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REGULATIONS - PRIVILEGE AND EXCISE TAXES

Reg. ___-445.1. When the rental, leasing, and licensing of real property is exempt as "casual".

**(Model Option #5A replaces the words "three (3)" with "two (2)":

(a) The person who has less than three (3)/two (2) apartments, houses, trailer spaces, or other lodging spaces rented, leased or licensed or available for rent, lease, or license within the State and no units of commercial property for rent lease, or license within the State is deemed not to be in the business of renting, leasing, or licensing real property, and is therefore exempt from the tax imposed by Section ___-445 on such income. However, a person who has one (1) or more units of any other real property is deemed to be in the business of renting, leasing, or licensing real property, and subject to the tax imposed by Section ____-445 on rental, lease, and license income from all such lodging spaces and commercial units of real estate even though said person may have fewer than three (3)/two (2) lodging spaces within the state.)**

(b) (Reserved)

**(Model Option #5B (if choosing Local Option #R):

Reg. ___-445.1. When the rental, leasing, and licensing of real property is exempt as "casual".

(a) (Reserved)

++(Local Option #R:

(b) For the purposes of this subsection (b) only, the term "rent" shall include "lease" and "license for use". For the purposes of determining if a single-unit/single-tenant commercial rental is "casual", the following provisions shall apply:

(1) A "unit" of real property means any single real property location, or any portion, rented to a single tenant. For example:

(A) A three-story office building leased to a company as sole and single tenant is considered one unit of property.

(B) A building where individual spaces are rented to two (2) or more individuals, even though members of the same profession or business, on separate leases, is deemed two (2) or more units.

(C) A building owner who leases out a portion of that building to another has two (2) units of property rented or available for rent.

(2) "Commercial" property is any real property, or portion of such property, used for any purpose other than lodging or lodging space, including structures built for lodging but used otherwise, such as model homes, apartments used as offices, etc.

(3) If a person has one (1) unit of commercial property rented or available for rent, and has one or more "lodging spaces" also rented or available for rent, he shall be considered in the business of rental of real property, and may not claim the rental of his single unit of commercial property as "casual".

(4) Income from a source in connection with the rental of real property, such as income for maintenance or service charges to the tenant, is not "income from another source".

(5) "Income from another source" must be of an amount to indicate that the property is clearly held for investment. Minimal amounts received as interest from savings accounts, and the like, do not qualify.

(6) A corporation, or a partnership comprising other than individual members of the same immediate family, is considered to be in business, and therefore even if it has only one unit of real property rented or available for rent, it cannot be deemed to have made a non-business investment, and cannot claim such rental as "casual".

(7) Note that there are four (4) conditions for rental of commercial real property to be deemed "casual activity", which must all be met. They are, in brief:

(A) The lessor has only one unit of commercial property rented or available for rent, counting any commercial property he occupies, if any; and

(B) The lessor has no lodging rented or available for rent; and

(C) The lessor has significant income from another source; and

(D) The scope of the rental activity is clearly a non-business investment.)++ )**

OR

**(Model Option #5B (if not choosing Local Option #R):

Reg. ___-445.1. (Reserved))**

Web. Rev. Date: 10-30-2000