A Class RV Storage

19-26

On December 18, 2017, and then on April 5, 2018, the department issued assessment notices for gross receipts tax, penalty, and interest to the Taxpayer, the operator of three RV storage facilities. On February 12, 2018, and on June 26, 2018, the Taxpayer submitted formal protest letters to the department disputing the assessments. The main issue to be resolved in the protest was whether the Taxpayer was entitled to deduct receipts from renting real property. The Taxpayer contended that the rental contracts were in fact land leases and not simply a license to use the space. There were indicators to support this interpretation. The rental agreement was for a specific portion of property and for an agreed to amount of time. The tenant was intended to have unrestricted use of the property and was required to provide maintenance of the space. The Department, however, disputed that the agreements were leases because of other indicators. These included limitations that the land be used only for storage, the inability to secure the space against others, and that the tenant did not have exclusive possession or access to the property. There was no physical barrier between the storage spaces for the RVs. Indeed, it was possible for the tenant to park over the boundaries of the space, making it necessary for the facility manager to have the RV removed. The Hearing Officer cited department regulations that gave examples of similar situations deciding the same question: one involved the renting of parking spaces and the other concerned providing space in an airplane hangar. Neither example allowed the deduction for receipts from the lease of real property, having determined that both granted a license to use the space instead. In another ruling cited, the openness and accessibility of the rental space enforced the conclusion that the agreement was a license and not a lease. After evaluating earlier decisions, the Hearing Officer decided that, in the end, the absence of any enclosed structure prevents the Taxpayer from providing exclusive possession, use, and access to the units and, therefore, the agreements were not leases. This having been decided, the Hearing Officer disallowed the deduction, but also ordered that penalty be abated because the Taxpayer was not negligent, having obtained the advice of a CPA, and so ordered the protest denied in part and granted in part.