Were eight attraction photography agreements taxable real-property licenses or nontaxable management arrangements?
Apply this to your situation
This page answers the general question as of 2006. Ezel answers yours, under current Florida tax law, with citations.
Plain-English summary
A photography business operated fixed kiosks or spaces at eight Central Florida tourist attractions. It supplied the technology, staff, equipment, and materials and sold themed photographs to attraction guests. The agreements varied in owner control, revenue handling, percentage payments, risk of loss, indemnity, and termination rights.
Florida classified six agreements as taxable licenses to use real property rather than management agreements. The Department looked at the agreement's words, the owner's control over the premises and business, who bore risk of loss, how revenue and compensation flowed, indemnification, and whether payments depended on sufficient revenue.
One agreement was a true management agreement outside section 212.031. A different agreement qualified for the theater-event concession exception because its payment was based on a percentage of sales. Florida rejected the taxpayer's proposed allocation of the six taxable payments between space and a business privilege: none required payment for qualifying intangible property, and the referenced names and marks were licensed royalty-free.
What this means for you
Calling an arrangement a concession or service agreement does not decide whether it licenses real property. Florida examined the full economic relationship, especially control and risk. Above-market percentage payments also did not justify allocating part away from taxable rent without a supported nontaxable payment category.
Common questions
How many agreements were taxable real-property licenses? Six of the eight submitted agreements.
What made one agreement a nontaxable management agreement? The ruling's factor analysis treated the owner as principal, with the taxpayer managing the business rather than receiving a property-use license.
Why was another agreement exempt? It fell within the exception for a concessionaire at a theater event where the payment was based on a percentage of sales.
What factors distinguished management from a license? Express contract language, owner control over the premises and operations, revenue flow, risk of loss, indemnity, and whether owner payments depended on revenue.
Could the taxpayer allocate only market rent to the property license? No. Florida found no statutory basis for the proposed allocation on these agreements; the names and marks mentioned in one contract were royalty-free.
Citations and references
- Fla. Stat. § 212.02(2), (10)(i) (business and real-property license definitions)
- Fla. Stat. § 212.031(1)(a)12., (1)(c) (concession exception, taxable fees, and allocation)
- Fla. Stat. § 213.22 (Technical Assistance Advisements)
Source
- Landing page: Florida Tax Law Library
- Advisement: TAA 06A-032
Original ruling text
SUMMARY
QUESTION: Are the eight (8) submitted agreements non-taxable "management agreements" or do they either create
a lease or grant a license to use real property? If the latter, are any of the fees paid by the "lessee" or "licensee"
subject to Florida sales tax under Section 212.031, F.S.? If so, can a reasonable allocation be made between those
fees that are subject to Florida sales tax under Section 212.031, F.S., and those that are not subject to tax under
Section 212.031, F.S.?
ANSWER - Based on Facts Below: The eight (8) agreements were carefully reviewed. Factors that might indicate
the agreements were "management agreements," rather than licenses to use real property, were applied to the facts
presented. Those main factors included: the express language of the agreement, the control afforded to the owner of
the real property (both as to the operation of the occupant’s business and as to control of the premises), and risk of
loss (i.e., whether the occupant's compensation represents a reasonable base payment for management services;
whether the agreement clearly assigns the risk of loss; indemnification and hold harmless provisions; and whether
payments sent to the owner were contingent on sufficient revenues generated).
One (1) agreement would not be subject to Florida sales tax because it is a "management agreement" outside the
scope of Chapter 212, F.S. One (1) agreement was found to be exempt from Florida sales tax pursuant to Section
212.031(1)(a)12., F.S. The remainder of the agreements were found to be licenses to use real property subject to
Florida sales tax pursuant to Section 212.031, F.S. Interested persons are encouraged to read the entire TAA for
more detail.
October 27, 2006
Re: Technical Assistance Advisement 06A-032
xxx ("Taxpayer")
(FEIN: xx)
License to Use Real Property
Sales and Use Tax
Sections 212.02, 212.031, and 213.22, Florida Statutes ("F.S.")
Rule 12A-1.070, Florida Administrative Code ("F.A.C.")
Dear:
This response is in reply to your letters dated January 25, 2006 and March 29, 2006, requesting the Department's
issuance of a Technical Assistance Advisement ("TAA") pursuant to Section 213.22, F.S., and Rule Chapter 12-11,
F.A.C., regarding whether an agreement is a nontaxable "management agreement" or a lease or license to use real
property. An examination of your letters has established that you have complied with the statutory and regulatory
requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for issuance of a TAA.
You provided us with the following documents: (1) A Merchandise Concession Agreement (xxx); (2) Concessionaire
Agreement (xxx); (3) License Agreement (xxx); (4) Retail Concession License Agreement (xxx); (5) License
Agreement for xxx. (xxx); (6) License Agreement for xxx. (xxx); (7) License Agreement for xxx (xxx); (8) xxx; (9) xxx
Retail Lease Space Listings; (10) xxx Promotional Material and (11) xxx & xxx.
ISSUES
Are the agreements (examined individually) non-taxable "management agreements" or do they either create a lease
or grant a license to use real property? If the latter, are any of the fees paid by the "lessee" or "licensee" subject to
Florida sales tax under Section 212.031, F.S.? If so, can a reasonable allocation be made between those fees that are
subject to Florida sales tax under Section 212.031, F.S., and those that are not subject to tax under Section 212.031,
F.S.?
REQUESTED ADVISEMENTS
- Is any portion of the fees paid by Taxpayer to the Owner in each of the locations subject to Florida sales tax under
Section 212.031, F.S.? - If any portion of the fees is taxable, what is a reasonable allocation of the total amount paid to Owner between
amounts paid for a taxable lease or license of the identified physical space and amounts paid of the non-taxable
privilege of operating a business within the applicable venues? - Do any of the foregoing answers differ between the xxx 1 and xxx 2 agreements?
FACTS
Your letter of January 25, 2006, provides, in part:
Taxpayer is the owner of photographic technology marketed under the trade name []. Taxpayer engages in the
business of producing and selling photographs using the [trademarked] technology. The Taxpayer’s business is
conducted predominately at tourist attractions, many of which are located in Central Florida. This technical assistance
advisory request involves Taxpayer's business operations at several Central Florida locations.
At each of the locations, Taxpayer provides unique photographic services. For each of the locations submitted for
consideration, Taxpayer operates under a written agreement with the owner of the attraction ("Owner"). The locations
submitted for consideration include:
[Owner 1] ... (Exhibit 1)...;
[Owner 2] ... (Exhibit 2)...;
[Owner 3] ... (Exhibit 3)...;
[Owner 4] ... (Exhibit 4)...;
[Owner 5] ... (Exhibit 5)...;
[Owner 6] ... (Exhibit 6)...; and
[Owner 7] ... (Exhibit 7).
[Your letter of March 29, 2006 submitted an 8th agreement involving what we will refer to as: "Owner 8" and "the
Additional Exhibit"]
Under each of the foregoing agreements Taxpayer provides unique photographic services at an identified space or
location within the Owner's attraction. Taxpayer's unique photographic services include themed photographs of
guests, themed "head on body" shots whereby a guest's image is superimposed over the body of a fanciful character,
or photographs wherein guest's image is superimposed on magazine covers, movie and television scenes, celebrity
photographs and similar scenes. At all of the locations Taxpayer operates from a fixed location or kiosk, supplies the
technology, personnel, equipment and supplies and sells the final product directly to the parks' guests.
Each of the locations [is] open for business only during the operating hours of the relevant attraction. In each of the
venues, Taxpayer is subject to substantial controls imposed by the Owner which, depending on the agreement
involved, may include quality standards, product approval, appearance and behavior standards for employees,
accepting the Owner's coupons, discounts and other sale standards, strict accounting standards and other controls. At
[Owner 1's Locations], [Owner 1] collects all of the sale proceeds and then pays Taxpayer a percentage of the gross
sales. At each of the other locations, Taxpayer collects sale proceeds and pays the Owner a percentage of gross
sales .... In each case, the amount paid by Taxpayer substantially exceeds the market rate for rent of retail space.
