Were restaurant rent payments at a municipally owned beach exempt as a food concession at a public recreational facility?

Plain-English summary

A city leased restaurant facilities at a municipal beach. The lessee had to sell food and drinks, maintain beach-related amenities and public restrooms, keep access open, and help maintain the beach. A separate restaurant operator managed the business and paid the base and percentage rent directly to the city on the lessee's behalf.

Florida concluded that the beach was a publicly owned recreational facility and the lessee was a retail food-and-drink concessionaire. The statutory exception therefore made both base rent and percentage rent nontaxable.

The management arrangement did not change that result. Direct payment by the operator on behalf of the lessee did not nullify the exception. The operator could also claim a refund of taxes it had paid directly to the lessor if it obtained a properly executed assignment of rights from the lessor.

What this means for you

The ruling focused on what the public property was and what the lessee provided there. A management company could perform and pay the lessee's obligations without changing the underlying concessionaire status of the lease.

Common questions

Why did the beach count as a recreational facility? Florida applied the ordinary meaning of recreation and found a municipal beach used for play, amusement, or relaxation to fit the term.

Why did the restaurant qualify as a concessionaire? It sold food and drinks directly to the public within the publicly owned recreational facility.

Were both fixed and percentage rent exempt? Yes. The ruling expressly covered base rent and percentage rent under the lease.

Did the operator's direct rent payment make the rent taxable? No. The operator paid on the lessee's behalf under the management agreement, which did not defeat the exception.

Could the operator request a refund? Yes, with a properly executed assignment of rights from the lessor. The ruling also stated the then-applicable three-year application period for taxes paid on or after July 1, 1999.

Citations and references

• Fla. Stat. § 212.031(1)(a)10. (food-and-drink concessions at listed public facilities)
• Fla. Admin. Code r. 12A-1.070(1)(b)3. (retail concessionaires)
• Fla. Stat. § 215.26(1) (refunds to the payer or the payer's assigns)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 07A-009

Original ruling text

SUMMARY
QUESTION: Are payments made for the lease of a restaurant
located on a municipal beach not taxable for sales tax under the
provisions of section 212.031(1)(a)10., F.S, for property
leased, subleased, licensed, or rented to a person providing
food and drink concessionaire services at a publicly owned
recreational facility?
ANSWER – Based on Facts Below: The municipality owns the beach,
which includes within its boundaries a restaurant that also
provides public restrooms, wooden umbrellas, beach accessories,
etc. A beach, which is traditionally used for “play, amusement,
or relaxation,” is a “recreational facility” under any plain
meaning of that phrase. Rule 12A-1.070(1)(b)3., F.A.C.,
provides that the term “retail concessionaire,” which may be
either a lessee or licensee, shall mean “any person who makes
sales of food or drink directly to the general public within the
premises of a ... publicly owned ... recreational facility....”
Accordingly, the lessee is a concessionaire, and the property is
a publicly owned recreational facility. Therefore, payments of
base rent and percentage rents under the lease would not be
taxable.
QUESTION: Does the fact that the lessee has a management
agreement with an operator to manage the restaurant, and the
operator makes the rent payments directly to the lessor on
behalf of the lessee affect the taxable status of such payments?
ANSWER – Based on Facts Below: The lease between the lessee and
the city was determined to be for real property leased,
subleased, licensed or rented to a person providing food and
drink concessionaire services. The “Management Agreement”
between the lessee and the operator provides that the operator
will perform all obligations of the lessee including, without
limitation, timely payment and performance of the lease
agreement including, without limitation, the payment of rent and
additional rent.
The fact that Operator pays the rent and percentage rent
directly to City does not nullify the exemption provided under
section 212.031(1)(a)10., F.S.
QUESTION: Is the operator eligible to claim a refund of taxes
paid directly to the lessor, with a properly executed assignment
of rights from the lessor?

ANSWER – Based on Facts Below: Pursuant to section 215.26(1),
F.S., Florida’s Chief Financial Officer may refund taxes, where
no taxes were due, to the person who paid them, or to his or her
assigns. Therefore, the operator is eligible to claim a refund
of taxes paid directly to the lessor, with a properly executed
assignment of rights from the lessor.

