Were mandatory homeowners' association assessments for common recreational facilities taxable club admissions?

Plain-English summary

The mandatory assessments were not taxable admissions after the recreational facilities became homeowners' association common property. The affected parcel owners had to pay as a condition of ownership or occupancy, the facilities were part of the common area, and nonpayment allowed a lien and foreclosure against the parcel.

The payments also maintained a perpetual easement appurtenant to the affected lots. Because they were mandatory property-related assessments rather than payments for a voluntary right to use a private club, the association did not have to collect sales tax, including on the first-year assessment formerly billed as club dues.

What this means for you

The ruling turned on the governing documents and property relationship. Recreational amenities alone did not make the charge taxable when the facilities were common property and the assessment followed parcel ownership with lien enforcement.

Common questions

Q: Did calling the old club dues an assessment decide the result? No. The Department examined the merger, common-area ownership, easement, mandatory parcel obligation, and lien rights.

Q: Did owners have to pay even if they did not use the facilities? The assessment was required as a condition of ownership or occupancy of the affected parcels.

Q: Was the first assessment after the merger taxable? No. The ruling included that first-year assessment in the nontaxable result.

Citations and references

• Fla. Stat. § 212.02(1) — admissions and private-club dues
• Fla. Stat. § 212.04(1) — tax on admissions
• Fla. Admin. Code r. 12A-1.005(4)(d)3 — mandatory homeowners' association fees
• Fla. Stat. § 720.301(2) and (7) — common area and homeowners' association
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02A-038

Original ruling text

SUMMARY

QUESTION: Is sales tax due for mandatory assessments
formerly billed as dues that are collected from association
members to maintain the association community's common
area, which includes recreational facilities?

ANSWER - based on the facts below: No. Since the
assessments are not admissions, the association is not
required to collect the sales tax on the assessment. Here,
the payment of the assessment to the association will be
mandatory by the members whose parcels are affected.
Payment of the assessment by the members will be required
as a condition of ownership of their residential homes.
Failure to pay the assessment will result in a lien and
foreclosure of the member's residential home or parcel.
The recreational facilities will be part of the common
areas owned by the association as provided by the
declaration and By-Laws.

Sep 30, 2002

Subject: Technical Assistance Advisement 02A-038
Homeowner Association Dues
Sales and Use Tax
Section 212.02(1), F.S.
Section 212.04, F.S.
Rule 12A-1.005, F.A.C.
XXX ("Association"), Petitioner
Taxpayer Identification Number: XX
XXX ("Club")
XXX ("Survivor")

Dear :

This is in response to your letter dated July 30, 2002,
regarding the taxability of the Recreational Facility Assessment
and dues collected by Association from the Association members.

ISSUE

Whether sales tax must be collected from Association's members
on membership dues formerly paid to Club for use of recreational
facilities after Club and Club's recreational facilities are
merged into Association.

FACTS

Association is a not-for-profit Florida corporation organized as
a homeowner's association as provided by Chapters 617 and 720,
F.S., with the purpose of acquiring and maintaining an improved
tract of property containing 606 building lots for the benefit
of the owners. At the present time, only three lots are
undeveloped and there are 603 occupied residential units.
Association serves the property and owners of residential lots
located in a Planned Unit Development Community (PUD). Lots in
the PUD are governed by the PUD Declaration covenants.

Association has one class of members. Each lot pays the same
basic assessments. In addition, certain homes have the
Association maintain lawns and landscaping and, with regard to
these homes, the Association periodically repaints the exteriors
of the homes and performs roof cleaning as well. A mandatory
assessment is paid for the costs of these services. Another
group of homes is sited on tidal water and pays an assessment to
the Association to cover the cost to maintain boating channels
and sea walls.

Club is a member owned not-for-profit Florida corporation. The
Club currently owns, operates, and maintains clubhouse, fitness,
golf, tennis, swim, and beach facilities. Only Association
residents and undeveloped lot owners are permitted to be members
of the Club. The 606 Association and Club memberships include
594 full members, 5 tennis club members (closed category of
membership), and 7 non-club members (closed category of
membership).

Club and Association will merge, depending on fulfillment of
certain conditions and a majority vote by Association and Club

members. After the merger, Club will no longer own the
recreational facilities now owned by Club, as Association will
be the surviving corporation. As a result of the merger,
Association will be renamed Survivor. The merger agreement
provides that Survivor will assume and be liable for all of
Club's assets and liabilities, including the equity owed to the
Club members, of which all members are also members of
Association and will be members of Survivor. The merger
agreement provides that the members of the Club will receive
certificates stated at the refundable equity contribution
amount, which will have a preference upon liquidation of
Association. The recreation certificates will be stated at the
recognized refundable equity contribution amount and recorded as
an equity contribution. Survivor will also be a homeowner's
association organized under Chapters 617 and 720, F.S.

Once the merger takes place, the Association will re-title
Club's recreational facilities and property so that it will be
part of the common areas of Association. The Club and
Association have no nonresident members or non-owner members.
Restrictions on the use of tennis and golf facilities may apply
to 12 members who do not upgrade their status.

