Which mandatory country-club assessments for capital-project debt were exempt from Florida admissions tax?

Plain-English summary

The club had to collect tax on assessments paid by members who did not own stock, but qualifying capital assessments paid by stock-owning members were exempt. Florida treated the nonowners' payments as taxable dues or fees for access to recreational facilities because those members lacked the ownership evidence, voting rights, and dissolution rights described by the rule.

For stock-owning members, the assessment was exempt only to the extent the money was separately accounted for and used exclusively for capital improvements or debt incurred to finance those improvements. It could not reduce regular dues, pay operating expenses, or fund ordinary repair and maintenance that did not materially add value or prolong an asset's useful life.

What this means for you

Calling a charge a "capital assessment" is not enough. The member must hold the required equitable ownership interest, and the club must trace the money to qualifying capital uses while satisfying the rule's accounting and membership-payment conditions.

Common questions

Q: Were all mandatory renovation assessments exempt? No. Payments by members who did not own stock were taxable.

Q: Were stockholders' payments always exempt? No. Any portion used for operating expenses or noncapital expenditures was taxable.

Q: Did separate accounting matter? Yes. The club represented that the assessments would be recorded separately and deposited into a separate account used to retire the renovation debt.

Citations and references

• Fla. Stat. § 212.02(1) — admissions, including private-club dues and fees
• Fla. Stat. § 212.04(1) — tax on admissions
• Fla. Admin. Code r. 12A-1.005(4) — dues, equity interests, capital contributions, and assessments
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02A-039

Original ruling text

SUMMARY

QUESTION: Is sales tax due on assessments against a club's
members used to pay debt incurred from capital expenditures
by a country club?

ANSWER - Based on the Facts Below: Yes, but only in part.
Since only the portion of the capital assessments that are
paid by members owning shares of stock are equity payments,
the assessments paid by the other members are subject to
the sales tax on admissions. In addition, assessments made
by members owning shares of stock are not equity payments
if used to pay for the operating expenses or expenditures
not of a capital nature and are subject to sales tax. In
this case the portion of the assessment paid by members
owning stock used to pay debts are not subject to the tax
so long as the funds are used to pay for capital
expenditures or debt incurred to finance the capital
expenditures as provided by the Rule.

Oct 14, 2002

Subject: Technical Assistance Advisement 02A-039
Mandatory Assessments
Sales and Use Tax
Section 212.02(1), F.S.
Section 212.04, F.S.
XXX ("Club")
Taxpayer Identification Number: XX

Dear :

This is in response to your letter dated July 10, 2002,
regarding the taxability of mandatory assessments made by Club
against its members.

ISSUE

Whether sales tax is due on mandatory assessments used for

capital expenditures made against the Club's members.

FACTS

The Club was incorporated August 1, 1980, and owns and operates
a golf and tennis club on behalf of its members. The Club is
authorized to issue 1100 shares of capital stock.

The By-Laws created different membership classifications,
including individual equity (stockholding memberships) and nonequity memberships, including corporate memberships. Golf
Senior Equity Members are entitled to use all of the Club's
facilities and are afforded all of the privileges provided by
the Club. Golf Senior Equity Members are required to own two
shares of stock. Golf Intermediate Members are entitled to use
all of the facilities and privileges of the Club. They are not
required to own stock, but their membership is terminated on
their 35th birthday if they do not purchase stock.

Tennis Equity members are entitled to use all facilities and
privileges provided by the Club, except for the use of the golf
facilities. Tennis Equity Members must own one share of stock.
Tennis Intermediate Members have the same use rights as a Tennis
Equity member, except that they do not own stock. However,
their membership is terminated on their 35th birthday if they do
not purchase the Club's stock.

House Equity Members are entitled to use all of the Club's
facilities, except for the Club's golf and tennis facilities.
House Non-Equity members are entitled to the same use rights as
House Equity members but they are subject to annual termination
based on the discretion of the Board of Directors. Termination
is on a first-in, last-out basis.

