Did hiring a promoter for some performances prevent a Florida 501(c)(3) theater from exempting its admission charges?

Plain-English summary

The nonprofit theater's admission charges qualified for the nonprofit sponsoring-organization exemption even when it hired a promoter. The theater actively planned and conducted each event, contracted with performers and service providers, managed the box office and personnel, bore safety responsibility and liability, owned the gross and net proceeds, paid all costs, and absorbed any net loss.

Paying the promoter a percentage of net profit did not disqualify the theater. The Department treated the contingent fee as another event cost because the theater still bore the financial risk; the promoter received nothing when the event produced a net loss.

The ruling also described an alternative exemption for certain live theater, opera, or ballet organizations. That route required at least 10,000 subscribers, at least 20% of net profits and losses when agents were used, and a timely exemption request under the rule.

What this means for you

Nonprofit status alone was not the whole analysis. The theater had to be the actual sponsor under the rule's substance-based factors: active participation, responsibility for safety and success, entitlement to proceeds, and responsibility for costs and losses.

A promoter can assist with talent and marketing without necessarily becoming the sponsor. The result turns on who controls the event and bears its economic and legal consequences.

Common questions

Q: Did the promoter's contingent fee destroy the exemption? No. The Department treated it as an event cost borne by the theater.

Q: Who received the ticket proceeds? All ticket proceeds accrued to the nonprofit theater.

Q: Who bore a bad event's loss? The theater did. If costs exceeded admissions revenue, it absorbed the net loss and the promoter received no contingent fee.

Q: Was the special live-performing-arts exemption automatic? No. The alternative provision required the subscriber, profit-and-loss, and annual application conditions described in section 212.04(2)(a)6. and Rule 12A-1.005(3)(k).

Citations and references

• Fla. Stat. § 212.04(2)(a)2.a. — admissions imposed by qualifying nonprofit sponsoring organizations
• Fla. Stat. § 212.04(2)(a)6. — alternative exemption for qualifying live theater, opera, and ballet productions
• Fla. Admin. Code r. 12A-1.005(3)(g), (h), (k) — nonprofit-admission exemption, sponsorship factors, and application procedure
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-079

Original ruling text

Nov 19, 1997

Re: Technical Assistance Advisement 97A-079
Sales and Use Tax
Admissions
Section 212.04(2)(a)2., F.S.
Rule 12A-1.005
XXX ("Taxpayer")

Dear :

This is in response to your letter of April 21, 1997,
requesting a technical assistance advisement (TAA) concerning
the applicability of sales tax to charges for theater admissions
by a nonprofit corporation.

FACTS

The Taxpayer is a Florida not-for-profit corporation. The
Taxpayer currently owns and operates a theater for performing
arts and related facilities at the address of the Taxpayer's
principal office. The Taxpayer operates the Theater for its own
presentations. The events presented by the Taxpayer include a
wide range of musical, theatrical, dance and comedic
performances.

In connection with some of its events, the Taxpayer will
contract with a promoter (the "Promoter") who will negotiate
with and assist in contracting with specific talent. The
Promoter may also provide assistance with regard to marketing
the event. The Taxpayer will generally pay the Promoter a
contingent fee based upon the Center's net profit for the event,
and will also reimburse the Promoter for certain expenses
directly related to the performance of its services. You
enclosed copies of the proposed agreement used in connection
with the engagement of such Promoters, the settlement statement,
and the Taxpayer's IRS determination letter confirming its tax
exempt status under Section 501(c)(3) of the Internal Revenue
Code.

The Taxpayer actively participates in the planning and
conducting of each event or program. Conducting each event
requires extensive activity on the part of the Taxpayer such as
engaging the performers, providing and managing the box office,
front of house, and backstage personnel, providing security and
parking, collecting admissions receipts, and paying all expenses
related to the event.

The Taxpayer will assume responsiblity for the safety and
success of the event or program such that it will be subject to
a suit for damages for alleged negligence in its conduct. As
the owner of the facility, the Taxpayer may be held liable for
injury to persons or property in or about the Theater in
connection with an event. The Taxpayer carries approximately
twenty-six million dollars in general liability insurance. In
addition, the Taxpayer provides security personnel to assure the
safety of attendees at an event and provides parking and parking
personnel to assist with safe ingress and egress to the Theater.
The Taxpayer contracts with the performers and all service
providers related to an event.

The Taxpayer is entitled to the gross proceeds from an
event and to the net proceeds after payment of its costs. The
proceeds of all ticket sales to an event accrue to the benefit
of the Taxpayer. The fee paid to the Promoter under the
Agreement is calculated as a percentage of the net profits of
the Taxpayer with regard to an event. This percentage is not
provided in any of the documents submitted. The Taxpayer is
responsible for the payment of the costs of the event. The
promoter's contingent fee is calculated based on net proceeds
after deducting certain costs. If there is a net loss in
calculating the contingent fee, the promoter does not get paid.
The Taxpayer contracts with persons and entities providing goods
and services in connection with an event in the name of the
Taxpayer. The Taxpayer is responsible for payment of all such
costs. If the costs of an event exceed the admissions revenue,
the Taxpayer bears the net loss.

ISSUE

Will the sale of admissions to events of the Taxpayer with
regard to which the Taxpayer has entered into the Agreement with
a Promoter be exempt from sales tax pursuant to Section
212.04(2)(a)2.a., F.S. and Rule 12A-1.005(3)(h)2., F.A.C.?

