Could a Florida commercial tenant fully credit tax collected on a sublease when prime-lease tax was higher?

Plain-English summary

The Florida Department of Revenue allowed the taxpayer a full credit for sales tax collected from its subtenants at the specified service-plaza location for the specified month.

Florida taxes commercial real-property rent, and a tenant that subleases part of taxable property generally must register, collect, and remit tax on the subrent. But section 212.031(2)(b) prevents pyramiding the tax through successive lease transactions. Because the tax paid on the prime lease exceeded the tax collected on the sublease for the space reviewed, the taxpayer could credit the full amount collected from its tenants.

The ruling was deliberately narrow. The Department did not verify the square-footage figures or rent and tax amounts, did not approve the taxpayer's method for calculating subleased square footage, and addressed only one location and one month.

What this means for you

Commercial tenants that sublease space

You may be entitled to a proportional credit for tax paid to the prime lessor, but you still must collect tax on taxable subrentals and support the credit with lease, space, rent, and tax records.

Accountants and property managers

Do not treat this ruling as approval of a portfolio-wide allocation method. The Department confined its answer to the limited figures for a single location and month.

Common questions

Q: Was the taxpayer allowed a full credit?
A: Yes, because the prime-lease tax exceeded the tax collected on the sublease for the reviewed space and period.

Q: Did the Department approve the taxpayer's square-foot allocation method?
A: No. It expressly declined to address that method or verify the supplied figures.

Citations and references

• Fla. Stat. §§ 212.031(1)(a), (1)(c), and (2)(b), and 213.22
• Fla. Admin. Code r. 12A-1.070(4)(b), (7)(a), (8), and (9)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 14A-023

Original ruling text

Executive Director
Marshall Stranburg

QUESTION: IS THE TAXPAYER IS DUE A FULL CREDIT OF THE SALES TAX COLLECTED
FROM ITS TENANTS OF 2 SPECIFIED LOCATION FOR 2 SPECIFIC MONTH.
ANSWER:
BASED ON THE LIMITED INFORMATION PROVIDED REGARDING THE
TAXPAYER’S MONTHLY RENTAL PAYMENTS AND RECEIPTS FOR THE SPECIFIED
LOCATION, THE TAX AMOUNT PAID ON THE PRIME LEASE IS GREATER THAT THE TAX
AMOUNT COLLECTED FROM THE SUBLEASE OF THE PROPERTY. THE TAXPAYER IS DUE
A FULL CREDIT OF THE SALES TAX COLLECTED FROM ITS TENANTS OF THE SPECIFIED
LOCATION FOR THE MONTH.
October 7, 2014
Re:

Subject: Technical Assistance Advisement (TAA) 14A-023
Sales and Use Tax – Sublease of Real Property
Section 212.031, Florida Statutes (F.S.)
Rule 12A-1.070, Florida Administrative Code (F.A.C.)
XXXX (“Taxpayer”)
FEI # XXXX
XXXX (“Landlord”)
FEI # XXXX

Dear XXXX:
This is in response to your letter dated XXXX, 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 calculation of a sales tax credit due for tax collected from a sublessee of real property for
the month of XXXX. 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.
Facts
The Taxpayer’s letter dated XXXX, provides the following in part:
[The Taxpayer] is a nationwide provider of food & beverage and retail services in airports
and along highways. [The Taxpayer] operates in XXXX service plazas and as part of its activities,
leases real property from the [the Landlord] under a Concession Agreement and then subleases
some of the real property to concessionaires or vendors (hereinafter referred to as “Sub Lessees” or
“Vendors”) at those service plazas. [The Taxpayer’s] rent on its lease with the [Landlord] is
calculated based on the higher of an established “Minimum Annual Guaranty” within its lease
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Howard Moyes ,Interim Director  Information Services – Damu Kuttikrishnan, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2 of 4

agreement or 5.75% of its gross receipts. This lease is unusual because the rent is not based upon
square footage as is typical in most other commercial leases. Additionally, the lease is atypical
because of the nature of the leased real property at issue (i.e. property situated in the middle of a
XXXX thoroughfare only accessible after payment to the [the Landlord]).
[The Taxpayer] pays Florida and applicable county sales tax on the entire rental amount it
pays to the [the Landlord][ and collects tax on the total proceeds it receives for subleasing
or licensing real property to Vendors. To avoid the pyramiding of taxes, [the Taxpayer] is
entitled under Florida law to a credit for the amount of the tax collected from the Vendors,
which will offset a portion of the total sales tax it pays the [Landlord] under the Concession
Agreement. We believe our approach in calculating the credit is reasonable because the amount
[the Taxpayer] collect[s] from its Vendors is less than the amount paid pursuant to the Concession
Agreement. For example, with respect to the gas station/convenience store operator, [the
Taxpayer] charges $.01 per gallon of fuel sold by the Sub Lessee at each Service Plaza during
the calendar year plus four percent of the revenue generated by the convenience stores.

