Did guaranteed hotel-room prepayments create use tax when a registered reseller could not sell every room?

Plain-English summary

Florida ruled that guaranteed prepayments for hotel room blocks did not make unsold rooms taxable to a registered dealer that acquired them for resale.

The dealer guaranteed hundreds of room nights under several hotel contracts and resold rooms to prospective timeshare buyers. Some rooms went unsold or became no-shows, and some documented rooms were sold to employees at discounted rates.

Florida permits an active registered dealer to rent transient accommodations with a resale certificate, then collect tax from the ultimate guest. Nothing required the dealer to pay tax merely because resale inventory remained unsold. The auditor's guaranteed-prepayment argument and the fact that some rooms were resold below cost did not override that rule.

The condition was continued resale treatment. Use tax would arise if a room was used, consumed, distributed, or stored in a manner inconsistent with resale.

What this means for you

Room guarantees shift economic risk but do not by themselves change tax character. Dealers need registration, resale certificates, guest-tax collection, and records distinguishing resale, no-shows, unsold inventory, and any internal use.

Common questions

Did guaranteed prepayment make every room taxable? No.

Did selling below cost matter? No.

What could trigger use tax? Use or handling inconsistent with holding the accommodation 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-008

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
XXX
XXX
Re:

Technical Assistance Advisement 10A-008
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 November 23, 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 are currently conducting a tourist development tax audit of Taxpayer. Your letter states that
Taxpayer had contracts with various hotels guaranteeing Taxpayer the use of a specific number of
rooms per month. Taxpayer then resold these rooms to prospective timeshare buyers. You have
included copies of the pertinent contracts for our review. The contracts 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 contracts
are not at issue herein.
In addition to the rental described above, the contracts include provisions relating to the use of
rooms by Taxpayer. The specific provisions in each contract are as follows:

1. Contract #1 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.

2. Contract #2 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.
3. Contract #3 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.
   You state that: 1) Taxpayer paid tax to the hotel for all unsold or “no show” rooms under
   Contract #1; 2) Taxpayer paid tax to the hotel for all “no show” rooms but paid no tax on the
   unsold rooms under Contract #2; and 3) Taxpayer paid no tax on the unsold rooms and had no
   “no show” rooms under Contract #3. You also state that Taxpayer provided documentation
   showing that some rooms were sold to Taxpayer’s employees at a discounted rate.
   Taxpayer previously requested and received a Letter of Technical Advice (“LTA”) on this issue,
   in which we confirmed that Taxpayer could purchase the accommodations tax-exempt for the
   purposes of resale and would not owe any tax on rooms that remained unsold. Taxpayer has also
   requested a TAA on this issue.
   Taxpayer’s Position
   You argue that sales tax is due on the unsold rooms because the payments made by Taxpayer to
   the hotels under the contracts are guaranteed prepayments under Rule 12A-1.061(5)(b), F.A.C.
   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….

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.

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 12A1.039(7)(g), F.A.C.
Your argument that the payments made by Taxpayer to the hotels are guaranteed prepayments
under Rule 12A-1.061(5)(b), F.A.C., does not override Taxpayer’s ability to rent rooms taxexempt for the purposes of resale. We therefore find it unnecessary to address this argument at
length. It should also be noted that selling an item below cost has no bearing on this issue.
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:

74641