Each of the agreements [is] terminable by the Owner on very short notice.
TAXPAYER'S POSITION
Your letter of January 25, 2006 also provides, in part:
[Your discussion of applicable law begins with identifying and quoting Section 212.031, F.S., paragraphs (1)(a) and
(c).].
Lloyd Enterprises, Inc. v. Department of Revenue, 651 So.2d 735 (Fla. App. 5 DCA 1995), recognizes that a
concession agreement may not be a lease or license of real property, even when specific space is identified, if the
owner is not in the commercial rental business. In each of the agreements under consideration, the primary purposes
of the Owner is the operation of a theme park for the enjoyment of guests, not the commercial rental of space within
the theme park to vendors.
Airport Limousine Service of Orlando, Inc. v. Department of Revenue, State of Florida, [DOAH Case No. 94-1790RP,
95 Tax FALR 333 (1995)], recognized that a typical concession may involve both the use of real property and the
privilege to operate a business (see, pp. 51 & 56). The case further recognized that it was improper to tax the entire
consideration paid on the underlying agreement made no allocation [sic]. The case found proposed administrative
rules proposing to tax the entire payment contrary to this principal, and therefore invalid. This case was the primary
motivation for the 1995 Florida Legislature to enact Chapter 95-391, L.O.F., which added "reasonable allocation"
language to s. 212.031(1)(c).
[Owner 1 Locations] should not be considered a taxable lease or license of real property. Owner retains control of all
funds and pays Taxpayer a percentage of gross sales. No money is paid by Taxpayer to Owner for use for this space.
Clearly, with respect to these locations, Owner is paying Taxpayer for services rendered.
[Agreements involving one of Owner 1's specific Locations, Owner 2, Owner 3, and Owner 4] should not be
considered to be a taxable lease or license because of the substantial controls retained by Owner[s] over the business
activities of the Taxpayer. ... [T]hese relationships appear to be more in the category of non-taxable services being
performed by Taxpayer rather than a taxable lease or license.
[Agreements involving Owner 5, Owner 6 and Owner 7] do not contain the same level of substantial controls of Owner
as those contained in the other agreements. From a practical standpoint, however, the Owners at these locations
exercise the same types of substantial controls over the activities of Taxpayer and have the ultimate leverage of
terminating these agreements on very short notice if Taxpayer fails to comply. For that reason, these agreements
should be deemed to be more in the category of non-taxable services being performed by Taxpayer rather than in the
column of a taxable lease or license.
If the DOR does consider there to be a taxable lease or license under one or more of the foregoing agreements, then
under the principles of s. 212.031(1)(c), F.S., there should be an equitable allocation of the total consideration
between the license to enter upon real estate and the non-taxable license or privilege to conduct business at Owner's
locations. ... [You contracted with a national lease broker to collect all retail lease listings for the Central Florida
attractions area. It searched its database from International Drive and Sandlake areas, I-4 South from Sandlake to the
Osceola County line, Kissimmee West and Walt Disney World/Lake Buena Vista. The data represents rental value of
the real estate on a square footage basis.] ...
Finally, regardless of the DOR's determination on the foregoing issues, the [agreement involving Owner 7] is exempt
under s. 212.031(1)(a)12.[, F.S.,] because [its] attraction is a theaters [sic]; Taxpayer's concession is open only during
events at the theater (dinner shows); and all consideration paid by Taxpayer pursuant to [the agreement involving
Owner 7] is based upon a percentage of sales.
Your letter of March 29, 2006 also provides your position as to the agreement involving Owner 8. That letter provides,
in part:
Taxpayer submits that the 2006 Agreement should be treated as a non-taxable management agreement for the
following reasons:
(1) The entire risk of loss for the image capturing businesses described in the Agreement are borne by Owner;
(2) Taxpayer is granted no right to use or occupy any real property;
(3) No consideration is paid by Taxpayer to Owner; and
(4) The other factors cited [in] Taxpayer's letter of January 25, 2006 fall on the side of the arrangement being
classified as a non-taxable management agreement.
APPLICABLE STATUTES AND RULES
Section 212.02, F.S., provides in part:
(2) "Business" means any activity engaged in by any person, or caused to be engaged in by him or her, with the object
of private or public gain, benefit, or advantage, either direct or indirect....
(10) (i) "License," as used in this chapter with reference to the use of real property, means the granting of a privilege
to use or occupy a building or a parcel of real property for any purpose.
(12) "Person" includes any individual, firm, copartnership, joint adventure, association, corporation, estate, trust,
business trust, receiver, syndicate, or other group or combination acting as a unit and also includes any political
subdivision, municipality, state agency, bureau, or department and includes the plural as well as the singular number.
Section 212.031, F.S., provides in part:
(1)(a) 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 unless such property is:
- Rented, leased, subleased, or licensed to a concessionaire by a convention hall, exhibition hall, auditorium,
stadium, theater, arena, civic center, performing arts center, or publicly owned recreational facility, during an event at
the facility, to be used by the concessionaire to sell souvenirs, novelties, or other event-related products. This
subparagraph applies only to that portion of the rental, lease, or license payment which is based on a percentage of
sales and not based on a fixed price.
(c) 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. Payments for intrinsically
valuable personal property such as franchises, trademarks, service marks, logos, or patents are not subject to tax
under this section. In the case of a contractual arrangement that provides for both payments taxable as total rent or
license fee and payments not subject to tax, the tax shall be based on a reasonable allocation of such payments and
shall not apply to that portion which is for the nontaxable payments.
(d) When the rental or license fee of any such real property is paid by way of property, goods, wares, merchandise,
services, or other thing of value, the tax shall be at the rate of 6 percent of the value of the property, goods, wares,
merchandise, services, or other thing of value.
(3) The tax imposed by this section shall be in addition to the total amount of the rental or license fee, shall be
charged by the lessor or person receiving the rent or payment in and by a rental or license fee arrangement with the
lessee or person paying the rental or license fee, and shall be due and payable at the time of the receipt of such rental
or license fee payment by the lessor or other person who receives the rental or payment....
Section 213.22(1), F.S., provides in part:
... Technical assistance advisements shall have no precedential value except to the taxpayer who requests the
advisement and then only for the specific transaction addressed in the technical assistance advisement, unless
specifically stated otherwise in the advisement....
DISCUSSION
I. General Discussion of "Licenses"
In Florida, the renting, leasing, letting, or the granting of a license for the use of any real property is subject to Florida
sales tax. See Section 212.031, F.S. Florida sales tax is due on the total rent (which includes base rent, percentage
rent, and other things of value) paid for the right to use or occupy real property. See Section 212.031(1)(c), F.S
The term "license" is defined by statute and means "... the granting of a privilege to use or occupy a building or a
parcel of real property for any purpose." See Section 212.02(10)(i), F.S.
Licenses to use real property are typically limited in scope by terms and conditions. "The extent of a license is fixed by
the terms of the consent which creates it." Restatement (First) of Property s. 516 (1944). "By the term extent is meant
the scope of the privilege of use authorized by a license as against the possessor of the land with respect to which the
license exists...." Id., at cmt. a.
A license always arises out of the consent of one whose interest in the land in respect to which the license exists is
affected by the use made under the license (s. 512, Clause (b)). Its scope is limited by its source. The privilege of use
created cannot go beyond the limits indicated by the consent by which it was created. The extent of the privilege is
measured by the breadth of the consent.... Id., at cmt. b
Florida courts have held that the statutory definition of "license" is broad. In S&W Air Vac Systems, Inc. v. Department
of Revenue, State of Florida, 697 So.2d 1313 (Fla. 5th DCA 1997), convenience and gas stores granted licenses to a
company that owned coin-operated "air-vac machines." Monthly compensation to the convenience and gas stores was
a percentage of the gross receipts generated by the air-vac machines. The air-vac machine operator was authorized
to enter the properties to collect monies and perform maintenance and repairs. The Fifth District Court of Appeal
upheld the Department's assessment of taxes due under Section 212.031, F.S.:
... [T]he licensors operated [] commercial premises designed to attract customers for revenue-generating purposes.
