Were premiums on a tenant's blanket insurance policy taxable as additional commercial rent when the policy also protected its landlords?

Plain-English summary

Florida ruled that a restaurant franchisee's blanket insurance premiums for twelve leased locations were not taxable as additional rent.

Commercial-rent tax generally includes consideration paid for occupancy and tenant payments made on behalf of an owner. But Florida's rule excludes insurance a tenant pays for its own protection even when the landlord is also protected. Only a separately stated or itemized premium portion securing landlord protection is treated as taxable rent.

Here, the tenant was the insured and landlords were additional insureds or loss payees. Both sides benefited, including through restoration provisions after a casualty. The blanket premium separated commercial-property coverage from general-liability coverage but did not allocate premiums by location or by benefits enjoyed by a landlord. It therefore was not taxable.

What this means for you

Lease-required insurance is not automatically additional rent. Who the policy protects and whether landlord-only protection is separately priced or itemized can control the sales-tax result.

Common questions

Did landlord protection alone make the premiums taxable? No. The policies also protected the tenant.

What would have been taxable? A separately stated or itemized premium portion securing landlord protection.

Did the blanket policy allocate premiums by property? No.

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-017

Original ruling text

SUMMARY
QUESTION: Whether the insurance premiums paid by the Taxpayer on insurance required by
the terms of the Lease are considered additional rent, and therefore subject to sales tax.
ANSWER – Based on Facts Below: No. The insurance premiums paid by the Taxpayer on
insurance required by the terms of the Lease are not considered as additional rent; hence, the
insurance premium payments are not subject to sales tax if Taxpayer pays insurance for his own
protection.
April 12, 2010
XXX
Re:

Subject: Technical Assistance Advisement (TAA) 10A-017
Sales and Use Tax – Insurance Premium as Taxable Rent
Section 212.031, Florida Statutes (F.S.)
Rule 12A-1.070, Florida Administrative Code (F.A.C.)
XXX (Taxpayer)
FEI #: XXX

Dear XXX:
This is in response to your letter dated January 20, 2010, requesting this Department’s issuance
of a Technical Assistance Advisement (“TAA”) pursuant to section 213.22, F.S., and Rule
Chapter 12-11, F.A.C., concerning the taxability of insurance premiums as taxable rent. An
examination of your letter has established 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
Whether insurance premiums paid by the Taxpayer are subject to sales and use tax on
commercial rentals, pursuant to Section 212.031, F.S.
Facts
Your letter provides the following in pertinent part:
Taxpayer is a franchisee of certain XXX restaurants located in Florida, pursuant to XXX
Franchise Agreements….
Section 11.0 of the Franchise Agreement requires the Taxpayer to maintain certain
minimums of workers’ compensation and liability insurance coverages relating to the
franchised restaurant. Section 11.2 requires the Taxpayer to maintain an “all-risk
property insurance (fire) policy on the [r]estaurant building and other improvements,

Technical Assistance Advisement
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equipment, furnishings, fixtures, signage and any additions.” …
Leases. Taxpayer currently leases the real property for each of the restaurant locations of
Taxpayer from unrelated third parties. Composite Exhibit B attached hereto identifies
the premises leased by Taxpayer and their respective locations, along with copies of the
leases….
Taxpayer’s insurance agreement with XXX XXX XXX (“Insurer”) is a blanket policy that
insures commercial property and commercial general liability for twelve locations. The
Common Policy Declarations states the insurance premium as follows:
Commercial Property Coverage Part
Commercial General Liability Coverage Part

$ XXX
$ XXX

Total Advanced Premium

$ XXX

The insurance agreement does not break down the premium for each location. All twelve
locations list Taxpayer as the insured. All twelve locations list mortgage holders as loss payees.
Locations 4, 5, 7, 8, 10, and 11 specifically list landlord as a loss payee for the Commercial
Property Coverage Part. Locations 4, 5, 8, 10, and 11 specifically list landlord as an additional
insured for the Commercial General Liability.
The Loss Payable Provisions of the insurance agreement provide the following in part:
B. Loss Payable
For Covered Property in which both you and a Loss Payee shown in the Schedule or
in the Declarations have an insurable interest, we will:

1. Adjust losses with you; and
2. Pay any claim for loss or damage jointly to you and the Loss Payee, as
   interests may appear.
   C. Lender’s Loss Payable
3. For Covered Property in which both you and a Loss Payee have an insurable
   interest:
   a. We will pay for covered loss or damage to each Loss Payee in their order
   of precedence, as interests may appear.
   You provided that Location 1 is a management office, and the lease does not require an
   insurance policy.
   The Lease Agreement for Location 2 provides the following in pertinent part:
   Section 8. Insurance: Lessee, at its sole cost and expense, shall obtain, maintain and
   keep in force and effect fire, casualty and extend coverage insurance, covering the entire
   replacement costs of the building and all furniture, fixtures and equipment located on the
   Premises…. Lessee shall maintain in full force throughout the term of this Lease, at its
   expense, full liability insurance protecting and indemnifying the Lessor, Lessee and

