., the lessee of property (in this
case, the Sub-Lessor) should collect tax from the sub-lessees (in this case, the Lessee). The
difference between the two subsections is that, under subsection (8), the lessee (Sub-Lessor)
pays tax on the prime lease and then takes a credit, and under subsection (9), the lessee (SubLessor) pays no tax on the prime lease by extending to the lessor a resale certificate. Use of the
resale certificate procedure is available to the lessee at the election of the lessee, but only if all
but an incidental portion of the entire premises is sublet or sublicensed.
Based on the facts submitted, Sub-Lessor is charging Lessee more for the premises than it is
charged under the Ground Lease, and Sub-Lessor is releasing the entire ground lease to Lessee,
thus, not retaining use of any of the grounds. Therefore, Sub-Lessor can provide Lessor with a
resale certificate and pay no tax on the ground lease. However, Sub-Lessor must register with
the Department of Revenue as a dealer. In this case, Sub-Lessor must collect tax from Lessee
based upon the taxable percentage computed above on the Master Lease times the rental amount.
Rental Amount
Section 212.031(1)(a) and (c), F.S., imposes a tax on the “total rent or license fee” charged for
the renting, leasing, or letting of any real property. It is further provided in s. 212.031(1)(d),
F.S., that when the rental fee is paid by way of property or “other thing of value,” this also
becomes a
taxable element of rent.
Rule 12A-1.070(4)(b), F.A.C., provides that tax is payable 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. Rule 12A-1.070(4)(c), F.A.C., provides that ad valorem taxes
paid by the tenant to the lessor or any other person on behalf of the lessor are taxable. Rule 12A1.070(12), F.A.C., provides that when a tenant pays insurance for his own protection, the
premium is not regarded as rental consideration, even though the landlord is also protected by
the coverage. Rule 12A-1.070(12), F.A.C., goes on to say, however, that any portion of the
premium which secures the protection of the landlord and which is separately stated or itemized
is regarded as rental consideration and is taxable.
Pursuant to the Master Lease rental amount includes base rent, incentive rent, and additional
rent. All payments made by Lessee that benefit the owner of the commercial real property are
considered “rent consideration” and are therefore subject to Florida sales tax.
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

Technical Assistance Advisement
Page 9
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) 488-9666.
Sincerely,

T. Val Burgess
Tax Law Specialist
Technical Assistance & Dispute Resolution
TVB/lp
Control No. 69466