Such ventures do not limit themselves to the sale of goods but also derive income from a range of activities that take
place on their premises. These typically include advertising, amusement machines, lottery and other facilities. To
determine that store owners were in the business of granting a license was not a clearly erroneous interpretation of
subsection 212.02(2) and of section 212.031. S&W Air Vac Systems, Inc., 697 So.2d at 1317.
In the case of Lloyd Enterprises, Inc. v. Department of Revenue, Volusia county was held not to be "in the business"
of granting a license to use real property for purposes of Section 212.031, F.S., where concessionaire fees were
imposed on beach vendors pursuant to a county ordinance. Because Volusia County was exercising the duties
imposed on it by the county’s Unified Beach Code, it was not in the business or renting, leasing or licensing real
property, but was rather in the "business" of regulating:
... the use of the beach in an orderly manner to preserve "individual peace and quiet" and to enhance the public’s
enjoyment of the beach. ... Lloyd Enterprises, Inc. v. Department of Revenue, 651 So.2d 735, 737 (Fla. 5th DCA
1995).
II. "Management Agreements" and "Licenses" to Use Real Property
Section 212.031(1)(a), F.S., states 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." Section 212.02(10)(i), F.S., defines
"license" as "the granting of a privilege to use or occupy a building or parcel of real property for any purpose." Section
212.02(2) defines "business" broadly as "any activity" engaged in "with the object of private or public gain, benefit, or
advantage, either direct or indirect." A person who rents, leases, lets, or grants a license for the use of one property is
engaged in business just as much as a person doing so with numerous properties. See Regal Kitchens, Inc. v. Florida
Department of Revenue, 641 So.2d 158, 163 (Fla. 1st DCA 1994). Thus, if the Agreements grant a license to use real
property, the Owners are in the "business" of granting a license to use real property. The Owners would not have
entered into the Agreements unless there was a "gain, benefit, or advantage" to the Owners in doing so. Therefore, if
the Agreements grant a license to use real property, the transaction is taxable pursuant to Section 212.031(1)(a), F.S.
If the Agreements create a management agreement rather than a license, the transaction(s) would not be subject to
tax.
A threshold requirement for imposition of tax under Section 212.031(1)(c), F.S., is that the Owners be "in the
business" of leasing or granting a license to use real property. The position taken in the request for advisement is that
the Agreements between the Owners and the Taxpayer constitute a service or management agreement. A
management agreement is typically in the nature of an employment contract, under which the Taxpayer would be
considered as in the nature of an agent or employee of the Owners, charged with managing the Owner's photographic
business. Under a management agreement, the relationship between the Owners and the Taxpayer with regard to the
ownership and operation of the photographic businesses would be in the nature of that of a principal and agent or
employer and employee, rather than licensor and licensee. Under a management agreement, the principal (in this
case, the Owners) entrusts an agent (in this case, the Taxpayer) with the management of its business (here, the
Owner's photographic business, to be transacted by the agent for the Owner's account, with the agent assuming the
responsibility to manage the business and make an account to the principal. See King v. Young, 107 So.2d 751, 753
(Fla. 2d DCA 1958). Under a management agreement, the Taxpayer, as agent or manager, would step into the shoes
of its principals (the Owners) and act for them. See Id. If the relationship between the parties is a true management
agreement, there are no separate license payments subject to tax pursuant to Section 212.031, F.S. Therefore, the
primary inquiry should be whether a management agreement, and thus a principal/agent type of relationship with
regard to the ownership and operation of the photographic business, was created by the Agreements.
Unless the provisions of an agreement or the actual practice of the parties indicate otherwise, the intent of the parties
to a contract should govern the construction of that contract. See American Home Assurance Co. v. Larkin General
Hospital Ltd., 593 So.2d 195, 197 (Fla. 1992); Keith v. News & Sun Sentinel Co., 667 So.2d 167, 171 (Fla. 1995). In
determining the intent of the parties, the terms of a contract are considered as a whole, and not in isolation. Jerry's
Inc. v. City of Miami, 591 So.2d 1000, 1001 (Fla. 3d DCA 1991). Therefore, the proper focus in determining the
relationship created by the Agreements between the Owners and the Taxpayer is upon the collective terms of the
Agreements.
As stated above, a management agreement involves a principal entrusting the management of some business to the
agent or manager, who carries out that business and makes an accounting to the principal. In examining the
Agreements to determine the relationship between the parties, there are several factors that might assist us in
ascertaining whether an agreement is a "management agreement" rather than a lease or a license to use real
property, including the express language of the agreement, the risk of loss and the control afforded to the owner of the
real property.
A "management agreement" is more likely found when the following questions are answered in the affirmative:
Express Language
- Does the clear language of the agreement characterize the payments to the occupant as being for services?
Control - Have the owners retained extensive control of the premises?
- Do the owners have extensive control over the operation of the occupants' business?
Risk of Loss - Are gross revenues transferred directly from the occupant to the owner, and then from these revenues, does the
owner pay the occupant "compensation which ... represents a reasonable base payment for management services"? - Does the agreement clearly assign risk of loss? If so, to whom?
- Has the occupant not agreed to indemnify and hold harmless the owner from any claims or financial obligations
arising out of the operation of the occupants' business? - Are payments sent to the owner only if sufficient revenues are generated?
IV. Analysis and Discussion of the agreements presented in your Request (conclusion followed by
background detail):
Owner 1 - Exhibit 1:
Is this agreement a nontaxable "management agreement"?
No. We found the following factors significant: (1) The language of the agreement is not clear as to the
characterization of payments to the Taxpayer; (2) the Owner's control over the premises is typical of commercial
leases and licenses to use real property; and (3) most of the risk of loss lies with the Taxpayer.
In addition, this agreement provides for the payment of Florida sales tax under Section 212.031, F.S. Florida sales tax
is due under this agreement on the full amount of payments made to/retained by the Owner.
Factors that we acknowledge but believe are outweighed by the above factors: (1) The agreement calls for the Owner
to operate the cash registers and money at the "All-Non Location 2 locations;" (2) at all locations, the Owner has
extensive control over the operation of the Taxpayer's business (e.g., "Exhibit A Scope of Services" provides for how
the Taxpayer will frame the photographs); and (3) the Owner is not guaranteed a payment in the event of insufficient
revenues.
Is there a license to use real property granted? Yes. Paragraph 1 of the agreement provides that: "[The Owner]
hereby grants to [the Taxpayer] a non-exclusive, non-transferable license to enter upon the Premises to perform the
services described in Exhibit A hereto (the "Services"), and for no other purpose."
Background Detail:
Under this agreement, the Taxpayer operates at two (2) types of "locations": "All Non-Location 2 locations" and
"Location 2."
- Does the clear language of the agreement characterize the payments to the occupant as being for
services?
Paragraphs related to both "locations" provide: "[Taxpayer's] compensation for the Services at the Concessions [i.e.,
the "locations"] ... shall be based solely on the Services provided at [the respective "locations"]." (Paragraphs 13.a.
and 14.a., respectively). The "Scope of Services" is included in this agreement by way of exhibit, and is marked as
"Exhibit A Scope of Services." The details of the "Scope of Services" will be discussed in more detail, below.
While paragraphs 13.a. and 14.a. are clear on their face, other paragraphs within the agreement seem to indicate that
Florida sales tax under Section 212.031, F.S., was contemplated by the Owner and the Taxpayer.
At "All Non-Location 2 locations," "[a]mounts retained by [Owner] under this paragraph are subject to tax. Accordingly,
the applicable sales, use, excise or other taxes on such amounts shall be deducted from [the Taxpayer's]
compensation and remitted by [the Owner] to the State of Florida." (Paragraph 13.e.).
At "Location 2," the amounts paid to the Owner are subject to tax. "Accordingly, the applicable sales, use, excise or
other taxes on such amounts shall be deducted from [the Taxpayer's] compensation and paid by [the Taxpayer] to [the
Owner]." (Paragraph 14.f.).
At "Location 2," "Owner shall be responsible for remitting directly to the State of Florida all taxes applicable to the
amounts paid to [Owner] under this paragraph." (Paragraph 14.g).
