Was a festival operator's payment of 40% of ticket receipts to a Florida city taxable as a real-property license fee?

Plain-English summary

The city's full 40% share of festival ticket receipts was taxable as part of the real-property license fee. The contract separately named a $2,000 site-license payment but did not state what portion of the much larger percentage payment compensated the city for volunteer ticket sellers.

Florida viewed the city's main obligation as providing the festival site. Without a specific and reasonable service allocation, the Department treated the percentage payment as additional consideration for the right to use that real property.

What this means for you

Percentage payments can be taxable rent or license fees even when a contract also labels a smaller fixed amount as “rent.” If one payment covers both property rights and services, the agreement should identify each item and assign reasonable consideration to it.

Common questions

Q: Was only the stated $2,000 license fee taxable? No. The 40% ticket-receipts payment was also treated as license consideration.

Q: Why did ticket-selling services not reduce the taxable amount? The contract did not specify an amount for those services, and the Department could not estimate one.

Q: Could a future contract allocate part of the payment to services? Yes. The ruling said a specific, reasonable allocation could be respected after examination.

Citations and references

• Fla. Stat. § 212.031(1)(a), (c) — real-property licenses and percentage rent
• Fla. Stat. § 212.02(10)(i) — license definition
• Fla. Stat. § 212.12(8) — actual consideration
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-037

Original ruling text

SUMMARY

QUESTION: Is the total amount received by a city from an
amusement company in exchange for the use of the city's
real property during an annual city-sponsored festival a
license fee subject to tax?

ANSWER - Based on Facts Below: The agreement between the
parties provided for several payments to be made to the
city for various items, and also provided that the
amusement company would pay $2,000 for a license to use the
real property. The major payment under the agreement,
however, was that the amusement company would pay the city
40 percent of its gross receipts from the sale of tickets.
Although some of that payment may have been consideration
for the city to provide volunteer ticket sellers, that
consideration was not specifically stated. Accordingly,
the entire payment of 40 percent of gross receipts was
considered to be consideration for the license to use the
city's real property.

Aug 13, 1999

Re: Sales & Use Tax
Technical Assistance Advisement (TAA) 99A-037
XXX: Real Property License
Section 212.031(1)(a),(c), F.S.
XXX ("City")
F.E.I. #XX

Dear :

This is in response to your letter dated XX, for the
Department's issuance of a Technical Assistance Advisement
("TAA") concerning the above referenced party and matter. Your
letter has been carefully examined, and the Department finds it
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, F.S.

Advisement Requested

You have requested our advisement as to whether the payment to
the City by an amusement company of 40 percent of the gross
receipts from the sale of tickets to amusements during a
festival conducted by the City is payment for a license to use
real property of the City.

Discussion of Facts

The City conducts an annual festival to raise money for several
miscellaneous community purposes. As a part of the festival,
the City contracts with an amusement company to provide
amusements and concessions. The festival is held for a period
of four days, Thursday through Sunday, each year.

The contract between the City and the amusement company (the
"Contract") states that its purpose is for the amusement company
to provide amusements and concessions for the City's festival
and for the City to provide the site for the festival. The
Contract recites that it "embodies the whole agreement of the
parties." In the Contract, the amusement company agrees that it
will provide a minimum of three "Spectacular" rides, nine
"Major" rides, and nine "Kiddie" rides. The amusement company
will also provide a minimum of fifteen games and twelve food
concessionaires. The amusement company further provides to the
City three tents, advertising posters and flyers, and tickets
and ticket booths.

Under the Contract, the City, in addition to providing the site
for the festival, sells all tickets and distributes the
advertising posters and flyers.

The amusement company agrees to pay the City the following:

1. $500, upon signing the Contract, for "miscellaneous
   advertising."

2. $225 for each food concession and $215 for each game
concession.

3. $2,000 for "the right to provide the Amusements at the
   Festival." It is stated in the Contract that this payment "is
   considered a `license' for the use of the City's real property."

4. A commission equal to 40 percent of the gross amount received
   from all ticket sales, after subtracting sales tax due the State
   of Florida. The commission is 45 percent of ticket sales over
   $50,000.

5. $500 for a deposit on water service, to be adjusted based
   upon actual usage.

The City, in its letter requesting this Technical Advisement,
states that the payment of 40 percent of ticket sales is "a
commission for all the volunteer man hours that are put in
selling the tickets in order that the City will receive a fair
count on how many tickets are actually sold."

Law and Analysis

Section 212.031(1)(a), F.S., provides in part:

It is declared to be 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....

