Did a country club prove that its recurring member capital assessment was exempt from Florida admissions tax?

Plain-English summary

Florida found that the country club had not proved its proposed recurring charge qualified as a nontaxable capital assessment. Calling the payment a “capital allocation” and depositing it in a separate account were not enough.

The Department identified eight requirements, including that the payment not itself provide facility access, enhance an ownership interest, be a specific involuntary demand for a certain sum, be separately accounted and billed, not reduce dues, not fund operating expenses, and be paid by members with documented equitable ownership interests.

The club's submission left three material points unresolved:

• The proposed fee schedule did not clearly identify a specific assessment amount tied to a defined capital purpose.
• Broad descriptions of capital purchases and mortgage payments did not establish that none of the money would fund operating expenses or ordinary repairs and maintenance.
• The record did not show whether the assessed members held equitable ownership evidenced by stock, membership certificates, or similar instruments and the associated voting and dissolution rights.

Without those facts, the club did not establish the exemption. Charges paid merely for facility-use rights would be taxable admissions, dues, or fees.

What this means for you

Clubs seeking capital-assessment treatment should document the fixed amount and special purpose, segregate and separately bill the funds, preserve regular dues, restrict spending to qualifying capital uses, and prove the assessed members' ownership rights.

Common questions

Q: Are all mandatory club assessments taxable?
A: No. A true capital assessment can be nontaxable if it meets every cited requirement.

Q: Does a separate bank account establish exemption?
A: No. It was only one part of the required showing.

Q: Why did member ownership matter?
A: Without an equitable ownership interest, the payment could represent only the right to use recreational facilities and therefore be taxable.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 03A-022

Original ruling text

SUMMARY

QUESTION: Whether sales tax is due on mandatory capital
assessments made against the members of a country club and
used for capital expenditures and improvements.

ANSWER - Based on Facts Below: The contemplated assessment
must meet the criteria from Section 212.02(1), F.S.,
Section 212.04, F.S., and Rule 12A-1.005, F.A.C., to
qualify as a non-taxable capital assessment.

May 05, 2003

Subject: Technical Assistance Advisement 03A-022
Admissions - Capital Assessments
Sales and Use Tax
Section 212.02(1), F.S.
Section 212.04, F.S.
Rule 12A-1.005, F.A.C.
XXX (club)
Taxpayer Identification Number: XX

Dear :

This is in response to your letter dated January 27, 2003,
regarding the taxability of a capital assessment imposed upon
the members of the XXX (Club). Your petition has been carefully
examined and the Department finds it to be in compliance with
the requisite criteria set forth in Chapter 12-11, F.A.C. This
response to your request constitutes a Technical Assistance
Advisement (TAA) and is issued to you under the authority of
Section 213.22, F.S.

ISSUE

Whether sales tax is due on mandatory capital assessments made
against the members of the Club and used for capital
expenditures.

FACTS

In your letter, you stated the facts relevant to the taxpayer's
situation as follows:

The Club is a Florida not-for-profit corporation organized
for the benefit of its members as a golf and country club.
Pursuant to IRC Section 501(c)(7), the Club is exempt from
federal income tax on its member income. The Club charges
dues to its members on an annual basis. The members may
elect any of the following payment options: in full, semiannual, quarterly, or monthly.

The Club has continuing capital purchase requirements for
golf course equipment, clubhouse equipment, and office
equipment. For these purchases, the Club has designated a
separate, specific bank account. In prior years, the Board
of the Club has designated a portion of membership dues
sufficient to meet continuing capital expenditures.

Recently, the Club renovated its golf course facility,
which was financed by a combination of a member assessment
and by the proceeds from a mortgage note payable. In the
fiscal year beginning July 1, 2003, the Club intends to
make a separate recurring capital assessment on each
member. The proceeds of this assessment would be used for
capital equipment purchases and payments on the mortgage
note payable. The proceeds of this assessment would not be
used for any operating expenses. The assessment would be
separately accounted for as a capital assessment and would
be deposited in the separate bank account designated for
the purchases of continuing capital purchases. As to dues,
members would continue to pay regular membership dues at
the same or greater rate than the previous year. Thus, the
regular membership dues would not be reduced, but would be
in addition to the capital assessment for each member.