At "Location 2," "[The Taxpayer] shall be responsible for remitting directly to the State of Florida all sales, use, excise
and other taxes applicable to the gross revenues from retail sales from the services at ["Location 2"]." (Paragraph
14.h.)
Paragraph X. of the General Terms and Conditions provides, in part: "This Agreement is for the personal services of
[the Taxpayer] and may not be subcontracted or assigned by [the Taxpayer]. ..." However, the Taxpayer retained the
right to assign the agreement resulting in " ... [the Owner] shall be automatically released and discharged from any
and all of is obligations under this Agreement, and [the Taxpayer] shall thenceforth look solely to the assignee for
performance of [the Owner’s] obligations under this Agreement."
2. Have the owners retained extensive control of the premises?
Paragraph 1. provides, in part: "...[Owner] may enter any of [the locations where the Taxpayer is providing the
"Services"] at any time for any purpose including, without limitation, ensuring that [the Taxpayer] is complying with the
terms of this Agreement." Further, "[The Taxpayer] shall not make any alterations or modifications to the Premises or
any of the ["locations"] without the prior written approval of [the Owner], which approval may be withheld by [the
Owner] in its sole discretion...."
Paragraph 1. also provides, in part: " ... The provisions of this paragraph shall be deemed to create a mere license
only, and shall not be construed to be a lease, sublease, assignment, easement or any other conveyance of any
interest in or to the Premises or in or to anything contained therein or thereon...."
Paragraph A. of the "General Terms and Conditions" clearly states: "... [the Owner] shall have ultimate and unfettered
control over the Premises."
- Do the owners have extensive control over the operation of the occupants' business?
Paragraph 3. provides that the Taxpayer shall provide Services at the times and dates that the Owner's Premises are
open.
Paragraph 10. provides that the Owner, at the Taxpayer's expense, will provide the Taxpayer's employees with
uniforms.
"Exhibit A Scope of Services" provides that the Taxpayer will, for example:
Take images using a specific brand's digital signal imaging material ("not film"); place those images onto a photograph
containing "the [Owner] Material"; insert each photograph into an acrylic frame "provided by the Taxpayer"; the
Taxpayer "... shall also provide the entertainment and show aspects associated with the Services."
At "All Non-Location 2 locations," all sales are handled by the Owner's personnel, and the Taxpayer is specifically
prohibited from accepting any money from guests. (Paragraph 13.b.)
At "Location 2," all sales are handled by the Taxpayer. The Taxpayer accepts money from guests. (Paragraph 14.b.
and c.) The Taxpayer must maintain complete and accurate records evidencing the inventory and the gross revenues
from retail sales. (Paragraph 14.d.). - Are gross revenues transferred directly from the occupant to the owner, and then from these revenues,
does the owner pay the occupant "compensation which ... represents a reasonable base payment for
management services"?
At "All Non-Location 2 locations," all sales are handled by the Owner's personnel and the Taxpayer is specifically
prohibited from accepting any money from guests. (Paragraph 13.b.) The Owner will pay the Taxpayer [xxx] of gross
revenues. (Paragraph 13.c.). The Owner retains the remaining gross revenues.
At "Location 2," all sales are handled by the Taxpayer. The Taxpayer accepts money from guests. (Paragraph 14.b.
and c.) The Taxpayer retains [xxx] of gross revenues. (Paragraph 14.c.)
- Does the agreement clearly assign risk of loss?
Paragraph 6. provides, in part: "... [The Taxpayer] will provide all inventory, equipment and supplies necessary to
provide the Services .... Maintenance of the Equipment during the Term shall be [the Taxpayer's] sole responsibility."
Paragraph 6. provides, in part: "... During the Term [of the agreement], [the Taxpayer] shall retain ownership of all of
the inventory, Equipment and supplies necessary to provide the Services and all risk of loss thereto shall be borne
solely by [the Taxpayer]...."
Paragraph X. of the General Terms and Conditions provides, in part: "This Agreement is for the personal services of
[the Taxpayer] and may not be subcontracted or assigned by [the Taxpayer]. ..." However, the Taxpayer retained the
right to assign the agreement resulting in " ... [the Owner] shall be automatically released and discharged from any
and all of is obligations under this Agreement, and [the Taxpayer] shall thenceforth look solely to the assignee for
performance of [the Owner's] obligations under this Agreement."
Paragraph V. of the "General Terms and Conditions" provides that the Owner will not be liable to any person as a
result of any act or omission by the Taxpayer.
Paragraph W. of the "General Terms and Conditions" provides that the Taxpayer is an "independent Taxpayer" and is
not an agent, employee, partner or joint venturer of the Owner. - Has the occupant not agreed to indemnify and hold harmless the owner from any claims or financial
obligations arising out of the operation of the occupants' business?
Paragraph U. of the "General Terms and Conditions" provides that the Taxpayer will defend, indemnify and hold
harmless the Owner from a host of potential liabilities and potential obligations. - Are payments sent to the owner only if sufficient revenues are generated?
The agreement only provides for payments based on gross revenues. There are no provisions for mandatory
minimum payments.
Owner 2 - Exhibit 2:
Is this agreement a nontaxable "management agreement"?
No. We found the following factors significant: (1) the agreement fails to characterize payments to the Taxpayer as
being for services, and indeed, provisions provide that the Owner and Taxpayer are "licensor and licensee"; (2) the
extent of the Owner's retained control of the premises is not unusual for commercial leases and licenses to use real
property; (3) the Owner does not have extensive control over the Taxpayer's business; (5) gross revenues remain with
the Taxpayer, and payments are made to the Owner; (6) the Owner does not share in the risk of loss; (7) the parties
have agreed to indemnify and hold harmless each other; and (8) payments are sent to the Owner even if insufficient
revenues are generated (appearing to be a form of "base rent").
A factor that might weigh in favor of finding a "management agreement" was the provision that required the Taxpayer
to submit the identity and occupational background of all key Business management personnel to the Owner. While
this is certainly an extensive intrusion into the Taxpayer's freedom to operate its business, this factor was outweighed
by the other factors discussed above.
Is there a license to use real property granted? Yes. The "Recitals" section of the agreement provides that the
Owner "... has available certain buildings/space at the Attraction which it is making available to concessionaires for
various products and services in exchange for certain payments...."
Background detail:
- Does the clear language of the agreement characterize the payments to the occupant as being for
services?
Paragraph 5.A. provides, in part: "In consideration of the license granted hereunder ... [the Taxpayer] shall pay to [the
Owner]...."[xxx]
The "Recitals" section of the agreement provides, in part: "... [The Owner] has available certain buildings/space at the
Attraction which it is making available to concessionaires for various products and services in exchange for certain
payments. [The Taxpayer] desire to operate a "head on body" and an antique photo operation (the "Business") at the
Attraction. ... [The Owner] desires to license [the Taxpayer] to use certain buildings/spaces to [the Taxpayer] to enable
[the Taxpayer] to operate the Business...."
Paragraph 20. provides, in part: "... [The Taxpayer] shall furnish all of the obligations to be performed hereunder to
[the Owner] in [the Taxpayer's] capacity as an independent Taxpayer. In no event shall [the Owner] be construed or
held to be a partner, joint venturer or business associate of [the Taxpayer] in the operation of the Business. The
relationship between [the Owner] and [the Taxpayer] is and shall at all times be that of licensor and licensee...." - Have the owners retained extensive control of the premises?
Paragraph 2.A. provides, in part: "... [The Owner] will make the Licensed Premises available to [the Taxpayer] at
which [the Taxpayer] shall operate the Business...."
Paragraph 4. provides, in part: "... [The Taxpayer] shall not assign, transfer, convey or hypothecate its interest in this
Agreement or enter into any license agreement or lease [of] the Licensed Premises, in whole or in part, or permit any
other firm or person to control the Licensed Premises, in whole or in part, or the Business without the prior written
consent of [the Owner], which consent shall not be unreasonably withheld...."
Paragraph 8. provides, in part: "... [the Owner] shall be entitled to enter in and around the Licensed Premises at all
times and in any reasonable manner so as to not unreasonably interfere with [the Taxpayer's] use thereof, for the
purpose of inspecting the Licensed Premises and appurtenances thereto and to determine [the Taxpayer's]
compliance with the terms, covenants and conditions of this Agreement."
