Did a registered dealer owe use tax on prepaid hotel rooms purchased for resale that remained unsold?

Plain-English summary

Florida ruled that a registered dealer did not owe use tax on prepaid or guaranteed hotel rooms that remained unsold when they were purchased and continuously held for resale.

Florida permits a dealer with the right to use transient accommodations to subrent them, collect tax from the ultimate guest, and give the hotel a resale certificate. The law did not require tax merely because inventory remained unsold.

The critical condition was nonuse. The dealer, its employees, assigns, and independent contractors did not occupy the rooms. If the dealer used, consumed, distributed, or stored an accommodation inconsistently with resale, use tax would become due.

What this means for you

Room-block guarantees and prepayments do not automatically turn unsold rooms into taxable use. Registration, resale documentation, collection from guests, and controls preventing internal use support resale treatment.

Common questions

Could the dealer give hotels a resale certificate? Yes.

Did unused room inventory trigger tax? No, by itself.

What event could trigger use tax? Any use or handling inconsistent with holding the rooms for resale.

Citations and references

• Fla. Stat. § 212.03 and Fla. Admin. Code rr. 12A-1.039 and 12A-1.061, as quoted and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10A-007

Original ruling text

SUMMARY

QUESTION: Is a registered dealer who purchases transient accommodations for the purposes of
resale liable for use tax on accommodations that remain unsold?

ANSWER: No. So long as the purchaser is registered dealer, holds the accommodations out for
resale, and does not use the accommodations in any manner, the dealer is not liable for use tax.

February 10, 2010

XXX
XXX
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Re: — Technical Assistance Advisement 10A-007
Purchase of Transient Accommodations for Resale
Section 212.03, Florida Statutes (F.S.)
Rules 12A-1.039 and 12A-1.061, Florida Administrative Code (F.A.C.)

Dear XXX:

This is a response to your letter dated September 24, 2009, in which you have requested a Technical
Assistance Advisement on the purchase of transient accommodations for resale. Your letter has
been carefully examined and the Department finds it to be in compliance with the requisite criteria
set forth in Chapter 12-11, F.A.C. This reply constitutes a Technical Assistance Advisement
("TAA") and is issued to you under the authority of Section 213.22, F.S.

Stated Facts

You previously sought a Letter of Technical Advice (LTA) on June 10, 2009, regarding the resale of
transient accommodations. Your letter stated that Taxpayer is registered as a transient
accommodation dealer. Taxpayer purchased accommodations at other facilities for resale to third-
party end users. Taxpayer, its employees, assigns, or independent contractors do not use the
accommodations. Some of the accommodations remain unsold. You asked whether sales and use
tax applies to Taxpayer’s purchase of accommodations that remain unsold. We issued an LTA on
July 16, 2009, confirming that Taxpayer could purchase the accommodations tax-exempt for the
purposes of resale and would not owe any tax on rooms that remained unsold.

You are now seeking a Technical Assistance Advisement on this matter. Your current letter states
that the facts are as presented in the LTA request and have not changed. You have provided copies
of the four agreements between Taxpayer and the hotels in which the accommodations at issue are
located. The agreements each provide for the rental by Taxpayer of a booth or kiosk in the hotel, to
be used by Taxpayer to solicit and sell timeshares, vacation club memberships, and amusement
tickets. These portions of the agreements are not at issue herein.

In addition to the rental described above, the agreements include provisions relating to the use of
rooms by Taxpayer. The specific provisions in each agreement are as follows:

1. Agreements #1 and #2 both relate to the same hotel, but for different periods. Agreement #1
   provides that Taxpayer will guarantee the use by it and its guests of a minimum of 1,200
   rooms per month. Taxpayer is required to prepay the hotel on a quarterly basis for the 1,200
   rooms. Agreement #2 contains no provisions relating to the use of rooms.

2. Agreement #3 provides that Taxpayer will purchase 1,000 room nights per calendar month
   from the hotel for the use of Taxpayer, its guests and customers. Taxpayer is required to pay
   the agreed rate for the rooms regardless of whether the rooms are actually used by any
   guests. The hotel is responsible for collecting any applicable tax from a guest and Taxpayer
   has no liability for the collection and payment of such tax.

3. Agreement #4 provides that Taxpayer will guarantee 150 rooms per month at the hotel. The
   guest is required to pay any applicable tax directly to the hotel at the time of use of the room.

Taxpayer’s Position

You argue that Taxpayer is not liable for any tax on accommodations purchased for resale that
remain unsold.

Applicable Authority and Discussion

Section 212.03, F.S., imposes sales tax on the rental, lease, or license of transient accommodations
and states that the tax is in addition to the total amount of the rental. For ease of discussion, the term
“rent” will be used throughout and will encompass all manner of use of the accommodation.

The law envisions the rental of transient accommodations for the purposes of re-renting them to
another party. Rule 12A-1.061(8), F.A.C., addresses this situation and provides that any person who
has the right to the use or possession of a transient accommodation and who subrents the
accommodation to another is required to register as a dealer and to collect the applicable tax from its
customer. The dealer may elect to issue a resale certificate to the property owner in order to rent the
accommodation tax-exempt, so long as the dealer is renting the accommodation for the purposes of
re-rental and collects the applicable tax from its customer. This is further supported by Rule 12A-
1.039(1)(b), F.A.C., which provides in relevant part:

(b) A sale for resale is exempt from the tax imposed by Chapter 212, F.S., only when
the sale for resale is in strict compliance with the provisions of this rule. For
purposes of this rule, a “sale for resale” includes the following sales, leases, or
rentals when made to a person who is an active registered dealer....

oR KK

5. The lease or rental of real property to a dealer when such property will
   subsequently be leased, rented, or licensed as transient accommodations by the
   dealer’s tenants.

oR KK

Nothing in the law requires tax to be paid by a dealer on an item purchased for the purposes of resale
but which remains unsold. All that is required is that the dealer purchased the item with the intent to
resell it and did not use, consume, distribute, or store the item in a manner inconsistent with the
resale purposes, in which case use tax will be due. See Rule 12A-1.039(7)(g), F.A.C.

Advisements

Taxpayer is a registered dealer. Taxpayer is therefore eligible to purchase transient accommodations
for the purposes of resale and may extend a copy of its resale certificate to the owner of the property.
So long as Taxpayer holds the accommodation out for resale and does not use the accommodation in
any way, Taxpayer will not owe any tax on the accommodation, even if the accommodation remains
unsold.

Closing Statement

This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding
on the Department only under the facts and circumstances described in the request for this advice as
specified in s. 213.22, F.S. Our response is predicated on those facts and the specific situation
summarized above. You are advised that subsequent statutory or administrative rule changes or
judicial interpretations of the statutes or rules upon which this advice is based may subject similar
future transactions to a different treatment than expressed in this response.

You are further advised that this response, your request and related backup documents are public
records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions of s.
213.22, F.S. Confidential information must be deleted before public disclosure. In an effort to
protect confidentiality, we request you provide the undersigned with an edited copy of your request
for Technical Assistance Advisement, the backup material and this response, deleting names,
addresses and any other details which might lead to identification of the taxpayer. Your response
should be received by the Department within 15 days of the date of this letter.

If you have any further questions with regard to this matter and wish to discuss them, you may
contact me directly at (850) 488-9669.

Sincerely,
Tammy S. Miller

Senior Attorney
Technical Assistance & Dispute Resolution

Record ID: 71875