Washington Administrative Code › Title 458 - Revenue, Department of › Chapter 458-29A - Leasehold excise tax › Section 458-29A-200 - Leasehold excise tax - Taxable rent and contract rent

Current through Register Vol. 24-14, July 15, 2024
(1)
Introduction.
Ordinarily,
			 the amount of taxable rent is the amount of contract rent paid by a lessee for
			 a taxable leasehold interest. The law does authorize the department to
			 establish a taxable rent different from the contract rent in certain cases.
			 This rule explains the exclusions of certain moneys and other property received
			 by or on behalf of a lessor from the measure of contract rent. It also explains
			 the conditions under which the department is authorized to establish a taxable
			 rent different from the contract rent.
(2)
Contract rent exclusions.
Even when a leasehold interest is present, not all payments made to a lessor
			 constitute taxable contract rent. For example, payments made to or on behalf of
			 the lessor for actual utility charges, janitorial services, security services,
			 repairs and maintenance, and for special assessments such as storm water impact
			 fees attributable to the lessee's space or prorated among multiple lessees, are
			 not included in the measure of contract rent, if the actual charges are
			 separately stated and billed to the lessee(s). "Utility charges" means charges
			 for services provided by a public service business subject to the public
			 utility tax under
			 chapter
			 82.16 RCW, and, for the
			 purpose of this section only, also includes water, sewer, and garbage services
			 and cable television services.
In some circumstances a private lessee that is occupying or
				using public property or property of a community center which is exempt from
				property tax may collect fees from third parties and remit them to the lessor.
				In those situations where:
(a) The fee
			 structure, rate, or amount collected by the private party is established by or
			 subject to the review and approval of the lessor or other public entity;
			 and
(b) The amounts received by the
			 private entity from third parties are remitted entirely to the public lessor or
			 credited to the account of the lessor, those amounts are not considered part of
			 the contract rent under this chapter, provided that nothing in this section
			 shall preclude or prevent the imposition of tax, as appropriate, under any
			 other chapter of
			 Title
			 82 RCW on any amounts retained
			 by or paid to the private entity as consideration for services provided to the
			 public property owner or the community center which is exempt from property
			 tax.
Notwithstanding the provisions of this subsection, if such
				deductions are determined by the department to reduce the amount of contract
				rent to a level below market value, the department may establish a taxable rent
				in accordance with subsection (6) of this section.
For example, Dan leases retail space in a building owned by the
				Port of Whistler. He pays $800 per month for the space, which includes building
				security services. Additionally, he is assessed monthly for his pro rata share
				of actual janitorial and utility services provided by the Port. The Port
				determines Dan's share of these charges in the following manner: The average
				annual amount actually paid by the Port for utilities in the prior year is
				divided by 12. Dan's space within the building is approximately ten percent of
				the total space in the building, so the averaged monthly charge is multiplied
				by .10 (Dan's pro rata share based upon the amount of space he leases), and
				that amount is added to Dan's monthly statement as a line item charge for
				utilities, separate from the lease payment. The charges for janitorial services
				are treated in the same manner. In this case, Dan's payment for utilities and
				janitorial services are not included in the measure of contract rent. His
				payments for security services are included in the measure of contract rent,
				and subject to the leasehold excise tax, because they are not calculated and
				charged separately from the lease payments.
Contract rent also does not include:
(a) Expenditures made by the lessee for which
			 the lease agreement requires the lessor to reimburse the lessee;
(b) Expenditures made by the lessee for
			 improvements and protection if the lease or agreement requires the improved
			 property to be open to the general public (e.g., a public boat launch) and
			 prohibits the lessee from enjoying any profit directly from the
			 lease;
(c) Expenditures made by the
			 lessee to replace or repair the facilities due to fire or other catastrophic
			 event including, but not necessarily limited to, payments:
(i) For insurance to reimburse
			 losses;
(ii) To a public or private
			 entity to protect the property from damage or loss; or
(iii) To a public or private entity for
			 alterations or additions made necessary by an action of government which
			 occurred after the date the lease agreement was executed.
(d) Improvements added to public property or
			 property of a community center which is exempt from property tax if the
			 improvements are taxed as any person's personal property.