Paragraph 11. requires the Taxpayer to make, "as additional consideration for the license granted," improvements and
renovations to the Licensed Premises. For the first year of the agreement, these improvements and renovations must
value at least [xxx]. All building modifications, remodeling, decorating and signage are the responsibility of the
Taxpayer. All plans for improvement require the approval of the Owner, which "... shall not unreasonably [be] withheld
by [the Owner]...."
- Do the owners have extensive control over the operation of the occupants' business?
Paragraph 2.B. provides, in part: "[The Taxpayer] shall provide at its own expense all equipment, materials, labor and
supplies to operate the Business, and shall operate the Business each day of the term of this Agreement during all
hours that [the Owner's Attraction] is open. ... All changes in the Business operations or any other changes in
merchandising products or practices shall be subject to the prior written approval by [the Owner's] Vice President of
Merchandise."
Paragraph 6 provides that the Taxpayer is required to maintain voluminous records. The Taxpayer operates the
Business, including the cash registers.
Paragraph 15.B. provides, in part: "...All images selected by [the Taxpayer] which are proposed to be offered to guests
are subject to [the Owner's] prior written approval, which approval may be withheld by [the Owner] in its sole
discretion.
Paragraph 16.B. provides, in part: "The identity and occupational background of all key Business management
personnel, including without limitation the General Manager and each Shift Manager, shall be provided in writing by
[the Taxpayer] to [the Owner] for review. [The Owner] will provide written approval to or advise of its objections thereto
within fifteen (15) days following receipt of the same...."
Paragraph 16.C. provides, in part: "[The Taxpayer] shall not modify its standards or the staffing of key Business
management personnel including without limitation the General Manager and each Shift Manager, without the prior
written consent of [the Owner], which consent shall not be unreasonably withheld."
Paragraph 20. provides that the relationship of the parties is that of "... licensor and licensee." The Taxpayer is an
independent Taxpayer and "[i]n no event shall [the Owner] be construed or held to be a partner, joint venturer or
business associate of [the Taxpayer] in the operation of the Business...." - Are gross revenues transferred directly from the occupant to the owner, and then from these revenues,
does the owner pay the occupant "compensation which ... represents a reasonable base payment for
management services"?
Under Paragraph 5., the Taxpayer pays the Owner a "concession fee" in consideration for the grant of the license by
the Owner.
- Does the agreement clearly assign risk of loss?
Paragraph 20. provides, in part: "... [The Taxpayer] shall furnish all of the obligations to be performed hereunder to
[the Owner] in [the Taxpayer's] capacity as an independent Taxpayer. In no event shall [the Owner] be construed or
held to be a partner, joint venturer or business associate of [the Taxpayer] in the operation of the Business...." - Has the occupant not agreed to indemnify and hold harmless the owner from any claims or financial
obligations arising out of the operation of the occupants' business?
Paragraphs 14B. and C. provide for both the Taxpayer and the Owner (respectively) to indemnify and hold harmless
each other. - Are payments sent to the owner only if sufficient revenues are generated?
Paragraph 5.A. provides for the payment of "Concession Fees." [xxx]
Owner 3 - Exhibit 3:
Is this agreement a nontaxable "management agreement"?
No. We found the following factors significant: (1) the agreement does not clearly characterize payments to the
Taxpayer as being for services; (2) the extent of the Owner's retained control of the premises is not unusual for
commercial leases and licenses to use real property; (3) the Owner does not have extensive control over the
Taxpayer's business; (4) a percentage of gross revenues is sent to the Owner "in consideration" for the license
granted to the Taxpayer; (5) the risk of loss "remain[s] solely with [the Taxpayer]"; and (6) the Taxpayer has agreed to
indemnify and hold harmless the Owner.
We note the following factors that might indicate the existence of a "management agreement"; however, these were
outweighed by the factors identified above: (1) Payments are only made to the Owner if sufficient revenues are
generated (this situation, however, is no different than rent due strictly on a "percentage basis"); and (2) the Taxpayer
must submit the identity and occupational background of "all key Business management" to the Owner for review and
approval (this is a significant control over the Taxpayer's business; however, it is outweighed by the other factors
identified above).
Is there a license to use real property granted? Yes. The agreement provides it is related to "... Licensee's [the
Taxpayer's] right and privilege to operate the Business defined in this Agreement in the Locations set forth in this
Agreement." The agreement also provides that the Taxpayer will operate out of moveable kiosks and non-moveable
"venues."
Background detail:
1. Does the clear language of the agreement characterize the payments to the occupant as being for
services?
The Taxpayer is obligated to pay [xxx] to the Owner. This payment is referred to as the "Percentage Fee." The term
"Percentage Fee" is defined at Paragraph 1.(v) as: "The consideration and compensation due from [the Taxpayer] and
payable to [the Owner] for the license granted under this Agreement and for the use of Locations and the privilege of
operating the Business in the Attractions...."
Paragraph 1(n) defines the "Licensee's [Taxpayer's] Share" as: "The amount of Net Receipts remaining after
deducting (i) the Percentage Fee, (ii) the applicable sales tax on the Percentage Fee ...." [emphasis supplied]
- Have the owners retained extensive control of the premises?
Paragraph 3.(c) provides that the Taxpayer will operate the Business at all hours that the Owner's Attraction is open.
Paragraph 9. provides, in part: "[The Taxpayer] will be the sole owner and operator of the Business (excluding
[Taxpayer] provided materials)...." - Do the owners have extensive control over the operation of the occupants' business?
Paragraph 3.(c) provides that the Taxpayer will operate the Business at all hours that the Owner's Attraction is open.
Paragraph 4.(d) provides that the Taxpayer will operate the Business. The cash register will be operated by the
Taxpayer. Paragraph 4., in greater detail, provides for the record keeping requirements imposed on the Taxpayer.
Paragraph 9.(a) provides, in part: "[The Taxpayer] will be the sole owner and operator of the Business (excluding
[Taxpayer] provided materials). [The Taxpayer] will be totally responsible for care, product quality, image
management, insurance, upkeep and maintenance of the Kiosk and all associated equipment used in the Business.
[The Taxpayer] will repair and replace, as required, at [the Taxpayer’s] sole expense, such equipment, materials and
finishes to maintain the appearance and appeal of the Business at a level satisfactory to [the Owner] and to meet the
demand of guests visiting the Attractions. Nothing contained in this Section will be deemed to grant to [the Taxpayer]
any ownership or other interest in the background or other materials provided by [the Owner]."
Paragraph 9.(b) provides that the licensed premises will be maintained by the Taxpayer and will be inspected by the
Taxpayer as often as required to keep the premises in "first class condition."
All uniforms, costumes and other attire utilized by the Taxpayer's employees are subject to the prior written approval
of the Owners. (Paragraphs 18.(a) and (b)).
Paragraph 18.(f) provides, in part: "The identity and occupational background of all key Business management
personnel, including without limitation the Site Manager, will be provided in writing by [the Taxpayer] to [the Owner] for
review and approval...."
4. Are gross revenues transferred directly from the occupant to the owner, and then from these revenues,
does the owner pay the occupant "compensation which ... represents a reasonable base payment for
management services"?
A percentage of gross revenues are sent to the Owner by the Taxpayer in "consideration" for the license granted to
the Taxpayer by the Owner. (Paragraph 1.(v)).
- Does the agreement clearly assign risk of loss?
Paragraph 11.(d) provides, in part: "The risk of loss or damage to any materials, equipment or any other personal
property of [the Taxpayer] used on the applicable Attraction's property or in the performance of its obligations under
this Agreement shall remain solely with [the Taxpayer]...." - Has the occupant not agreed to indemnify and hold harmless the owner from any claims or financial
obligations arising out of the operation of the occupants' business?
Paragraph 11.(d) provides that the Taxpayer releases the Owner (and parent, subsidiaries, officers, etc.) from any
liability for any loss, damager, expense, or claim. - Are payments sent to the owner only if sufficient revenues are generated?
