See beyond the numbers

New FDOR Ruling May Mean Sales Tax Relief for Real Estate Held in Separate Entities

The Florida Department of Revenue treats inter-company and other related party use of real estate as a taxable rental for sales tax purposes. This is true even when there is no written lease involved.  This has long been a significant downside of holding real estate in a separate entity which for liability purposes is desirable. A recent ruling issued by the Department may provide relief to such situations. The ruling addressed a lease which contained the following terms:

  • No reversionary interest to the owner/lessor;
  • Transfer of title by deed to the lessee at the end of the lease term;
  • The monthly rent was equal to the monthly payments of principal and interest;
  • The lessee had the option of early payoff to accelerate transfer by deed; and
  • The lessee bore the risk and benefits of changes in the property value.

The Department ruled that the lease was in substance an installment sale and not a taxable lease for sales tax purposes. Persons with intercompany or other related party use of real property can now consider the option of putting such a lease in place. This will permit the limited liability benefits of owning real estate in a separate entity without creating the downside of a taxable lease for sales tax purposes.

For additional details and stipulations, please click here or contact me at 561.620.1718 or dwagner@kaufmanrossin.com.

Dan Wagner is an associate tax principal in Kaufman, Rossin’s SALT practice.  Kaufman, Rossin & Co. is one of the top CPA firms in the country.  He can be reached at dwagner@kaufmanrossin.com.