On July 25, the IRS released Private Letter Ruling 202530005 (the "Ruling"), which addressed storage fees and amenities fees from storage facilities for purposes of the REIT gross income tests. The Ruling allows REITs greater flexibility to generate income from storage fees and offer certain amenities, such as EV charging stations, at a markup without running afoul of the tests.
In the Ruling, the taxpayer was a REIT that owned outdoor industrial storage facilities. At some facilities, the REIT provided EV charging stations and collected an additional fee. The REIT added a small markup on electricity drawn at some stations, representing that the markup was a return on the installation and ongoing administration and maintenance costs.
The IRS ruled that the electricity from EV stations – including the markup – qualifies as "rents from real property," relying on the REIT's representation that the markup merely recouped certain costs. Prior rulings addressing EV stations in storage facilities had reached a similar conclusion regarding the income from electricity, but had not specifically addressed markups on the electricity, which are now approved for the first time. The Ruling further confirmed that even though the REIT did not lease specific spaces to customers, the rent collected from tenants nevertheless qualifies as "rents from real property." This guidance may also be relevant to real estate mortgage investment conduit ("REMIC") transactions, which apply the REIT rules to determine which streams of cashflow from a property count towards the value of the "real property" securing a "qualified mortgage."
REITs now have further clarity on certain fees from storage facilities and greater flexibility in their investments in such facilities. Nonetheless, REITs planning to offer amenities such as EV stations should consult their tax advisors regarding the implications of this Ruling, as it is not binding on other taxpayers.
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