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IN THE SPOTLIGHT

  

Kimberly A. Rayer
Kimberly A. Rayer, Esq.

Kimberly A Rayer is a partner in the law firm Starfield & Smith, P.C., where she concentrates her practice in the areas of financial services, commercial contracts and corporate law. Ms. Rayer has extensive experience representing banks, financial institutions, as well as companies in connection with government guaranteed lending, commercial financing and other secured transactions.  She is a member of the American Bar Association and the National Association of Government Guaranteed Lenders (NAGGL). She was named as a Pennsylvania "Rising Star" by Philadelphia Magazine in 2010.  Ms. Rayer received a B.S. from Drexel University and a J.D. from the James E. Beasley School of Law, Temple University.  

  

ADMISSIONS:

  

  • Pennsylvania
  • New Jersey
  • Federal District Court for the Eastern District of Pennsylvania

 

To read more about Kim, click here

  

Congratulations!

 

David Starfield, Norman Greenspan and Jeffrey Feldman of Starfield & Smith were selected as Super Lawyers for 2014.

 

 

 

Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement.  




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FeatureArticle 
FEATURED ARTICLE 

Best Practices:  Florida Sales and Use Tax on Commercial Rental Payments

 

By: Victor A. Diaz, Esquire  

  

Victor A. Diaz
Victor A. Diaz, Esquire

A recent discussion among colleagues regarding whether the SBA imposes a 'minimum' rent requirement under the Eligible Passive Company (EPC) Rule prompted this article.  In pondering the question, a situation came to mind where a borrower had contacted me regarding an audit by the Florida Department of Revenue that resulted in the imposition of back taxes and a hefty fine for failure to collect and remit sales tax (also commonly known as use tax) on the imputed rent from a wholly owned subsidiary.  The separation of ownership for liability planning purposes carefully crafted by the borrower and his counsel resulted in an unexpected, substantial tax obligation.  You see, Florida is the only state in the nation that imposes a sales or use tax on commercial rent directly at the state level.

 

Section 212.031(1)(a) and (c) of the Florida Statutes imposes a sales or use tax on the total rent or fee charged for the renting, leasing, or letting of any commercial real property.  Under this statute, and rules promulgated pursuant to this statute, Florida takes the position that "all consideration" due and payable by every "person" for the right or privilege to use leased space is "rent."  Fla. Admin. Code Rule 12A-1.070.  Rentals, leases, and licenses to use or occupy real property by related "persons" are also subject to sales tax.  Examples include the typical EPC structure where a parent corporation leases to a subsidiary or affiliate or an individual/principal leases to a corporation, commonly referred to as the Operating Company (OC).

 

In addition to actual rent payments, "rent" also includes insurance premiums, property taxes and common area maintenance for services such as landscaping, janitorial and building repair.  In situations involving real estate collateralized loans, debt service payments are also characterized as "rent." See generally, Technical Assistance Advisement 09A-048.  In short, regardless of the manner or description attached to funds or benefits received by a landlord, indirectly or directly, from those using the real estate, it is "rent" and the landowner is required to remit sales tax. Id.

 

The tax payable to the state is calculated at the rate of 6% plus any discretionary surtax imposed by certain counties.  On average, the rate charged on rent throughout the state ranges from 6% to 7%.   To understand the financial impact on a borrower take by way of an example a typical $1 million real estate secured SBA loan.  Loan payments at an interest rate of 5% will be approximately $6,000 plus prorated insurance, maintenance and real estate taxes of $2,000 will result in a total, monthly "rent" payment of $8,000 to the EPC.  On top of that, assuming sales tax is due at the rate of 7%, the OC would be obligated to pay an additional $560 monthly, or $6,720 annually, as part of their rent.  The EPC would in turn remit to the state the sales tax collected.

 

Failure to collect and pay sales or use tax can result in severe penalties.  For instance, a landlord who collects sales tax from tenants, but who knowingly fails to remit such sales tax to the Florida Department of Revenue, may be held criminally liable for committing up to a first degree felony.  In addition to criminal sanctions, the Florida Department of Revenue is empowered to issue warrants for the full amount of the tax due, or estimated to be due, with interest, penalties, and cost of collection.  Because Florida tax audits generally cover periods of 3 years, monetary penalties can result in a considerable financial obligation.

 

In our practice, we see transactions involving EPC/OC structures daily.  It is incumbent on lenders to be aware of the sales tax implications associated with these structures and to take them into consideration when underwriting their loans.  Lenders should also require their borrowers to register with the Florida Department of Revenue as a dealer to collect and remit their sales taxes.  For more information regarding Florida sales and use tax and its impact on SBA loans, please contact Victor at [email protected] or at 407-667-8811. 

 

_____________________ 

*  As an aside, while it is clear the SOP and regulations impose a 'maximum' amount of rent that can be charged by a passive business to an Operating Company (OC), there is no stated, explicit 'minimum.' 
*  Florida collects approximately $1.4 billion in sales or use tax from rental income annually. Multiple, recent attempts by the Florida Legislature to eliminate the tax, or to reduce the rate, have been unsuccessful.   

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EVENTS & SEMINARS Events

 

Presented By:  CTAGGL
Date:  August 18 - 20, 2014
Location:  Westin Riverwalk, San Antonio, Texas

For more information about this event and/or to register, click here. 

Presented By:  FLAGGL
Date:  September 17 - 19, 2014
Location:  Rosen Shingle Creek Resort, Orlando, FL
 
For more information about this event and/or to register, click here.

NAGGL 2014 Annual Conference

Presented By:  NAGGL
Date:  October 28 - 30, 2014

Registration opened Monday!

For more information about this event and/or to register, click here.


Donald Tyson / Senior Vice President / The Bancorp Bank

 

When The Bancorp Bank made the strategic decision in 2009 to become a national SBA lender, our first call was to Ethan Smith at Starfield & Smith. I had worked with Ethan in deals where he represented the SBA lender and was impressed by the firm's capacity to handle a particularly complicated management buy-out with multiple layers of financing provided by multiple firms. This deal involved a credit line, an SBA term loan, a mezzanine loan, and private equity from multiple investors, not to mention an obstinate seller. The legal side of the deal could not have gone more smoothly. Bancorp's SBA team has been very successful and we have relied on the guidance of Starfield & Smith every step of the way. They work to earn our trust every day and we could not be more pleased with our relationship with them. They have a well earned national reputation for expertise in SBA lending that is unmatched.  

 

                                          
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Contact
Starfield & Smith, PC
  
 
Pennsylvania Office:
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phone: 407.667.8811 | fax: 407.667.0020
 
 
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