on December 7, 1977, in Room 103, Collins Building, Tallahassee, Florida.
For Petitioner: Richard E. Benton, Esquire
Smith, Young and Blue, P.A. Post Office Box 1833 Tallahassee, Florida 32302
William H. Muntzing, Esquire Post Office Box 1568
For Respondent: Joseph C. Mellichamp
The issue in this proceeding is whether petitioner had a leasehold interest which was subject to the sales tax imposed by Florida Statutes s. 212.031.
Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found:
D.H.S. Developers, Inc. (hereinafter designated as D.H.S.) was the owner of the World Inn, a motel located in Lake Beuna Vista, Florida. Petitioner, Jarman A. Smith, was initially employed by World Inn before it opened as director of sales. The restaurant located within the World Inn was having problems with respect to the quality of food and service. D.H.S. then
asked petitioner Smith to begin operation of the restaurant and of the bar and lounge.
In June of 1973, petitioner began operation of the restaurant under an oral agreement with D.H.S. This agreement was intended to be reduced to writing, but a written contract never materialized. Pursuant to the oral agreement, petitioner was to operate and manage the restaurant facility, which occupied 5,000 to 6,000 square feet of the World Inn, and to remit on a monthly basis to World Inn a certain percentage (between 10 percent and 12 1/2 percent) of the gross sales from the dining room and gift shop. D.H.S. owned the heavy equipment and the fixtures located in the restaurant and was responsible for repairing and maintaining the premises in good condition. D.H.S. initially owned the food items and expendables, such as plates, utensils, table accessories, etc. When petitioner began operation of the restaurant, he paid a security deposit for these items and was responsible for maintaining them at the level necessary for operation of the facility. The petitioner had the responsibility to keep and maintain insurance on the premises, to pay the restaurant employees salaries, taxes and insurance and to hire and fire employees. Petitioner testified that the owners of D.H.S. came into the restaurant facility on a daily basis and sometimes gave instructions to the restaurant employees. Petitioner obtained an occupational license for the restaurant in his name and maintained a business bank account for the operation of the restaurant.
Petitioner also managed and operated the bar and lounge during the same period of time. Under this arrangement, which was also pursuant to an oral agreement, all sale receipts were turned over to D.H.S., from which D.H.S. paid all salaries, expenses and bills and kept 12 1/2 percent. Any balance remaining was given to petitioner. D.H.S. was responsible for the operational expenses of the bar and lounge, for obtaining all business and occupational licenses and for repairing and maintaining the premises in good condition.
Guests of the motel could charge their meals and drinks to their room. When a meal was charged, D.H.S. would pay the petitioner the amount charged, less a certain percentage for handling. When drinks were charged, that money was kept in the D.H.S. account.
In November of 1975, when the restaurant was doing well financially,
D.H.S. informed petitioner that it was going to take back the operation of the restaurant. Within a week, petitioner was required to turn everything over to
D.H.S. D.H.S. paid petitioner only for the value of the food and expendable inventories left on the premises.
The respondent Department of Revenue determined that a four percent sales tax was due on the ten percent monthly payment made by petitioner to World Inn based on the gross sales from the restaurant. Respondent thus issued assessments to both World Inn and petitioner. The assessment against World Inn was stayed pending the outcome of these proceedings.
CONCLUSIONS OF LAW
In pertinent part, F.S. s. 212.031 provides that
"(1)(a) It is declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of renting, leasing, or letting any real property . . ."
Section 212.031(1)(c) levies a tax on the exercise of such privilege in the amount of four percent of and on the total rent charged for the real property.
The respondent contends that petitioner had a leasehold interest in the realty upon which he operated the restaurant facility, and that the percentage of gross sales paid monthly to World Inn constituted rent subject to the four percent sales tax. Petitioner contends that the oral agreement did not constitute a lease, but was merely a management contract or a license to operate the restaurant on the subject property.
It is often difficult to distinguish between a license and a lease. A leasehold is a present interest and estate in real property for the period specified. A license is a personal, unassignable and ordinarily revocable privilege or permit to do something on the land of another. 49 Am. Jur. 2nd, "Landlord and Tenant," s. 5.
In support of their respective positions, respondent points to the facts that under the oral agreement petitioner was in exclusive occupancy of the facility, and had sole responsibility for all operational expenses, licenses and insurance coverage. Petitioner relies upon the facts that the agreement was oral and was never reduced to writing, petitioner could not assign his interest to any other person, and the agreement was terminable at the will of either party. It is contended by petitioner that the only reason for the differences in financial arrangements between the bar and the restaurant was the requirements of the beverage laws.
After due consideration of the evidence and the contentions of the parties, the undersigned concludes that petitioner, in the operation of the restaurant facility, was not exercising a taxable privilege within the meaning of F.S. s. 212.031. The tax provided by that section is a tax on the privilege of renting property. It appears from the evidence that what was contemplated by the oral agreement between petitioner and D.H.S. was, not the conveyance of an interest in real property, but rather an arrangement whereby petitioner would operate and manage the restaurant facility located on the property of D.H.S. Although the petitioner had certain responsibilities with respect to the operation of the restaurant, the agreement did not contain the essential attributes of a leasehold interest. As petitioner points out, the arrangement was personal to him. He could not assign or sublet his interest in the agreement. It was obviously revocable at the pleasure of the grantor, as petitioner received no more than seven days notice of termination at a time when the restaurant was doing well financially. The evidence as a whole illustrates that petitioner had a mere license to operate the restaurant under a profit motive. He was not engaged "in the business of renting, leasing or letting any real property, the taxable privilege contemplated by F.S. s. 212.031.
Petitioner has also challenged the respondent's procedure of levying the tax both upon petitioner and World Inn for the same transaction, and then abating the collection process against World Inn. In view of the conclusion that no tax is due on the transaction between petitioner and World Inn, this contention now appears moot.