March 29, 2007

Re:

Technical Assistance Advisement 07A-009
Sales and Use Tax – Lease of Recreational Facilities
Section 212.031(1)(a)10., F.S.
Rule 12A-1.070, F.A.C.
XX (“City”)
XX (“Lessee”)
EIN: XX
XX (“Operator”)
d/b/a XX
EIN: XX

Dear:
This is a response to your letters dated June 21, 2006, and August 25, 2006, requesting the
issuance of Technical Assistance Advisement (TAA) concerning the above referenced parties
and matter. Your letters and supporting documents have been carefully examined, and the
Department finds your request to be in compliance with the requisite criteria set forth in Chapter
12-11, F.A.C. This response to your request constitutes a TAA, and is issued to you under the
authority of section 213.22, Florida Statutes.
Facts
Your letter provides in part:
. . . [Operator] entered into a management agreement (“Management Agreement”) with
[Lessee] to operate a restaurant at certain land and facilities (“Facilities”)[,] which [Lessee]
leases from [City] [,] pursuant to a lease agreement (“Lease”) executed by and between
[Lessee] and [City] . . . .
The Lease is a continuation of a prior lessor/lessee relationship involving operation of a
restaurant at the facilities as noted in the recitals of the Lease . . . .
The recitals go on to express the desire and intent of the parties to continue this relationship
through the Lease and to make certain repairs to the Facilities as a result of damage caused
by Hurricane XX and other agreed renovations[,] using funds furnished both by [Lessee], as
lessee, and by insurance proceeds received by the City. Part of [Lessee’s] obligation, as

lessee, under the Lease was to arrange for the agreed renovations (See Section 3 of Lease).
This included the renovation of existing bathroom facilities for the specific use of beach
patrons[,] as well as construction of additional bathrooms for restaurant patrons.
Regarding its use of the Facilities consistent with the terms of the Lease, [Lessee] agreed to
essentially the following (See Section 4 of Lease):

1. To maintain the Facilities for purposes of selling meals, sandwiches, drinks, ice
   cream, candies and other foodstuffs;
2. To keep the restaurant at the Facilities open six (6) days a week for a minimum period
   of eight (8) hours per day;
3. To maintain and keep in repair wooden umbrellas located on the beach and to sell and
   rent beach accessories;
4. To keep open to the public the beach area and all access pathways to the beach and its
   adjacent buildings; and
5. The mutual agreement and intent of the parties that the beach area remain open to the
   public and be used for public purposes.
   Additional covenants of the Lease require [Lessee] as lessee (See Section 5 of the Lease):
6. To maintain and keep in repair any buildings or structures on the premises. This
   would include the restrooms for use of beach patrons; and
7. To maintain the cleanliness of the beach and public restrooms on a daily basis
   including the removal of seaweed and other debris from the beach.
   In consideration of [Lessee’s] use of the facilities, the Lease calls for payment of a base rent
   and[,] in addition[,] a percentage rent based on gross sales in excess of $XX annually (See
   Section 16 of Lease).
   Considering now the Management Agreement between [Operator] and [Lessee] for
   management and operation of the Facilities on behalf of [Lessee], we note certain terms and
   conditions of particular relevance to the matters under advisement herein. First, the recitals
   of the Management Agreement express the Operator[’]s line of business as that of operating
   restaurants and next, the desire of [Lessee] to retain Operator to operate the restaurant located
   at the Facilities.
   Per Section 1 of the Management Agreement, the Operator is retained as an “independent
   contractor” to operate and manage the restaurant. Section 1 goes on to provide that
   employees for operation of the restaurant will be employed and supervised by the Operator
   and not by [Lessee]. Further in this regard, Section 12 of the Management Agreement
   expressly reiterates that Operator at all times shall be construed as an independent contractor
   and that nothing in the Management agreement shall be construed to create a partnership,
   joint venture, employment, or principal/agent relationship between [Lessee] and Operator.
   Further per the covenants of the Management Agreement, the Operator is responsible for the
   timely payment and performance of the Lease between [Lessee] and the City (See Section 3

of the Management Agreement). Hence, Operator assumes the responsibility of carrying out
compliance, on behalf of [Lessee], of all terms agreed to by [Lessee] under the Lease.
In consideration of Operator’s obligations under the Management Agreement, Section 3 of
said agreement calls for Operator to receive a management fee (“Management Fee”). As
further provided in Section 3 of the Management Agreement, the Management Fee is paid
via assignment from [Lessee] to Operator of the net revenues from operation of the
restaurant.
Issue
Are payments of the base rent and percentage rent under the Lease not taxable for sales and use
tax as a “recreational facility” pursuant to the provisions of s. 212.031(1)(a)10., F.S.?
Law and Discussion
Section 212.031(1)(a), Florida Statutes (F.S.), provides the legislative intent that every person is
exercising a taxable privilege who engages in the business of renting, leasing, letting, or granting
a license for the use of any real property, with certain enumerated exceptions. . A "license" to
use real property is defined in section 212.02(10)(i), F.S., as ". . . the granting of a privilege to
use or occupy a building or a parcel of real property for any purpose."
Section 212.02(12), F.S., defines “person” to include “. . . any political subdivision,
municipality, state agency, bureau, or department . . . .”
An exemption from the tax is provided under section 212.031(1)(a)10., F.S., for property:
Leased, subleased, licensed, or rented to a person providing food and drink concessionaire
services within the premises of a convention hall, exhibition hall, auditorium, stadium,
theater, arena, civic center, performing arts center, publicly owned recreational facility, or
any business operated under a permit issued pursuant to chapter 550. . . . (Emphasis supplied)
Rule 12A-1.070, F.A.C., is the Department’s administrative rule implementing the provisions of
section 212.031, F.S. Subparagraph (1)(b)3. of the rule provides in part:
For purposes of this rule, the term “retail concessionaire,” which may be either a lessee or
licensee, shall mean any person who makes sales of food or drink directly to the general
public within the premises of a . . . publicly owned . . . recreational facility . . . .
Since it has been established by the lease agreement that the leased property will be maintained
“for purposes of selling meals, sandwiches, drinks, ice cream, candies, and other foodstuffs”
within the premises of a municipally owned beach, the next question that must be answered is
whether the leased property is a “recreational facility,” as that term is used in section
212.031(1)(a)10., F.S.
No definition of “recreational facility” is provided by statute. Thus, it is necessary to look to
look to principles of statutory construction. Words of common usage, when used in a statute,

