Florida treats a leaseback transaction as a financing arrangement rather than a lease.

In a Technical Assistance Advisement, the State of Florida qualified a taxpayer’s leaseback transaction as a financing arrangement rather than a true lease. The taxpayer was involved in a leaseback transaction of real property. The State of Florida provided the following indicators as guidance in determining whether or not the transaction was a financing agreement or lease:
1. the language of the documents should be clear, while understanding the importance of substance over form
2. recognizing that a debt must be secured in order for there to be a mortgage
3. the rent involved in the transaction should be fixed to debt service in contrast to the rental market value of the property
4. the buyer/lessee involved in the transaction needs to be a single purpose financing corporation created prior to the transaction in order to facilitate the loan process
5. the “so-called buyer” was passed the short-term and long-term risks; and
6. in order for “debt” to be properly recorded, title must be transferred shortly after the end of the “lease” term.
The Florida Department of Revenue further stated that the lease portion of the transaction was subject to the document stamp tax and that the agreement was also subject to nonrecurring intangible tax. (Technical Assistance Advisement, No. 04M-002, Florida Department of Revenue, November 16, 2004)

Posted on January 21, 2005