Were college food, vending, and amusement concession agreements taxable real-property licenses?

Subject

Contracts/Leases or Licenses of Real Property/Management Agreements

Plain-English summary

The two concession agreements were taxable leases or licenses to use college real property, not nontaxable management contracts. The food-and-vending operator and the amusement-machine operator ran their businesses independently, controlled the relevant operations and assigned areas, supplied equipment and employees, and paid the college for access.

For the food concession, consideration included stated rent and percentages of sales. For the amusement concession, the operator paid monthly fees for the privilege of conducting business on campus. Those payments were included in taxable rent or license fees under section 212.031.

What this means for you

Calling an agreement a management contract did not control. The Department examined who owned and operated the business, hired staff, bore profit-and-loss risk, controlled the premises, and paid whom.

Common questions

Q: Were both concession agreements taxable? Yes.

Q: Why were they not management contracts? The concessionaires operated independent businesses and paid the college rather than acting as employees paid to manage college businesses.

Q: Did percentage-of-sales payments count as taxable rent? Yes, along with fixed amounts paid for the right to use the premises.

Citations and references

• Fla. Stat. § 212.031(1)(a), (c) — tax on leases and licenses to use real property
• Fla. Admin. Code r. 12A-1.044(9)(a) — vending-machine location agreements
• Fla. Admin. Code r. 12A-1.070(1)(f)1. — license to operate a machine on real property
• Fla. Admin. Code r. 12-11.007 — effect of advisements
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00A-045

Original ruling text

SUMMARY

QUESTION: Do agreements for the performance of certain food
services and vending and amusement machine operations
between two concessionaires and a post secondary school
constitute leases of real property of the school or are
they considered management contracts?

ANSWER - Based on Facts Below: Both concessionaire
agreements are leases of real property and the payments
required to be made by the concessionaires to the school
are subject to sales tax. Leases are found to exist
because, among other elements of the agreements, the
concessionaires were independent contractors. Each
concessionaire was required to operate its business for its
own account on a profit and loss basis, required to pay
rent to the school based on a predetermined amount plus a
percentage of retail sales, obligated to pay all taxes and
hire all employees, possessed full direction and control of
each of the businesses, and had custody and control over
certain premises of the school.

Contracts/Leases or Licenses of Real Property/Management
Agreements

Aug 21, 2000

Re: Technical Assistance Advisement Number 00A-045
Whether contracts create leases or licenses of real
property, or are management agreements
Section 212.031(1)(a), and (1)(c), F.S.
Rule 12A-1.044(9)(a), F.A.C.
Rule 12A-1.070(1)(f)1., F.A.C.

Dear :

This is a response, styled a Technical Assistance Advisement, to
your letter dated June 1, 2000, in which you asked whether
payments made by Concessionaire 1 and Concessionaire 2 to the

College are subject to Florida sales tax as consideration paid
pursuant to leases or licenses to use real property, or are
management contracts which are not subject to tax. The two
concessionaires have each executed a contract with the College
which allow, on the premises of the College, the operation of
certain food services by Concessionaire 1, including coinoperated vending machines, and the operation of coin-operated
amusement machines by Concessionaire 2.

You assert that both contracts are properly classed as
"management agreements" which are not taxable. In support for
that assertion, you cite an earlier Department communication,
which you describe as presenting similar facts, addressed to
another Florida post-secondary school, that concluded the
agreement was a nontaxable management agreement.

On May 22, 1999, Concessionaire 1 executed a contract with the
College bearing the legend College Manual Food And Vending
Services Agreement H99-69 (herein Contract 1).
In Section 1 of this agreement, Concessionaire 1 has the right
to conduct the following businesses on the various campuses of
the College:

a) Exclusive food service on three campuses of the College,
and the exclusive sale, by vending machines, of food
products, certain beverages and tangible personal property
on all campuses of the College.

b) Non-exclusive catering service on all campuses of the
College.

On September 30, 1999, Concessionaire 2 executed a contract with
the College bearing the legend Student Activities Recreational
Vending Agreement (herein Contract 2),to provide and operate,
what is described in Section 4.00 as, "recreational vending
machines." In another section of Contract 2, the machines are
described as gaming machines, video vending machines, pin ball
machines, pool tables, CD (juke boxes and other similar
amusement machines.

You attached to your letter a copy of the previous Department

communication, which found that a college bookstore operator has
executed a management contract with another Florida college. In
that communication, the Department found that the payments made
by the operator to the college were not subject to sales tax.
You assert that the instant contracts are similar and should be
also adjudged nontaxable management contracts.