REQUESTED ADVISEMENT

Whether the above-described capital assessment would be subject
to sales tax under Rule 12A-1.005(4), F.A.C.

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 in part:

(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), F.A.C., provides in part:

(4) DUES AND INITIATION FEES, EQUITY AND NON-EQUITY
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....

RESPONSE

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
of statutory interpretation is that common words used in a
statute are to be given their plain and ordinary meaning, unless
it appears that the words are being used in a technical sense.
See, 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); and Parker v. State, 406 So.2d 1089, 1091
(Fla. 1981). According to Black's Law Dictionary, page 501 (6th
Ed. 1990), dues, as applied to clubs, are defined as the "sums
paid toward support and maintenance of same and as a requisite
to retain membership." Likewise, according to Webster's II New
Riverside Dictionary, page 215 (1996), "dues" are defined as a
fee or charge for membership, as in a club. Furthermore, since
a person can affix any label he or she chooses to any payment,
the substance of the transaction must be examined. See,

Department of Revenue v. Seaboard Coastline Railroad, Co., 480
So.2d 1349, 1353 (Fla. 1st DCA 1985).

Rule 12A-1.005(4)(a)1., F.A.C., provides "dues" and "fees" paid
to an organization that furnish recreational facilities, such as
golf courses, are subject to tax. However, this rule continues
to outline what types of payments are not considered "dues" and
"fees." Most relevant to the facts of the Club's capital
assessment is Rule 12A-1.005(4)(a)1.c., F.A.C., which provides
dues and fees do not include capital assessments levied by an
organization against persons who are, or seek to become, members
of an organization. "Capital assessments" are specifically
defined in Rule 12A-1.005(4)(b)2., F.A.C., to 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 added.) 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 only the right to use the
Club's facilities in exchange for all payments to the Club, such
as with non-equity members, then the payments are dues or fees.
This includes payments that may be labeled as "capital
assessments".

Additionally, Rule 12A-1.005(4)(a)2., F.A.C., provides that
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.

A capital assessment is not taxable because the assessment does
not entitle the payor to any additional rights or privileges of
membership, while it enhances the value of the payor's
membership. Furthermore, a true capital assessment is a specific
demand by an organization upon its membership, as a whole or in
classes, for a certain sum of money proportionately from each
member and is an involuntary charge levied on each member for a
special purpose, and may or may not be on a recurring basis.

In sum, the contemplated assessment must meet the following
eight criteria gleaned from the above statute and rule to
qualify as a non-taxable capital assessment. One, the equity
assessment/payment will not entitle the members to use the
Club's facilities or equipment. Two, the assessment is intended
as an investment to maintain or enhance the value of the
member's interest in the Club. Three, the assessment is a
specific involuntary demand made by the Club on its equity
membership for a certain sum of money. Four, the payments of
the assessment must be separately accounted for on the Club's
books and records and not reflected as an operating revenue
account. Five, the assessment must be separately stated on each
member's bill. Six, the assessment must not be used to effect a
decrease in member fees or periodic membership dues. Seven, the
assessment must not be used to pay for the operating expenses of
the Club. Eight, the assessments must be paid by members with
an "equitable ownership interest" in the Club as evidenced by
issuance of stock, a membership certificate, or similar
instrument.

