Were admissions charged by a section 501(c)(3) foundation that operated and bore the financial risk of a Florida aquarium exempt from sales tax?

Plain-English summary

Florida ruled that the foundation's aquarium admission charges were exempt from sales tax because the foundation was both a section 501(c)(3) organization and the aquarium's qualifying nonprofit sponsor.

The foundation leased space to operate an educational aquarium devoted to local waterways and marine life. It ran the exhibits, laboratories, and classrooms and intended to fund operating costs from admissions and public contributions. It also planned reduced-price or free tickets for students and people unable to pay.

Rule 12A-1.005 used four sponsorship criteria. The foundation met each one:

1. Active participation: it operated the aquarium.
2. Safety and success: it was responsible for the program and had to maintain insurance, including general public liability coverage.
3. Proceeds: it was entitled to the aquarium's gross proceeds and the net proceeds after costs.
4. Costs and losses: it paid the costs and bore any loss if costs exceeded receipts.

Because the organization qualified under section 501(c)(3) and satisfied the sponsorship test, section 212.04 and the rule exempted the aquarium admissions.

What this means for you

Nonprofit attractions and educational programs

Federal tax-exempt status is necessary under the provision discussed here, but document who actually plans and operates the program, controls proceeds, pays expenses, carries liability, and absorbs losses.

Organizations using leased facilities

Leasing the venue did not prevent the exemption. The important facts were that the foundation itself operated the aquarium and accepted the operational and financial responsibilities identified in the rule.

Accountants and tax professionals

Test all four sponsorship elements rather than relying only on an IRS determination letter or Florida Consumer's Certificate of Exemption. The TAA's result rests on both nonprofit status and actual sponsorship.

Common questions

Q: Was the foundation recognized under section 501(c)(3)?
A: Yes. It supplied an IRS determination letter, and the facts also stated Florida had issued a Consumer Certificate of Exemption.

Q: Did the foundation operate the aquarium itself?
A: Yes. It was the aquarium operator and was responsible for safety and success.

Q: Who received the admission proceeds?
A: The foundation received gross proceeds and any net proceeds after costs.

Q: Who bore a loss if expenses exceeded admissions and contributions?
A: The foundation.

Q: Did free or reduced student admission create the exemption?
A: That policy was part of the facts, but the Department's legal conclusion focused on section 501(c)(3) status and the four sponsorship criteria.

Q: Are all admissions charged by a 501(c)(3) automatically exempt?
A: This TAA does not say that. The organization also had to be the sponsoring organization under the rule's operational and financial criteria.

Citations and references

• Fla. Stat. § 212.04(2)(a)2.a. — exemption for dues, membership fees, and admissions imposed by qualifying nonprofit sponsoring organizations.
• I.R.C. § 501(c)(3) — nonprofit status required by the Florida provision.
• Fla. Admin. Code r. 12A-1.005(3)(g)-(h) — nonprofit-admissions exemption and four sponsorship criteria.
• Fla. Admin. Code ch. 12-11 — TAA petition criteria referenced by the Department.
• Fla. Stat. § 213.22 — Technical Assistance Advisements.
• Fla. Stat. ch. 119 — public-record disclosure with identifying details deleted.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-085

Original ruling text

SUMMARY

Taxpayer is a 501(c)(3) organization operating an aquarium.
The organization endeavors to determine whether its
admission charges will be exempt from tax. The statutes
and rules both provide that admissions charges imposed by
section 501(c)(3), I.R.C., sponsoring organizations are
exempt from sales tax. The rule standardizes the criteria
for determining sponsorship. The information contained in
the request, indicates that the organization meets all of
the sponsorship criteria. The organization is the operator
of the aquarium. The organization is responsible for the
safety and success of the aquarium. The terms of the lease
agreement require the organization to maintain various
types of insurance coverage, including general public
liability insurance. Finally, the organization is entitled
to the gross proceeds of the aquarium and the net proceeds
after payment of costs, and bears the responsibility for
payment of costs and suffering any loss if costs exceed the
proceeds. Therefore, the charges for admissions to the
aquarium are exempt.

Nov 20, 1998

Re: Technical Assistance Advisement 98A-085
Sales and Use Tax - Admissions to Aquarium Operated by
Exempt Organization
Section: 212.04, F.S. Rule: 12A-1.005, F.A.C.
Petitioner: XXX (herein "Foundation")
FEI:

Dear :

This letter is a response to your petition dated May 15, 1998,
for the Department's issuance of a Technical Assistance
Advisement ("TAA") concerning the above referenced party and
matter. Your petition has been carefully examined and the
Department finds it to be in compliance with the requisite

criteria set forth in Chapter 12-11, F.A.C. This response to
your request constitutes a TAA and is issued to you under the
authority of s. 213.22, F.S.

FACTS

From your request:

The [Foundation] was incorporated on January 14, 1992, and
has received a determination letter from the Internal
Revenue Service that it is described in Section 501(c)(3)
of the Internal Revenue Code of 1986 [determination letter
provided]. The records of the Department of Revenue should
reflect that the Department has issued the [Foundation] a
Consumer Certificate of Exemption.

The [Foundation] has leased space from [landlord], in order
to operate an aquarium dedicated to the research and
preservation of waterways and marine life in [Florida city]
and surrounding areas. The pertinent lease is attached
hereto as Exhibit 2. The aquarium consists of a series of
exhibits, including water drawn from local sources being
subjected to various methods of purification, as well as
tanks containing local sea life, such as fish, crab, etc.
The aquarium also contains hands-on exhibits, labs, and
classrooms. The sole purpose of the [Foundation] is to
educate the public and generate interest in protecting the
environment.

The [Foundation] anticipates that the operating costs of
the aquarium will be funded from admissions charged to
enter the aquarium and contributions from the general
public. However, the [Foundation] will make tickets
available at reduced cost or for free to local elementary,
middle, and high schools students, and to individuals who
cannot afford to pay. The [Foundation] has made it clear
that no one will be refused admission to the aquarium based
upon an inability to pay the admissions charge.

REQUESTED ADVISEMENT

You endeavor to determine whether charges by Foundation for
admissions to the aquarium are exempt.

Discussion, Analysis, and Conclusion of Law

Section 212.04(2)(a)2.a., Florida Statutes, provides:

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 Internal Revenue Code
of 1954, as amended.

Rule 12A-1.005(3), Florida Administrative Code, implements the
above law, and provides in pertinent part:

(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.

The statutes and rules both provide that admissions charges
imposed by section 501(c)(3), I.R.C., sponsoring organizations
are exempt from sales tax. The rule standardizes the criteria
for determining sponsorship. The information contained in the
request, as well as the supporting documentation provided with
the request, indicates that the Foundation meets all of the
sponsorship criteria. The Foundation is the operator of the
aquarium. The Foundation is responsible for the safety and
success of the aquarium. The terms of the lease agreement
require the Foundation to maintain various types of insurance
coverage, including general public liability insurance.
Finally, the Foundation is entitled to the gross proceeds of the
aquarium and the net proceeds after payment of costs, and bears
the responsibility for payment of costs and suffering any loss
if costs exceed the proceeds. Therefore, the charges for
admissions to the aquarium are exempt.

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 advice, as specified in Section 213.22, F.S. Our
response is predicated upon 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 from that which is 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 that 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 this response.

Sincerely,

Sara D. Faulkenberry
Tax Law Specialist
Technical Assistance and Dispute Resolution
850/414-9838
[email protected]

Control #34629