Were membership dues paid to a private equity country club exempt as mandatory homeowners-association payments?

Plain-English summary

The planned community had a homeowners association and a separate private equity membership country club. The club owned its facilities and collected dues for members' use of them.

The Department concluded that the club itself was not a homeowners association and its property was not a common area or common element of the residential property as required for the mandatory-association-payment exclusion.

Because the dues paid for use of a private membership club's facilities, they were taxable admissions. The taxpayer could not disregard its chosen separate club structure to claim the tax treatment of an alternative homeowners-association arrangement.

What this means for you

Mandatory or property-connected payments are not automatically exempt. The collecting entity, ownership of the facilities, governing documents, and legal status of the common areas all matter.

Common questions

Was the country club the homeowners association? No.

Were the club facilities common areas? No, under the described ownership and governing documents.

How were the dues treated? As taxable admissions paid for use of private-club facilities.

Citations and references

• Fla. Stat. §§ 212.02(1), 212.04, 720.301, 720.302, 718.120, and 193.0235 and Fla. Admin. Code r. 12A-1.005, as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 12A-005

Original ruling text

SUMMARY
QUESTION: WHETHER PAYMENTS MADE BY COUNTRY CLUB MEMBERS
ARE NOT TAXABLE AS PAYMENTS TO A HOMEOWNER ASSOCIATION
PURSUANT TO RULE 12A-1.005(4)(d)3., F.A.C.
ANSWER: NO. THE PAYMENTS ARE CHARGES FOR ADMISSIONS. THE
COUNTRY CLUB WAS NOT A HOMEOWNER ASSOCIATION AND THE
COUNTRY CLUB PROPERTY ARE NOT COMMON AREAS AS REQUIRED
BY THE RULE.
February 9, 2012
Subject: Technical Assistance Advisement – TAA 12A-005
Sales and Use Tax
Admissions
Sections 212.04, 212.02(1), 720.301, 720.302, 718.120, and 193.0235, Florida
Statutes (F.S.)
Rule 12A-1.005, Florida Administrative Code (F.A.C.)
Dear XXX:
This letter is a response to your corporation’s petition dated XXX, and additional
correspondence provided thereafter for the Department’s issuance of a Technical
Assistance Advisement (“TAA”) concerning the above referenced parties 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 12-11, 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.
The previous TAA (07A-020) issued to Taxpayer is incorporated by reference.
ISSUE
Whether membership dues paid to Taxpayer are exempt as provided for by Rule 12A1.005(4)(d)3., F.A.C., regarding mandatory payments to associations.
FACTS
Community was founded in XXX as a planned development project pursuant to a zoning
agreement with the County (the P.D.P.). The property was zoned agriculture and in
XXX, by resolution of the County Commission, the zoning was changed to a planned
development project (P.D.P.). At that time, the County Commission also approved a
master site plan which became XXX single family homes and condominiums, XXX golf

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courses, a clubhouse, boat docking space, and other amenities within Community. The
single family homes and condominiums are located in areas of Community which include
common areas or common elements owned by different associations, including
condominium associations.
Taxpayer and Association are organized under Chapter 617, F.S. Association is
governed by Chapter 720, F.S., regarding homeowner associations. Community,
Association, Taxpayer, and the other associations, are subject to the Restated Declaration
of Covenants and Restrictions for the [Community] (the “Declaration”). Taxpayer owns
Holdings for the purpose of obtaining an additional license to sell alcohol.
The Declaration for Community provides that Assessments are charges made by
Association against Association members and members’ residential property in
Community. The Covenants provide that Association may grant exclusive use of docks
and boat slip docking space. The Covenants provide that common expenses include all
expenses incurred by Association.
The Covenants provide that common property includes property dedicated or conveyed to
Association by recorded subdivision plats or deed. The Covenants provide that Taxpayer
owns and operates the Country Club. Articles 1.11 and 1.13 of the Covenants provide:
1.11 “Country Club” shall mean and refer to all present and future
organizations consisting of members who have use and enjoyment rights
in the Country Club Property.
1.13 “Country Club Property” shall mean and refer to those properties and
the Improvements thereon which are designated as Country Club Property
on the Development Plan, including without limitation the golf and tennis
facilities, and such other properties and improvements as may now or
hereafter be constructed, acquired or designated as “XXX” by [Taxpayer].
Article 4.2 of the Covenants provides that the Country Club property is intended for the
use of the members of the Country Club and their guests and invitees. Article 4.11
provides:
4.11 Country Club Membership. All Owners shall be required to apply
for a membership in the Country Club on terms established and
existing for membership at the time the Owner’s application is submitted.
Upon approval of the Owner’s membership application, the Owner shall
be subject to such rules and regulations of the Country Club as are in
effect as of the date of his acceptance, and shall be required to pay such
fees and membership dues as may be assessed by the Country Club,
pursuant to separate documents established for the Country Club.
(Emphasis added)