TAXPAYER'S POSITION

The sale of admissions to events of the Center with regard
to which the Center has entered into Agreement with a Promoter
should be exempt from sales and use tax.

APPLICABLE STATUTES AND RULES

Section 212.04(2)(a)2.a.&6., F.S., states:

2.a. No tax shall be levied on dues, membership fees, and
admission charges imposed by not-for-profit sponsoring
organizations. To receive this exemption, the sponsoring
organization must qualify as a not-for-profit entity under
the provisions of s. 501(c)(3) of the United States
Internal Revenue Code of 1954, as amended.

6. Also exempt from the tax imposed by this section to the
   extent provided in this subparagraph are admissions to live
   theater, live opera, or live ballet productions in this
   state which are sponsored by an organization that has
   received a determination from the Internal Revenue Service
   that the organization is exempt from federal income tax
   under s. 501(c)(3) of the United States Internal Revenue
   Code of 1954, as amended, if the organization actively
   participates in planning and conducting the event, is
   responsible for the safety and success of the event, is
   organized for the purpose of sponsoring live theater, live
   opera, or live ballet productions in this state, has more
   than 10,000 subscribing members and has among the stated
   purposes in its charter the promotion of arts education in
   the communities which it serves, and will receive at least
   20 percent of the net profits, if any, of the events which
   the organization sponsors and will bear the risk of at
   least 20 percent of the losses, if any, from the events
   which it sponsors if the organization employs other persons

as agents to provide services in connection with a
sponsored event. Prior to March 1 of each year, such
organization may apply to the department for a certificate
of exemption for admissions to such events sponsored in
this state by the organization during the immediately
following state fiscal year. The application shall state
the total dollar amount of admissions receipts collected by
the organization or its agents from such events in this
state sponsored by the organization or its agents in the
year immediately preceding the year in which the
organization applies for the exemption. Such organization
shall receive the exemption only to the extent of $1.5
million multiplied by the ratio that such receipts bear to
the total of such receipts of all organizations applying
for the exemption in such year; however, in no event shall
such exemption granted to any organization exceed 6 percent
of such admissions receipts collected by the organization
or its agents in the year immediately preceding the year in
which the organization applies for the exemption. Each
organization receiving the exemption shall report each
month to the department the total admissions receipts
collected from such events sponsored by the organization
during the preceding month and shall remit to the
department an amount equal to 6 percent of such receipts
reduced by any amount remaining under the exemption.
Tickets for such events sold by such organizations shall
not reflect the tax otherwise imposed under this section.

Rule 12A-1.005(3)(g),(h),(k), F.A.C., states:

(g) Dues membership fees, and admission charges imposed by
not-for-profit sponsoring organizations or community or
recreational facilities are exempt. To receive this
exemption, the organization making any such charges must
qualify as a not-for-profit entity under the provisions of
s. 501(c)(3) of the United States Internal Revenue Code of
1986, as amended.

(h) For the purposes of this rule, sponsorship of an event
or program is determined by using the following criteria:

1. Active participation by the entity in the planning and
conduct of the event or program;

2. Assumption by it of responsibility for the safety and
   success of the event or program, such that it will be
   subject to a suit for damages for alleged negligence in its
   conduct;

3. Entitlement by it to the gross proceeds from the event or
   program and to the net proceeds after payment of its costs;
   and

4. Responsibility by it for payment of costs of the event or
   program and for bearing any net loss if the costs exceed
   gross proceeds.

(k) Admissions to live theater, live opera, or live ballet
productions to the extent provided in s. 212.04(2)(a)6.,
F.S., are exempt. In order to receive this exemption, the
organization must make written request prior to March 1 of
each year for a certificate of exemption to:
Department of Revenue
Application Acceptance Section
Carlton Building
Tallahassee, Florida 32399-0100

Upon receipt and approval of the application, the department will
issue a certificate of exemption to the organization and advise
the organization of its pro rata share of the exemption.

DETERMINATION

The exemption in Section 212.04(2)(a)2.a., F.S., is
available when the 501(c)(3) sponsoring corporation meets the
requirements of Rule 12A-1.005(3)(g), F.A.C. Alternatively, the
exemption in Section 212.04(2)a.6., F.S., is available when the
sponsoring 501(c)(3) corporation has at least 10,000 subscribers,
and will receive at least 20 percent of the net profits, and will
bear 20 percent or more of the risk of loss of the event when the
corporation employs other persons as agents to provide services
in connection with the event.

Based on the above facts, the Taxpayer is the sponsor of the
event pursuant to the criteria stated in Rule 12A-1.005(3),
F.A.C. The fact the agent receives a percentage of profits or may
not be paid at all under the agreement, does not disqualify the
Taxpayer for the exemption. The amount paid or not paid to the
agent is simply another "cost" to the Taxpayer who continues to
bear the risk of loss. Therefore, the Taxpayer qualifies for the
exemption under Section 212.04(2)(a)2.a., F.S. Alternatively,
assuming the Taxpayer has at least 10,000 subscribers and
continues to be responsible for 20 percent or more of the risk of
loss of the event and will receive at least 20 percent of the net
profits, the Taxpayer may qualify for the exemption in Section
212.04(2)(a)6., F.S. To receive this exemption, the Taxpayer
must request the exemption in accordance with Rule 12A1.005(3)(k), F.A.C.

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 advise 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 advise 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 Section 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 response.

Sincerely,

Charles Wallace

Senior Tax Specialist
Technical Assistance and Dispute Resolution

CW/

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