Technical Assistance Advisement
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Lessor’s mortgagees and Licensor at all times during the term of this Lease with
coverage of no less than $XXX for any one event or occurrence, in such form and with
such insurers as shall be satisfactory to Lessor. Each such insurance policy will name
Lessor and Lessor’s mortgagees as additional insureds…. (Emphasis Added.)
The Lease Agreement for Location 3 provides the following in pertinent part:

8. Insurance. Lessee shall maintain at its own expense the following types and amounts
   of insurance (which may be included under a blanket insurance policy if all the other
   terms hereof are satisfied), in addition to such other insurance as lessor may
   reasonably requires:
   (a) Insurance against loss, damage or destruction by fire and other casualty,
   including theft, vandalism and malicious mischief…, insuring the Premises
   and all improvements thereon for not less than 100% of their full insurable
   replacement cost. Any insurance policy or policies shall designate Lessor and
   Lessee as the named insureds as their interest may appear and shall be
   payable as set forth in Section 17.
   (b) Comprehensive public liability and property damage insurance, including a
   products liability clause, covering Lessor and Lessee against bodily injury
   liability, property damage liability, and automobile bodily injury ….
   (c) Worker’s compensation, employer’s liability and such other insurance as may
   be necessary to comply with applicable laws. (Emphasis Added.)
   The Lease Agreements for Locations 6 and 9 provide the following in pertinent part:
   4.2 Policies. All insurance required by Lessor and provided by Lessee shall be carried in
   favor of Lessor and Lessee, as their respective interests may appear, and any mortgagee
   or other person or entity designated by Lessor in writing to Lessee. Lessee shall provide
   insurance against fire or other casualty and the insurance policy shall provide that the
   proceeds of any loss will be payable to Lessor or, upon request by Lessor, Lessor’s
   mortgagee under a standard mortgage clause….
   4.3 Adjusting: Proceeds. Claims for loss due to damage to the Improvements under any
   policies provided for in this Lease shall be adjusted with the insurance companies as
   follows:
   4.3.1
   4.3.2

By Lessee in the case of any particular casualty resulting in damage or
destruction exceeding $XXX or
By Lessor and Lessee, in the case of any particular casualty resulting in
damage or destruction exceeding $XXX in the aggregate. Subject to the
rights of any mortgagee, the proceeds of any insurance shall be payable as
follows:
4.3.2.1 With respect to any loss not exceeding $XXX in the aggregate,
proceeds shall be paid to Lessee, who shall hold and use them in
trust for the purpose of paying the costs of repair and restoration;
and

Technical Assistance Advisement
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4.3.3

4.3.2.2 With respect to losses exceeding $XXX in the aggregate, the
proceeds shall be received by Lessor and shall be paid to Lessee
upon reasonable application therefore to Lessor to pay or
reimburse Lessee for the costs and expense of repairs and
restoration….
Any claims for damage to or loss of the Trade Fixtures shall be adjusted
by Lessee and all insurance proceeds resulting therefrom shall belong to
Lessee and shall not be subject to any claim of Lessor. (Emphasis
Added.)

The Lease Agreement for Location 12 provides that Taxpayer shall obtain and maintain the
following insurance:
(a) Worker’s Compensation insurance with statutory limits, and Employers’ Liability
Insurance with limits of $XXX each occurrence.
(b) Comprehensive General Liability Insurance…. Such insurance shall name [Landlord]
and any lessor from whom [Landlord] may lease the underlying premises as
additional insureds.
(c) Standard Fire and Extended Coverage Insurance including Vadalism on Premises in
the amount of their full insurable value with loss payable to [Landlord].
The Lease Agreement for Locations 4, 5, 7, 8, 10, and 11 provides that Taxpayer shall obtain and
maintain the insurance as follows:
The following shall name Landlord as owner and as loss payee:
Section 16(a)(i): Insurance against physical loss or damage to the improvements
and equipments.
Section 16(a)(iv): Comprehensive boiler, machinery and equipment breakdown
insurance.
Section 16(a)(v): Business income/interruption insurance.
Section 16(a)(vi): Builder’s risk insurance during any period in which substantial
alteration at the Leased Premises are taking place.
The following shall name Landlord and Lender as additional insureds:
Section 16(a)(ii): Commercial general liability insurance.
Section 16(a)(vii): Other insurance reasonably required by Landlord or Lender.
Section 19 provides that insurance proceeds in excess of $XXX will go into a Restoration
Fund, and the amounts will be disbursed to restore the property in accordance with the
section. The Tenant will request disbursements for restoration projects approved by the
Landlord.

