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Sales and Use Tax – TAA 16A-005 – Taxability of Placement of Advertising on Highway Signs

QUESTION: ARE SPONSORSHIP PAYMENTS, MADE TO THE FLORIDA DEPARTMENT OF TRANSPORTATION, FOR THE PROVISION OF ROADSIDE SIGNS, SUBJECT TO FLORIDA SALES AND USE TAX?

ANSWER: NO. FDOT RETAINS CONTROL OVER THE REAL PROPERTY.

April 8, 2016

Re: Technical Assistance Advisement – TAA 16A-005 Taxability of Placement of Advertising on Highway Signs Sales & Use Tax
Sections 212.02(10)(i) & 212.03(1)(a), Florida Statutes (F.S.)
FEI #: XXX

Dear XXX:

This is in response to your letter dated February 23, 2016, requesting this Department’s issuance of a Technical Assistance Advisement (“TAA”) pursuant to Section 213.22, F.S., and Rule Chapter 12-11, Florida Administrative Code (F.A.C.), regarding the taxability of advertising on highway signs. An examination of your letter has established that you have complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for a TAA.

ISSUE

The issue concerns the taxability of placements of advertising on XXX owned roadside signs.

FACTS AS PRESENTED

Your request provides in part the following:

The [Taxpayer] entered into an agreement with the XXX pursuant to which the [Taxpayer] will administer the XXX’s Sponsorship Program, a program whereby Sponsors either purchase certain services or products or contribute money to the XXX in exchange for publicity. The Sponsorship Program is defined in the Agreement as:

an innovative program that allows a person, a firm, or an entity to sponsor an element of a public agency’s highway operation through the provision of highway-related services, products, or monetary contribution. The purpose is that these sponsorship opportunities benefit the traveling public with an improved transportation system by providing flexibility for public agencies to pursue innovative sources of financing for maintenance and construction activities and other highway-related services. This program will create new revenue streams for the [XXX] by establishing long-term corporate relationships/partnerships that provide meaningful brand engagement and awareness opportunities with the everyday users of the [XXX’sl transportation system.

(Agreement, Exhibit A, Section A.) Pursuant to the Agreement, the Taxpayer’s responsibilities in administering the Sponsorship program include identifying potential Sponsors and marketing the Sponsorship Program to those potential Sponsors (Agreement, Exhibit A, Section B. 1); negotiating sponsorship terms and conditions (Agreement, Exhibit A, Section B.2); providing an opinion to XXX on whether it should accept or reject a sponsorship package (Id.); and invoicing and collecting sponsorship revenues from the Sponsors (Agreement, Exhibit A, Section B.8).

In exchange for its provision of these services, the Taxpayer retains a portion of the fees paid by the Sponsors to enter into sponsorship arrangements; the remaining portion is remitted by Applicant to the XXX. For the first, second, and third years of the Agreement, the Taxpayer retains 30%, 28%, and 26% of the sponsorship fees, respectively. For the fourth and any following years of the agreement, the Taxpayer retains 24% of the sponsorship fees. (Agreement, Section 3.)

At issue in this request for a TAA is whether Sponsor’s acquisition of rights to place its name or advertisements on highway signs pursuant to certain sponsorship opportunities is subject to the Florida sales and use tax. There are several sponsorship opportunities that provide the Sponsor with the right to have its name or other advertisement placed on highway signs. In all such arrangements, the mechanics of the highway sign placement and maintenance are the same as discussed below.

Paragraph 4 of Exhibit A of the Agreement specifies that either the Taxpayer or the Sponsor will he responsible for all cost and expense associated with the installation and fabrication of the sponsorship media, with the exception of capital expenditures.

Paragraph 6 of Exhibit A of the Agreement then specifics that the XXX is solely responsible for the cost and expense of capital expenditures. “The capital expenses associated with the Department infrastructure and/or assets that are utilized or made available as a sponsorship media, and the maintenance thereof, falls to the Department.”

In the Letter [ ], it was clarified that [t]he term Capital Expenditures was clearly intended to address and include the installation of highway signs, but is not specifically defined in the Agreement or its exhibits, Thus, this letter clarifies that such term includes highway signs, with the Department thus being solely and exclusively responsible for the cost and expense, and the fabrication and installation of the highway signs: the [XXX] or [the Taxpayer] at the direction of the [XXX] can, of course, retain third parties to actually perform these activities on behalf of the [XXX].

You supplied a letter from XXX, signed by XXX, dated January 5, 2016, along with your TAA request.

The [Taxpayer] has entered into an agreement with Subcontractor pursuant to which Subcontractor will perform certain of the [Taxpayer’s] responsibilities under the Agreement with respect to one of the opportunities available to Sponsors through the Sponsorship Program; thus Subcontractor is responsible for all administration concerning the “511 Sponsorship Program.”

RULING REQUESTED

It is your position that the placement of a sponsor’s name upon highway signs, by XXX, does not constitute a taxable license to use real property for sales and use tax purposes.

LAW AND DISCUSSION

Section 212.03l(1)(a), F.S., provides, in part:

It is declared to be the legislative intent 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 . . . .

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

“License,” as used in this chapter with reference to the use of real property, means the granting of a privilege to use or occupy a building or a parcel of real property for any purpose.

In general, sales and use tax is imposed on any license for the use of real property in Florida. A license is granted when a person is given the privilege to make use of the property in conducting its intended business.

As outlined above, Taxpayer has contracted with XXX to market sponsorships for highway advertising signs, negotiate terms and conditions, and collect revenues from sponsors. The Agreement does not authorize the Taxpayer to modify, access, or use the highway signs. The Agreement and the subsequent clarification letter specify that XXX is solely responsible for the fabrication, placement, and installation of the sponsored highway signs. XXX maintains control over the location and placement of the sign advertisements. Since Taxpayer’s responsibilities do not extend to actual use, access to, or occupation of the signs, the terms of the Agreement do not constitute a license to use real property. Therefore, payments made under the Agreement are not taxable sales and use transactions.

RESPONSE

Because XXX retains the control over the various locations, including control over the method of placement of the advertisements (pursuant to the terms of the Agreement), the Taxpayer is not granted a license to use the property. The payments made to XXX are not subject to sales and use 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 advice as specified in Section 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, your request and related backup documents are public records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions of s. 213.22, F.S. Confidential information must be deleted before public disclosure.

If you have any further questions with regard to this matter and wish to discuss them, you may contact me directly at (850) 717-6306.

Sincerely,

R. Clay Brower
Revenue Program Administrator
Technical Assistance & Dispute Resolution

Record ID: 209807

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