Were club equity-membership contributions and later transfers exempt from Florida admissions tax as ownership interests?

Plain-English summary

A non-equity recreational club was converting into a nonprofit equity club that would own its golf, tennis, swimming, fitness, clubhouse, and dining facilities. Membership contributions purchased certificates carrying voting rights, transferability, and a proportional share of net assets on liquidation.

Florida ruled that the memberships were equitable ownership interests rather than taxable club admission fees. That treatment applied to all five transactions presented: memberships issued to converting members, memberships issued to the developer for facilities, developer sales to future members, developer redemptions by the club, and later club resales.

The ability to buy and sell the memberships did not change their ownership character. Ordinary dues and user fees for access or operations remained a different, generally taxable category under the quoted rule.

What this means for you

Calling a club contribution "equity" is not enough. The organizational documents must give real indicia of ownership—certificate or similar evidence, member voting rights, and liquidation participation.

Common questions

Were the equity membership contributions taxable admissions? No.

Did later sales or redemptions become taxable? No, for the five described transactions.

Were regular club dues exempt too? The ruling did not say that; the cited rule generally taxed dues and user fees.

Citations and references

• Fla. Stat. §§ 212.02 and 212.04 and Fla. Admin. Code r. 12A-1.005(4), as quoted and applied in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10A-039

Original ruling text

SUMMARY
QUESTION: Whether the sales of certain memberships are considered equitable
interests.
ANSWER: Yes. The memberships satisfied the Rule criteria based on the membership
documents, articles, by-laws and other information provided. The taxpayer received
membership certificates, voting rights, and liquidation rights. The memberships were
capable of being sold.
August 13, 2010
XXX
Subject: Technical Assistance Advisement 10A-039
Sales and Use Tax
Admissions-Transfers of Equity Memberships
XXX (“Equity Club”)
FEI#: XXX
XXX (“Non-Equity Club”)
FEI#: XXX
Section 212.04, Florida Statutes (F.S.); Section 212.02, F.S
Rule 12A-1.005, Florida Administrative Code (F.A.C.)
Dear XXX:
This letter is a response to your firm’s petition dated June 17, 2010, for the Department’s
issuance of a Technical Assistance Advisement (“TAA”) concerning the above
referenced party and matter. Your petition has been carefully examined, and the
Department finds it to be in compliance with the requisite criteria set forth in Chapter 1211, F.A.C. This response to your request constitutes a TAA and is issued to you under
the authority of s. 213.22, F.S.
FACTS
The request provides various documents, including the Articles of Incorporation, the
Transfer Agreement, The Equity Club By-Laws, and the Club Rules.
The Equity Club was incorporated in the State of Florida as a not for profit corporation
under Chapter 617, F.S., and is governed by Chapter 720 of the Florida Statutes. The
Equity Club has been formed for the purpose of acquiring the Club Facilities (as defined
herein) from the Developer and operating a social club for the pleasure and recreation of
its members and their guests. The Developer is a XXX limited partnership authorized to
do business in Florida. The Developer currently owns certain real property located in
Florida, together with the improvements located thereon, including golf courses, tennis
courts, swimming pools, fitness center, club house, and dining establishments (together,
the “Club Facilities”), and the Developer operates a non-equity club (the “Non-Equity

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Club”), providing its members and guests with certain rights and privileges to use the
Club Facilities.
The Equity Club was formed as a private golf, tennis, swimming, fitness, and social
equity club for the pleasure and recreation of its members, their families, and their guests.
The Non-Equity Club will be converting to an equity club, which will occur on the date
(the “Conveyance Date”) that the Club Facilities are conveyed by the Developer to the
Equity Club. Certain members of the Non-Equity Club (the “Converting Members”) will
be converting their membership[s] in the Non-Equity Club to an equity membership in
the Equity Club (“Equity Membership”) and will be obligated to pay a membership
contribution (“Equity Membership Contribution”) to the Equity Club to acquire their
Equity Membership.
To facilitate the conversion to an equity club, the Developer and the Equity Club will
enter into a Transfer Agreement, pursuant to which the Club Facilities, and certain other
property, will be conveyed by the Developer to the Equity Club, and in exchange for such
conveyance the Equity Club will deliver to the Developer the following:
(i.) The Equity Membership Contributions received by the Equity Club
from the Converting Members; and
(ii.) All Equity Memberships of the Equity Club permitted to be issued,
other than those Equity Memberships issued by the Equity Club to the
Converting Members.
After the Conveyance Date, the Developer will be permitted to sell the Equity
Memberships it receives from the Equity Club to certain persons qualifying for
membership in the Equity Club. The Membership Documents for the Equity Club
(“Membership Documents”) provide that as of a certain date (the “Turnover Date”), the
Developer will turn over management control of the Equity Club to the members of the
Equity Club holding Equity Memberships (the “Equity Members”). It is anticipated that
on the Turnover Date, the Equity Club will redeem the Equity Memberships held by the
Developer for a certain redemption price.
Pursuant to the Membership Documents, the Equity Club will issue membership
certificates (“Membership Certificates”) representing the Equity Memberships, and only
Equity Members will have the right to vote on matters concerning the Equity Club. The
Membership Documents also provide the Equity Members with the following rights: (1)
the right to attend annual meetings of the Equity Members, which will commence after
the Turnover Date; (2) the right to call special meetings of the Equity Members after the
Turnover Date by a request of ten percent (10%) of the Equity Members; (3) the right to
receive notices of and to attend special meetings of the Equity Members; (4) the right to
vote for an election of the Board of Directors of the Equity Club following the Turnover
Date; (5) the right to participate in liquidating distributions in the event the Equity Club
is dissolved and liquidated, which distributions (after the payment of the Equity Club’s
debts) would be allocated among the Equity Members, as permitted by Florida law or a

