Was a convention-center food concession agreement an exempt lease or a taxable license?

Subject

Convention-Center Concession Agreement as a Lease

Plain-English summary

The food-and-beverage concession agreement created an exempt lease of real property, not a taxable license. Section 212.031(1)(a)10 excluded qualifying leases to food concessionaires inside publicly owned convention facilities, but did not extend that exclusion to mere licenses.

The agreement granted exclusive control of identified concession, service, pantry, and storage areas for a long term. It was assignable subject to limits, survived ownership changes, required the concessionaire to maintain the premises, and supported more than $220,000 of installed improvements. Those facts exceeded a personal privilege to use space.

What this means for you

The contract label alone did not control. Exclusive dominion, a fixed area, duration, assignability, improvements, and maintenance duties supported lease treatment; a nonexclusive privilege would point toward a taxable license.

Common questions

Q: Why did lease versus license matter? The convention-center statute excluded leases, subleases, and rentals, but omitted licenses.

Q: Were the percentage-of-sales payments taxable? No, because they were rent under the qualifying lease.

Q: What was the strongest lease fact? Exclusive possession of specifically identified, lockable areas for a multi-year term.

Citations and references

• Fla. Stat. § 212.031(1)(a)10 — convention-center food concession lease exclusion
• Fla. Stat. § 212.02(10)(i) — license definition
• Fla. Admin. Code r. 12A-1.070 — real-property rental rule
• Bode v. Carbonell, 354 So. 2d 927 (Fla. 2d DCA 1978); Wash-Bowl Vending Co. v. No. 3 Condominium Association, 485 So. 2d 1307 (Fla. 3d DCA 1986) — lease indicia cited in the ruling
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-082

Original ruling text

Nov 26, 1997

Re: Technical Assistance Advisement 97A-082 Lease or License to Use Real Property Section 212.02(10)(i), F.S. Section 212.031(1)(a)10., F.S. Rule 12A-1.070, F.A.C. XXX (herein Concessionaire) XXX (herein City Center)

Dear :

This is a response, styled a Technical Assistance Advisement, to your letter dated March 12, 1997, in which you asked whether Concessionaire, a Florida limited partnership, is a lessee or a licensee of certain space within City Center pursuant to a contract between the parties bearing the legend Concession Agreement (herein Agreement), which provides that Concessionaire will provide food and beverage and catering services within the City Center. The Agreement was executed February 12, 1985, for a term of 12 years with an allowance for the extension of the contract for 3 additional 5 year periods.

The City Center is municipally owned, and is operated as a convention center and for other public purposes.

You opine that the Agreement creates a lease of real property. Consequently, as the provisions of s. 212.031(1)(a)10., F.S., mandate, payments made pursuant to a lease of premises within a publicly owned convention center are not subject to sales or use tax. You cite Rule 12A-1.070(1)(a)8., F.A.C., as interpreting the statutory provision.

You bottom your contention that the Agreement is a lease of real property principally on the right, as you state on page 8 of your letter, of the Concessionaire "... to the use and occupancy of a specifically-identified area..." within the City Center which you add has been improved by the Concessionaire "... at significant expense." You also cite the right of occupancy of

the Concessionaire for a definite term of years; that neither party may terminate the Agreement at will; and that both parties, subject to certain restrictions, may assign their respective interests to third parties.

You cite case law which identifies an agreement as a lease of real property when it grants exclusive possession of, or a right to occupy an identified portion of, the premises.

You add that rent paid to the City is determined by applying a percentage to the gross sales of food and drink by the Concessionaire. You state, on page 4 of your letter, that Concessionaire "... is granted the exclusive access to and use of certain areas specifically identified as concession operations areas and food/beverage service areas..." within the premises.

You also, on page 4, describe food service areas used by Concessionaire as provided with "... lockable doors and/or barriers to ensure the [Concessionaire's] exclusive access thereto...." On the same page you state, as well, that Concessionaire has been "... granted exclusive use and possession of certain lockable pantries and lockable storage areas...."

Further, you aver, on page 4, that "[i]n reliance on its right to the exclusive use and occupancy of [these areas, Concessionaire] has, as its sole expense, purchased and installed built-in, walk-in coolers, ice machines, stainless steel sinks and counters, and other equipment and fixtures at a cost in excess of $220,000.00"

Department Response

Section 212.031(1)(a)10., F.S., provides that the tax on the privilege of engaging in the business of leasing, or of granting a license to use, real property is not applicable in the instance when the real property is "[l]eased, subleased, or rented to a person providing food and drink concessionaire services within the premises of... any publicly owned arena, sports stadium, convention hall, exhibition hall, auditorium, or

recreational facility."

Rule 12A-1.070, F.A.C., interprets the statute.

