Were forfeited deposits under season-ticket and club-seat agreements subject to Florida sales tax?

Plain-English summary

A Florida sports-team operator required refundable deposits under season-ticket and club-seat agreements. The deposits were recorded as liabilities and did not themselves provide admission or the right to use the seats.

For the season-ticket agreement, a forfeited deposit was not taxable merely because the customer defaulted and the team retained it. If any portion was applied to the ticket price, however, that amount became taxable consideration for admission.

The club-seat agreement was analyzed as a license to use real property. A retained deposit was likewise nontaxable when it was simply forfeited after default and not treated as payment for the license or property use. Any portion applied to the license fee was taxable.

What this means for you

The contract, bookkeeping, and actual application of a deposit matter more than the label. A refundable security deposit can remain outside the tax base when forfeited, but using it to satisfy a taxable admission or license charge brings that portion into the tax base.

Common questions

Were all forfeited deposits exempt? Only those not applied to the ticket price, license fee, or use of real property.

Why did liability accounting matter? It supported the representation that the refundable deposit was not current sales revenue.

Did the TAA treat season tickets and club seats identically? It reached the same conditional result through different provisions: admissions tax for season tickets and real-property license tax for club seats.

Citations and references

• Fla. Stat. §§ 212.04 and 212.031 and Fla. Admin. Code rr. 12A-1.005 and 12A-1.070, as quoted and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 11A-013

Original ruling text

SUMMARY
QUESTION:
The issue is whether forfeited deposits retained by Taxpayer are subject to Florida sales tax.
ANSWER: The forfeited deposits retained by Taxpayer are not subject to sales tax unless the
deposit, or parts thereof, is applied towards the price of admission or the license fee.
May 5, 2011
XXX
Re:

Subject: Technical Assistance Advisement (TAA)
Sales and Use Tax – Admission
Sections 212.031, 212.04, Florida Statutes (F.S.)
XXX (Taxpayer)
Rules 12A-1.005, 12A-1.070, Florida Administrative Code (F.A.C.)
FEI #: XXX

XXX:
This is in response to your letter dated December 7, 2010, requesting this Department’s issuance
of a Technical Assistance Advisement (TAA) pursuant to Section 213.22, F.S., and Rule Chapter
12-11, Florida Administrative Code (F.A.C.), concerning the above referenced matter. An
examination of your letter has established you have complied with the statutory and regulatory
requirements for issuance of a TAA. Therefore, the Department is hereby granting your request
for a TAA.
Issue
The issue is whether forfeited deposits retained by Taxpayer are subject to Florida sales tax.
Facts
Taxpayer owns and operates a [sports team] and plays its home games at a Florida [facility].
Taxpayer sells season tickets for its home games under the terms and conditions of Season
Ticket Agreements (STA) or Club Seat Agreements (CSA).
The STA applies to season tickets for seats located in the general seating area of the [facility].
The STA provides the following terms and conditions in part:

3. Admission Tickets. During the term of this Agreement, for each Seat purchased,
   [Taxpayer] will provide one (1) ticket, or other form of admission, to the [facility] for use
   of the Seat for each XXX XXX game played at the [facility] by [Taxpayer].
4. Seat Deposit. Account Holder will establish with [Taxpayer] and maintain a deposit

Technical Assistance Advisement
Page 2 of 5
(the “Deposit”) for each Seat in the amount shown above. The Deposit may be
commingled with other [Taxpayer] funds and may be used by [Taxpayer] for any
purpose. If, after the final season of this agreement, Account Holder has purchased the
Seats as set forth herein, Account Holder shall receive a refund of the Deposit. However,
if at any time during the term of this Agreement, any portion of the Seat Deposit is not
paid when due, Account Holder’s rights hereunder to use the Seats shall immediately
terminate and the Deposit shall be forfeited.

