Did merchandise costs, credit-card fees, and wage reimbursements change the taxable proceeds from an amusement-machine lease?

Plain-English summary

The Florida Department of Revenue concluded that two additional payments from an amusement-machine lessee increased the taxable proceeds of the equipment lease: the lessee's half of merchandise purchases and its half of credit-card processing fees.

Those payments were agreed when the lease was formed and were conditions of leasing the amusement machines and attractions. Rule 12A-1.071 defines gross lease proceeds as the total consideration agreed by the parties, so the Department included the two payment streams in the amount subject to rental sales tax.

The lessor's reimbursement of half of the lessee's game-room employee wages was different. It was a payment from the lessor to the lessee, not lease proceeds received by the lessor. It therefore was not included in gross rental proceeds, but it also did not reduce the consideration on which rental tax was due.

What this means for you

Amusement-machine owners and lessors

Taxable rental proceeds can include contractually required payments beyond the stated revenue split or base rent. Review cost-sharing and fee-reimbursement clauses when calculating tax on the machine lease.

Location owners and operators

The written agreement should identify who remits tax on machine receipts, who buys the amusement-machine certificate, and whether the arrangement is a machine lease. In the reviewed agreement, the machine owner assumed the first two responsibilities and remained the lessor.

Accountants and tax professionals

The ruling distinguishes tax on machine receipts from sales tax on the machine lease. It says both should be separately stated, and the tax on machine receipts should be based on the amount taken from the machine rather than only the lessor's 50% share.

Common questions

Q: Were the lessee's merchandise and card-fee payments taxable?
A: Yes. They were part of the consideration agreed as a condition of the lease.

Q: Was the employee-wage reimbursement taxable lease revenue to the lessor?
A: No. It flowed from the lessor to the lessee and was not gross proceeds received for the lease.

Q: Did that wage reimbursement reduce taxable rent?
A: No. The Department expressly said it did not reduce the total consideration subject to rental sales tax.

Citations and references

• Fla. Stat. §§ 212.02(19), 212.05, 212.055, 212.21(2), and 213.22
• Fla. Admin. Code r. 12A-1.071(1)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 17A-027

Original ruling text

Executive
Director
Leon M. Biegalski

QUESTION: Are additional payments made pursuant to a lease agreement part of the gross
proceeds derived for the lease of tangible personal property?
ANSWER: Lessee’s payment of 50% cost for purchases of merchandise and Lessee’s 50%
portion of credit card processing fees was agreed upon at the formation of the lease contract, and
the amount was agreed to be paid as a condition of the lease for Amusement Machines and
Attractions. The amounts are taxable as part of the total gross proceeds derived for the lease of
tangible personal property. Lessor’s reimbursement of Lessee’s employee wages is a payment
from Lessor to Lessee and is not part of the total gross proceeds derived for the lease of tangible
personal property.

September 21, 2017

Re:

Technical Assistance Advisement 17A-027
Florida Sales and Use Tax – Amusement and Vending Machines
Sections: 212.02; 212.05; 212.055; 212.21, Florida Statutes (F.S.)
Rule: 12A-1.071, Florida Administrative Code (F.A.C.)
Petitioner: XXXX (“Taxpayer”)
FEIN: XXX

Dear XXXX:
This letter is a response to your petition received on XXXX, for the Department of Revenue’s
(“Department”) issuance of a Technical Assistance Advisement (“TAA”) concerning the abovereferenced petitioner and matter. Your petition has been carefully examined, and the Department
finds it to be in compliance with the requisite criteria set forth in Chapter 12-11, Florida
Administrative Code (“F.A.C.”). This response to your request constitutes a TAA and is issued
to you under the authority of Section (“s.”) 213.22, Florida Statutes (F.S.).
FACTS PRESENTED
Your petition provides in part:
… [Taxpayer] is the owner of amusement machines. The company enters into written
agreements with location owners for the use of the company’s amusement machines….
The location owner wishes to lease amusement machines from the company. The leased
machines are to be placed in a game room at the location owner’s place of business for
Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

www.floridarevenue.com
Florida Department of Revenue
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2
the enjoyment of the location owner’s guests. The machine owner and location owner
enter into a written agreement for the lease of tangible personal property.
The lease states that [Taxpayer] (lessor) will retain all right, title, and interest to the
amusement machines excepting only the use by the location owner (lessee) as operator of
the amusement machines. The lease also states that the Lessor shall collect the revenue
from the amusement machines and remit to the Lessee 50% of the total receipts collected
from the amusement machines after deducting the sales tax and if applicable the surtax on
the lease/rental of the machines and deducting the amusement machine tax of [4%] and
any applicable surtax. The lease states that the Lessor will be responsible for keeping
proper records. The lease also calls for sharing of expenses between the Lessor and
Lessee at 50% each….
A sample lease agreement was submitted with the petition. The agreement provides in part:
…2. Title to Amusement Machines and Attractions
2.1 Lessee agrees that all right, title, and interest, excepting only the use by Lessee as
operator of the Amusement Machines and Attractions, pursuant to this Lease, shall at all
times remain with Lessor…. Lessor further represents and warrants to Lessee that Lessor
has all licenses, certifications, approvals, authorizations and other rights to permit it to
install the Amusement Machines and Attractions within the Premises, and to permit
Lessee or its officers, employees, agents, invitees, customers and other Guests of the
Resort to use the Amusement Machines and Attractions for their intended purposes.

