Were mandatory homeowner-association dues for community recreational facilities taxable admissions?

Subject

Mandatory Social Membership Dues

Plain-English summary

The mandatory social dues were not taxable admissions. Every owner or tenant had to pay them as a condition of owning or occupying property, regardless of actual facility use, and nonpayment could create a lien.

The association qualified as a homeowners' association, and the club facilities were owner-controlled common areas dedicated to residents. Owners held rights tied to their parcels and would share sale proceeds. The dues therefore maintained a property interest rather than purchased admission. Optional charges for food, drink, or tennis remained taxable.

What this means for you

The result depended on four connected facts: mandatory payment, payment to a homeowners' association, a condition of ownership or occupancy, and facilities that were common elements or common areas.

Common questions

Q: Were the mandatory social dues taxable? No.

Q: Did actual use of the facilities matter? No.

Q: Were optional club charges exempt too? No.

Citations and references

• Fla. Stat. §§ 212.02(1) and 212.04 — admissions and membership dues
• Fla. Admin. Code r. 12A-1.005(5)(d)2.d. — homeowner-association common-area payments
• Fla. Stat. § 720.301(7) — homeowners' association definition and membership
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01A-015

Original ruling text

SUMMARY
QUESTION: Should social membership dues paid to a
homeowner's association for the use recreational facilities

owned by the association's trust be subject to tax?

ANSWER - Based on Facts Below: Social membership dues are

not admissions if the Association can demonstrate that: (a)

the dues are mandatory; (b) paid to a homeowner's
association; (c) are required as a condition of ownership

or occupancy of real property; and (d) the facilities to

which the payments relate are part of the common elements
or common areas of the property owned by the members. The
payments are in essence for maintenance of a property

interest, and therefore not a taxable admission.

Mar 05, 2001

Re: Technical Assistance Advisement 01A-015
Mandatory Social Membership Dues
Sales and Use Tax
Section 212.04, F.S.
XXX (Association), Petitioner
XXX (Community)
FEI #: XX

Dear :
This is in response to your letter dated January 17, 2000,
requesting a technical assistance advisement regarding

Association's mandatory social membership dues.

FACTS

The Association is a Florida not-for-profit corporation
organized pursuant to Chapter 617, Florida Statutes. It was
incorporated as a non-stock, membership homeowners’ association

for the purpose of acquiring XXX, a tract of real property in

XXX, together with various improvements thereon (hereinafter the
"Club"), and operating and maintaining those recreational

facilities for the benefit of the owners (hereinafter the

“Owners") of residential units in the XXX (hereinafter the
"“Community"). The Community consists of XXX residential units,
comprised of XXX neighborhoods. There are individual homeowner's
associations for XXX of the neighborhoods. The XXX neighborhood
is a XXX unit residential apartment complex known as XXX
("Apartments"). Because of the size of the Community, the
Association was created with two classes of members. Class A
members are all of the owners of residential or dwelling units

in the Community. Class B members are the neighborhood
representatives for each Community neighborhood. All of the
memberships relate to the ownership of residential units in
Community, Class A directly and Class B derivatively; none of

the memberships reflect or represent non-owner or non-resident

interests.

The Association is required by section XXX of its Articles of
Incorporation to operate as a homeowner's association for

purposes of Florida Statutes s. 617.301(7), now renumbered as
Florida Statutes s. 720.301(7), and it is doing so. You

provided a copy of the Association's proposed Amended and
Restated Articles of Incorporation (hereinafter "Articles") and

a copy of the proposed Amended and Restated By-Laws (hereinafter
"By-Laws") as Exhibits A and B, respectively. You also provided

a copy of the Amended and Restated Club Covenant (hereinafter
“Covenant") and the Revocable Business Trust Agreement as

Exhibits C and D, respectively.

The Club facilities to which the social membership dues relate
include a health club, health club locker room and showers,

sitting room, swimming pool, bar and dining room. The Club is
owned by the Association, as grantor and sole beneficiary of the
Trust, and managed, operated, and maintained by the Association
for the benefit of owners of dwelling units in the greater
Community. The Association obtained the property and granted it
to the Trust under Association's full control subject to

creditor's interest in the club facilities.

The adjacent XXX was previously owned by XXX, but it has been

sold to an unrelated third party, which operates the pro shop
and golf locker room in the Clubhouse pursuant to a lease.