The stock owned by the Equity Members is restricted subject to
the approval of the Board. However, the By-Laws provide that
upon the termination or resignation of a member, the Board can
not restrict the member's right to transfer his or her stock if
done so in accordance with other By-Law provisions. The By-Laws
require that the Board may not approve a member's transfer of
the stock if the member fails to satisfy all indebtedness to the

Club.

The By-Laws allow the Club to suspend a member's privileges and
use of the facilities for failure to pay delinquent accounts.
Suspended members may apply for reinstatement. If the suspended
member fails to apply for reinstatement, then the Club may
terminate the membership.

The Club's 12 members of the Board of Directors (The Board) must
each be a shareholder, designated representative of a
shareholder, or shareholder's spouse. The shareholders elect
the Board Members. The Board controls the Club's property;
however, substantial real estate transactions and capital
improvement projects estimated at a cost of over $250,000 or
more are subject to shareholder approval. The Board elects all
officers and committee chairpersons. By-Law amendments require
the vote of approval of at least 50% of the outstanding shares.

The By-Laws provide that the Club's purpose is to provide
recreational facilities and to promote social enjoyment among
its members. In addition to the golf and tennis facilities, the
Club also owns a clubhouse facility and swimming pool for the
use of its members. The equity and non-equity members pay an
initiation fee as well as monthly dues for the privilege of
using its facilities. Article IX of the Club By-Laws includes
the following mandatory assessment provision:

For any fiscal year in which the actual revenues received
are not sufficient to fund the total expenditures for:

a) CLUB operations, excluding depreciation, plus

b) ALL debt service requirements, plus

c) sufficient funds to replace and maintain (but not
expand) the Club's facilities, the BOARD shall be and is
hereby mandated to assess the MEMBERSHIPS within sixty (60)
days of the fiscal year-end, an assessment sufficient to
cover the shortfall by which the actual revenues fail to
equal the total of the above listed expenditures.

Any assessment made in conformity with this Article is
exempt from the advance notice provision in Article V,
section C, of these By-Laws.

The Club is currently in the midst of major renovations to its
clubhouse and golf course, which will cost approximately $3
million. You maintained in our telephone conference that all of
the renovations qualify as capital expenditures as provided by
Rule 12A-1.005(4)(a)1.b., F.A.C., and are separately accounted
for apart from regular operating expenses. The renovation is
being funded entirely by debt. As a result of the debt incurred
to fund these renovations, as well as ongoing replacements for
its existing facility, the Club may find it necessary to assess
its members pursuant to Article IX of its By-Laws.

The Club will separately account for receipt of the assessment
income and not record such receipts in operating income. The
receipt of the assessments will be credited to a general ledger
account titled "Capital Assessment Income". Capital assessments
will be reflected on the income statement of the Club "Other
Non-operating Income". The Club will deposit the capital
assessments into a separate bank account to pay off the debt
used to finance the capital assessments.

TAXPAYER POSITION

You believe that the assessments made pursuant to Article IX of
the Club's By-Laws should not be subject to sales tax for five
reasons. First, the periodic dues, initiation fees, and other
forms of revenue are more than sufficient to pay the operating
expenses of Club. But for capital expenditures made as a result
of renovations to facilities and/or recurring capital asset
additions, no assessment would be required of the members of
Club pursuant to Article IX of its By-Laws. Such investments
maintain or enhance the members' and owners' interests in the
organization.

Second, the assessments made pursuant to Article IX of the ByLaws will be separately accounted for and will not be recorded
in an operating revenue account by Club. Third, the payment of
the assessment will not entitle members to the use of the Club

facilities without the subsequent payment of periodic membership
dues. Fourth, the payment of the assessment will not be used to
decrease periodic membership dues. Fifth, the assessment will
not be used to pay the operating expenses of Club. Operating
expenses will continue to be paid from periodic dues, initiation
fees and other sources of revenue other than the assessments.

The Club believes that members do not need to have an equity
interest in the Club in order for capital assessments paid by
the member to be exempt from sales tax.