Technical Assistance Advisement
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Requested Advisement
Taxpayer requests that the Department issue an advisement ruling as follows:
The Taxpayer is requesting the Department’s advisement that the insurance premiums
paid by Taxpayer on insurance required by the terms of the Leases are not additional rent
subject to sales tax.
Applicable Authority and Discussion
Section 212.031(1)(a), F.S., provides that “the business of renting, leasing, letting, or granting a
license for the use of any real property” is a taxable privilege. The tax on such privilege is
levied on the “total rent or license fee charged for such real property.” Section 212.031(1)(c),
F.S. The total rent charged includes “payments for the granting of a privilege to use or occupy
real property for any purpose...” Id. It is further provided in section 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.” All payments made on behalf of the owner of
commercial real property that benefit the owner of the commercial real property are considered
to be taxable.
Rule 12A-1.070(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. However, 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.
In this case, all twelve lease agreements, except for Location 1, require insurance that covers the
commercial property and commercial general liability. Locations 1-12 are all under one blanket
policy, in which the Taxpayer is the insured party with the Landlord as the additional insured
and/or loss payee. The policy does not itemize the premium for each location; rather, it simply
provides that the premium for the commercial property coverage part for all twelve properties is
$XXX and the premium for the commercial general liability coverage part for all twelve
properties is $XXX
The Loss Payable Provisions of the insurance agreement provide the following in part:

4. Loss Payable
   For Covered Property in which both you and a Loss Payee shown in the Schedule or
   in the Declarations have an insurable interest, we will:
   a. Adjust losses with you; and
   b. Pay any claim for loss or damage jointly to you and the Loss Payee, as

Technical Assistance Advisement
Page 6 of 7
interests may appear.

5. Lender’s Loss Payable
6. For Covered Property in which both you and a Loss Payee have an insurable
   interest:
   a. We will pay for covered loss or damage to each Loss Payee in their order
   of precedence, as interests may appear.
   As stated by the above provision, the insurance policy specifically provides that Taxpayer and
   the Landlord both benefit from the insurance policy. The lease agreements for Locations 6 and 9
   specifically provide how the insurance proceeds for any particular casualty resulting in damage
   or destruction are to be divided between the Taxpayer and the Landlord. The insurance policy
   clearly benefits both the Taxpayer and the Landlord.
   The lease agreements for Locations 4, 5, 7, 8, 10, and 11, are somewhat different in that they
   specifically require Taxpayer to name the Landlord as owner and as loss payee for four of the
   items that require insurance coverage. Even though the lease specifically requires the Landlord
   be named as the owner of the insurance policy, it still satisfies the requirements under Rule 12A1.070(12), F.A.C., because it does not secure only the protection of the Landlord, and the
   Landlord’s protection is not separately stated or itemized.
   These lease agreements go on to say, in Sections 17, 18, and 19, that Tenant is responsible for
   restoring the leased property to its value, condition, and character immediately prior to the event,
   and any incidence requiring insurance proceeds. Any proceeds up to and including $XXX are to
   be paid by the Landlord to the Tenant for Tenant to restore the property in accordance with the
   lease. Any proceeds in excess of $XXX are stored in a Restoration Fund and will be disbursed
   to the Tenant for the restoration of the property. Hence, the insurance provision of the lease
   agreements provides protection for both the Tenant and the Landlord.
   Furthermore, the insurance agreement uniformly provides that Taxpayer is the insured and the
   Landlord is the loss payee and/or the additional insured. The blanket insurance does not list the
   Landlord as the insured for Locations 4, 5, 7, 8, 10, and 11, despite the lease agreement’s
   statement that the Landlord is the owner of the policy. Lastly, the insurance premium is not
   itemized in any manner for the twelve properties, except for the portion that covers commercial
   property versus the portion that commercial general liability for all twelve properties.
   Conclusion
   Based on the information provided, the Taxpayer’s payment for insurance premiums for
   Locations 1-12 will not be subject to sales tax, because the insurance policy benefits both the
   Taxpayer and the Landlord and the premium is not itemized by property or by benefits enjoyed
   by the Landlord. However, as provided in Rule 12A-1.070(12), F.A.C., “any portion of the
   premium which secures the protection of the landlord … and which is separately stated or
   itemized is regarded as rental or license fee consideration and is taxable.”
   This response constitutes a Technical Assistance Advisement under section 213.22, F.S., which

Technical Assistance Advisement
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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 that 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 15 days of the date of this
letter.

Sincerely,

Angel Sessions
Senior Tax Attorney
Technical Assistance and Dispute Resolution
(850) 922-4708
Record ID: 77557