Were airport privilege fees and space/use permit fees taxable when paid by an in-flight food-service provider?

Subject

Airport Lease, Privilege Fee and Space/Use Permit

Plain-English summary

The airport privilege fees and space/use permit fees were subject to sales tax. The food-service company prepared and delivered in-flight meals under airline contracts; it did not sell food or other property directly to the airport's general public and therefore was not a retail concessionaire eligible for the airport license exemption.

The privilege fee was additional consideration for leased premises because it appeared in the leases and nonpayment caused lease default. Even if the space/use permit was a license for access connected to the off-airport site, its payment remained taxable because the company lacked qualifying concessionaire status.

What this means for you

The ruling looked at who received the food sales and how each fee related to property rights. Calling a charge a privilege fee or permit did not remove it from total taxable rent or license consideration.

Common questions

Was airline catering treated as an airport concession? No. Florida reserved that status for direct sales to the general public within the airport.

Why was the privilege fee taxable? It was part of the lease consideration and enforceable through lease default.

Would a license label have exempted the space/use fee? No, because the payer was not a qualifying concessionaire.

Citations and references

• Fla. Stat. §§ 212.031(1)(a)10., 212.031(1)(c), 212.031(2)(b), and 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-009

Original ruling text

Jan 14, 1994

RE: TAA 94A-009
Sales Tax
Airport Lease, Privilege Fee and Space/Use Permit

Dear :

This is in response to your request for a Technical
Assistance Advisement, dated June 18, 1993, regarding the above
referenced issue. This response constitutes a Technical
Assistance Advisement under Chapter 12-11, Florida
Administrative Code, and is issued to you pursuant to the
authority of s. 213.22, Florida Statutes.

FACTS

As ascertained from letters submitted to the Department,
dated June 18, 1993, and October 15, 1993, conversations with
XXX, and other documents submitted for review, the following
conclusions of fact have been reached by the Department. XXX
(hereinafter, Food Server) contracts with airlines operating out
of the XXX Airport (hereinafter, Airport) to provide in-flight
food services. The pre-packaged meals prepared by Food Server
are either prepared at Food Server's leased facilities at the
airport, or are transported from Food Server's off-airport
facility to aircraft(s) parked at aircraft gates at the
passenger terminal. The meals purchased by the airlines from
Food Server are ultimately served in-flight to airline
passengers.

In connection with the performance of these services Food
Server has entered into two separate lease agreements with
Airport. These lease agreements, dated July 17, 1987, and March
12, 1990, (hereinafter, Lease 1 and Lease 2, respectively),
provide for the use and occupancy of 260,489 square feet and
367,899 square feet, (hereinafter, Site 1 and Site 2,
respectively). In consideration for the use of such premises,
Food Server makes monthly rental payments to Airport, Food

Server and Airport acknowledge are subject to sales tax pursuant
to s. 212.031, F.S.

In addition to the monthly rental payments, the Lease
agreements also require that Food Server make payments of
monthly "privilege fees" to Airport. Such privilege fees are
paid over and above the monthly rental payments, and are based
on a percentage of Food Server's annual gross receipts from its
operations at the airport.

Moreover, Food Server also makes payments to Airport under
a "Space/Use Permit," which taxpayer claims does not provide for
the use of any particular space within the airport, but merely
permits Food Server to enter upon airport property for purposes
of conducting its business as it relates to the off-airport
property occupied by Food Server (hereinafter, Site 3). (The
Department notes that no written documentation, other that the
statement of the letter dated June 18, 1993, and the statements
made by XXX, was submitted to support that the Space/Use Permit
relates exclusively to Site 3, the off-airport property.) As
with the "privilege fees," the payments due under the Space/Use
Permit are based on a percentage of Food Server's annual gross
receipts from its operations.

Enclosed with your request, and reviewed by this writer,
were the following documents: 1) two Lease Agreements between
Airport (lessor) and Food Server (lessee), Lease 1 and Lease 2;
2) three Space/Use Permits between Airport and Food Server
(Permittee), for the terms of March 1, 1990, to February 28,
1991, March 1, 1991, to February 28, 1992, and March 1, 1992, to
February 28, 1993, respectively (no Space/Use Permit was
submitted for review by the Department which pertains to the
present time period); and 3) a plat/diagram of the Airport
indicating Food Server's lease locations at the airport.