Paragraph 5. specifically waives "minimum monthly fees."
Owner 4 - Exhibit 4:
Is this agreement a nontaxable "management agreement"?
No. We found the following factors significant: (1) the agreement does not clearly characterize payments to the
Taxpayer as being for services; (2) the extent of the Owner's retained control of the premises is not unusual for
commercial leases and licenses to use real property; (3) the Owner does not have extensive control over the
Taxpayer's business; (4) a percentage of gross revenues is sent to the Owner by the Taxpayer, and no payment is
sent to the Taxpayer by the Owner; (5) the Taxpayer has agreed to indemnify and hold harmless the Owner; and (6)
the Owner is guaranteed payments even in the event that revenues are insufficient.
We note this agreement contains provisions for the payment of Florida sales tax under Section 212.031, F.S. Florida
sales tax would be due even if these provisions were not in the agreement.
Is there a license to use real property granted? Yes. Section 1.1 of the agreement provides that "... Licensor [the
Owner] grants to Licensee [the Taxpayer] a non-exclusive, non-assignable license to operate, and Licensee hereby
agrees to operate ... a ... concession ... in the Park...."
Background detail:
This Exhibit contains two (2) Agreements: one signed [xxx], and made effective May 1, 2003; the other signed [xxx].
We will examine the latter Agreement.
- Does the clear language of the agreement characterize the payments to the occupant as being for
services?
Article 3 of the Agreement is styled: "Compensation payable to Licensor." This Article contains the provisions for the
[xxx] to be paid to the Owner (Section 3.1) and for "Licensor's Guarantee[d]" payments (Section 3.3). No provisions of
the Agreement describe payments to the Taxpayer, other than the Taxpayer will retain [xxx].
Section 6.2(b) of the Agreement dated [xxx] provides that the Licensor shall remit Florida sales tax as "... specified in
Section 212.031 of the Florida Statutes...." Section 6.2(b) also includes a chart of "assumptions" which includes a
provision for "Tax on rental or license fee for use of real property." - Have the owners retained extensive control of the premises?
Section 13.8 provides that the Taxpayer will not have any right to assign the right to occupy the location of the
"Concession" without the prior written consent of the Owner. - Do the owners have extensive control over the operation of the occupants' business?
The Taxpayer is required to operate during the same hours and days as the Owner's Park (Section 3.4). Any new
equipment must be approved by the Owner (Section 5.1(a)). The Taxpayer must operate in a "First Class" manner
(Article 6). The Taxpayer must purchase inventory and maintain an adequate stock of same with the advance
approval of the Owner (Section 6.1(a)). - Are gross revenues transferred directly from the occupant to the owner, and then from these revenues,
does the owner pay the occupant "compensation which ... represents a reasonable base payment for
management services"?
Section 3.1 provides, in part: "... [Taxpayer] agrees to pay to [the Owner] Forty percent (40%) of the Gross Annual
Revenue Receipts ... from the Concession. ... [The Taxpayer] shall retain [xxx] of the Gross Annual Revenue Receipt." - Does the agreement clearly assign risk of loss?
Section 7.1(a) provides: "All of [the Taxpayer's] purchases of equipment, merchandise, supplies and all other items for
the Concession, all freight and other transportation costs in connection therewith, and all debts, liabilities and
contracts of whatever kind incurred or made by [the Taxpayer] in connection with its business in the Concession,
including, without limitation, all liabilities incurred in connection with [the Taxpayer's] acceptance of checks, traveler's
checks, and currency, shall be the exclusive responsibility of [the Taxpayer]. [The Owner] shall not be liable or
responsible for any such obligations, and [the Taxpayer] shall at all times indemnify and hold [the Owner] harmless
from any such obligation."
6. Has the occupant not agreed to indemnify and hold harmless the owner from any claims or financial
obligations arising out of the operation of the occupants' business?
Please see the reference to Section 7.1(a) (reprinted under 6., above). In addition, Section 7.1(b) further details the
scope of the Taxpayer's indemnification of the Owner.
- Are payments sent to the owner only if sufficient revenues are generated?
Section 3.3 provides that the Taxpayer guarantees the "... amount [the Owner] is entitled to ... shall not be less than
[omitted] ("[The Taxpayer's] Guarantee" or "Guarantee")." [emphasis in original]
Owner 5 - Exhibit 5:
Is this agreement a nontaxable "management agreement"?
No. We found the following factors significant: (1) the agreement does not clearly characterize payments to the
Taxpayer as being for services; (2) the extent of the Owner’s retained control of the premises is not unusual for
commercial leases and licenses to use real property; (3) the Owner does not have extensive control over the
Taxpayer's business; (4) a percentage of gross revenues is sent to the Owner by the Taxpayer, and no payment is
sent to the Taxpayer by the Owner; and (5) the agreement expressly provides that "[The Owner] shall not be obligated
by or have any liability under any agreements, representations or warranties made by [the Taxpayer]. ... [The
Taxpayer] shall have no authority to bind [the Owner] by its acts...."
Factors that might weigh in favor of finding a "management agreement" include: (1) the absence of "indemnify and
hold harmless" provisions (however, as in most commercial leases, the Taxpayer is required to carry liability insurance
that covers the Owner); and (2) there is no guarantee that the Owner will receive any payment in the event of
insufficient revenue (however, rent based on a "percentage basis" alone is subject to Florida sales tax).
Is there a license to use real property granted? Yes. Section 1 provides: "Licensor [the Owner] hereby licenses to
Licensee [the Taxpayer], and Licensee hereby hires and takes from Licensor that certain space allotted to Licensee
for the conduct of its business activities ... at [the Taxpayer's property]."
Background detail: - Does the clear language of the agreement characterize the payments to the occupant as being for
services?
There are no payments to the Taxpayer. The Taxpayer retains a portion of gross revenue. The retention of these
funds is not characterized in the agreement. - Have the owners retained extensive control of the premises?
Section 1 of the agreement provides, in part: "[The Owner] hereby licenses to [the Taxpayer], and [the Taxpayer]
hereby hires and takes from [the Owner] that certain space allotted to [the Taxpayer] for the conduct of its business
activities...."
Section 5 provides that the Taxpayer cannot assign the Agreement without the written consent of the Owner.
Section 6 provides that all repairs, maintenance and improvements are at the Taxpayer's expense and must be made
"...only with the written consent of [the Owner] first obtained by [the Taxpayer]."
Section 10 provides that the Owner shall be allowed to enter into and upon the licensed space at all reasonable times
for the purpose of inspecting same.
Section 21 provides: "The parties understand that the nature of [the Owner's] business is such that [the Owner] must,
in the best interests of the public and all participants, have broad powers, regulation, and control over the activities at
the site. The parties understand, however, that such regulation and control shall at all times be exercised in a
reasonable manner."
- Do the owners have extensive control over the operation of the occupants' business?
Section 16 provides that: "[The Taxpayer] shall comply with all rules and regulations, which [the Owner] shall now or
hereafter prescribe respecting the dress of employees, the décor of the premises, the display of [the Taxpayer's]
wares and the manner of advertising. [The Taxpayer] shall supply all its employees with a uniform approved by [the
Owner]."
Section 17 provides that the Taxpayer agrees to pay a reasonable fee as determined by the Owner for the purchase
of any supplies "... such as paper bags."
Section 18 provides that the Taxpayer will operate its business as a "first class operation" and follow the rules and
regulations of the Owner.
Section 18 also provides, in part: "... It is understood that [the Taxpayer] operation will be allowed to close its
operation during times when [the Owner] is open to the public. This closure will be approved by [the Owner] in
advance and will be based on operational events such as weather, special event or attendance volume not viable to a
successful operation."
Section 19 provides, in part: "...It is distinctly understood, however, that [the Taxpayer] is to be fully responsible for the
conduct and control of its associates, agents, and employees, and servants, and other persons permitted by [the
Taxpayer] to operate the business, and that [the Owner] in no way is to be considered their employer or principal. [The
Taxpayer's] employees will operate under the same service guidelines as [the Owner's] employees." - Are gross revenues transferred directly from the occupant to the owner, and then from these revenues,
does the owner pay the occupant "compensation which ... represents a reasonable base payment for
management services"?