Department Response

You are first alerted that a Technical Assistance Advisement has
limited precedential significance. The extent of the reliance
that a party, not the addressee of a particular Technical
Assistance Advisement, may have on such communication is
expressed as follows in Rule 12-11.007, F.A.C.:

Effect of Advisements

(1) A taxpayer may not rely on an advisement issued to
another taxpayer, except that an advisement issued to a
taxpayer association provides guidance to those taxpayers
who are members of the taxpayer association for the
particular transaction(s) discussed in the TAA. An
advisement will be revoked or modified at any time by the
Department in the administration of the taxing statutes, if
the applicable statutes, rules, case law, or policies
supporting the TAA change, or if the circumstances
initially described by the taxpayer in his or her request
for the TAA change. If an advisement is revoked or
modified, the revocation or modification shall be
prospective only, and such revocation or modification shall
not be applied retroactively against the taxpayer.

(2) An advisement, issued to a taxpayer or a taxpayer
association, with respect to a particular transaction
represents a holding of the Department on that transaction
only. If the advisement is later found to be in error, or
no longer in accord with the position of the Department, it
will afford the taxpayer no protection with respect to a
like transaction in the same or subsequent years.

(3) When a taxpayer receives an advisement prior to the

filing of his return, with respect to any transaction that
has been consummated and that is relevant to the return, he
should attach a copy of the advisement to the return.

(4) As part of the determination of a taxpayer's liability,
it is the responsibility of the Department to ascertain
whether an advisement previously issued to the taxpayer or
the taxpayer association has been properly applied. It
should be determined whether the representations, upon
which the advisement was based, reflected an accurate
statement of the material facts and whether the transaction
actually was carried out substantially as proposed.

(5) Members of a taxpayer association who choose not to
follow the guidance provided in a TAA will not be subject
to the precedential value of the TAA, and are liable for
the tax consequences of not adhering to the Department's
position expressed in the TAA.

Thus, unless the College was the addressee of the Technical
Assistance Advisement to which you refer, or was a part of a
taxpayer association, which was the addressee of the Technical
Assistance Advisement, no precedential value can be assigned to
that communication.

As to the instant agreements, a finding is made that both
Contract 1 and Contract 2 convey either a lease of College real
property to the concessionaires, or at minimum, grant a license
to the concessionaires to use or occupy the real property of the
College. As a consequence, the payments made by the
concessionaires pursuant to both agreements are subject to sales
tax.

Section 212.031(1)(a), F.S., imposes sales tax on the privilege
of engaging in the business of leasing or of granting a license
to use real property. Section 212.031(1)(c), F.S., imposes the
tax:

... on the total rent or licensee 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.

Rule 12A-1.070, FAC., interprets the statute.

With respect to Contract 1, note is made that the agreement
provides in Section 7 that Concessionaire I is an independent
contractor. Exhibit A, attached to Contract 1, states in
Section C that Concessionaire is obliged to invest $25,000 in
certain equipment acquisitions. Section 8 of Contract 1 also
provides that all the equipment installed by Concessionaire 1
will remain titled in Concessionaire 1 and that only employees
of Concessionaire 1 will have authority to remove, open or
tamper with such equipment.

Section 2E requires of the College that it give a prior notice
to Concessionaire 1 before records of the concessionaire are
available to the College. Sections 2B, 2C and 2D provide that
Concessionaire 1 is obligated to pay all taxes in connection
with the food business, pay all appropriate taxes which arise
from such business, hire all employees and pay all taxes in
connection with such employment, and discharge other duties such
as cleaning the premises subject to the lease or license.

It is noted that Exhibit A also states that Concessionaire 1
"... will operate its Services for its own account on a profit
and loss basis." Part B of Exhibit A requires the
concessionaire to pay".., an additional rent of $4,335 per
year... "... and to pay the College certain percentages of
sales, which arise from the food and vending business. These
percentages and amounts are specified in Part A of Exhibit A.

As to the vending machine portion of the concessionaire's
business, Rule 12A-1.044(9)(a), F.A.C., states that:

If the machine owner is also the operator and the operator
places the machine at another's person's location, the
arrangement between the machine operator and the location
owner is a lease or license to use real property. The

location owner shall collect the tax from the machine
operator on the amount the location owner receives for the
lease or license to use the real property. The tax must be
separately stated from the amount of the lease or license
payment.

Rule 12A-1.070(1)(f)1., F.S., provides an example of the
creation of a license to use real property by stating that "[a]n
agreement whereby the owner of real property grants another
person permission to install and operate a full service coinoperated vending machine on the premises is a license to use
real property. The consideration to paid by the machine owner
to the real property owner for the license to use the real
property is taxable."