should be construed in their plain and ordinary sense. Pederson v. Green, 105 So.2d 1 (Fla.
1958).
The word "recreation" is defined in Webster's New Twentieth Century Dictionary, Unabridged,
Second Edition, 1968, as follows:

1. refreshment in body or mind, as after work, by some form of play, amusement, or
   relaxation.
2. Any form of play, amusement or relaxation used for this purpose, as games, sports,
   hobbies, reading, walking, etc.
   The word "facility" is defined in The Random House Dictionary of the English Language, The
   Unabridged Edition, as "something designed, built, installed, etc., to serve a specific function
   affording a convenience or service. . . ."
   Here, a municipality owns a beach, which includes within its boundaries a restaurant that also
   provides public restrooms, wooden umbrellas, beach accessories, etc. A beach, which is
   traditionally used for “play, amusement, or relaxation,” is a “recreational facility” under any
   plain meaning of that phrase.
   Conclusion
   The Lessee is a retail concessionaire under the provisions of Rule 12A-1.070(1)(b)3., F.A.C.
   The property is a publicly owned recreational facility. Therefore, payments of base rent and
   percentage rents under the Lease would not be taxable.
   Issue
   If the base rent and percentage rent are not taxable under the Lease, does the fact that the
   Operator pays such rents directly to Lessor on behalf of the Lessee affect the taxable status of
   such payments?
   Law and Discussion
   The Lease between Lessee and the City has been determined to be for real property leased,
   subleased, licensed, or rented to a person providing food and drink concessionaire services
   within a publicly owned recreational facility and, therefore, not taxable under the provisions of
   section 212.031(1)(a)10., F.S.
   The “Management Agreement” between Lessee and Operator provides that Operator will
   perform all obligations of Lessee including, without limitation, the following:
   . . . timely payment and performance of the Lease Agreement dated February 1, 2000,
   between [Lessee] and [City], as now in effect or as the same may be amended or replaced
   from time to time (the “Lease”), including, without limitation, the payment of rent and
   additional rent . . . .

The fact that Operator pays the rent and percentage rent directly to City does not nullify the
exemption.
Issue
If the base rent and percentage rental payments are not taxable, is Operator eligible to claim a
refund of taxes paid directly to Lessor, with a properly executed assignment of rights from
Lessor?
Law and Discussion
Pursuant to section 215.26(1), F.S., Florida’s Chief Financial Officer may refund taxes, where no
taxes were due, to the person who paid them, or to his or her assigns. For taxes paid on or after
July 1, 1999, an application for a refund must be filed with the Department of Revenue within 3
years after the date the tax was paid.
CONCLUSION
The leased property is “leased, subleased, licensed, or rented” to a person providing food and
drink concessionaire services within the premises of a publicly owned recreational facility.
Thus, payments of the base rent and percentage rent under the Lease are not taxable for sales and
use tax pursuant to the provisions of s. 212.031(1)(a)10., F.S.
The fact that Operator pays the rent and percentage rent directly to City does not nullify the
exemption.
Operator is eligible to claim a refund of taxes paid directly to Lessor, with a properly executed
assignment of rights from Lessor.
This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is
binding on the Department only under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is predicated on those facts and the
specific situation summarized above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the statutes or rules upon which this
advice is based may subject similar future transactions to a different treatment from that which is
expressed in this response.
You are further advised that this response, your request and related backup documents are public
records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions
of s. 213.22, F.S. Confidential information must be deleted before public disclosure.
In an effort to protect confidentiality, we request you provide the undersigned with an edited
copy of your request for Technical Assistance Advisement, the backup material and this
response, deleting names, addresses and any other details which might lead to identification of
the Taxpayer. Your response should be received by the Department within 15 days of the date of
this letter.

Sincerely,
Dee Overcash
Technical Assistance and Dispute Resolution
Record ID: 23906