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)(a) and (b), F.A.C., provide:

(4) DUES AND INITIATION FEES, EQUITY AND NONEQUITY
MEMBERSHIPS, CAPITAL CONTRIBUTIONS AND ASSESSMENTS,
REFUNDABLE DEPOSITS, AND USER FEES.

(a)1. Dues and user fees paid to any organization,
including athletic clubs, health spas, civic, fraternal,
and religious clubs, and organizations that provide
physical fitness facilities or recreational facilities,
such as golf courses, tennis courts, swimming pools,
yachting, boating, athletic, exercise, and fitness
facilities, are subject to tax. Dues and user fees do not
include:

a. Charges for initiation into, or for joining, an
organization that are paid by persons to obtain an
equitable ownership interest in the organization. The
equitable ownership interest may be transferable, with or
without consideration, directly to another party or to the
organization.

b. Additional charges paid by an equity member when joining
an organization that are used by the organization solely
for capital expenditures, capital improvements to the
organization's facilities, or for debt servicing such
expenditures and improvements by the organization. Examples
of these types of payments and the use of such amounts
include amounts expended for rebuilding and/or replacing
the grass on greens or fairways; rebuilding and/or
replacing bunkers; planting of additional trees;
resurfacing and/or construction of tennis courts;

resurfacing and/or construction of swimming pools; amounts
expended for new furniture, fixtures and equipment; amounts
expended for clubhouse renovations; amounts expended for
kitchen equipment and utensils; amounts expended to improve
the irrigation system; amounts expended to acquire assets
to enable the club to comply with environmental laws;
amounts expended for acquiring maintenance equipment;
amounts expended for new golf carts; and amounts expended
for the installation of equipment on golf carts. Repairs
to, or maintenance of, existing capital assets that do not
materially add to the value or appreciably prolong the
useful life of a capital asset are not deemed to be capital
expenditures or capital improvements by the organization.

c. Capital assessments levied by an organization against
persons who are, or seek to become, members of the
organization.

d. Capital contributions or additional paid-in capital paid
to an organization by individuals who have an equitable
ownership interest in the organization.

2. Recurring or nonrecurring capital contributions or
   additional paid-in capital, or capital assessments, paid to
   an organization in a lump sum or by installments, are not
   subject to tax when such payments are:

a. Separately accounted for and not recorded in an
operating revenue account by the organization.

b. Not paid for the right to use the organization's
recreational, physical fitness, or other facilities or
equipment without subsequent periodic payments;

c. Not used to effect a decrease in user fees or periodic
membership dues; and

d. Not used to pay for the operating expenses of the
organization.

(b) For purposes of this rule:

1. The phrase, "equitable ownership interest," means an
interest that entitles a person to receive from the
organization evidence or indicia of such ownership, the
right to vote on decisions of the organization that are
subject to determination by the organization's members or
owners, and the right to receive a proportionate share of
the organization's assets upon its dissolution, unless all
such net assets are distributable upon dissolution to an
organization exempt from federal income taxation or to a
qualifying common interest realty association. The
ownership interest must be reflected by the issuance of
stock, a membership certificate, or similar instrument
evidencing an ownership interest in the organization.

2. The phrases, "capital contributions or additional paidin capital" and "capital assessments," mean equity payments
   that by themselves do not entitle an individual to use the
   facilities or equipment of an organization and that are
   intended as an investment to maintain or enhance members'
   and owners' interests in the organization. (Emphasis
   supplied)

ANALYSIS

Section 212.04(1), F.S., provides that persons who sell or
receive anything of value by way of admissions, are required to
collect sales tax on the amounts received for the admission.
Section 212.02(1), F.S., defines the term "admissions" to
include 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.

