SUMMARY. TAX: Sales and Use Tax TAA NUMBER: 13A-010

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1 Executive Director Marshall Stranburg SUMMARY TAX: Sales and Use Tax TAA NUMBER: 13A-010 QUESTION: Is the Landlord required to remit the sales tax due for the rental payments received from the Tenant when the Tenant does not pay the applicable sales tax? ANSWER: Section (3), F.S., provides that, in addition to other sanctions, a dealer who does not collect the tax is liable for the tax itself. Thus, the Landlord is liable for any applicable sales tax that it fails to collect from the lessee when the rental payments are received by the Landlord. May 6, 2013 Re: Subject: Technical Assistance Advisement TAA 13A-010 Sales and Use Tax Commercial Rental Sections and , Florida Statutes (F.S.) XX ( the Landlord ) FEI # XXX XX ( the Tenant ) FEI # XXX Dear Mr. XXX: This is in response to your letter dated XXX, requesting this Department s issuance of a Technical Assistance Advisement ( TAA ) pursuant to section , F.S., and Rule Chapter 12-11, F.A.C., concerning the Landlord s obligation to remit the sales tax due for the rental payments received from the Tenant when the Tenant does not pay the applicable sales tax. 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. Your letter provides the following in part: Facts Consistent with relevant statutory requirements governing the collection and remittance of such Sales Taxes [the Landlord] has requested [the Tenant] to remit sales taxes due with its payments of monthly base rent; and [the Landlord] has previously remitted such taxes on prepaid installments of base rent. Despite [the Landlord s] requests, [the Child Support Enforcement Ann Coffin, Director General Tax Administration Maria Johnson, Director Property Tax Oversight James McAdams, Director Information Services Tony Powell, Director Tallahassee, Florida

2 Page 2 of 6 Tenant] has refused to remit sales tax with its payments of rent and has steadfastly claimed that it is exempt from such payments as a mobile communications service as defined under Section (7)[, F.S.] This issue is one of a number of issues that are currently the subject of a lawsuit between [the Tenant] and [the Landlord], and as of this date, [the Tenant] remits payments of base rent (but not sales tax on that amount) into the registry of the court. [The Landlord] is... spending unnecessary time and resources to protect itself from its liability to [the] Department to collect sales taxes on rent that it receives, when the tenant refuses to pay that tax based upon its contention that it is exempt. [The Landlord]... wants to ensure that [it is] taking proper measures with respect to the collection of any sales taxes that may be due to [the State] on base rent [collected] in the future from[the Tenant]. [The Landlord] also desires to receive the base rent that has thus far been placed into the registry of the court without liability to the Department.... Along with the request for advisement, the Landlord provided a copy of the Industrial Lease Agreement (the Agreement), executed on February 21, 2012, between the Landlord and Tenant. The Landlord also provided a copy of the referenced Court Order, dated February 14, 2013, whereby the Tenant is required to remit the unpaid accrued rent and subsequent monthly rental payments into the court registry. The Agreement provides the following in part: Rent. 4.1 Base Rent.... Tenant shall pay Landlord, as monthly Base Rent, without any offset or deduction the amount of $8,947 + the amount of Florida Sales Tax then applicable (currently 7.0%). Commencing on the 1st day of the first anniversary date of the Commencement Date, Tenant shall pay Landlord, as monthly Base Rent, without any offset or deduction, the amount of $9, the amount of Florida Sales Tax then applicable (currently 7.0%). Commencing on the 1st day of the second anniversary date of the Commencement Date, Tenant shalt pay Landlord as monthly Base Rent, without any offset or deduction the amount of $10, the amount of Florida Sales Tax then applicable (currently 7.0% ).... Tenant represents that it is entitled an to an exemption from payment of the amount of Sales Tax on rent pursuant to Florida Statute , and intends to apply for a Certificate of Exemption from the Florida Department of Revenue to evidence its tax exempt status. In light of the foregoing, Landlord agrees that it shall collect sales tax due as aforesaid on any Base Rent due hereunder until Tenant produces its Certificate to Landlord, and thereafter such amounts will not be collected. Tenant shall apply directly to the Department of Revenue for reimbursement of any sales taxes that are collected and remitted prior to the confirmation of its tax exemption and will indemnify Landlord from payment of any tax that may be due to the Department of Revenue, if any, hereunder.

