Were separate charter-boat operating-license fees taxable as part of rent for boat slips, a kiosk, and pushcart space?

Plain-English summary

A waterfront marketplace gave a charter-boat operator an exclusive operating license and separately leased it two boat slips plus kiosk and pushcart space. Florida read the agreements together and treated the license fees as part of the taxable rent.

The documents had identical time periods, numerous cross-references, and cross-default and cross-termination provisions. The dock lease governed where the operator could conduct its business, while the license supplied the exclusive right to use the location for charter excursions.

Because failure to pay either charge jeopardized continued occupancy and neither agreement had practical value without the other, the Department found one transaction: the rental of the real property with the right to use it for its intended purpose.

What this means for you

Waterfront and marketplace operators

Separating related rights into a lease and a license does not necessarily separate their tax treatment. Cross-defaults, shared terms, and economic dependence can make both payments rental consideration.

Charter and excursion businesses

Review all linked agreements when measuring taxable rent. Fees for exclusive operating rights may be included when those rights are inseparable from the occupied property.

Common questions

Why were the license fees taxable? They were required to retain the leased premises and were economically inseparable from the dock and marketplace lease.

Did calling the document a license control? No. The Department examined the agreements together and focused on the complete transaction.

What property was leased? Two boat slips and areas for a kiosk and pushcart at the waterfront marketplace.

Citations and references

• Fla. Stat. § 212.02(10)(i)
• Fla. Stat. § 212.03(6)
• Fla. Stat. § 212.031(1)(a)
• Fla. Admin. Code R. 12A-1.070(1)(f)
• Fla. Stat. § 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-025

Original ruling text

SUMMARY

Licensor operates a festival marketplace located on a
downtown waterfront. Licensee is granted in a License
Agreement "the exclusive license, right and privilege to
operate charter boats providing sightseeing excursions or
cruises from the marketplace". In a Lease Agreement,
Licensee leases two boat slips and kiosk and pushcart area
in the marketplace from Licensor. The License Agreement
and the Lease Agreement contain cross-default and crosstermination provisions. Payments under the License
Agreement constitute part of the total rental consideration
paid for the leased premises and are therefore taxable.

May 26, 1999

Re: Technical Assistance Advisement 99A-025
Sales & Use Tax - Licenses for Real Property
Sections 212.03(6); 212.031(1)(a), F.S.
Rule 12A-1.070(1)(f), F.A.C.
XXX ("Licensee"),
F.E.I. # XX
XXX ("Licensor")

Dear :

This is in response to your letter dated XX, for the
Department's issuance of a Technical Assistance Advisement
("TAA") concerning the above referenced parties and matter.
Your letter 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 section
213.22, F.S.

Discussion of Facts

Licensor operates a festival marketplace in downtown XXX

("City") known as the "XXX" ("Location"), which was constructed
on about 460 linear feet of river frontage. Licensor has
entered into an agreement (the "License Agreement") with
Licensee entitled, "Exclusive Operating License", under which
Licensee is granted "the exclusive license, right and privilege
to operate charter boats providing sightseeing excursions or
cruises from the Dockage and Center" (the festival marketplace
premises).

The term of the license is "coterminous" with the term of the
lease described below, and the license will be renewed
automatically if the lease is renewed. Pursuant to the License
Agreement, Licensee will pay monthly license fees for the
privilege of having the sole and exclusive right of operating
sightseeing excursion boats from the festival premises.
Licensee must also, under the License Agreement, pay all other
fees, taxes, costs and expenses required by the license. The
Licensee must operate the boats in accordance with a daily
operation schedule of single trips lasting no more than 90
minutes each.

Licensee has also leased from Licensor, under an agreement
entitled "Dock Lease", two boat slips consisting of a total of
about 117 linear feet of dock space, all within, or on the water
adjacent to, the festival premises. Passengers will board and
disembark from Licensee's charter boats located at the slips.
Licensee has also leased, pursuant to the Dock Lease, a kiosk
area and pushcart area. At the kiosk area, Licensee is to place
a kiosk structure to be used to provide information on, and to
sell tickets for, the sightseeing excursions, as well as to
market merchandise with Licensee's logo. At the pushcart area,
Licensee will place a pushcart for the same purposes.

For the boat slips, Licensee will pay monthly rent at the
following rate:

The Rent will be charged by Landlord to Tenant as a direct
pass through at the same rate the Landlord pays [the City]
for the Tenant's Demised Slips, and shall not exceed the
rates that Landlord is being charged [by the City] for the
Dockage.

The Dock Lease further provides that notwithstanding anything to
the contrary, the dockage fees used to calculate Licensee's rent
shall not exceed the "standard commercial dock rate" published
by the City.

Licensee also agrees, under the Dock Lease, to pay all other
fees, taxes, costs and expenses required by the lease.
Specifically, Licensee agrees to pay sales taxes due on the
rental payments. The lease is for a term of five years, and
Licensee has the option to renew for an additional five years.

