Tuesday, November 8th, 2011
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.
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