Section 3 provides that the Taxpayer pays the Owner a percentage of gross sales.
- Does the agreement clearly assign risk of loss?
Section 23 provides, in part: "... This Agreement shall not create a fiduciary relationship between [the Owner] and [the
Taxpayer]. Nothing in this Agreement is intended to make [the Taxpayer] general or special agents, legal
representatives, subsidiaries, joint venturers, partners, employees or servants of [the Owner]. [The Taxpayer] must not
represent that [the Taxpayer] has any relationship with [the Owner] other than as the owner of a business with a
license to operate pursuant to the terms of this Agreement.
[The Owner] shall not be obligated by or have any liability under any agreements, representations or warranties made
by [the Taxpayer]. ... [The Taxpayer] shall have no authority to bind [the Owner] by its acts...." - Has the occupant not agreed to indemnify and hold harmless the owner from any claims or financial
obligations arising out of the operation of the occupants' business?
While Section 8 provides for liability insurance coverage found in most real property leases (and management
agreements), this agreement does not have "indemnify and hold harmless" provisions. - Are payments sent to the owner only if sufficient revenues are generated?
Yes, pursuant to Section 3 of the agreement. Also, there are no "guaranteed payment" provisions in the agreement.
Owner 6 - Exhibit 6:
Is this agreement a nontaxable "management agreement"?
No. We found the following factors significant: (1) the agreement does not clearly characterize payments to the
Taxpayer as being for services; (2) the extent of the Owner's retained control of the premises is not unusual for
commercial leases and licenses to use real property; (3) the Owner does not have extensive control over the
Taxpayer's business; (4) a percentage of gross revenues is sent to the Owner by the Taxpayer, and no payment is
sent to the Taxpayer by the Owner; and (5) the agreement expressly provides that "[t]he relationship of the parties
shall be such that for all purposes [the Taxpayer], including its agents and employees, shall be an independent
Taxpayer and not an agent or employee of [the Owner]. [The Taxpayer] shall have no authority to bind [the Owner] by
its acts...."
Factors that might weigh in favor of finding a "management agreement" include: (1) the absence of "indemnify and
hold harmless" provisions (however, as in most commercial leases, the Taxpayer is required to carry liability insurance
that covers the Owner); and (2) there is no guarantee that the Owner will receive any payment in the event of
insufficient revenue (however, rent based on a "percentage basis" alone is subject to Florida sales tax).
Is there a license to use real property granted? Yes. Section 1 provides: "Licensor [the Owner] hereby licenses to
Licensee [the Taxpayer], and Licensee hereby hires and takes from Licensor that certain space allotted to Licensee
for the conduct of its business activities situated inside ...[the Taxpayer's property]."
Background detail:
- Does the clear language of the agreement characterize the payments to the occupant as being for
services?
There are no payments to the Taxpayer. The Taxpayer retains a portion of gross revenue. The retention of these
funds is not characterized in the agreement. - Have the owners retained extensive control of the premises?
Section 1 of the agreement provides, in part: "[The Owner] hereby licenses to [the Taxpayer], and [the Taxpayer]
hereby hires and takes from [the Owner] that certain space allotted to [the Taxpayer] for the conduct of its business
activities...."
Section 5 provides that the Taxpayer cannot assign the Agreement without the written consent of the Owner.
Section 6 provides that all repairs, maintenance and improvements are at the Taxpayer's expense and must be made
"... only with the written consent of [the Owner] first obtained by [the Taxpayer]."
Section 10 provides that the Owner shall be allowed to enter into and upon the licensed space at all reasonable times
for the purpose of inspecting same.
Section 21 provides: "The parties understand that the nature of [the Owner's] business is such that [the Owner] must,
in the best interests of the public and all participants, have broad powers, regulation, and control over the activities at
the site. The parties understand, however, that such regulation and control shall at all times be exercised in a
reasonable manner." - Do the owners have extensive control over the operation of the occupants' business?
Section 16 provides that: "[The Taxpayer] shall [conform] to all rules and regulations, which [the Owner] shall now or
hereafter prescribe respecting the dress of employees, the décor of the premises, the display of [the Taxpayer's]
wares and the manner of advertising. [The Taxpayer] shall supply at its expense all employees with a uniform
approved by [the Owner]."
Section 17 provides that the Taxpayer agrees to pay a reasonable fee as determined by the Owner for the purchase
of any supplies "... such as paper bags."
Section 18 provides that the Taxpayer will operate its business as a "first class operation" and follow the rules and
regulations of the Owner.
Section 18 also provides, in part: "... It is understood that [the Taxpayer's] operation will be allowed to close its
operation during times when [the Owner] is open to the public. This closure will be pre-approved by [the Owner] in
advance and will be based on operational events such as weather, special event or attendance volume not viable to a
successful operation."
Section 19 provides, in part: "... It is distinctly understood, however, that [the Taxpayer] is to be fully responsible for
the conduct and control of its associates, agents, and employees, and other persons permitted by [the Taxpayer] to
operate the business, and that [the Owner] in no way is to be considered their employer or principal. [The Taxpayer's]
employees will operate under the same service guidelines as [the Owner's] employees."
- Are gross revenues transferred directly from the occupant to the owner, and then from these revenues,
does the owner pay the occupant "compensation which ... represents a reasonable base payment for
management services"?
Section 3 provides that the Taxpayer pays the Owner a percentage of gross sales. - Does the agreement clearly assign risk of loss?
Section 23 provides: "... The relationship of the parties shall be such that for all purposes [the Taxpayer], including its
agents and employees, shall be an independent Taxpayer and not an agent or employee of [the Owner]. [The
Taxpayer] shall have no authority to bind [the Owner] by its acts...." - Has the occupant not agreed to indemnify and hold harmless the owner from any claims or financial
obligations arising out of the operation of the occupants' business?
While Section 8 provides for liability insurance coverage found in most real property leases (and management
agreements), this agreement does not have "indemnify and hold harmless" provisions. - Are payments sent to the owner only if sufficient revenues are generated?
Yes, pursuant to Section 3 of the agreement. Also, there are no "guaranteed payment" provisions in the agreement.
Owner 7 - Exhibit 7:
Section 212.031(1)(a)12., F.S., provides an exemption for the leasing or licensing of real property that is leased or
licensed at a theater (among other specifically named facilities), "... during an event at the facility, to be used by [a]
concessionaire to sell souvenirs, novelties, or other event-related products."
Because no definition of "theater" is provided by statute, it is necessary 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 "theater" is defined in Merriam-Webster's Collegiate Dictionary, Tenth Edition, 1999, as follows:
1b: a building for dramatic performances ...
3a: a place rising by steps or gradations ... b: a room often with rising tiers of seats for assemblies (as for lectures or
surgical demonstrations).
Likewise, because the phrase "during an event" is not defined by statute, it will also be necessary to look to principles
of statutory construction. Pursuant to Pederson v. Green, supra, words of common usage, when used in a statute,
should be construed in their plain and ordinary sense.
The word "during" is defined in Merriam-Webster's Collegiate Dictionary, Tenth Edition, 1999, as follows:
1: throughout the duration of ... 2: at a point in the course of ....
The word "event" is defined in Merriam-Webster's Collegiate Dictionary, Tenth Edition, 1999, as follows:
2a: something that happens ... b: a noteworthy happening; c: a social occasion or activity ... 3: any of the contests in a
program of sports ....
This agreement falls within the exemption found under Section 212.031(1)(a)12., F.S.
Space is being licensed (Section 1 of the agreement), in a building (Section 1) for dramatic performances (a dinner
show "adventure"). The Taxpayer's activity will occur during "an event" (three "events" a day per Exhibit 10 of your
Request).
Section 3 of the agreement provides that the Taxpayer shall pay (actually, the Owner "retains") [xxx] per paying guest
as a "license fee." The Owner collects 100% of the gross sales and sales tax generated by the Taxpayer on a daily
basis. The Owner pays the Taxpayer "License Gross Sales" (defined as the gross amount received by the Taxpayer
from its operation on the premises) minus sales tax and the "license fee" to the Owner.