5. Ticket Fee. Subject to the terms and conditions herein, the use of the Seats will be
   contingent upon payment to [Taxpayer] of an annual ticket fee (“Ticket Fee”). The initial
   Ticket Fee is due and payable as set forth above. Thereafter, on or about XXX of each
   year during the term of this Agreement, [Taxpayer] will furnish to Account Holder a
   Ticket Fee invoice setting forth the Ticket Fee for the upcoming year (including
   applicable increases) which shall be payable as required by [Taxpayer]. In addition to
   the Ticket Fee described herein, Account Holder will be responsible for all applicable
   sales taxes, surcharges and shipping. If at any time during the term of this Agreement,
   any portion of the Ticket Fee is not paid when due, Account Holder’s rights hereunder to
   use the Seats shall immediately terminate and the Deposit shall be forfeited.
   The CSA applies to season tickets for seats located in the club seating area of the Facility. The
   CSA provides the following terms and conditions in part:
6. License Fee. Subject to the terms and conditions herein, the use of the Seats and club
   facilities shall be contingent upon payment to [Taxpayer] of an annual license fee
   (“License Fee”)…. On the dates described above, Licensee shall pay the Deposit and the
   … License Fee….
7. Licensee’s Privilege and Right to Seats. This Agreement provides Licensee with a
   revocable license to use the Seats and the club facilities located at the [facility] for the
   XXX XXX games played at the [facility] by [Taxpayer].

5. Admission Tickets. During the term of this Agreement, for each Seat purchased,
   [Taxpayer] shall provide (1) admission ticket to the [facility] for use of the Seat and the
   club facilities for each XXX XXX game played at the [facility] by [Taxpayer].

7. Seat Deposit. As security for the prompt and full payment of the License Fee due for
   each year during the term hereof and the full and faithful performance by Licensee of
   each and every obligation of Licensee under this Agreement, Licensee shall establish
   with [Taxpayer] and maintain a security deposit (the “Deposit”) for each Seat in the
   amount
   shown above…. If at any time during the term of this Agreement, any portion of the
   License Fee or any other amount payable to [Taxpayer] pursuant to this Agreement is not
   promptly paid when due, then [Taxpayer] may, without waiving any other remedy which

Technical Assistance Advisement
Page 3 of 5
it may have under this Agreement, appropriate and apply any or all of the remaining
portion of the Deposit to the payment of such amount and Licensee shall have no further
rights in or to such portion of the Deposit so applied. In such event, Licensee shall, upon
written demand of [Taxpayer] forthwith, remit to [Taxpayer] an amount sufficient to
restore the Deposit to the amount then applicable and Licensee’s failure to do so within
ten (10) business days after receipt of such demand shall constitute a default under this
Agreements. Otherwise, the remaining balance of the Deposit shall be returned to
Licensee at the expiration of the term of this Agreement. Renewal of the License granted
hereunder shall be at prices and terms then in effect. No interest shall be paid to Licensee
on the Deposit.

8. Default. In the event Licensee shall fail to pay any amount (including, without
   limitation, any annual License Fee or any amount necessary to establish the Deposit)
   required to be paid by Licensee pursuant to this Agreement or if Licensee shall otherwise
   fail to perform or observe any of its duties and obligations under this Agreement, and
   such failure to pay or perform shall continue for a period of ten (10) days after delivery of
   written notice thereof to Licensee, Licensee shall be in default under this Agreement, and
   [Taxpayer] may at its option without further demand or notice, (a) terminate the right of
   Licensee to use the Seats and all other rights and privileges of Licensee under this
   Agreement, whereupon [Taxpayer] shall have no further obligation of any kind to
   Licensee, (b) declare the entire unpaid balance of the License Fee (including the annual
   License Fee due for any future years) to be immediately due and payable, and/or (c)
   exercise any other remedies available to [Taxpayer] at law or in equity. Licensee shall
   remain obligated to make all payments due or becoming due under this Agreement….
   Further, upon default by Licensee hereunder, [Taxpayer] shall have the right to apply the
   Deposit in satisfaction of any amounts payable to [Taxpayer] hereunder, including, but
   not limited to, any unpaid License Fees and other costs or expenses suffered by
   [Taxpayer] as described above….
   Taxpayer stated in its letter dated December 7, 2010, that the deposits from both agreements are
   refundable, and are recorded in Taxpayer’s books and records as a liability.
   Requested Advisement
   Taxpayer requests a determination whether forfeited deposits retained by Taxpayer under the
   terms of the STA and CSA are subject to Florida sales tax.
   Applicable Authority and Discussion
   Season Ticket Agreement (STA)
   Section 212.04(1)(a), F.S., provides that it is the legislative intent that every person who sells or
   receives anything of value is exercising a taxable privilege. The tax levied is 6 percent of the
   sales price or the actual value received from such admissions. Section 212.04(1)(b), F.S. The
   sales price does not include a “refundable deposit that is paid to reserve the right to purchase
   season tickets, box seats, or other admissions, that is recorded on the books of the seller as a
   liability, and that does not entitle the payer to the right to be admitted to the event or events.”