3. Consideration and Responsibility for Collection and Reporting of Receipts
   3.1 Lessor shall collect the revenue from the Amusement Machines and Attractions.
   Lessor agrees to regularly remit to Lessee (but in no event less than monthly) an amount
   equal to fifty percent (50%) of the total receipts collected from the Amusement Machines
   and Attractions, after deducting the Sales Tax and Gross Receipt Tax (collectively “Tax”)
   pursuant to Chapter 212.05, Florida Statutes (or such other Statues then in effect), which
   Tax, is presently 4.5%; however, such Tax is subject to change during the term hereof….
   …8. Repairs and Maintenance
   8.3 Lessor shall purchase merchandise, such as tickets, plush items, and toys for the
   operation of certain Amusement Machines and Attractions. Lessor agrees to invoice
   Lessee within thirty (30) days from the purchase date for one half (1/2) of all purchases
   that Lessor provides for the operation of the Amusement Machines and Attractions.
   Lessor shall provide receipts to Lessee upon request. Lessor will deduct Lessee’s cost for
   merchandise invoiced from Lessee’s fifty percent (50%) revenue split and remit the
   remaining revenue to Lessee monthly, within fifteen (15) days following the end of the
   close of the month.
4. Kiosk Machines

Technical Assistance Advisement
Page 3

9.1 In addition to the Amusement Machines and Attractions, Lessor shall provide Lessee
with kiosk machine(s) (“Kiosk Machines). Such Kiosk Machines will provide for the
exchange of paper currency into game cards (“Game Cards”), for use by Lessee, its
Guests and its invitees. Lessor shall keep the Kiosk Machines in working order during the
term of this Lease. Lessee may personalize its Game Cards in Lessee’s full discretion.
Lessor and Lessee shall split the cost of such Game Cards on a fifty percent (50%) basis.
Lessor agrees to provide enough Game Cards to efficiently operate the Amusement
Machines and Attractions.

10. Employees
    …10.2 Lessee will be responsible for hiring, training, and maintaining employees for the
    redemption booth within the Game Room. As provided in Section 3.6, Lessor agrees to
    reimburse Lessee for one half (1/2) of said employee’s hourly rate…. (Taxpayer’s
    Emphasis).
    REQUESTED ADVISEMENT
    Your petition provides in part:
    … We are requesting a determination if additional sales tax is due on the additional
    payments stated in the written lease agreement between the parties as consideration
    received for the rental of tangible personal property. There are payments made from the
    Lessor to the Lessee and Lessee to the Lessor….
    … If it is determined that these additional payments are consideration for the rental of
    tangible personal property should the payments made by the Lessor to the Lessee reduce
    the total consideration sales tax is due upon? Should the payments from the Lessee to the
    Lessor increase the total consideration sales tax is due upon? Should the payments
    between the parties be netted and the results added to or deducted from the consideration
    received (50% split of machine proceeds after the amusement tax deducted from
    proceeds) to calculate the proper sales tax?....
    TAXPAYER POSITION
    Your petition provides in part:
    … [Taxpayer] enters into written lease agreements for the rental of amusement machines.
    [Taxpayer] collects the total receipts/revenue from the machines, calculates and remits
    the amusement machine tax. [Taxpayer] and the Lessee split the proceeds from the
    amusement machines after deducting the amusement machine tax from the proceeds.
    [Taxpayer] considers the amount of the proceeds they receive as consideration for the
    rental of tangible personal property to the Lessee. [It] calculate[s] the sales tax on the