The statute does not define the term "dues". The general rule
is that common words used in a statute are to be given their
plain and ordinary meaning, unless it appears that they are used
in a technical sense. State v. Tunnicliffe, 124 So. 279, 281
(Fla. 1929); Gasson v. Gay, 49 So.2d 525, 526 (Fla. 1950); State
v. Egan, 287 So.2d 1, 4 (Fla. 1973). The definition of "dues"
as found in Black's Law Dictionary, page 450 (5th ed. 1979), and

as applied to clubs, is "sums paid toward support and
maintenance of same and as a requisite to retain membership".
The term "dues" is defined by Webster's Third New International
Dictionary, page 699 (1963) as "the fee or charge required for
membership, affiliation, initiation, use, or subscription".

Since a person can affix any label he or she chooses to any
payment, the substance of the transaction must be examined. See
Dept. of Revenue v. Seaboard Coastline RR. Co., 480 So.2d 1349,
1353 (Fla. 1st DCA 1985).

As provided by Rule 12A-1.005(4)(b)2., F.A.C., capital
assessments that represent equity payments that by themselves do
not entitle an individual to use the facilities or equipment of
an organization and that are intended as an investment to
maintain or enhance the member's interests in the organization,
and that otherwise meet the requirements of Rule 12A1.005(4)(a)2., F.A.C., are not considered "dues" or "fees".

Rule 12A-1.005(4)(b)1., F.A.C., provides characteristics
typically representative of an "equitable interest," such as
issuance of shares of stock or membership certificates. If a
member receives as the sole entitlement (as are the members not
owning stock) only the right to use the Club's facilities in
exchange for all payments to the Club, then the payment is a
"dues" or "fee," as those terms are defined above. This
includes payments that may be labeled as a "capital assessment".
Therefore, the amounts paid by members not owning stock in the
Club are subject to the tax as provided by section 212.04(1),
F.S., and section 212.02(1), F.S. Here, only the interests
that are obtained by receipt of shares of stock are equitable
interests as provided by Rule 12A-1.005(4)(b)1., F.A.C. All
other membership interests do not provide for shares of stock or
evidence of ownership, the right to vote, or the right to
receive a share of the assets upon dissolution. As such, the
payments made by the members who do not receive shares of stock
are not considered capital assessments as provided by Rule 12A1.005(4)(a)1.c., F.A.C. Since the payments by members not
owning shares of stock only provide for the right to use certain
club facilities, the amounts paid for that entitlement are for
an admission as provided by section 212.02(1), F.S., and subject

to the tax as provided by section 212.04(1), F.S.

Here, the assessment payments that are to be paid by the equity
members owning shares of stock are to be applied exclusively for
the retirement of the debt incurred solely to finance capital
expenditures enumerated by Rule 12A-1.005(4)(a)2., F.A.C. The
assessment funds are to be separately accounted for and will not
be commingled for payment of operating expenses or to decrease
regular periodic dues. Also, the capital expenditures made to
renovate the recreational facilities are anticipated to enhance
the value of the equitable interest of each shareholder.
Therefore, the assessment payments made by the members required
to be shareholders of the Club, that otherwise satisfy the above
stated requirements, are not "dues" or "fees" as provided by
Rule 12A-1.005(4)(a), F.A.C., and section 212.02(1), F.S. As
such, the tax provided by section 212.04(1), F.S., is not
required to be collected from such members so long as the
conditions are met regarding the handling of the assessment
funds as provided herein.

Although you indicated over the telephone that the debt
retirement is exclusively for expenditures of capital
improvement renovations, you should note that assessment
payments may not be used to fund expenditures related to the
Club's annual operation budget or to replace and maintain the
Club's existing facilities. If the funds collected from the
payments are diverted to pay for expenditures not related to the
capital improvement renovations or debt incurred to pay for the
renovations, then the payments are for operating assessments.
Operating assessments, even if paid by a shareholder, are not
excluded from the tax by virtue of Rule 12A-1.005(4)(a)1.,
F.A.C. Such payments are designed to defray the costs related
to the support and maintenance of the Club and are required for
continued membership, affiliation, initiation, or use of the
Club's facilities and are in essence "dues". Therefore, the tax
as provided by section 212.02(1), F.S., and section 212.04(1),
F.S., must be collected on any portion of an assessment, that is
an operating assessment.

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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