3 Page 3 of 6 6. Use and Condition of Premises. The Premises shall he used and occupied only as a data center and co-location facility and for no other purpose.... The Court Order, dated February 14, 2013, provides the following in part: Ordered and Adjudged as follows: 1. The Defendant s Motion is granted on the terms hereinafter set forth. Without prejudice to either party s position at trial, the Court determines that the Defendant shall pay $44, as accrued rent through February, On or before 2:00 p.m. on Thursday February 14, 2013, the Defendant shall deposit $21, into the court registry, and serve on Plaintiff s counsel a receipt for the deposit. On or before 12pm, Tuesday, February 19, 2013, the Defendant shall deposit $22,735 into the Court Registry, and serve on Plaintiff s counsel a receipt for the deposit In the event the Defendant timely deposits the amount set forth in paragraph 1, then on or before March 1, 2013, and on or before the first of every month thereafter during the pendency of this action, the Defendant shall timely deposit into the court registry, and simultaneously furnish a receipt evidencing the deposit to Plaintiff s counsel, the sum of $9, The Landlord previously requested and received a Letter of Technical Advice, dated November 15, 2012, regarding the Tenant s claim that it is exempt from paying sales tax for the lease of real property pursuant to Florida Statute After review of the facts provided with the originally request, as well as reviewing the Tenant s website, the author determined that the Tenant s lease real property is subject to sales tax pursuant to section , F.S. It is important to note that the Department is unaware whether the Tenant has requested any advisement regarding its purported exempt status as provided in the Agreement. Florida courts have consistently held that exemptions must not be expanded beyond their express terms and must be strictly and narrowly construed against the taxpayer. See Department of Revenue v. Anderson, 403 So.2d 397 (Fla. 1981); State ex rel. Szabo Food Services. Inc. v. Dickinson, 286 So.2d 529 (Fla. 1973). Consequently, under Florida law, the burden is on the taxpayer, as the party claiming the exemption, to establish from its actual books and records that it is clearly entitled to a particular exemption. Requested Advisement The Landlord requests an advisement that addresses whether the Landlord is required to remit the sales tax due for the rental payments received from the Tenant when the Tenant does not pay the applicable sales tax.

4 Page 4 of 6 Applicable Authority and Discussion Section , F.S., provides the following in part: (1)(a) It is declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of renting, leasing, letting, or granting a license for the use of any real property.... (3) The tax imposed by this section shall be in addition to the total amount of the rental or license fee, shall be charged by the lessor..., and shall be due and payable at the time of the receipt of such rental or license fee payment by the lessor.... The same duties imposed by this chapter upon dealers in tangible personal property respecting the collection and remission of the tax; the making of returns; the keeping of books, records, and accounts; and the compliance with the rules and regulations of the department in the administration of this chapter shall apply to and be binding upon all persons who manage any leases or operate real property.... (4) The tax imposed by this section shall constitute a lien on the property of the lessee or licensee of any real estate in the same manner as, and shall be collectible as are, liens authorized and imposed by ss and Section , F.S., provides the following in part: (2) A dealer shall, as far as practicable, add the amount of the tax imposed under this chapter to the sale price, and the amount of the tax shall be separately stated as Florida tax on any charge ticket, sales slip, invoice, or other tangible evidence of sale. Such tax shall constitute a part of such price, charge, or proof of sale which shall be a debt from the purchaser or consumer to the dealer, until paid, and shall be recoverable at law in the same manner as other debts.... (3) Any dealer who fails, neglects, or refuses to collect the tax herein provided, either by himself or herself or through the dealer s agents or employees, is, in addition to the penalty of being liable for and paying the tax himself or herself, guilty of a misdemeanor of the first degree, punishable as provided in s or s Section (1)(a), F.S., provides the legislative intent that every person is exercising a taxable privilege who engages in the business of renting, leasing, letting, or granting a license for the use of any real property, with certain enumerated exceptions. Section (1)(c), F.S., provides that the tax is levied in an amount equal to 6 percent of and on the total rent or license fee charged for such real property by the person charging or collecting the rental or license fee. Section (3), F.S., provides that the tax is due and payable at the time of the receipt of such rental or license fee payment by the lessor or other person who receives the rental or payment.

5 Page 5 of 6 Section (2), F.S., provides that sales tax due is a debt from the Tenant to the Landlord, and is recoverable at law in the same manner as other debts. Section (4), F.S., provides that the tax constitutes a lien on the property of the lessee. Section (3), F.S., provides that, in addition to other sanctions, a dealer who does not collect the tax is liable for the tax itself. Thus, the Landlord is liable for any applicable sales tax that it fails to collect from the lessee. In Florida Revenue Commission v. Maas Brothers. Inc So.2d 849 (Fla.App. 1st 1969) the Court determined that in cases where a tenant makes rental payments and does not pay the applicable sales tax in error, the rental payment should include the tax. In that case, lessees of commercial real property prepaid substantial sums of rent not yet due admittedly to avoid liability for payment of the rental tax imposed pursuant to the 1968 amendment to the Revenue Act which would accrue and become due on all rentals paid subsequent to April 1, The Court concluded that the prepaid rent should have included the tax, and liability therefor is not avoided merely because prepayment was made prior to the effective date of the Act. In this case, the Court Order requires the Tenant to pay accrued rent and subsequent rental payments into the court registry. The Court Order does not make reference to the sales tax that is due for the rent paid. The Tenant has not provided any evidence that its rental payments are exempt from the tax imposed by s , F.S. Conclusion The Tenant has not provided evidence to the Landlord that it is entitled to an exemption from the tax imposed in s , F.S. Under the facts as provided to the Department, absent a specific exemption, the Landlord has an obligation to collect, and the lessee has an obligation to pay, state sales tax and the county imposed discretionary sales surtax, if any, on the payments the Tenant makes to the Landlord. Section (3), F.S., provides that the tax due is in addition to the rent charged by the Landlord. As provided in s (3), F.S., the Landlord is liable for any applicable sales tax that it fails to collect from the lessee when the rental payments are received by the Landlord. Further, if the court disperses the rental amounts that have been paid by the Tenant into the court registry, absent the applicable tax due, the rental amounts should include sales tax as determined in Mass Brothers, supra. This response constitutes a Technical Assistance Advisement under section , 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 , 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.

6 Page 6 of 6 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 , 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/ Record ID: