Were separately stated promotional fees for restaurant trademark and trade-name rights taxable as commercial rent in Florida?

Plain-English summary

The separately stated promotional fees were not subject to Florida sales or use tax as commercial rent. They paid for the right to use trademarks, trade names, and logos in advertising and public relations, not for the right to occupy the restaurant premises.

The leases separately calculated taxable percentage and bonus rent and a 4% promotional fee. The Department found that allocation reasonable under the 1995 amendment to section 212.031(1)(c), which excluded payments for intrinsically valuable personal property such as trademarks, service marks, logos, and patents.

The Department assumed that the lessor had authority to grant the promotional rights based on the identified parent-company relationship, even though it had not received documentation proving that authority. It also treated the statutory amendment as retroactive because the session law said it clarified and confirmed existing law.

What this means for you

A label alone does not make a lease payment nontaxable. The payment must actually buy separately identified intellectual-property rights, and a contract containing both taxable rent and nontaxable rights must make a reasonable allocation between them. The Department's conclusion also depended on its stated assumption about the lessor's authority to license the rights.

Common questions

Q: Were the restaurants' ordinary rent payments taxable?
A: Yes. The ruling said the lessee paid sales tax on percentage and bonus rent; only the separate promotional fees were at issue.

Q: Why were the promotional fees not treated as rent?
A: The lease provisions tied them to trademark, trade-name, and logo rights and calculated them separately from the payments for the premises.

Q: Can a lease combine taxable rent and nontaxable trademark payments?
A: Yes, but the statute quoted in the ruling required a reasonable allocation, and tax still applied to the rent portion.

Q: Did the Department verify that the lessor owned or controlled the trademark rights?
A: It assumed the lessor had authority based on the parent-company relationship described in an exhibit, while expressly noting that supporting documentation had not been provided.

Citations and references

• Fla. Stat. § 212.031(1)(c) — commercial rent and intrinsically valuable personal property
• Chapter 95-391, §§ 2-3, Laws of Florida — trademark payments and retroactive clarification
• State ex rel. Riverside Bank v. Green, 101 So. 2d 805, 807 (Fla. 1958) — retroactive application
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-001

Original ruling text

Jan 09, 1996

Re: TAA 96A-001
Trademarks and Trade Names
Section 212.031(1)(c), F.S.
Section 2, Chapter 95-391, L.O.F.

Dear :

This is a response, styled a Technical Assistance Advisement, to
your letter dated August 16, 1995, wherein you ask whether
certain payments, described by you as "promotional fee
payments", made by XXX (herein Lessee), to XXX (herein Lessor),
pursuant to provisions of two separate lease agreements, which
convey leasehold interests to Lessee in three restaurants
located at the XXXX are subject to sales or use tax under
provisions of s. 212.031, Florida Statutes. You cast the nature
of these payments on the first page of your letter as "...
certain promotional fee payments made by Lessee for the right to
use trademarks and trade names in advertising under a lease
agreement...."

You further opine on page 4 that "[t]he promotional fee payments
are not rent, nor are they consideration for the right to use
the premises under the terms of the lease." On the same page
you describe these payments as given for the right of Lessee
"... to use or make reference to the trademarks, trade names and
symbols XXXX' andXXX'... in advertising and public relations
to indicate the locations of its restaurants and their
affiliation with the XXX project."

You state that neither the Lessee nor the Lessor considers the
"... promotional fee payments to be `rent' or to otherwise
constitute consideration paid by Lessee for the right to use the
premises." You further explain that "[t]he promotional fee
compensates Lessor not only for the license of the trademarks,
but also for the substantial effort which is required to review
and evaluate any proposed use by Lessee. All proposed

advertisements and related items bearing the XXXX trademarks are
submitted by Lessee to [another affiliated company's]
advertising and marketing departments for pre-approval... After
thorough review, [the affiliated company] may or may not approve
the proposed use; [the affiliated company] has several times
restricted or revised Lessee's proposed use of the trademarks."

Of the two leases, one is dated November 2, 1988 (herein 1988
Lease), which grants a leasehold to Lessee in two restaurants
within the XXXX. On page 3 of your letter you cite 1988 Lease
Article 7.a. as requiring Lessee to pay "... a combination
percentage rent and bonus rent." The former amount is
established as equal to 4 percent of gross sales, and the latter
amount varies from 0.5 percent to 1.5 percent of gross sales
which exceed a certain minimum of sales. You state that Lessee
pays sales tax to Lessor on the total of these two amounts.
This tax is not at issue.

The "promotional fee" is established in Article 7.e as 4 percent
of gross sales. You also state on page 4 that the "promotional
fee" is never categorized as "additional rent." You provide
lease citations giving evidence that the terms "rent," and
"promotional fee" are expressed in the disjunctive and "...
referred to separately throughout the lease...."

The other lease, which is dated July 7, 1995 (herein 1995
Lease), is characterized by you, on page 4, as "... similar in
structure and content..." to the 1988 Lease in reference to the
"... nature, use and payment of the promotional fee." Section
6.10 of 1995 Lease establishes the "promotional fee" as 4
percent of gross receipts, and provides that the fee is paid for
the promotional rights as delineated in Exhibit F, which
provides the conditions under which Lessee may use certain
trademarks, trade names, and logos of XXXX.

As to the applicable law, you point out that s. 212.031(1)(c),
F.S., was amended during the 1995 legislative session to provide
that franchises, trademarks, service marks, logos, or patents,
as "intrinsically valuable personal property," are not subject
to sales or use tax. You cite the amendment which also states
that if a contract "... 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 nontaxable
payments."

In your response under the legend ANALYSIS, you reiterate that
the "promotional fee payments" of 1988 Lease are not subject to
tax under s. 212.031, F.S., because the payments are
consideration for the use of intrinsically valuable personal
property which are in this instance the trademarks, trade names,
and logos of XXXX. You add, on page 7, that the two lease
agreements "... provide a reasonable allocation of rental
payments which are subject to the commercial rentals tax and
promotional fee payments which are not."

You conclude your analysis by noting that the Department has
conceded that the "promotional fee payments" of 1988 Lease are
not taxable. You describe an audit, involving the
interpretation of this lease, wherein the Department, in a
Closing Agreement, "... compromised, in full, the proposed
assessment... on these payments, in light of the enactment of
Chapter 95-391." The Department adds that Lessee was the entity
audited.

Department response

The Department finds that the "promotional fee payments" as
described in Article 7.e of 1988 Lease, as such payments are
made for the promotional rights as such rights are described in
Article 47 of 1988 Lease, and the "promotional fee" as described
in Section 6.10 of 1995 Lease, are not subject to sales or use
tax because such "promotional fee payments," and the
"promotional fee" are given not for the privileges taxed by s.
212.031, F.S., but rather are consideration for, as provided in
section 2 of Chapter 95-391, L.O.F., the "... intrinsically
valuable personal property such as... trademarks, service marks,
logos... [which] are not subject to tax under this section."
Section 2 of Chapter 95-391, L.O.F., amended paragraph (1)(c) of
s. 212.031, F.S., by providing for the nontaxability of payments
made for such "intrinsically valuable personal property."
Bottomed on the identity of XXXX as the "parent company" of

Lessor as stated in the document styled, Composite Exhibit "I",
which is an attachment to 1988 Lease, the Department will assume
that Lessor has the authority to grant to Lessee the promotional
rights as described in Article 47 of 1988 Lease, and in Section
6.1 et seq. of 1995 Lease, notwithstanding that the Department
has not been provided with any documentation which evinces such
authority.

The session law provides in the penultimate sentence of section
2 that such payments, when given for "... franchises,
trademarks, service marks, logos, or patents are not subject to
tax under this section." The Department construes this sentence
to provide the predicate for nontaxability of such payments.

In the last sentence of section 2 a reasonable allocation is
required by the session law "[i]n 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."

Thus, whenever an agreement provides, as in the instant case,
for a payment for the use of such intrinsically valuable
personal property and such payment is identified as a separate
and specific amount, and within such agreement another payment,
also identified as a separate and specific amount, is given in
exchange for the lease or license to use real property, the
amount stated for the intrinsically valuable property will not
be subject to tax as long as it is based on a reasonable
allocation.

In the instant case, the Department finds that the separate and
specific amount, which can be determined by calculation, which
is given for certain use of the intrinsically valuable property
as provided in 1988 Lease, which provisions were agreed to by
both parties, and which predate the effective date of section 2,
of Chapter 95-391, L.O.F, and which were largely replicated in
1995 Lease, meet the standard of reasonableness required by the
statute. Consequently, the amounts separately stated as
"promotional fee payments", and "promotional fee" are not

subject to tax.

As to the retroactivity of this statutory change, section 3 of
Chapter 95-391, L.O.F., states in full that, "[i]t is the intent
of the legislature that section 2 of this act clarifies and
confirms existing law with respects to the tax imposed by s.
212.031, Florida Statutes." Thus, section 3 of the act provides
the clear expression of the legislature that the amendment is to
apply retrospectively. See, State of Florida, on relation of
Riverside Bank v. Green, 101 So.2d 805, 807 (Fla. 1958).

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

You are further advised that this response and your request 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,

Robert G. Parsons
Tax Law Specialist
Tax Policy and Dispute
Resolution

Ctrl. No. 22841