Survivor will own the Club's facilities in fee simple or by
leasehold interest. The recreational facilities will be common
property as defined by the amended and restated declaration.
Every person or entity who is a record owner of a fee or
undivided interest in any residential lot becomes subject to the
covenants, restrictions, easements, charges, and liens set forth
in the governing documents. Survivor's amended and restated
articles of incorporation provide that the residential lot
owners who were formerly equity members in Club will have an
easement interest in the recreational facilities as common
property of the development area. The interest will be
appurtenant to their lots, affecting all future buyers in the
development area as with the Club members. As provided by the
governing documents, the easement in the common property will be
perpetual and non-exclusive and will be appurtenant to and will
pass with the title to each parcel once the equity contribution
and charges related to the recreational facilities are paid.

Association will bill an assessment prorated uniformly among
those members that formerly paid annual dues to Club in the
event that Club is merged into Association. In the first year,
the assessment will be billed prior to the official merger date
but will be used to defray the operating expenses of the
recreational facility, which is part of the common property for
the upcoming year. Failure to pay the assessment allows Survivor
to place a lien on the parcel and membership certificate. Such
lien may be foreclosed upon. A portion of the initial
contribution is allocable to refundable equity.

TAXPAYER POSITION

Dues paid to the Club, which will become mandatory assessments
for the maintenance of a property interest including former
recreational facilities, are not taxable as an admission, as
provided by TAA 01A-015, dated March 5, 2001.

The payment of the full dues to the former Club and successor
Association is mandatory for substantially all parcel owners in
the community. The governing documents require that all
existing and new home or lot owners become Regular members, with
the exception of an insubstantial number (12) of identified
units that were grandfathered in perpetuity to be exempt from
requiring Regular membership status. Due to historical events,
one percent of the owners were exempt from this requirement to
be Regular members, but they or their successors may still elect
to become full members with irreversible consequence. In other
words, once a grandfathered nonclub member assumes Regular
membership status, he or she can never revert back to nonclub
status. Similarly, one percent of the owners are grandfathered
tennis members, but when they leave, their successors must
become Regular members with irreversible consequence. This tiny
segment is very de minimus and should be disregarded in
determining that the Regular dues are mandatory. It is
important to note that the current 5 tennis only and 7 nonclub
members are indeed unit owners in the community; however, they
represent a "closed" class of membership that can not increase
in size. Before and after the merger of the former Club into
the Association, the 594 members' annual dues have been and will
continue to be mandatory and are noticeably higher than the 5

tennis only or 7 nonclub annual membership fee rates. As the 5
tennis members retire, it is mandatory that their successors
become Regular members. The existing Regular members' higher
dues will qualify as exempt from sales tax after the merger and
change of classification from "dues paid to a private club" to
"mandatory fees paid to a homeowner association."

Once the merger takes place, the Association will re-title
Club's recreational facilities and property so that they will be
part of the common areas of Association. The Club and
Association have no nonresident members or nonowner members.
Restrictions on the use of tennis and golf facilities may apply
to 12 members who do not upgrade their status.

APPLICABLE STATUTES AND RULES

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.

Section 212.04(1), F.S., provides:

(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....

Rule 12A-1.005(4)(d)3., F.A.C., provides:

(d) Fees paid to private clubs or membership clubs that do
not entitle the payor to the use of the club's recreational
or physical fitness facilities are not subject to tax.
Examples of such fees are:....

3. Mandatory dues and fees paid to a... homeowners'
   association... when they are required to be paid as a
   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.

The definition of "common area" in reference to homeowners'
associations is provided by section 720.301(2), F.S., and the
definition of a "homeowner's association" is provided by section
720.301(7), F.S. Section 720.301(2) and (7), 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....

(7) "Homeowner's association" or "association" means a
Florida corporation responsible for the operation of a
community or a mobile home subdivision 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....

RESPONSE

Section 212.04(1), F.S., imposes sales tax on the sales price of
admissions as provided by section 212.02(2), F.S. Section
212.02(2), F.S., includes payments of dues or fees to membership
clubs. Rule 12A-1.005(4)(d)3., F.A.C., provides an exclusion
from the definition of fees where the payment does not represent
payment for the right to use recreational facilities.

Here, the requirements of Rule 12A-1.005(4)(d)3., F.A.C., are
satisfied. Association and Survivor are homeowner's
associations incorporated pursuant to section 720.301(7), F.S.
The payments are billed by and paid to either Association or
Survivor. The recreational facilities are common areas as
defined by section 720.301(2), F.S. The assessment payments,
formerly paid as dues, are mandatory as provided by the
governing documents. The governing documents require the
assessments to be paid as a condition of occupancy of certain
parcels. Failure to pay the assessments, including the first
year's assessment, will result in a lien being placed upon the
parcel, which may then be foreclosed upon. Furthermore, the
assessment payments are made for the maintenance of a property
right, the easement that runs with and is appurtenant to certain
parcels in the PUD. As such, the payments, including the first
year assessment formerly paid as dues, satisfy the requirements
of Rule 12A-1.005(4)(d)3., F.A.C., and are not taxable
admissions, as provided by section 212.04(1), F.S., and section
212.02(1), F.S.

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 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 Attorney
Technical Assistance and Dispute Resolution
(850) 922-4734

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