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In a recently issued guidance memorandum, the State of Florida Department of Revenue issued a Technical Assistance Advisement on the subject of whether payments made by a landlord to bring a commercial space into usable condition for a specific tenant were subject to tax.


Based upon the terms of the lease and information provided, the Department advised that improvement repayments are not subject to the tax imposed by section 212.031, F.S. The Department’s view was that the improvements were made in order “to allow [the Taxpayer] to occupy the Premises for the use and purposes intended.” There was not a requirement to spend a specific or minimum amount of money on the improvements, there is no credit given against rental payments, the improvements were not explicitly classified as rent, additional rent, rent-in-kind, or in lieu of rent, and there is no evidence that there was an attempt to reclassify rental payments to avoid the tax.


Based upon these specific factors, the Department advised that the tenant improvement allowance was not subject to the tax in question.  In rendering its decision, the Department advised that it was giving guidance based on the specific facts of the matter presented to it.  


Notwithstanding this caveat, the fact remains the Department published its guidance and therefore, with proper attention to the drafting of your leases, tax impositions can likely be avoided.