Both the Dock Lease and the License Agreement contain crosstermination and cross-default provisions under which a
termination or an uncured default by Licensee under either
agreement will constitute a termination or default under the
other agreement.

Requested Advisement

The parties agree that payments of rent under the Dock Lease are
subject to sales tax. They have requested advisement on the
fees paid by Licensee to Licensor under the License Agreement.

Discussion and Analysis of Law

Section 212.031(1)(a), F.S., provides that "every person is
exercising a taxable privilege who engages in the business of
renting, leasing, letting, or granting a license for the use of
any real property unless such property is... [covered by one or
more of the exemptions listed in such statute, one of which is
the lease or rental of docking space under section 212.03(6),
F.S.]." Section 212.03(6), F.S., provides that the lease or
rental of docking spaces for boats in boat docks or marinas is
taxable. Thus, the parties are correct in their treatment of
payments under the Dock Lease for the demised slips, the kiosk
area and the pushcart area as being wholly taxable under the
joint application of the provisions of section 212.031(1)(a) and
section 212.03(6), F.S. But such payments are not the only
consideration paid for the lease, license or rental or real
property.

Section 212.02(10)(i), F.S., provides:

"License",... means the granting of a privilege to use or
occupy a building or a parcel of real property for any
purpose.

The term "lease" is not defined by statute with respect to the
type of real property at issue in the current situation.
However, case law indicates that a lease conveys a possessory
interest in land, under which the lessee holds the property
against all other claimants including the owner. Boden v.
Carbonell, 354 So.2d 927,929 (Fla, 2d DCA 1978), held that a
lease is created when the provisions of an agreement, styled a
"lease", include a grant of exclusive possession of a
particularly described area and require periodic rent for a
definite term of years.

By its terms, the License Agreement grants Licensee "the
exclusive license, right and privilege to operate charter boats
providing sightseeing excursions or cruises from the Dockage and
Center...." The License Agreement requires the payment of
monthly fees for at least a five-year period, for the Licensee
to have the exclusive right to conduct its daily operations at
the demised slips.

The argument of the parties appears to be that, despite the
clear language of the License Agreement, the License Agreement
does not involve the use of the marketplace property because the
use of the marketplace property is granted to Licensee in the
Dock Lease.

The License Agreement and the Dock Lease must be read together,
as they are inextricably joined by their identical time periods,
their numerous cross references, and their cross-termination and
cross-default provisions. The Dock Lease specifically states
that the uses to which the demised docks may be put are
specified and governed by the License Agreement. In the Dock
Lease, Licensee is granted not only boat slip space but also
areas in the marketplace in which to place a kiosk and pushcart.
The boat slips and the kiosk and pushcart areas are being rented

as a total package, despite their prime location in a festival
marketplace, at a rate equal to a straight pass-through of
whatever dockage fees the Licensor is charged by the City, but
not to exceed the "standard commercial dock rate" published by
the City.

It is clear from reading together the License Agreement and Dock
Lease that the "license fees" are part of the total
consideration being paid for the use of real property. Payment
of the "license fees" is required to avoid a default under the
Dock Lease. Payment of the rent under the lease is required to
avoid a default under the License Agreement. Thus, the "license
fees" and the rental payment must both be paid to allow Licensee
to have continuing occupancy of the demised premises.

A dock, without the right to use it, is of no appreciable value.
See Sullivan v. Lear, 2 So. 846 (Fla. 1887). The demised boat
slips would have no value to the Licensee without the specific
usage rights specified by the License Agreement. Similarly, the
rights granted by the License Agreement would be valueless
without the specific demised boat slips covered by the Dock
Lease. Thus, the License Agreement and the Dock Lease in
essence involve only one transaction: the rental of dock space
and real property (the kiosk and cart areas) and the
accompanying right to use that space and property for the
purpose intended by the parties. See, Florida Association of
Broadcasters v. Kirk, 268 So.2d 534 (Fla. 1972), in which the
Florida Supreme Court found that the rental of, and license to
use, tangible personal property constituted one transaction _
the rental of property _ when the rental of the property
necessarily included the right to use the property for its
intended purpose.

We therefore conclude that the License Agreement imposes part of
the total rental consideration required to be paid for the
demised premises. Thus, the "license fees" paid thereunder are
subject to sales tax.

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 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, your request and
related backup documents 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. Confidential information
must be deleted before public disclosure. In an effort to
protect confidentiality, we request you provide the undersigned
with an edited copy of your request for Technical Assistance
Advisement, the backup material and this response, deleting
names, addresses and any other details which might lead to
identification of the taxpayer. Your response should be
received by the Department within 15 days of the date of this
letter.

Sincerely,

Robert D. Heyde
Senior Attorney
Technical Assistance & Dispute Resolution

Control #37119
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