Director's Rule 5-530

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Sale or rental of real estate license to use real estate

(1) Amounts derived from the sale of real estate or from the rental of real estate are exempt from taxation under the business license tax. Sales of real estate are subject to the Real Estatesl Excise Tax (REET) as contained in RCW 82.46, and not subject to the business license tax. Amounts received from a lease or rental of real estate are those amounts where the lease or rental of real property conveys an estate or interest in a certain designated area of real property with an exclusive right in the lessee or renter of continuous possession against the world,   including the owner, and grants to the lessee or renter the absolute right of control and occupancy during the term of the lease or rental agreement. An agreement will not be construed as a lease or rental of real estate unless a relationship of "landlord and tenant" is created thereby. It is presumed that the sale of lodging by a hotel, motel, tourist court, etc., for a continuous period of thirty days or more is a rental of real estate. It is further presumed that all rentals of ministorage facilities, apartments and leased departments constitute rentals of real estate. The rental of a parking space, boat moorage slip, or an airplane hangar/tie down site is presumed to be a rental of real estate only if a specific space, slip, or site is assigned and the rental is for a period of thirty days or longer.

(2) License to use real estate is taxable. A license to use real estate grants merely a right to use the real property of another but does not confer exclusive control or dominion over the same. Usually, where the grantor/owner conveys only a license to use, the owner controls such things as lighting, heating, cleaning, repairing, and opening and closing the premises. Amounts derived from the granting of a license to use real property are taxable under the service business license tax classification unless otherwise taxed under another classification by specific statute, e.g., sale of lodging taxed under retailing. (See 5.45.050 (G) and SMC 5.30.050, respectively). Further, no exemption is allowed for amounts received as commissions for the sale or rental of real estate (SMC 5.45.090 (T)), nor for interest received by persons engaged in the business of selling real estate on time or installment contracts unless the contract is secured by a first mortgage.

(3) Distinguishing rental or lease of real property and a license to use real estate. For purposes of distinguishing the lease or rental of real estate from the granting of a license to use real estate the Department will be guided by the following principles.

(a) It will be presumed that a taxable license to use or enjoy real property is granted in the rental of, including but not limited to, the following:

(i) Hotel rooms (for periods of less than 30 continuous days; see Seattle Rule 5720).

(ii) Motels, tourist courts and trailer parks (for periods of less than 30 continuous days; see Seattle Rule 5-720).

(iii) Cold storage lockers.

(iv) Safety deposit boxes and private mail boxes.

(v) Storage space--unless the period is for longer than 30 continuous days and the renter or lessee has access to the storage space or storage unit at all times and controls access to that space against all others (see Seattle Rule 5-700).

(vi) Space within park or fair grounds to a concessionaire.

(vii) Hairdressers, barbers, or manicurists who lease space within another business (see Seattle Rule 5-132 Leased departments).

(viii) Use of boat launch facilities for recreational purposes.

(ix) Space on a building, or other real property, for the attachment of advertising signs, including for periods in excess of 30 continuous days.

(4) Hotels, motels, etc. SMC 5.30.050 B (3) (f) specifically defines services of a hotel, motel, or similar businesses as being retail sales (with some exceptions such as telephone services). Thus, the rentals of meeting rooms, display rooms, games rooms, or ball rooms are retail sales when rented out by such businesses. Persons who are not in the business of selling lodging are taxable under the service classification on income from the rental of meeting rooms.

Effective: July 15, 2005

DIRECTOR'S CERTIFICATION
I, Kenneth J. Nakatsu, Director of the Department of Executive Administration of the City of Seattle, do hereby certify under penalty of perjury of law, that the within and foregoing is a true and correct copy as adopted by the City of Seattle, Department of Executive Administration.