Was a per-gallon fuel flowage fee required by a fuel-farm ground lease taxable as rent?

Plain-English summary

The Florida Department of Revenue concluded that a fuel flowage fee charged under leases for an above-ground fuel farm was taxable as part of the rent for real property.

The tenants paid base rent plus five cents for each gallon of fuel delivered to the property. Although the lease did not call the flowage charge “rent,” failure to pay it was a default that could terminate the entire agreement.

Florida taxes all consideration and benefits flowing to a landlord for the right to use or occupy real property. The fee's function in preserving the lease, rather than its label or per-gallon calculation, made it taxable rent.

What this means for you

Commercial landlords and tenants

Usage-based charges can be taxable rent when the lease makes them a condition of continued occupancy.

Lease reviewers

Review default and termination provisions when classifying separately stated fees.

Common questions

Q: Did it matter that the agreement did not call the fee rent?
A: No.

Q: What made the fee taxable?
A: It was required under the lease, and nonpayment could terminate the tenant's right to use the property.

Citations and references

• Fla. Stat. §§ 212.031 and 213.22
• Fla. Admin. Code r. 12A-1.070(4)(b)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 13A-013

Original ruling text

Executive Director
Marshall Stranburg

SUMMARY
QUESTION: Whether a fuel flowage fee pursuant to a real property lease constitutes taxable
lease payments under s. 212.031, F.S.
ANSWER: The fuel flowage fees are subject to tax as rentals of real property pursuant to s.
212.031, F.S. The tax is calculated on the total rent or license fee paid by the tenant to the
landlord for the right to use real property. All consideration due and payable by the tenant for
the privilege of use, occupancy, or the right to use or occupy any real property for any purpose is
considered to be “rent.” Consideration includes all benefits flowing to the landlord for the use of
real property. Rule 12A-1.070(4)(b), F.A.C. The agreement in the present case specifies that
non-payment of any sum required by the lease agreement is a default of the entire agreement.
Therefore, the fee is for the right to use the real property and is part of taxable rent.

June 13, 2013

XXX
XXX
XXX
Re:

Technical Assistance Advisement 13A-013
Sales and Use Tax – Lease of Real Property
Section 212.031, Florida Statutes [F.S.]
Rule 12A-1.070, Florida Administrative Code [F.A.C.]
Petitioner: XXX [“Taxpayer”]

Dear :
This letter is a response to your petition dated May 16, 2013, for the Department’s issuance of a
Technical Assistance Advisement [“TAA”] concerning the above referenced petition 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 12-11, 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. The following TAA is based
on the facts and documentation submitted as part of your petition.
FACTS
Taxpayer has entered into lease agreements with XXX [“Tenant 1”], and XXX [“Tenant 2”],
[collectively, “the Tenants”]. The leases are for portions of the XXX [“the Property”] for use
and development as an above ground fuel farm. The Tenants each pay base rent equal to 10% of

Technical Assistance Advisement
Page 2 of 3
the Property’s appraised value. In addition to the monthly rent, Taxpayer charges the Tenants a
fuel flowage fee. Under the lease, the fuel flowage fee is not characterized or defined as “rent.”
The fuel flowage fee is a separate fee based on the amount of fuel each of the Tenants has
delivered to the property by its suppliers, charged at the rate of 5 cents per gallon. Failure to pay
the fuel flowage fee is considered a default under the lease and subjects the lease to termination.
REQUESTED ADVISEMENT
Taxpayer has requested that the Department advise whether the fuel flowage fee is subject to tax
under s. 212.031, F.S., as consideration paid for the use of real property.
TAXPAYER’S POSITION
Taxpayer asserts that the fuel flowage fee is part of the total charges for the privilege to use or
occupy the airport property for a fuel farm and is, thus, subject to sales tax as provided by s.
212.031(1), F.S. According to Taxpayer, Tenant 1 argues that the fuel flowage fee, and perhaps
all rent and fees under the lease, is exempt from tax under s. 212.031(1)(a)7., F.S. Taxpayer
disagrees, citing Rule 12A-1.070(1)(a)6.d., F.A.C. Taxpayer views the rule as restricting the
exemption provided in s. 212.031(1)(a)7., F.S., to airlines only. Taxpayer asserts that since the
Tenants are not airlines, they are not eligible for the exemption and, thus, must pay tax on the
fuel flowage fee.
LAW & DISCUSSION
Every person who engages in the business of renting, leasing, letting, or granting a license for the
use of any real property is exercising a taxable privilege. Section 212.031(1)(a), F.S. The tax is
calculated on the total rent or license fee paid by the tenant to the landlord for the right to use
real property. Section 212.031(1)(c), F.S. All consideration due and payable by the tenant for
the privilege of use, occupancy, or the right to use or occupy any real property for any purpose is
considered to be “rent.” Consideration includes all benefits flowing to the landlord for the use of
real property. Rule 12A-1.070(4)(b), F.A.C.
The subject lease imposes a base rent and charges a Fuel Flowage Fee, an additional amount
based on fuels sold at the Property. This fee is specifically imposed on the Tenant for fuel
purchased by the Tenant from its suppliers. The agreement specifies that non-payment of any
sum required by the lease agreement is a default of the entire agreement. As such, the fee is not
for the privilege or license to do business at an airport; it is a fee for the right to use the Property.
Such charge is taxable as rent, absent a specific exemption.
The exemption in s. 212.031(1)(a)7., F.S., is clearly limited to real property used at an airport
exclusively for aircraft landing or aircraft taxiing, or property used by an airline for loading or
unloading passengers or cargo from aircraft or for fueling aircraft. Property used by a tenant
other than an airline does not qualify for the exemption. Taxpayer properly refers to Rule 12A1.070(1)(a)6.d., F.A.C., which provides that real property used for fueling aircraft is taxable
when the fueling activities are conducted by a lessee or licensee who is not an airline. Florida
courts have consistently and unwaveringly held that exemptions must not be expanded beyond

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Page 3 of 3
their express terms and must be strictly and narrowly construed against the taxpayer. State
Department of Revenue v. Anderson, 403 So.2d 397, 399 (Fla. 1981); Green v. Pederson, 99
So.2d 292, 296 (Fla. 1957); Asphalt Pavers, Inc. v. Department of Revenue, 584 So.2d 55, 57
(Fla. 1st DCA 1991).
CONCLUSION
The fuel flowage fees are subject to tax as rentals of real property pursuant to s. 212.031, F.S.,
and Rule 12A-1.070, F.A.C.
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.
If you have any further questions with regard to this matter and wish to discuss them, you may
contact me directly at (850) 717-7670.

Sincerely,

Ryan Marlar, CPA
Tax Law Specialist
Technical Assistance & Dispute Resolution
Record ID: 145470