New Sea Escape Cruises, Ltd. v. Florida Dept. of Revenue

Citations: 823 So. 2d 161; 2002 Fla. App. LEXIS 8783; 2002 WL 1369559Docket: 4D00-3873

Court: District Court of Appeal of Florida; June 26, 2002; Florida; State Appellate Court

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Sea Escape Cruises, Ltd., operating "cruises to nowhere" from Fort Lauderdale, is appealing the Florida Department of Revenue's tax assessments for the period from September 1, 1996, to April 30, 1998. The appeal concerns the application of Florida's sales and use tax on proceeds from gambling and food concession agreements, as well as the gambling equipment used. Sea Escape, a Bahamian company registered as a Florida dealer for tax purposes, contends that the Department erroneously taxed its gambling activities, which occur outside Florida's territorial waters, as if they took place within the state.

The Department's stance is that taxes should not be prorated for these "cruises to nowhere," asserting that since the vessel does not dock at a foreign port, the gambling is taxable as if it occurred in Florida. Sea Escape argues that, under section 212.08(8)(a) of Florida Statutes, the taxes should be prorated based on the ratio of intrastate to interstate or foreign mileage, stating that miles traveled outside Florida cannot be considered "Florida mileage." The court's review will focus on whether the Department misinterpreted the law in assessing taxes under these circumstances, particularly the definitions and implications of "in the state" as outlined in section 212.05.

The Department's interpretation of statutory provisions it enforces warrants significant deference, particularly when statutes are ambiguous. However, the statutes in question are deemed unambiguous, with any ambiguity in taxing statutes interpreted in favor of the taxpayer. The taxes assessed under section 212.05 related to cruises to nowhere are to be prorated under section 212.08(8). Sea Escape argues that no tax should apply to gambling equipment while in Florida waters, asserting it is not 'used' in Florida. This argument is rejected, as section 212.05 imposes a tax on tangible property stored for use in Florida, with 'use' broadly defined to include any rights exercised over personal property. The gambling equipment, installed and maintained in Florida, is considered used while the vessel is in Florida, fitting the statutory definition. A precedent case, Klosters, supports this view, noting that goods loaded in Florida are considered used there regardless of consumption location.

Furthermore, regarding the agreement between Sea Escape and Tropical Gaming, whether this arrangement is considered taxable hinges on its classification as a lease or service. If it constitutes a lease, it is taxable under section 212.05; if it's merely a service, it is not. The definition of 'lease' encompasses the rental of tangible property without title transfer. The Department posits that the gambling equipment and its location were leased to Tropical. Although ownership of the equipment is unclear, Sea Escape's counsel indicated it is owned by Sea Escape, and the agreement grants Tropical exclusive rights to operate gaming activities for four years, with Sea Escape receiving 75% of gross revenues and Tropical 25%, while retaining control over the operation within specified limits.

Sea Escape has the authority to relocate its gambling operation either within the same vessel or to a different vessel. Tropical is tasked with the maintenance and repair of the gambling area and equipment. Upon termination of their agreement, Tropical must remove its owned equipment and restore the space to a usable condition. Sea Escape argues that its arrangement with Tropical constitutes a service rather than a lease, citing the case of Warning Safety Lights of Georgia. However, this case is deemed distinguishable because Tropical utilized its own equipment, unlike in the current situation where both the vessel and gaming equipment are personal property transferred to Tropical for compensation. Thus, the arrangement is classified as a lease or license, making it taxable under section 215.05.

Additionally, regarding the food and beverage concession, Sea Escape’s agreement with a caterer involved paying a per person fee for food and housekeeping services provided directly to passengers and crew. The Department claims these payments are taxable purchases of food, while Sea Escape contends they are not, arguing that the food did not pass from the caterer to Sea Escape. The conclusion is that the agreement with the caterer is a service agreement, not a lease, leading to a reversal of the tax assessment on food and beverages. The remaining tax assessments related to cruises will be prorated according to section 212.08(8) and Klosters, while the rest of the order is affirmed. There is also a note on a dispute regarding the inclusion of the agreement in the record, with the court agreeing that the Department's tax assessment implies it was considered.