According to the facts in the Club's request letter, the
contemplated assessment compares to the above-stated criteria as
follows. One, the Club charges annual dues, separate from the
contemplated assessment, to its members entitling them to the
use of the Club's facilities. Two, the Club has made the
contemplated assessment for the purpose of paying the mortgage
note used for renovating the golf course facility and for the
purpose of purchasing capital equipment, thus enhancing the
value of the member's interest in the Club. Three, the Club
will make a specific demand for a separate recurring capital

assessment to each member. Four, the contemplated assessment
will be separately accounted for as a capital assessment on the
Club's books and deposited in the separate bank account
described as a pre-existing account that is specifically
designated for the purchases of capital equipment. Five,
according to the draft of membership charges provided by the
Club, the contemplated assessment would be separately stated on
each member's bill as a "capital allocation," while the
membership dues will be separately stated as an "operational
allocation." Six, the Club members are required to continue to
pay regular membership dues and the contemplated assessment
would not cause a decrease in these dues. Seven, the
contemplated assessment would be used for capital equipment
purchases and payment of the mortgage note payable (recently
incurred to renovate the golf course facility) and would not be
used for operating expenses. Eight, there are no facts in the
information provided to the Department to indicate whether the
members subject to the assessment are equitable or non-equitable
members as required by Rule 12A-1.005(4)(a)1.a.-d., F.A.C.

This comparison reveals three potential problems in complying
with characteristics three, seven, and eight.

As to three, regarding the assessment being a charge of a
specified amount, paid as a lump sum or in installments, it is
unclear from the proposed fee schedule provided by the Club,
whether the Club has identified a specified amount for the
assessment. It is imperative for the Club to identify a
specific amount used for capital improvements, renovations,
etc., as the source of the assessment in order to comply with
Rule 12A-1.005(4), F.A.C. If the capital assessment is an
indefinite sum calling for indefinite continuing payments, then
the payment is more akin to an on-going operating expense, is
not a capital assessment, and is taxable. Therefore, the Club
must be able to specifically identify the equity-based reason
for the contemplated assessment and the specific amount thereof.

As to seven, according to your letter, the contemplated
assessment would be used for capital equipment purchases and
payment of the mortgage note payable (recently incurred to
renovate the golf course facility) and would not be used of

operating expenses. However, because there are no specific facts
given beyond these broad statements, it is difficult to
determine whether the contemplated assessment will not be used
for any operating expenses. Rule 12A-1.005(4)(a)1.b., F.A.C.
provides a helpful list of examples of what the Department
considers to be acceptable expenditures:

... 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....

Most importantly, Rule 12A-1.005(4)(a)1.b., F.A.C offers the
following warning that: "[r]epairs 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." Even though your letter indicated that the
contemplated assessment would be used for capital equipment
purchases and debt retirement, you should note that the
assessment payments may not be used to fund any expenditures
related to the Club's annual operation budget or to replace and
maintain the Club's existing facilities.

As to eight, it is unclear from the facts provided in your
letter and supplemental information whether the members charged
with the assessment have an equitable or a non-equitable
interest in the Club. Rule 12A-1.005(4)(b)1., F.A.C., clearly
provides that "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." Furthermore, the Rule requires that "[t]he
ownership interest must be reflected by the issuance of stock, a
membership certificate, or similar instrument evidencing an
ownership interest in the organization." If the members do not
have an equity interest that can be evidenced as an ownership
interest, then the assessment would only be providing these
members with the right to use certain club facilities that have
been improved by the assessment. However, the amounts paid for
this right are for an admission as provided in Section
212.02(1), F.S., and subject to tax. Consequently, if the
assessment payments are made by members required to be
shareholders of the Club, that otherwise satisfy the above
stated requirements, then the assessments would not be "dues" or
"fees" as provided in Section 212.02(1), F.S., and Rule 12A1.005(4)(a), F.A.C.

Therefore, because, it is imperative that the contemplated
assessment strictly comply with the eight characteristics
derived from the statute and rule and based on the facts
provided in your, letter and fee schedule, the Club has not
shown that the nature of the capital assessment qualifies as an
exempt capital assessment under the Rule.

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,

Sebrina L. Wiggins
Attorney
Technical Assistance and Dispute Resolution
(850) 488-6386