Accordingly, the XXX is not part of the Club or the XXX.

The Club is part of the Common Areas of XXX serving all
residents of the Community as provided in the proposed Amended
and Restated Covenant for XXX attached hereto as Exhibit C
(hereinafter "Covenant"). It is the only facility shared by the
entire Community. The Club is owned by the Association through
a revocable trust of which the Association is the sole

beneficial owner. The Association is also the grantor and
Management Trustee of the Trust (There is an institutional
Administrative Trustee, but all duties relating to the

management of the Trust Property are committed to the
Association as Management Trustee.). After the Association
purchased the property, it was conveyed to the trust. The trust

is also subject to the owner's rights granted by the Articles

and subordinate to the lender claims. A copy of the Trust

Agreement was attached as Exhibit D.

The Articles specifically entrust the Association with the power
and responsibility to operate, administer, and manage the Club
under the Covenant, including the right to operate, lease,
mortgage, sell, trade, or otherwise deal with such property,
whether real or personal, as may be necessary or convenient.
The Association is not responsible for any other recreational

facilities or property other than the Club.

The Association is a tiered association, comprised of all owners

of dwelling units in the Community (there are XXX dwelling

units), the XXX homeowner's associations to which the owners
mandatorily belong by virtue of owning a dwelling unit in one of

the XXX neighborhoods comprising the Community, and the owner of
the XXX. The Association is tiered principally because

attempting to conduct meetings and take votes with more than XXX
owners in attendance would be impractical. The tiered
configuration is common to large residential communities. The
Class B members represent the owners within their respective
constituent neighborhoods in conducting the business of the
association on behalf of the community at large. Class B members

exist solely for the purpose of representing their constituent

neighborhoods and, as entities, do not hold memberships as such.
Thus, they pay no social membership dues; their constituent
member owners pay such dues directly on their behalf as their
agent or representative. As a result, several associations are
Class B members, represented in the Association indirectly
through election of their board of directors who vote for an
individual to vote in the Association. The voting membership of
the Association is therefore comprised of a combination of Class

A parcel owners and agents of Class B parcel owners.

The Covenant will amend the exiting Covenant to which the Club
and the entire Community are subject, replacing entirely all

prior versions. Under the Covenant, the payment of Social
Membership Dues is mandatory and a condition of ownership of a
residence in Community. Sections XXX and XXX of the Covenant

provide as follows:

XXX Covenant Running with the Land. Every parcel of land

which is part of Community and which shall be improved with
a dwelling unit shall be burdened with the payment of

Social Membership Dues. This Restated Covenant including,
without limitation, the obligation to pay Social Membership
Dues, shall run with the land. Every Owner, by acceptance

of a Deed, shall automatically assume and agree to pay all
Social Membership Dues which shall be due and payable as of
the date of such Deed and which shall become due and
payable thereafter on account of the Social Membership in

the Club pertaining to property belonging to the Owner

while such Owner remains an Owner.

XXX Generally. Each Owner of any Dwelling Unit located
within Community shall pay for Social Membership in the
Club monthly dues in advance to Club Owner for each

dwelling unit owned by such Owner...

The Covenant also provides that the common area shall include
the clubhouse and all real and personal property of Association.
The term "dwelling unit" is defined in section XXX of the
Covenant to mean "a single family residence (attached or
unattached), townhome, condominium unit or that portion of an

XXX building designated as an apartment or intended to be used

as a XXX for a person or single family." The term "owner" is
there defined to mean "(a) the fee simple title holder of any
dwelling unit within Community including, without limitation,

the fee simple title holder of any XXX building which is rented

or leased to tenants; or (b) any other person, firm or

corporation which shall acquire or own any improved real
property in such form as may now exist or may be created from
time to time." Every "owner" is mandatorily a "social member."
The nonpayment of social membership dues gives rise to a claim

of lien against the defaulting owner's property.

Social membership entitles the member to use the club bar and
dining room (the cost of food or beverages is charged
separately), the health club, health club locker room and
showers, sitting room, and swimming pool. In addition to social
membership, owners may opt to take a tennis membership, for

which separate dues are charged.

The Association adopts an annual budget and, as part of that
budgeting process, establishes the amount of the social
membership dues for the ensuing year. The social membership
dues are paid to and collected by the Association and expended
by it in operating and maintaining the Club for the benefit of

the owners.