Lease 2 provides:

"ARTICLE III - OBLIGATION OF AUTHORITY

"3.02 Condition and Maintenance of Streets; Access.

"(b) Lessee and its authorized sublessees and assignees and
its and their respective employees and invitees, shall have
access to the Premises over XXX Road, using such vehicles
as are legally permitted to operate on public roads in the
City. Portions of XXX Road may be closed from time to time
in order to make repairs or renovations thereto, but
Authority shall be obligated to provide reasonable
temporary access to the Premises. XXX Road may be closed
entirely in the event of an emergency; provided, however,
that in such event Authority will make a reasonable effort
to resolve the emergency expeditiously.
"(c) Lessee and its authorized sublessees and assignees,
and its and their respective employees, shall have
vehicular access to the air operations area of the Airport
over a controlled access roadway in the vicinity of the
Premises as Authority shall from time to time designate for
such purposes, subject to such reasonable rules and
regulations, and to such fees of uniform application to all
users similarly situated, as may be established by
Authority from time to time. Authority shall be responsible
for maintaining at its own expense such controlled access
roadway. Portion of such roadway may be closed from time
to time to make repairs of renovations thereto, but
Authority shall be obligated to provide reasonable
temporary access to the air operations area. Such roadway
may be closed entirely in the event of emergency; provided,
however, that in such event Authority will make a
reasonable effort to resolve the emergency expeditiously."
(Citing from Lease 2, pp. 9-10.)
A similar provision is contained in Lease 1 (s. 3.03, pp.
11-12); however, access is provided to XXX, instead of XXX.

Article VI, Lease 2, with respect to minimum annual rent,
provides:

"6.03 Unpaid Rent, Fees and Charges.
"(a) Any installment of minimum annual rent or privilege
fee... and any fees or other charges accruing under any
provision of this Lease that are not received within ten
(10) days of the date when payment is due, shall bear
interest from the date when the same was due according to

the terms of this Lease until paid by Lessee at the maximum
interest rate allowed under Florida law; provided, however,
that if no maximum interest rate is then provided by
Florida law, the interest rate shall be eighteen percent
(18%) per annum....

"6.04 Sales or Rent Tax. Lessee shall pay all sales or
rent taxes due on any installment of minimum annual rent,
privilege fees and on any other fees or changes accruing
under any provision of this Lease." (Citing from pp.2425).

Similar provisions are contained in Lease 1 (pp.35-36).

The Lease Agreements, with respect to privilege fees,
provide:

"Article VII - Privilege Fees
"7.01 Calculation and Payment of Privilege Fees
"(a) Commencing on the Effective Date, and continuing
throughout the term of this Lease, Lessee shall pay to
[Airport], in addition to the minimum annual rent, a sum
equal to (i) five percent (5%) of Gross Receipt for each
Lease Year, excluding Gross Receipts from general offAirport catering; and (ii) two percent (2%) of Gross
Receipts from general off-airport catering for each Lease
Year (the total being hereafter referred to as `privilege
fees')." (Citing from p. 37, Lease 1, and p. 25, Lease 2.)

Article XIII, regarding default, assignment and subletting,
provides:

"13.01 Default. The occurrence of any of the following
events shall constitute a default under this Lease:
"(a) the failure of Lessee to make any payment of rent or
any other payment required to be made by Lessee hereunder
when due,...

"(c) the repeated failure... to make any payment of rent or
any other payment required to be made by Lessee when
due...." (Citing from pp. 41-42, Lease 2.)

Similar provisions are contained in Lease 1 in ss. 13.01(a)
and (d), pp. 54-55).

Specific provisions contained in the Space/Use Permit
state:

"3. Space to be Occupied. Permittee is authorized to use
the following space at the Airport: NO SPACE - PRIVILEGE
ONLY" (Page 1).

"D. Utilities. Unless expressly provided otherwise herein,
Permittee shall be responsible for obtaining and paying for
all utilities used or consumed in the Assigned Space."
(Page 2)
"E. Access. Permittee and its officers, employees, agents
and invitees shall, subject to the reasonable rules and
regulations of the [Airport], have the right of ingress and
egress to and from the Assigned Space." (Page 2)

"M. Default. In the event that Permittee shall fail to
remit any payment due to [Airport]... [Airport] may elect
to terminate this Permit and resume possession of the
Assigned Space,...." (Page 5)

"N. End of Term. At the end of the term..., Permittee shall
deliver to Authority possession of the Assigned Space...."
(Page 5)

ISSUE

Whether the privilege fees and the Space/Use Permit fees
paid by Food Server to Authority are subject to Florida sales
tax, pursuant to s. 212.031, F.S.?

RELEVANT PROVISIONS OF LAW

Section 212.031, F.S., provides:

"(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:

"10. Leased, subleased, or rented to a person providing
food and drink concessionaire services... A person
providing retail concessionaire services involving the sale
of food and drink or other tangible personal property
within the premises of an airport shall be subject to tax
on the rental of real property used for that purpose, but
shall not be subject to the tax on any license to use the
property. For purposes of this subparagraph, the term
`sale' shall not include the leasing of tangible personal
property.

"(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.

"(2)(b) It is the further intent of this Legislature that only
one tax be collected on the rental or license fee payable
for the occupancy or use of any such property, that the tax
so collected shall not be pyramided by a progression of
transactions, and that the amount of the tax due the state
shall not be decreased by any such progression of
transactions." (Emphasis added.)

TAXPAYER'S POSITION

It is your position that the payments made by Food Server
pursuant to the privilege fees paid under the Lease Agreement,
and the Space/Use Permit, are exempt from Florida sales tax
pursuant to s. 212.031(1)(a)10., F.S. You assert that Food
Server qualifies as a concessionaire selling food, drinks or
other tangible personal property at retail within the premises
of an airport. You further assert that the payments made under
the Space/Use Permit and the privilege fee agreements
essentially constitute licenses to use real property, which,
when held by a concessionaire within the premises of an airport,
have been expressly exempted by the Legislature.

DISCUSSION AND DETERMINATION

Section 212.031, F.S., provides that sales tax applies when
the taxable privilege of engaging in the business of renting,
leasing, letting, or granting a license for the use of any real
property is exercised. Subparagraph (1)(a)10. of that provision
specifies that airport license agreements with persons providing
concessionaire services are exempt from sales tax, if a payment
is made solely for a license held by a retail concessionaire who
sells food and drink, or other tangible personal property, at an
airport.

The Department considers persons who make sales directly to
the general public within the premises of an airport to be
concessionaires. However, vendors who contract to provide
services or tangible personal property for airline operations,
such as the in-flight kitchen services provided by Food Server,
are not concessionaires, for purposes of s. 212.031(1)(a)10.,
F.S.

Having resolved that Food Server is not a "concessionaire,"
and that it is therefore not entitled to the exemption provided
in s. 212.031(1)(a)10., F.S., it is irrelevant whether the
privilege fee and the Space/Use Permit are licenses to use real
property.

However, in response to your argument that the privilege
fee and the Space/Use Permit are licenses, the Department
concludes as follows.

*

The consideration paid under the privilege fee is

additional consideration for the use and occupancy of the
premises referenced in the lease agreement. The Department
reaches this conclusion by noting that the privilege fee is
part of the lease agreements between Food Server and
Airport, as indicated in by sections 3.02(c), 6.03(a),
6.04, 7.01(a) and 13.01(a)(c) [(d) in Lease 1)], in Leases
1 and 2. More specifically, the privilege fee is contained
in Article VII of the lease agreements, and failure to pay
such fee would constitute grounds for default on the lease,

as expressed in Article XIII.
*

As it relates to the consideration paid under the

Space/Use Permit, it is the Department's position that, if,
in fact, the Space/Use Permit relates exclusively to Site
3, the off-airport real property also used by Food Server
to conduct its business at the airport, then it would be a
"license" to use real property. However, since Food Server
is not a concessionaire, the payments made to Airport for
the license to use real property under the Space/Use Permit
are also taxable.

In sum, since s. 212.031(1)(c), F.S., requires that the
total amount paid, in exchange for the right to use or occupy
real property, be subject to sales tax, then all considerations
paid by Food Server, in exchange for the use, occupancy or
access to real property, including payments under the privilege
fee and the Space/ Use Permit, are subject to tax.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
based on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request
are public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Nydia Men‚ndez
Technical Assistant

NM/pb