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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