TAMPA BAY RAYS TAKE ON FLORIDA DEPARTMENT OF REVENUE
With the Miami Heat Championship run now behind us and about two months until the excitement for football season kicks in, the dog days of summer are upon us. For many sports fans, baseball and the occasional golf tournament are our only options for entertainment. Being that the local Miami Marlins have given me little to root for, I came across a reason to root for the Tampa Bay Rays this week. It is not because I am an avid baseball fan or that I have some vested interest in seeing them overcome the evil empire in the highly competitive AL East, but rather it is because they picked a fight with our draconian comrades at the Florida Department of Revenue ("FDOR")
John Woodrow Cox of the Tampa Bay Times ran a story on June 22, 2013, which asserted that the Rays filed suit against the FL DOR on June 12, 2013. The article reported the Rays underwent a Florida sales and use tax for the periods 2006 through 2009. This is common as the statute of limitations for a sales tax audit is 3 years. At the end of the audit in 2011, the FL DOR determined that the Tampa baseball franchise owed some $1.3 million in sales and use tax.
Based on the article, it appears the audit report was divided into six exhibits. Three of the six exhibits were agreed to and the Rays apparently paid the assessed amounts. It appears the first issue dealt with a percentage of ticket sales paid to the city. On audit, the Department regularly takes the position that any money paid to the landlord is for "rent" and subject to sales tax. This issue comes up on audit and "rent" is one of the top four areas of interest for the Department of Revenue, raising more than a billion dollars a year for the state in sales taxes on rent. This is often a surprise in the case of related parties and for out of state attorneys, as Florida is the only state in the country that imposes a sales tax on commercial rent. Specifically section 212.031 imposes a sales tax on payments made for the use of property.
Here, it appears that the Rays paid rent to the City of St Pete for the use of property. It then paid the city a second amount based on ticket sales. While the FL DOR takes a hard stance on audit, these types of issues are often settled after a lawsuit is filed. The State has been largely unsuccessful in commercial rent challenges over the years and is often hesitant to further litigate grey issues in the context of commercial rentals. According to the article, the FL DOR claims these payments are constructive rent for the use of the stadium and sales tax is due. However, it strongly depends on the wording on the agreements whether the Rays will win. According to the Rays, the payments are for management services on which no sales tax is due. If this is purely a case of a landlord being entitled to rent equal to a percentage of ticket sales, then the Rays will have an uphill battle despite the fact that ticket sales were already subject to sales tax. We look forward to following the case to see who is deemed correct by a court of law.
One of the other issues allegedly deals with purchases of prepared meals from Centerplate, its vendor, for meals provide to box seat guests. The crux of this issue appears to be that Centerplate did not separately list sales tax on its invoices. If the Rays are the end-user of the meals and owe tax on the meal purchases, then Florida law requires the sales tax to be separately stated. If the amount is not separately stated, the FL DOR takes the position that the entire amount is subject to tax.
For example, suppose the Rays and Centerplate have an agreement in which the Rays purchase meals at $20/meal. The contract between the Rays and Centerplate states that the $20 shall include applicable sales tax. If sales tax is not separately stated, then the state believes the full $20 is subject to tax and the Rays owe $1.40 per transaction (assuming 7%). If the $20 is inclusive of tax then the rays believe it already paid the $18.70 for the meal and the $1.30 for the tax. This results, according to the Florida Department of Revenue in a ten cent underpayment of tax per meal. As one can imagine this small discrepancy multiplied by the tens of thousands of meals, times the minimum of 82 home games a year, and then times three years can get quite substantial in a hurry. It also seems if this is the case, the Rays have an argument that the meals are purchased for resale, and however, this argument is largely unsuccessful if the meal is coupled with an admission charge unless perhaps the meal is specifically included on the ticket.
As a Florida sales tax attorney, it will be interesting to follow this case over the next several months and determine what the issues are and which issues end up getting settled or litigated. I hope to have possession of the complaint up in the next few days and please do not hesitate to contact me if you would like a copy. In the meantime, I will be rooting for the Rays and good luck to the attorneys involved at Holland & Knight.
About the author: Mr. Donnini is a Florida Attorney and an associate in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A., in Fort Lauderdale, Florida. Mr. Donnini's primary practice is Florida sales tax and state corporate income tax controversy. Mr. Donnini also does extensive work in the petroleum industry, both at the wholesale and retail levels. Mr. Donnini also handles matters in the areas of motor fuel tax, tobacco tax, and tourist development tax. If you are interested in any of these topics on a multi-state level please visit his blog or his multi-state nexus blogs. Mr. Donnini worked as an accountant for a public REIT prior going to law school and is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact the firm by phone or email, which are available in his firm bio HERE.