Section 212.031(1)(a)12., F.S., provides, in part: "This subparagraph applies only to that portion of the ... license
payment which is based on a percentage of sales and not based on a fixed price." [emphasis supplied] Although the
license fee is based on a percentage of the Owner's sales (guest admissions) and not the Taxpayer's sales (photos
sold), the license fee is based on a percentage of sales and is not based on a fixed price.
Discussion of "management agreements" and leases and licenses to use real property are not necessary in light of
the above discussion of Section 212.031(1)(a)12., F.S., and the finding that this agreement is not subject to Florida
sales tax.
Owner 8 - Additional Exhibit:
Is this agreement a nontaxable "management agreement"?
Yes. We found the following factors significant: (1) the agreement does clearly characterize payments to the Taxpayer
as being for services; (2) the Owner does have extensive control over the Taxpayer’s business; (3) a percentage of
gross revenues is sent to the Owner by the Taxpayer, and payment is then sent to the Taxpayer by the Owner,
representing reasonable payment for management services; and (4) the agreement calls for both parties to agree to
indemnify and hold harmless each other; and (5) payments are sent to and retained by the Owner only if sufficient
revenues permit (there is no "guaranteed" payment). A significant fact unique to this Agreement is that the Owner is
purchasing all of the Taxpayer's equipment. The Agreement contains several references of the Taxpayer managing or
operating the Owner's "Image Capturing Business."
Factors that might weigh against a finding that a "management agreement" exists include: (1) the extent of the
Owner's retained control of the premises is not unusual for commercial leases and licenses to use real property (the
Owner, however, placed great emphasis on controlling the operation of the Taxpayer's business).
Background detail:
- Does the clear language of the agreement characterize the payments to the occupant as being for
services?
Yes. Section 1.(xiv) of the agreement provides that '"[m]anagement fee" means the consideration and compensation
due to [the Taxpayer] for its management of the [Businesses] ...." - Have the owners retained extensive control of the premises?
Section 25 provides: "This Agreement does not constitute and shall not be construed as constituting a partnership,
joint venture, landlord/tenant or licensor/licensee relationship ...." - Do the owners have extensive control over the operation of the occupants' business?
Section 7 of the agreement details the "Management Provisions." Twelve (12) pages of the agreement are dedicated
to provisions related to the Taxpayer's operation of the Business. Subsection (d)(i) provides, in part: "[The Taxpayer]
shall, on behalf of and at the direction of [the Owner], be responsible for the management and day-to-day operations
of any and all [Taxpayer managed Businesses]...." - Are gross revenues transferred directly from the occupant to the owner, and then from these revenues,
does the owner pay the occupant "compensation which ... represents a reasonable base payment for
management services"?
Section 7.(d)(iii) provides that the Owner will supply the Taxpayer with all cash registers for the business. The
Taxpayer is responsible "for each and every sale and transaction." Each day, the Owner will collect the daily cash
register detail tapes. The Owner will collect and count the funds from "Gross Receipts" for each cash register. (Section
7.(c)(ii)). Gross Receipts are divided equally into two (2) portions (Section 1.(xv)), which we will refer to as "Portion 1"
and "Portion 2."
The Taxpayer is compensated "for its management of the [Businesses]" based on an amount equal to the difference
between the Portion 1 and the Owner's "Operating Expenses related to ... [the Businesses]." Section 1. (xiv) provides
that the Owner will deduct all of the Owner Operating Expenses incurred during each week from the Portion 1
Receipts received during each week and pay the balance, if any after said deduction, of such Portion 1 receipts to the
Taxpayer as its management fee under this Agreement for such week.
The Owner's Operating Expenses are defined in Section 1.(xxx) as consisting of: (A) the monthly payments due on
the purchase of the Taxpayer's equipment (payments in the amount equal to [xxx] of Net Receipts - Section 4(b)); (B)
the products purchase price; (C) Orientation Fees or Wardrobe Charges; (D) Royalty Fees paid to third parties; (E)
Costumed Character Fees; and (F) "... any other costs, charges or expenses incurred by [the Owner] under this
Agreement...."
In other words, and generally speaking, the Owner retains [xxx] of the gross revenues ("Portion 2"). From "Portion 1,"
the Owner will pay the Taxpayer balance of "Portion 1" (after accounting for its own "operating expenses.")
- Does the agreement clearly assign risk of loss?
The Taxpayer's "pay" is based on revenue generated. The Owner's "pay" is based on revenue generated.
The Taxpayer sells Owner as many "supplies" as needed, the cost of which is part of the Owner's "operating
expenses," which is first deducted from one of the Portions of gross revenue.
Both parties have agreed to indemnify and hold harmless each other for claims asserted against each. - Has the occupant not agreed to indemnify and hold harmless the owner from any claims or financial
obligations arising out of the operation of the occupants' business?
The agreement contains provisions for both parties to indemnify and hold harmless each other. (Sections 12(a) and
(b)). - Are payments sent to the owner only if sufficient revenues are generated?
All gross revenues are received by the Owner, who in turn, pays the Taxpayer the balance of [xxx] of gross revenues
minus its defined operating expenses. Based on this structure, the Owner can only be paid if sufficient revenues are
generated. There are no "guaranteed payments" provided for under this agreement.
VI. Allocation of payments to the Owners.
Your Request proposes the allocation of payments in the event the Department finds any of the submitted agreements
to not be nontaxable "management agreements." You also advise that "under the principles of [Section] 212.031(1)(c),
F.S., there should be an equitable allocation of the total consideration between the license to enter upon real estate
and the non-taxable license or privilege to conduct business at Owner's locations."
In support of your proposal, you advise that you commissioned a study of local retail leasing listings and that, based
on the results of the study, the per square footage rate charged by the various Owners "vastly exceeds the reasonable
rental value of the real estate involved."
It should be noted that the provisions of Section 212.031(1)(c), F.S., address payments for "intrinsically valuable
personal property such as franchisees, trademarks, service marks, logos, or patents ...." None of the agreements you
provided with your Request require the Taxpayer to pay for any of the enumerated forms of "intrinsically valuable
personal property." We do note however that Owner 1's agreement provides in pertinent part, the following language:
- Names of the Concessions. The names and changes of the names of the Concessions must be pre-approved in
writing by [Owner] in its sole discretion. The parties hereto acknowledge and agree that [Owner] owns the names of
the Concessions. [Owner] hereby grants to Vendor a revocable non-transferable, royalty-free, non-exclusive
license to use such names during the Term (as hereinafter defined) only in connection with the Concessions.
Vendor shall not use such names at any other location or for any other purpose, unless approved by [Owner] in its
sole discretion. Unless otherwise agreed in writing by [Owner], in its sole discretion, in providing the Services Vendor
shall not identify the name of Vendor or the brand name of the merchandise, products or services being offered by
Vendor at the Concessions. [emphasis supplied]
- License To Use [Owner] Characters, Names and/or Marks. [Owner] hereby grants to Vendor a revocable, nontransferable, royalty-free, non-exclusive license to use, during the Term only, the following [Owner] characters, names
and/or marks:....
This language appears to refer to "intrinsically valuable personal property such as franchisees, trademarks, service
marks, logos, or patents ...." However, the license(s) are "royalty-free." Therefore, no allocation pursuant to Section
212.031(1)(c), F.S., can be made.
CONCLUSION
"Owner 7 - Exhibit 7" is not subject to Florida sales tax under Section 212.031, F.S., because the agreement falls
within the exemption found under Section 212.031(1)(a)12., F.S.
"Owner 8 - Additional Exhibit" is a "management agreement" not subject to Florida sales tax under Section 212.031,
F.S.
The remaining agreements submitted with your request are subject to Florida sales tax under Section 212.031, F.S.
because they grant licenses to use real property and are not "management agreements" for purposes of Section
212.031, F.S.
The proposal for equitable allocation of the various payments to the Owners is not supported by statutory provision.
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 advice as specified in Section
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 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,
Eric R. Peate
Senior Attorney
Technical Assistance and Dispute Resolution
(850) 922-4714
Ctrl # 19160
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