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." A license is a personal privilege, revocable at will,
which is not assignable without express permission. Devlin v.
The Phoenix, Inc., 471 So.2d 93, 95 (Fla. 5th DCA 1985), rev.
den., 480 So.2d 1295 (Fla. 1985). A license may be exercised
only in the manner and for the special purpose for which it was
given. 20 Fla. Jur. 2d, Easements, s. 51.

Section 212.031(1)(c), F.S., provides:

For the exercise of such privilege, [a] tax is levied in an
amount equal to 6 percent of and on the total rent or
license fee charged for such real property by the person
charging or collecting the rental or license fee. The
total rent or license fee charged for such real property
shall include payments for the granting of a privilege to
use or occupy real property for any purpose and shall
include base rent, percentage rents, or similar charges.
Such charges shall be included in the total rent or license
fee subject to tax under this section whether or not they
can be attributed to the ability of the lessor's or
licensor's property as used or operated to attract
customers....

Section 212.12(8), F.S., provides:

In the case of... rentals or license fees as herein defined
and taxed, if the consideration given or reported by the
lessor, person receiving rental or license fee, or dealer
does not, in the judgment of the department, represent the
true or actual consideration, then the department is
authorized to ascertain the same and assess and collect the
tax thereon...."

It is clear in the present case that the City is providing a
license to the amusement company for the use of the City's real
property. It is clear that the City is receiving license fees.
What is not clear from the Contract is the extent of those
license fees.

Each party to the Contract has agreed to undertake certain
obligations. The City's obligations (ignoring the provision of
water services) are basically three in number: 1) the provision
of its real property to the amusement company; 2) the provision
of ticket sellers; and 3) the distribution of posters and
flyers.

As payment for those three different obligations or burdens, the
City is compensated through four payments. The consideration
for three of the payments is identified in the Contract.

Payment of $500 is made for miscellaneous advertising. A total
amount of $6,000 or more is paid for the right to operate food
and game concessions on the real property. The sum of $2,000 is
specifically paid "for the use of the City's real property."
This leaves the fourth payment, the split of proceeds of ticket
sales. The contract is silent as to the purpose for which the
payment is made. However, the City argues that the proceedssplit is intended to compensate it for the provision of
volunteer ticket sellers.

There can be little doubt but that the City's provision of
volunteer ticket sellers to the amusement company is a valuable
contribution deserving of some compensation to the City. It is
highly unlikely, however, that the amusement company, if it were
in a position in which it had to hire its own ticket sellers,
would pay 40 percent of its gross proceeds to those sellers.

This is not a case in which the Department must consider whether
the written terms of a contract reasonably reflect the actual
bargain of the parties; instead, it is a case where the Contract
does not clearly state the total consideration given in exchange
for the City's main obligation made under the Contract. In
reading the Contract, the main consideration furnished by the
City, as stated in the purpose clause of the Contract, is the
provision of the site for the festival at which the amusement
company's rides and concessions will be located. The provision
of volunteer ticket selling services by the City is not a
primary element of the Contract.

Thus, while some payment might appropriately be given for the
ticket selling services, the amount of that payment is not
specified anywhere in the Contract. Absent some specification,
the Department is unable to estimate a value for such services.
While the contract specifies that the main obligation of the
City is to give the amusement company a license to use real
property, the Contract specifically sets forth only minimal
consideration for such license. Such minimal consideration does
not appear to represent the true or actual consideration that is
being paid by the amusement company for the license to use real
property. It appears that the major payment made by the
amusement company pursuant to the Contract is part of the total

license fee. Accordingly, the Department concludes that 40
percent of the proceeds of ticket sales are part of the total
consideration paid to the City in exchange for the right to use
the City's real property and that such proceeds are taxable as
payments for a license to use the real property within the
meaning of section 212.031, F.S.

You have asked that the Department give some guidance on the
adequacy of the language of the Contract. That guidance should
be apparent from the above analysis. If the Contract, in the
future, states with some specificity the things and services
being provided and the consideration being given for each, the
provisions of the Contract, subject to examination for the
reasonableness of the consideration being assigned to each
element, would be determinative of the tax effect. In other
words, some reasonable consideration being assigned to the
provision of ticket selling services would be respected.

This response constitutes a Technical Assistance Advisement
under section 213.22, F.S., which is binding on the Department
only under the facts and circumstances described in the request
for this advise, as specified in section 213.22, F.S. Our
response is predicated upon 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., which are subject to disclosure to the public under the
conditions of section 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,

Robert D. Heyde
Senior Attorney
Technical Assistance & Dispute Resolution
Control #38187