Considering all of the elements of the contractual obligations
running between the parties, a conclusion is reached that
Contract 1 does not create a management agreement which would be
essentially a contract whereby Concessionaire 1 would be
considered as in the nature of an employee of the College,
charged with managing its food and vending machine business.
The elements listed above of the payment of rent both in a set
dollar amount as well as a payment of a percentage of sales to
the College is not representative of an employee status. A
manager would be expected to be paid by the College. Here, the
consideration flows from Concessionaire 1 to the College. In
addition, the declarations indicative of an employment status
that describe Concessionaire 1 as an independent contractor; and
state that Concessionaire is to operate its food and vending
business for "its own account on a profit and loss basis," hire
its own employees and pay all taxes in connection with such
employment, and invest a considerable sum in equipment
acquisitions are not indicative of an employment status. While
not specified in the contract, it is validly assumed that the
inventory of the food and vending business is titled not in the
College but in Concessionaire 1.

Consequently, a conclusion is reached that Concessionaire 1 has
at minimum a license to use the real property of the College
and, as a result, all of the payments made by Concessionaire 1
to the College whether by a sum designated as "rent" or pay the

money requirement to be paid the College, in accordance with the
percentages described in Contract 1, are subject to tax as part
of the "total rent or license fee" specified in s.
212.031(1)(c), Florida Statutes.

As to Contract 2, a finding is made that this agreement is also
a taxable lease or license to use or occupy real property of the
College. As a consequence, all payments required to be made to
the College by Concessionaire 2 in exchange for the right to
enter, occupy and use the real property of the College are
subject to sales tax.

As shown with respect to Contract 1, described in the above
paragraphs, Contract 2 also evinces the status of Concessionaire
2 not as the manager of the amusement business of the College,
but rather as the owner of an amusement machine business over
which the concessionaire has full direction and control,
representative of any individual, discrete business.

The provisions of Contract 2 shows this separate relationship.
Section 4.00 grants to Concessionaire 2 a "... non-transferable
license... to install and maintain the student activities
recreational vending machines within each campus...." The
concessionaire's responsibilities are noted in Section 4.10 to
include provisions of --... all material and labor to
purchase/install all gaming equipment on each campus.

Also, Section 4.10 requires Concessionaire 2 to maintain,
repair, and replace the machines when needed; to provide money
changers; to establish a money fund; to provide the employees
who do the work of the concessionaire; and, as to such
employees, they "... shall be paid by the concessionaire alone,
and in employing such personnel, the Concessionaire is acting
independently and not as an agent of the [College]." In Section
4.10 t.4. reference to made to an "assigned area," which by a
fair reading of the contract means an area over which
Concessionaire 2 has custody and control in the nature of a
lease.

Importantly, Concessionaire 2, in accordance with the terms of
Section 6.00, will pay over to the College what is described an

"annual fee" to be paid monthly to the College. In Sections
6.00, 6.15, and in 6.20, the amount of the payment to the
College is set forth with particularity. In Section 6.15, the
agreement reads in part that Concessionaire 2"... is obligated
to pay these "fees" in exchange "[f]or the privilege of
conducting business on [the campuses of the College]" In
addition, Section 15.00 expressly states that Concessionaire 2
is an independent contractor and that the license does not grant
the College any right to exercise control over the
concessionaire's methods of operation.

Rule 12A-1.044(9)(a), F.A.C., states that "If the machine owner
is also the operator and the operator places the machine at
another person's location, the arrangement between the machine
operator and location owner is a lease or license to use real
property." Rule 12A-1.070(1)(f)1., F.A.C., gives as an example
of a license to use real property as: "[am agreement whereby the
owner of real property grants another person permission to
install and operate a full service... coin-operated amusement
machine... on the premises.... "The consideration paid by the
machine owner to the real property owner for the license to use
real property is taxable."

Therefore, as in the review of Contract 1, a determination is
made that Concessionaire 2 is not a manager of a business for
the College, but rather, under the terms of Contract 2, is an
independent operator who by the provisions of such contract is
permitted to conduct a coin-operated amusement machine business
on the campuses of the College pursuant to a lease or through
the grant of a license to use the real property of the College.

Accordingly, all payments made to the College by Concessionaire
2 as required by Section 6.00 are included within the reach of
s. 212.031(1)(c), F.S., as "the total rent or license fee"
subject to sales tax.

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 and 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 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,

Robert G. Parsons
Tax Law Specialist
Technical Assistance and Dispute Resolution

Ctrl. No. 41601