Technical Assistance Advisement
Page 4
amount received and collect[s] the tax from the Lessee and report[s] and remit[s] the tax.
[Taxpayer] believes [it] [is] in compliance with s. 212.05(1)(h)1., F.S. in collecting and
remitting the amusement machine tax. [Taxpayer] believes that [it] [has] collected the
appropriate sales tax on the total rental consideration received on the leasing of tangible
personal property per Rule 12A-1.071(1)(c)[,] F.A.C. [Taxpayer] has followed the
procedures as outlined in TAA 96A-006 in the proper application of the sales tax rules
and regulations governing amusement machines….
Invoices for the sale of tangible personal property are taxed as a sale at retail. The correct
tax has been charged and collected. These charges are not part of the rental consideration
received.
Reimbursement of the game room attendant’s wages are payments from [Taxpayer] to the
Lessee. No consideration has been received by [Taxpayer]. The hiring of a game room
employee by the location owner is not mandated by the lease agreement. The
reimbursement of the location owner’s employee wages is not part of the rental
consideration.
Credit card processing fees are incurred by both [Taxpayer] and the location owner. The
parties reimburse each other for a 50% share of the other’s fees. The credit card
processing fees are not part of the machine receipts. There is no sales tax due on fees
from credit card companies for processing financial transactions. These fees have nothing
to do with the lease or rental of the tangible personal property. The payment is not
consideration or part of the gross proceeds for the lease, rental, use or right to use the
amusement machines....
LAW AND DISCUSSION
The legislature has declared its intention in s. 212.21(2), F.S., that each and every sale, use,
storage, consumption, or rental of tangible personal property1 in Florida is taxable, subject only
to the exemptions and exclusions contained within Chapter 212, F.S. Tax is due and payable at
the rate of 6 percent, plus any applicable surtaxes imposed under s. 212.055, F.S., on the total
consideration received for each item or article of tangible personal property when sold at retail or
rented/used in this state. See s. 212.05, F.S.
A tax is imposed at the rate of 4 percent on the charges for the use of coin-operated amusement
machines. See s. 212.05(1)(h)1., F.S. If the proprietor of the business where the machine is
located does not own the machine, he or she shall be deemed to be the lessee and operator of the
machine and is responsible for the payment of the tax on sales, unless such responsibility is
otherwise provided for in a written agreement between him or her and the machine owner. See s.
212.05(1)(h)1.c., F.S.

1

Tangible personal property is defined as including “personal property which may be seen, weighed, measured, or
touched or is in any manner perceptible to the senses ....” See s. 212.02(19), F.S.

Technical Assistance Advisement
Page 5
In accordance with s. 212.05(1)(h)1.c., F.S., the location owner is deemed to be a lessee and is
responsible for remitting the tax on the machine receipts and is also responsible for purchasing
the Amusement Machine Certificate. However, as emphasized above, the location owner may
have a written agreement with a machine owner that otherwise provides for these
responsibilities.
It is the Department's position that when the parties involved choose to have a written
agreement, it should contain the following items:
•
•
•

who is responsible for remitting the tax on the receipts;
who is responsible for purchasing the certificate (operator); and,
whether the arrangement is a lease of tangible property (machines) or a
lease of real property

The proposed written agreement you have provided for review clearly indicates the arrangement
to be a lease of the machines, and it also indicates that Taxpayer (lessor/machine owner) is
assuming the responsibilities of purchasing the certificate and remitting the tax on the machine
receipts.
Therefore, the proposed written agreement meets the Department's suggested requirements. If
the location owner agrees to enter into the agreement with the Taxpayer, the location owner will
be relieved of the responsibility of remitting the tax on the receipts and the responsibility of
purchasing the certificate. At the same time, Taxpayer will retain its status as “lessor” of the
machines, since the agreement designates the arrangement as one of a lease of machines.
As lessor/machine owner, Taxpayer is also responsible for remitting the tax collected to the
Department of Revenue on the lease of the machines to the location owner. Both the tax on the
machine receipts, and the rental tax on the machines, should be separately stated on the
collection receipt you provide to the location owner. The tax on the machine receipts should be
based on the amount taken from the machine, and not just on Taxpayer’s 50% of the split.
Rule 12A-1.071(1)(a), F.A.C., provides in part, “the term ‘lease’… includes a transaction under
which a person secures for a consideration the temporary use of tangible personal property
which, although not on his premises, is operated by or under the direction or control of the
person or his employees.”
For an operating lease, tax applies to the gross proceeds derived from the lease of tangible
personal property for the entire term of the lease. The “gross proceeds derived” means “the total
consideration agreed by the parties for the lease of the tangible personal property.” See Rule
12A-1.071(1)(c)1., F.A.C.
Lessee’s payments of 50% cost for purchases of merchandise and 50% portion of credit card
processing fees was agreed upon at the formation of the lease contract, and the amount was
agreed to be paid as a condition of the lease for Amusement Machines and Attractions. The
amounts are taxable as part of the total gross proceeds derived for the lease of tangible personal
property. The amount paid by Lessee for its portion of purchases of merchandise and credit card

Technical Assistance Advisement
Page 6
processing fees increases the total consideration sales tax is due upon for the rental of tangible
personal property.
Lessor’s reimbursement of Lessee’s employee wages is a payment from Lessor to Lessee, and is
not part of the total gross proceeds derived for the lease of tangible personal property. The
payments made by Lessor to Lessee do not reduce the total consideration sales tax is due upon
for the rental of tangible personal property.
CONCLUSION
Lessee’s payment of 50% cost for purchases of merchandise and Lessee’s 50% portion of credit
card processing fees was agreed upon at the formation of the lease contract, and the amount was
agreed to be paid as a condition of the lease for Amusement Machines and Attractions. The
amounts are taxable as part of the total gross proceeds derived for the lease of tangible personal
property. Lessor’s reimbursement of Lessee’s employee wages is a payment from Lessor to
Lessee and is not part of the total gross proceeds derived for the lease of tangible personal
property.
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 than 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 10 days of the date of this letter.
Sincerely,

Taylor Feldscher, Esq.
Senior Attorney
Technical Assistance & Dispute Resolution
Florida Department of Revenue
Record ID: 16533