The Concession Agreement and Sublease provides that [the Taxpayer] is leasing the gas
station space from the [Landlord] for a price per square foot more than what it receives from
the Sub Lessee for the use of the space.
Based upon the terms of the Concession Agreement between [the Taxpayer] and the
[Landlord], we believe it is reasonable for [the Taxpayer] to claim the entire tax it collects
on its sublease as a credit for this space using the methodology described above. Under the
prior agreement with the [Landlord], [the Taxpayer] paid five cents per gallon for the lease of the
gas station area space. Currently, the Sub Lessee is paying [the Taxpayer] $.01 per gallon of fuel
sold at each Service Plaza during the calendar year plus four percent of convenience store sales.
. . . To date, [the Taxpayer] has not yet generated revenue from its concessions
requiring them to pay the [Landlord] an amount above the required minimum
payment.
. . . Consequently, in effect, [the Taxpayer] is therefore charged a tax on an amount that is
above the amount of the tax they can collect from their Sub Lessees. In essence, they are
subleasing part of the premises at a loss. . . . (Emphasis in Original)

Along with its request for advisement, the Taxpayer included a copy of a spreadsheet which provides the
amount of rent paid to the [Landlord] and received from Sub Lessees at the XXXX for the month of
XXXX. The calculations provide that in XXXX, the Taxpayer subleased XXXX square feet of plaza
space for XXXX per square foot. The Taxpayer’s calculations provide that the Taxpayer paid XXXX per
square foot for the subleased area to the Landlord. 1

1

The Department made several requests to the Taxpayer for additional information upon which to make a determination for the
TAA. Unfortunately sufficient information related only to the XXXX for the month of XXXX, was provided.

Technical Assistance Advisement
Page 3 of 4

Requested Advisement
The Taxpayer requests that the Department issue a Technical Assistance Advisement declaring the
following:
If the subleased rate per square foot per plaza is lower than the rental rate paid to the
[Landlord] for the month, [the Taxpayer] is entitled to a full credit for the tax collected. If
the amount of rent received per square foot is higher, the amount of rent received above the
amount paid is remitted on the sales and use tax return each month. . . . The maximum credit
permitted will be the tax collected per square foot on subleases up to the tax paid per square foot
on the [Landlord] Concession Agreement.

Applicable Authority and Discussion
The Department has not verified the square footage figures or rent and tax payment amounts that were
provided with the Taxpayer’s request. This response does not address the method used by the Taxpayer to
determine the amount of square footage subleased by the Taxpayer. This response addresses whether the
Taxpayer is due a full credit for the sales tax paid to its landlord for the property it subleased at the XXXX
for the month of XXXX. This response is based on the information provided by the Taxpayer and is
limited to the XXXX for the month of XXXX. The response does not address any other XXXX
locations or other time periods.
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.
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 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(7)(a), F.A.C, provides that when a tenant sublets or assigns some portion of taxable leased
property, the tenant is required to register as a dealer and collect and remit the tax on all such sub-rentals
or assignments.
Section 212.031(2)(b), F.S., prohibits both pyramiding and inverse pyramiding of the tax by providing the
“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 tax due the state shall not be decreased by any such progression of
transactions.”
In light of the Legislative intent that prohibits the pyramiding of sales tax, Rule 12A-1.070(8) and (9),
F.A.C., provide measures that eliminate the pyramiding of sales tax in cases where commercial real
property is subleased. Rule 12A-1.070(8), F.A.C, provides that when a lessee sublets a portion of the
leased property, the lessee is authorized to take a proportional credit for the tax paid to the prime lessor on
tax collected for the space that the lessee subleases.

Technical Assistance Advisement
Page 4 of 4

In the case of the information regarding the Taxpayer’s November 2013 rental payments and receipts for
the XXXX, the Taxpayer provides that it leased XXXX square feet at XXXX per square foot. The
Taxpayer provides that it subleased XXXX square feet of the property at XXXX per square foot. Since
the tax amount paid on the prime lease is greater that the tax amount collected from the sublease of the
property, the Taxpayer is due a full credit of the tax collected from its tenants.
Conclusion
Based on the limited information provided, the Taxpayer is due a full credit of the sales tax collected from
its tenants of the XXXX for the month of XXXX.
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 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,

Brinton Hevey
Tax Law Specialist
Technical Assistance and Dispute Resolution
850/717-6839
Record ID: 176422