The Florida Bar

Florida Bar Journal

Tax on Government Land Leases

Letters

As attorney for a commercial company leasing land from a municipality, I had a big “Aha” when I read the tax law article in the March Journal (“Owners for Tax Purposes Only: The Equitable Ownership Doctrine and Ad Valorem Taxation of Long-Term Leasehold Interests”). It says that leases from governmental agencies (to commercial entities for commercial purposes) are exempt from tax, except the 0.05 percent intangible tax. But not so fast.

The language quoted from F.S. §196.199(2)(b) needs to include the preamble as well as subsection (1), so the statute actually reads:

(1) Property owned and used by the following governmental units shall be exempt from taxation under the following conditions: [from ad valorem taxes]

(2) Property owned by the following governmental units but used by nongovernmental lessees shall only be exempt from taxation under the following conditions:

(a) [exemption from ad valorem and intangible taxes when used for governmental, municipal, or public purposes]

(b)…the exemption provided this subsection shall not apply to [undeveloped land or land used for residential or commercial purposes]. Such leasehold or other interest shall be taxed only as intangible personal property [if there is rent].

Thus, it appears the exemption is from ad valorem tax, but not the 6 percent sales tax, as the article states (referring to the statute sections listed above).

But wait! Subsection (2)(b) says such leasehold or other interest shall be taxed only as intangible personal property, which seems to grant the exemption from sales tax.

“Aha” restored.

DOR takes the position that governmental leases to commercial companies are exempt from sales and ad valorem taxes, and that intangible tax must be paid. All other transactions and activities with respect to the property (that would otherwise be subject to sales tax) are subject to sales tax.

My client licenses/subleases portions of that governmental property. If there were no licenses/subleases, we would pay intangible tax on the lease and also sales tax on other activities normally subject to sales tax.

But are our licenses/subleases subject to sales tax? I suppose that depends on whether “other interests” (in §2b) includes licensed/subleased land. DOR says only the main lease is exempt from sales and ad valorem tax, but everything else is taxable (unless there is a specific exemption).

So much for my “Aha.”

Nevertheless, there are some interesting (and advantageous) situations for commercial companies leasing governmental land, as long as they do not sublease.

I would say that the statute is not clearly written. And now I also understand why tax attorneys charge so much.

M. Ross Shulmister, Pompano Beach