Technical Assistance Advisement
Page 4 of 5
Rule 12A-1.005(1)(c)4., F.A.C. However, if the refundable deposit is applied to the purchase of
the season tickets, box seats, or other admissions, the deposit is treated as part of the sales price
or the actual value received from such admissions, and is subject to sales tax.
In this case, the deposit required under the STA is not subject to sales tax, because it is a
refundable deposit that is paid to reserve the right to purchase season tickets. The deposit does
not entitle the payer to the right to be admitted to the event(s), and it is recorded in Taxpayer’s
books as a liability. Similarly, the forfeited deposit retained by Taxpayer is not subject to sales
tax. However, if any of the deposit is applied toward the payment of the season tickets, then that
amount is subject to sales tax as part of the price of admissions.
Club Seat Agreement (CSA)
Although the CSA is similar to the STA, the CSA specifically refers to the agreement as a
license agreement, in which the licensee pays a license fee for the use of the seat(s) and club
facilities; hence, this agreement will be analyzed as an agreement for the use of real property 1 .
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.” The tax is imposed upon the “total rent or license fee,” and includes “base rent,
percentage rents, or similar charges.” Section 212.031(1)(c), F.S., and Rule 12A-1.070(4)(b),
F.A.C. Rule 12A-1.070(4)(g), F.A.C., provides the following in part regarding termination
charges (the forfeited deposit in this case):

1. The amount charged by a lessor to a lessee to cancel or terminate a lease agreement is
   subject to tax if the lessor records such charge as rental income in its books and records.
   If such charge is not recorded as rental income by the lessor, then such charge is not
   considered a payment for the lease of the real property but as a payment to cancel or
   terminate the lease agreement.

4. Should the lessor or lessee record the payment as other than rental income or rental
   expense, respectively, but sufficient documentation exists, such as a lease or other
   tangible evidence, to establish that the payment was additional payment for the use of the
   real property, then such payment is subject to tax.
   In this case, the CSA provides that Taxpayer may “appropriate and apply any or all of the
   remaining portion of the Deposit to the payment of such amount and Licensee shall have no

5. The best evidence of the intent and meaning of the contracting parties is the language used in the contract. Jacobs
   v. Petrino, 351 So.2d 1036, 1039 (Fla. 4th DCA 1976). It is well settled that where the terms of a contract are
   unambiguous, the parties’ intent must be determined from within the four corners of the document. Barakat v.
   Broward County Hous. Auth., 771 So.2d 1193, 1194-1195 (Fla. 4th DCA 2000). Another well settled principle is
   that a contract is ambiguous only when it is of uncertain meaning and may fairly be understood in more ways than
   one. Atlas Sewing Center, Inc. v. Belk’s Dep’t Store, Inc., 162 So.2d 274, 275 (Fla. 2d DCA 1964). In the absence
   of ambiguity, the plain meaning of the contractual language controls. Misala, Inc. v. Eagles, 662 So.2d 1389 (Fla.
   4th DCA 1995).

Technical Assistance Advisement
Page 5 of 5
further rights in or to such portion of the Deposits so applied.” 2 In the event that the deposits are
applied toward the license fee, the amount applied is taxable as part of the consideration paid for
the use of real property. However, if the deposit is retained by Taxpayer because the licensee
defaulted, and the deposit is not applied towards the license fee nor payment for the use of real
property, then the retained deposit is not subject to sales tax.
Conclusion
The forfeited deposits retained by Taxpayer under the terms of STA and CSA are not subject to
sales tax unless the deposit, or parts thereof, is applied towards the price of admission or the
license fee.
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 that 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,

Angel Sessions
Senior Tax Attorney
Technical Assistance and Dispute Resolution
(850) 717-7312
Record ID: 93819

2. CSA § 7.