Considering the facility at issue, it is concluded that the City Center may be identified within the statute as, at minimum, a "convention center." Thus, any payment made by Concessionaire if it were to be taxed, must be given in exchange for a license to use the premises within the City Center.

Anterior to finding whether, under the facts, the Agreement conveys a lease of real property, and is not taxable, a threshold issue must be resolved, which is:

Whether the term "license" is subsumed in the terms "leased, subleased or rented" and, as a consequence, enjoys the exclusion from sales tax in sub-paragraph (1)(a)10. of s. 212.031, Florida Statutes?

The response is in the negative.

The exclusion in subparagraphs (1)(a)1. through (1)(a)10. of s. 212.031, F.S., are quite specifically identified. Thus, the omission from subparagraph (1)(a)10. of the word "license" is not an oversight but an expression of legislative intent.

In every paragraph to which the exclusions of renting, leasing, letting or the grant of a license for the use of real property apply, as in subparagraphs (1)(a)1., (1)(a)2., (1)(a)3., (1)(a)6., (1)(a)7., (1)(a)8., and (1)(a)9., the excluded real property is specifically identified or defined. Such specificity is also seen in subparagraphs (1)(a)4., and in (1)(a)10. In subparagraph (1)(a)4., any use other than a lease is taxable. This paragraph, as are the others, is quite specific. In subparagraph (1)(a)4., a lease of certain condominium property is excluded from the tax but the subparagraph pointedly provides that "... any other use... shall be fully taxable."

Similarly, in subparagraph (1)(a)10., the excluded transactions are a lease, sublease and rental. Considering the specificity of all the noted subparagraphs, the omission by the legislature

is not an oversight, but a manifestation of intent to take licenses from the excluded transactions and make licenses taxable as in subparagraph (1)(a)4.

If the omission in subparagraph (1)(a)10. were to be ignored and the tax not imposed on a lease, sublease, and license, then to be consistent, supplemental language must be added to that provided by the legislature in other portions of the statute such as (1)(a)4. and in subsections (5) and (6). Note is taken that in subsection (5) of the statute, the sublease of certain property is specially noted as the only exempt transaction. To overcome the omission of a sublease and license in this subsection, supplemental language would have to be inserted.

In subsection (6), the sublease is taxable while the lease is exempt. Again, if an omission were to be cured, then supplemental language would have to be added. Further, the term "license" is defined in s. 212.02(10)(i), F.S., which is a specific definition, while the term "lease" is defined in other paragraphs of s. 212.02(10), Florida Statutes.

In sum, the term "lease" does not subsume the term "license" in subparagraph (1)(a)10., of s. 212.031, Florida Statutes. Consequently, in construing subparagraph (1)(a)10., if a lease is found in the instant facts then the payments made thereunder are not subject to sales tax.

A determination is made that the Agreement creates not a license to use real property, but is a contract for a conveyance an interest in land. The Agreement creates a lease.

This finding is bottomed on the consideration of the following indicia which may be used as a guide in determining the character of an agreement such as the one at issue:

It is characterized as a lease in the document.

The interest created is not personal.

The interest may be devised or may otherwise survive the landlord's interest.

The party in possession may peaceably enjoy the premises.

The agreement is unaffected by a change in Ownership.

The agreement conveys exclusive dominion over a portion of, or of all the premises.

The interest is assignable without the consent of the landlord, or if consent is required, that such consent is not to be withheld unreasonably.

The interest exceeds a grant of a mere privilege to use the property.

The term of the contract extends over a period of years Maintenance of the demised premises are the responsibility of the Concessionaire.

A review of the document reveals that it is not personal to the Concessionaire under provisions of sections 15, 16 and 17. Also, the Concessionaire's interest may survive the Owner's interest. See sections 15, 16 and 17.

The agreement may be unaffected by the change in Ownership.

The concessionaire has dominion over a part, or all of the premises. Also, as the facts presented by you reveal, the area has been improved by the concessionaire at considerable expense to the concessionaire.

As to the element of dominion over the premises, you cite a Florida case, Bode v. Carbonell, 354 So.2d 927 (Fla. 2DCA 1978). Also relevant is the characterization of the agreement as a lease in Wash-Bowl Vending Co. v. No. 3 Condominium Association, Village Green, Inc., 485 So.2d 1307 (Fla. 3DCA 1986), and the decision in Sports Palace, Inc. v. Department of Revenue of the State of Florida, Case 72-1503 (Fla. Second Judicial Circuit 1974), wherein the lack of a right to occupy any specific, fixed, or particular space which did not grant exclusive possession to any such space did not convey a lease of such

space.

Thus, bottomed on the reasons, and on the Florida case law, as noted above, a determination is made that the Agreement creates a lease of real property. Consequently, the exclusion from the tax as provided in s. 212.031(1)(a)10., F.S., applies to the payments made by the Concessionaire pursuant to the Agreement.

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
Technical Assistance and Dispute Resolution

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