The Association is specifically given the authority to impose

and collect assessments in the form of social membership dues.
The Association is authorized to obtain a lien against Owner's
residential property for the non-payment of social membership
dues. Such liens have priority over other encumbrances and over
liens for assessments by the individual neighborhood
associations. The mandatory character of the social membership
dues is evidenced by this grant to the Association to place a

lien against the owner's property securing payment. The
obligation to pay social membership dues continues even if the
owner's membership is suspended for violation of the club rules.
The social membership dues are payable without regard to the

owner's use of the Club facilities.

The lien rights assure that the owners must pay the social

membership dues to the Association in order to protect the

integrity of their title and to continue ownership of the

property. Owners may not use the residential property and avoid
the obligation to pay social membership dues to the Association;
the right and the corresponding obligation are inseparable. The
dues are not a function of the extent to which, if at all, the

owner makes use of the club facilities, but arise solely by

reason of ownership or occupancy of a dwelling unit.

All funds and all the title to all properties acquired by the
Association and the proceeds thereof must be used for the
benefit of the social members. Upon liquidation, Class A
members are entitled to proceeds of the Association. Class A
membership may not be assigned or transferred in any manner
except as an appurtenance to such Class A member's interest in
his or her dwelling unit. Class A members of the Association

have no voting right except as permitted by the by-laws.

APPLICABLE STATUTES AND RULES

Section 212.04(1)(a) and (b), F.S., provide:

(1)(a) It is hereby declared to be the legislative intent
that every person is exercising a taxable privilege who

sells or receives anything of value by way of admissions.

(b) For the exercise of such privilege, a tax is levied at
the rate of 6 percent of sales price, or the actual value
received from such admissions, which 6 percent shall be
added to and collected with all such admissions from the
purchaser thereof, and such tax shall be paid for the
exercise of the privilege as defined in the preceding

paragraph....

Section 212.02(1), F.S., provides:

(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.

Rule 12A-1.005(5)(d)2.d., F.A.C., provides:

(d)2. The following payments made to private clubs or
membership clubs are not "fees" which are subject to tax on

admissions....

d. Mandatory dues and fees paid to a ... homeowners’
association ... when they are required to be paid asa
condition of ownership or occupancy of real property and
the club facilities are part of the common elements or

common areas of the real property.

Section 720.301(2), (7), and (8), F.S., provides:

(2) "Common area" means all real property within a
community which is owned or leased by an association or
dedicated for use or maintenance by the association or its
members, including, regardless of whether title has been

conveyed to the association:

(a) Real property the use of which is dedicated to the

association or its members by a recorded plat; or

(b) Real property committed by a declaration of covenants

to be leased or conveyed to the association...

(7) "Homeowners' association" or "association" means a
Florida corporation responsible for the operation of a
community... in which the voting membership is made up of
parcel owners or their agents, or a combination thereof,

and in which membership is a mandatory condition of parcel
ownership, and which is authorized to impose assessments

that, if unpaid, may become a lien on the parcel...

TAXPAYER POSITION

The request seeks a ruling that mandatory social membership dues
paid to the Association will not be subject to sales tax if the
governing documents are amended so as to reflect the terms and
conditions as described below. This ruling request does not
pertain to dues charged for tennis memberships. You believe

that the social membership dues are not subject to the tax as
provided by Rule 12A-1.005(5)(d)2.d., F.A.C.

You maintain in your letter that Covenant sections XXX and XXX
clearly show that the payments are mandatory and are made to the
Association as required by the Rule, because the Association is

an association as defined by section 720.301(7), F.S. You
maintain in your letter that the social membership dues are a
condition of ownership or occupancy by virtue of sections XXX,
XXX, and XXX the Covenant. You maintain in your letter that the
Club is part of the common areas, since it is owned by the

Association.

ANALYSIS

Section 212.04, F.S., imposes sales tax against every dealer who
sells or receives anything of value by way of admissions, except
those admissions, that are specifically exempt. Section
212.02(1), F.S., includes as admissions all dues and fees paid

to private clubs and membership clubs providing recreational or
physical fitness facilities, including golf, tennis, swimming,

and exercise facilities. However, dues and fees payments which
meet the criteria of Rule 12A-1.005(5)(d)2.d., F.A.C., are not
admissions as provided by section 212.02(1), F.S. Chapter 720,
F.S., imposes further restrictions that the voting membership of

a homeowner's association must consist only of parcel owners or

their agents.

