During the spring of 2024, the IRS issued guidance in its Private Letter Ruling (PLR) 202413004 related to an entity (taxpayer) electing to be taxed as a real estate investment trust (REIT). This article dives into the guidance on providing electric vehicle (EV) charging stations and other REIT income testing items.
Facts From the PLR
According to PLR 202413004, the taxpayer (the REIT) intends to become a REIT that will own outdoor industrial storage properties. The REIT requested a ruling on several issues regarding transactions between the REIT and its tenants. As discussed in more detail below, the IRS issued its first ruling on the provision of EV stations.
Parking Services
The REIT represented that the properties’ parking facilities were adjacent or in close proximity to the storage area of any such property. The REIT represented that any parking area will be appropriate in size for the number of tenants expected to use storage space in the property and for such tenants’ guests and customers.
These representations were made to satisfy the parking requirements of Revenue Ruling 2004-24. The parking facility will not have an attendant, and neither the REIT nor any other entity will perform any services other than the routine maintenance, repair, and provision of electricity for lighting the facility and the EV charging stations.
EV Stations
The REIT will engage an independent contractor to provide tenants with certain utility services, such as furnishing electricity to light the properties and, at some properties, to furnish electricity to power and charge equipment and to power EV stations.
The REIT intends to make electricity available in storage areas, including to EV stations, to power and charge tenants' equipment, in the parking areas and through EV stations for tenants, their guests, and customers to charge their vehicles.
Tenants will be charged a higher storage fee for storage space with access to or in close proximity to electrical sources, including EV stations, to power and charge equipment. The REIT will not charge a separate access fee for the EV stations, but a user will be charged for the electricity drawn from an EV station.
The REIT represents it will not charge a markup on the electricity and will remit the amount collected from the tenant to the utility provider, thus avoiding a potential prohibited transaction tax on “dealer” sales.
The REIT further represents that it will only install EV stations at a property where the provision of EV stations is customary for similar properties in the applicable geographic area. This is to meet the customary services in the geographic area test.
Finally, the REIT represents that the number of EV stations on any property will be appropriate for the number of tenants, their guests, and customers expected to use it. The EV stations in the parking area may be accessible by the general public, but the REIT represents any usage of the EV stations by persons other than tenants, their guests, and customers will be de minimis. (This is to meet the Revenue Ruling 2004-24 requirements.)
IRS Rulings Based on REIT’s Representations
- EV stations in parking areas
- The REIT will charge the tenant user solely for the electricity, and not a separate access fee, and thus qualifies the charge as a customary service.
- The REIT will not mark up the electricity to avoid a prohibited transaction issue.
- The REIT will install EV stations at properties only where the provision of the EV stations is customary in the geographic area, so it meets Section 1.856-4(b)(1).
- The REIT represents that the number of EV stations available at a property will be appropriate to the expected tenant’s that it will meet the Revenue Ruling 2004-24 requirements, and that use by the general public is expected to be de minimis.
- Charging tenants for electricity used is similar to submetering, which is customary.
- Based on the above, the IRS held that any income from the REIT’s provision of EV stations will be considered qualified REIT rents, i.e., not impermissible tenant service income (ITSI).
The critical takeaway here is that the IRS held that providing EV stations is an amenity that does not taint rents, so long as it meets Revenue Ruling 2004-24 parking standards and that providing electricity to EV stations is a good REIT service.
- Parking
The IRS held that based on the REIT’s representations, the above parking services were similar to Situation #1 of Revenue Ruling 2004-24, and thus, amounts received for parking qualified as rents under §856(d).
Next Steps & Future Planning
For the first time, the IRS analyzed charging tenants for the electricity to the EV stations and the use of the EV station itself in parking facilities. The IRS agreed this was a customary service to tenants similar to providing a charge for electrical services, which they had previously held was similar to submetering if there is no markup (which they had already approved).
The IRS also analyzed the availability of the EV station as a service to the tenants. They ruled providing EV stations in a parking facility will be a good REIT service if it meets three requirements: customary in the geographic area, not for the convenience of a particular tenant, and located in a parking facility that meets the requirements of Revenue Ruling 2004-24. It should be noted that the IRS specifically did not address situations in which the REIT charged a mark up on electricity at EV stations used by tenants or the charging of access fees to use the EV stations.
Final Thoughts
This is an important ruling for REITs that provide EV stations to their tenants. With proper tax structuring, REITs will be able to provide this service to their tenants without creating non-qualifying REIT gross income.
If you have questions about EV stations or are considering a REIT election, please reach out to a REIT tax professional at Forvis Mazars.