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court having jurisdiction, in proportion to the value of the Equity Memberships as last
established; and (6) the right to receive a payment upon the resignation and reissuance of
such Equity Membership. (Emphasis in Original)
The Membership Documents provide that Equity Members are required to pay dues and
other charges in order to have access to and use of the Club Facilities. Dues are to be
determined based on projected and actual operating expenses to properly maintain and
operate the Equity Club.
The Articles provide for two types of equity memberships, Patron and Charter
Membership. The Articles provide that these memberships grant an ownership interest in
the Club and that the members are entitled to one vote on all matters to be voted on by
the equity members of the Club. The By-Laws include the following provision:
(vii)

Equity Membership Certificate

When the Equity Club or the Company, as applicable, accepts the Person as an
Equity Member and the Person pays the required Contribution Amount in
accordance with the Equity Plan, the Equity Club or the Company, as applicable,
will [issue] the Equity Member an Equity Membership Certificate, called an
“Equity Membership Certificate,” setting forth the Contribution Amount paid by
the Equity Member and the date that the Equity Member paid the Contribution
Amount to the Equity Club or the Company, as applicable, in full in accordance
with the Equity Plan, called the “Certificate Date.”
Article XII, regarding Dissolution, provides:
In the event of dissolution or final liquidation of the Club, all of the
property and assets of the Club, after payment of its debts, shall be
distributed, as permitted by Florida law or a court having jurisdiction,
among the holders of the Equity Memberships of the Club in proportion to
the value of the Equity Memberships as last established.
ISSUES

1. Upon the Conveyance Date, the Equity Club will transfer Equity Memberships to the
   Converting Members. Will the transfer of these Equity Memberships to the Converting
   Members be subject to sales or use tax?
2. Upon the Conveyance Date, the Equity Club will transfer Equity Memberships to the
   Developer as partial consideration for the transfer of the Club Facilities. Will the transfer
   of these Equity Memberships to the Developer be subject to sales or use tax?
3. Will the subsequent sale of Equity Memberships by the Developer (which it receives
   from the Equity Club) to future members be subject to sales or use tax?

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4. Will the subsequent sale of Equity Memberships by the Developer to the Equity Club,
   in connection with the redemption of such Equity Memberships on the Turnover Date, be
   subject to sales or use tax?
5. Upon the redemption of the Equity Memberships by the Equity Club on the Turnover
   Date, will the subsequent sale of such Equity Memberships by the Equity Club to future
   members be subject to sales tax?
   TAXPAYER’S POSITION
   Section 212.04, F.S., taxes all “dues” and “fees” paid to private and membership clubs
   providing recreational or physical fitness facilities, including, but not limited to golf,
   tennis, and swimming, unless specifically exempt. Rule 12A-1.005(4)(a)1.a., F.A.C.,
   provides that payments made for the purchase of equitable ownership in a club are not
   taxable “fees” under section 212.04, F.S.
   In the instant situation, the Membership Documents provide that Membership Certificates
   are issued when Equity Membership Contributions are paid by Equity Members. In the
   event of liquidation of the Equity Club, the Membership Documents provide that the
   Equity Members are entitled to participate in the net proceeds from liquidation of the
   sales of assets after debts are paid. Equity Members have voting rights, so they are able
   to have an input in the management of the Club. Equity Members are required to pay
   dues and other charges in order to have access to and use of the Club facilities. Dues are
   determined based on projected and actual operation expenses to properly maintain and
   operate the Club. These factors indicate that the Members’ primary motives for the
   payment of the Equity Membership Contributions are for an investment in the purchase
   of an equitable interest in the Equity Club, not for the maintenance or operation of the
   Equity Club.
   For the reasons set forth above, the Taxpayer feels that the transfer of Equity
   Memberships from the Equity Club to the Developer and to the Converting Members on
   the Conveyance Date, and the subsequent sale of Equity Memberships by the Developer
   to the Equity Club in redemption upon the Turnover Date, are not subject to sales or use
   tax, because the sale of Equity Memberships under all such circumstances meets the
   exemption provided for in Rule 12A-1.005(4)(b)1., F.A.C.
   APPLICABLE STATUTES AND RULES
   Subsection 212.04(1)(a), Florida Statutes, states as follows:
   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.

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Subsection 212.02(1), Florida Statutes, defines the term “admissions” in pertinent part as
follows:
The term "admissions" means and includes . . . 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 . . . .
Rule 12A-1.005(4), Florida Administrative Code, states in pertinent part as follows:
(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 transferrable, with or without consideration,
directly to another party or to 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.
   (Emphasis Supplied)
   RESPONSE
   In this instance, the Equity Memberships are considered equitable interests, as provided
   for by the Rule. The facts provide that the Club is organized as a nonprofit corporation.
   Such clubs are incorporated pursuant to the provisions of Chapter 617, F.S. The
   Membership Documents, including the Articles and By-laws, provide that the equity
   members will receive a Membership Certificate, and receive voting rights and liquidation

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rights, as required by the Rule. The fact that the memberships are sold later by other
parties does not alter the nature of the equitable interests, once they are created when the
membership contribution is paid, in this instance. An equitable membership interest may
be bought and sold, as are other types of property that are equitable interests, such stocks
or bonds. As such, the sales of the Equity Memberships are not subject to the tax
imposed by Section 212.04, F.S., and the tax does not apply to each issue presented.
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 advice 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 Section 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 10 days of the date of this letter.
Sincerely,

Charles Wallace
Senior Attorney
Technical Assistance and Dispute Resolution
(850) 922-4734
CW/
Record ID: 84929