In this instance, the Rule criteria provide for four

requirements: (a) the dues or fees must be mandatory; (b) they
must be paid to a homeowner's association; (c) they must be
required as a condition of ownership or occupancy of real

property; and (d) the club facilities to which the payments

relate must be part of the common elements or common areas. The
essence of the exemption for payments made by a homeowner to his
homeowner's association for the use of common areas is that the
homeowner is, by virtue of his ownership of real property and
membership in the association, effectively a part-owner of the
facilities. The concept is reflected in further requirements

that the payments be mandatory and paid as a condition of the

homeowner's purchase of his real property.

Here the dues are mandatory. Each homeowner or tenant must pay
the social membership dues. It is not an option to anyone.

Section XXX the Covenant creates a permanent covenant, which
runs with the land on each parcel of the Community. When the
owner accepts a deed, the obligation is automatically assumed

and the owner agrees to pay the dues as long the person remains
the owner. Failure to pay the dues may result in the placing of

a lien on the property by the Association. The dues are payable

without regard to the owner's use of the Club facilities.

The second requirement is that the payment must be paid to a
homeowner association. The Association meets the definition of
a homeowner association as provided by section 720.301, F.S.
The Association is a Florida corporation responsible for the
operation of the Community. The Articles require that the
Association be responsible for the operation of the Community.
Sections XXX and XXX the Articles entrust the Association with
the power and responsibility to operate, administer, and manage
the Club. The Articles also provides the Association with the
discretion and authority to operate, lease, mortgage, sell,

trade, or otherwise deal with such property, whether real or
personal, as may be necessary or convenient in the
administration of the Association and the Club. The Association
is not responsible for any other recreational facilities than

the Club property.

Section 720.301(7), F.S., requires that the voting membership be
comprised solely of parcel owners (Class A member) or their
agents (Class B). Class A members are the individual parcel
owners and the apartment owners, and Class B members exist
solely for the purpose of representing their constituent
neighborhoods. The Class B members elect the Association
directors. Other voting rights are afforded to Class A and

Class B members in accordance with the By-Laws and Articles.
For example, the Class A members elect their Association boards

who appoint the Class B member.

Section 720.301(7), F.S., requires mandatory membership in the
Association as a condition of parcel ownership. Section XXX the
Covenant requires each parcel owner and tenant to be a social
member. The membership must continue for the duration of the
lease or as long as one remains an owner. Sections XXX, and XXX
of the covenant provide that the dues are mandatory and a

condition of ownership.

Section 720.301(7), F.S., requires that the Association be
authorized to impose assessments that, if unpaid, give rise to
lien rights against the defaulting owner's property. This
authority is granted by section XX of the Articles and section
XXX of the By-Laws. Section XXX of the Covenant grants a lien
right to the Association for the non-payment of social
membership dues. Such liens have priority over the liens for

assessments by the neighborhood associations.

The third criterion of Rule 12A-1.005(5)(d)2.d., F.A.C., is that
payment of social membership dues be a condition of ownership or
occupancy. This criterion is met for reasons stated above

regarding the second Rule criterion.

The fourth Rule requirement is that the recreational facilities

be part of the common areas. The facilities are specifically
identified as part of the common areas in the Covenant. The
facilities are dedicated solely for the use of the owners. The
right to use the facilities runs with the land, as witha

property interest. Class A members are entitled to the proceeds

of the sale if the Club facilities are sold. Non-members are

excluded from using common areas. Thus, all of the criteria for

Rule 12A-1.005(5)(d)2.d., F.A.C., are satisfied.

RESPONSE

Here, the payments for social membership dues are not taxable,
as provided by section 212.04, F.S., section 212.02(1), F.S.,
and Rule 12A-1.005(5)(d)2.d., F.A.C. All charges of an optional
nature, such as for food, drink, or fees to play tennis, are

subject to 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 advise 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 advise 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. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department

within 15 days of the date of this letter.

Sincerely,

Charles Wallace

Senior Tax Specialist

Technical Assistance and Dispute Resolution
(850) 922-4734

CW!
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