We have seen a growing trend of Florida sales and use tax audits on ESCAPE ROOMS. The purpose of this article to discuss the Florida sales and use tax issues surrounding escape rooms. If you are reading this article to know whether a escape room was supposed to charge you sales tax, then the answer is yes. If you are an owner of an escape room either under audit or worried whether you are handing your sales tax correctly, then you have come to the right place and should keep reading.
Everyone knows that the sale of tangible personal property is subject to sales tax in Florida, but Florida sales tax laws impose tax on much more than just goods. Most relevant to this article is Florida’s sales tax on “Admissions.” For example, the last time you went to Disney World and paid the $1,000 a day (it felt that expensive) to get into one of the theme parks, you not only paid the admission, but also a sales tax on that admission. Admissions are specifically subject to sales tax in Florida and the tax affects theme parks, gym memberships, movie theaters, paintball fields, party boat fishing trips, and even escape rooms.
Under Section 212.04, Fla. Stat., “every person is exercising a taxable privilege who sells or receives anything of value by way of admissions.” As a result, admissions are subject to sales and use tax unless they are specifically exempted under 212.04(2)(a), Fla. Stat., or another Florida law or rule.
An admission is defined under 212.02(1), Fla. Stat., as:
(1) The term “admissions” means and includes the net sum of money after deduction of any federal taxes for admitting a person or vehicle or persons to any place of amusement, sport, or recreation or for the privilege of entering or staying in any place of amusement, sport, or recreation, including, but not limited to, theaters, outdoor theaters, shows, exhibitions, games, races, or any place where charge is made by way of sale of tickets, gate charges, seat charges, box charges, season pass charges, cover charges, greens fees, participation fees, entrance fees, or other fees or receipts of anything of value measured on an admission or entrance or length of stay or seat box accommodations in any place where there is any exhibition, amusement, sport, or recreation, and all dues and fees paid to private clubs and membership clubs providing recreational or physical fitness facilities, including, but not limited to, golf, tennis, swimming, yachting, boating, athletic, exercise, and fitness facilities, except physical fitness facilities owned or operated by any hospital licensed under chapter 395.
Not only do sellers of admissions have to collect the tax, but they must abide by certain rules. For example, each ticket must show on its face the actual sales price of the admission, or each dealer selling the admission must prominently display at the box office or other place where the admission charge is made a notice disclosing the price of the admission that includes sales tax.
As escape rooms are places of amusement, it is a reasonable assumption that escape rooms fall under the definition of taxable admissions in Florida. If you are not under audit, then I would suggest that you follow the path of least resistance by taxing admissions. If you have not been taxing admissions and you are not under audit, then I would strongly suggest you consider a voluntary disclosure to clean up your sales tax before you get an audit. You can read more about a voluntary disclosure at the end of this article.
If you are reading this article because you have not been charging sales tax on your escape room admissions and you are under sales tax audit, then you are in a much tougher escape situation. There are a couple of potential arguments that might give you some relief for your past sales. Neither one is something the auditor is likely to accept, but you might get some relief at a higher level of challenge after the audit is over.
212.04(2)(a)(8), Fla. Stat., specifically exempts participation or entry fees charged to participants in a game, race, or other sport or recreational event if spectators are charged a taxable admission to such event. If your escape room charged a fee for spectators to watch the participants progress through the game, then we have a long shot argument that your escape room falls under this narrow exemption. Again, this is not an argument the audit is likely to buy into. But if your business is assessed tens of thousands of dollars of sales taxes that were never collected from your customers, then it might be worth the argument to settle the case.
Alternatively, because guests in most escape rooms are supervised, there may be an alternative argument for exempting the fees charged to participate in an escape room. To explain, we need to switch the discussion to gyms. A gym customer paying for a spin class, palates class, or other supervised instruction is considered to have paid for a non-taxable service under Florida sales tax law. But a gym customer paying a monthly fee to get general access to use the gym equipment is considered to be paying for a taxable admission. The distinction being constant supervision and instruction changes the admission into a non-taxable service. Turning to escape rooms, an argument can be made that supervised experience in an escape room is more akin to a non-taxable spin class than a taxable general admission to a gym. Again, the auditor will not buy into this argument, but it is a reasonable position to take if you are defending yourself against a large sales tax assessment.
If you own a escape room and still have questions or need help defending an audit, then please use the number at the top of this web page to call for a free initial consultation. You will able to speak directly with one of our attorneys to discuss your situation.
About the firm: At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended clients against Florida sales and use taxes for more than 25 years with over 100 years of cumulative experience working for our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire State of Florida. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
About the Author: Paula Savchenko is an associate attorney at the Law Offices of Moffa, Sutton, & Donnini, P.A, based in Fort Lauderdale, Florida. Ms. Savchenko joined the firm in 2013 and practices primarily in the areas of Taxation and Administrative Law matters, as she counsels and represents businesses and individuals in their dealings with government agencies. More specifically, most of her work involves tax and regulatory matters, with an emphasis on state and local taxation. In addition to serving on the board of the Greater Fort Lauderdale Tax Council she also serves on the board of Cannabis Law Accounting and Business, as well as the Florida Bar, Administrative Law Section, South Florida Chapter.
AUTHORITY
212.02, Fla. Stat. Definitions
212.04, Fla. Stat. Admissions tax; rate, procedure, enforcement.
Rule 12A-1.005(2)(i). Admissions
ADDITIONAL RESOURCES
FLORIDA SALES TAX INFORMAL WRITTEN PROTEST, published November 17, 2018, by James Sutton, CPA, Esq.
FLORIDA NOTICE OF FINAL ASSESSMENT (NOFA) | FL DEPT. OF REVENUE, published December 2, 2018, by Matthew Parker, Esq.
FLORIDA SALES TAX - VOLUNTARY DISCLOSURE PROGRAM, published April 9, 2018, by Jeanette Moffa, Esq.
GO TO JAIL FOR NOT PAYING FLORIDA SALES TAX?, published November 3, 2013, by James Sutton, CPA, Esq.