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Article 5 provides members of Taxpayer and their guests are granted non-exclusive use
rights to play golf and use Country Club Property. Article 6 provides Association with
the right to make assessments to pay for expenses of the common property.
A copy of the Restated Articles of Incorporation of Taxpayer (“Articles”) was provided
with the request. Article III provides that the purpose of Taxpayer is to own and
administer recreational areas and amenities for the benefit of Taxpayer members. Article
IV provides that members of Taxpayer may be all owners of residential property in
Association. Article IV provides that membership in Association shall be an automatic
attribute of ownership in Community. Article IV provides that membership in the Club
Taxpayer is determined by the Restated Bylaws of Taxpayer. The Second Restated
Bylaws of Taxpayer (the “Taxpayer Bylaws”) was amended in 2010. The Restated
Articles of Incorporation of Association (“Association Articles”) provides that
membership in Taxpayer shall be as determined from Taxpayer’s Bylaws.
The Taxpayer Bylaws provide that the purpose of Taxpayer is to own and administer the
golf courses, tennis courts, swimming facilities, clubhouse, fitness center, and other
recreational amenities for the benefit of Taxpayer’s members. The Taxpayer Bylaws
provide that Taxpayer is permitted to have XXX proprietary golf and social members,
with a maximum of XXX social members. New members are required to be golf
members and to pay an equity contribution and capital contribution upon joining. Social
members are entitled to full access and use of Taxpayer’s tennis, fitness, and social
facilities. Golf members are granted the same access and use rights as social members.
In addition, golf members are entitled to access and use of golf facilities.
Article III, Section 1 of Taxpayer Bylaws establishes the manner that membership is
determined. Section 1(g) and (h) provide, in part, the following:
(g) Subscription for Membership. Applicants for Membership shall
complete and execute a Subscription Agreement and Application for
Membership accompanied by a check for the amount of the contribution to
capital due and payable. The amount of the equity contribution is due on
the effective date of Membership. The Membership Committee shall
promptly consider the application and report to the Board of Directors
which shall act on the application within thirty (30) days from the date the
application is received, either granting or denying the application in its
sole and absolute discretion. If the applicant is denied membership, all
fees paid with the application shall be returned with the letter of denial.
(Emphasis added)
(h) Membership Certificates. Each Member shall receive a membership
certificate…. Membership certificates are not redeemable, assignable or
transferable except as specifically provided in [Taxpayer Bylaws] and then
only through the Treasurer of [Taxpayer]. Whenever a Member ceases to
be a Member, his/her membership certificate becomes null and void.

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Taxpayer Bylaws provide that when a transfer of membership is made, the new
members must pay joining fees and dues. Taxpayer Bylaws provide for majority
vote on all issues, including assessments over XXX. The Board is empowered to
determine membership dues. Joining fees are not required in certain
circumstances, such as a transfer to a spouse after death. Renters and guests of
members may also receive use privileges. Taxpayer may place a lien on
members’ certificates, to the member’s entitlement of return to capital
contribution, and amounts due Association.
The Amended and Restated Bylaws of the [Association] (the “Association Bylaws”)
provide that the Association Bylaws are intended to be substantially the same as the
Taxpayer Bylaws. The Association Bylaws provide that the membership in Association
and Club shall be the same. The Association Bylaws provide that separate corporate
existence and identity of Association and Taxpayer shall be maintained. The Association
Bylaws provide that the purpose of Association is to own and administer common areas
and common properties for the benefit of Association members.
Taxpayer is a social club pursuant to section 501(c)(7) of the Internal Revenue Code.
The most recent federal income tax return provides Taxpayer is a private member owned
social club whose exempt purpose is to promote social interaction of Taxpayer members
by providing dining and recreational activities. In addition to membership dues and fees,
Taxpayer earns income from non-member golf fees and waterfront activities. The federal
income tax return provides that XXX of the total of XXX rounds of golf were by nonmembers. Other income included trail and locker fees, tournament fees, and cart rentals.
Taxpayer’s return was separate from Association’s return.
Taxpayer’s website provides that green fees are XXX. In addition, packages are offered
for XXX that provide for transient accommodations and use of Taxpayer’s recreational
facilities. The website provides that Taxpayer is a private member owned club with
refundable membership equity. Taxpayer has licenses from the Department of Business
and Professional Regulation for permanent food service, retail beverage sales, and mobile
dispensing vehicles.
For property tax purposes, the County property tax appraiser’s website reflects the
assessment value of Taxpayer’s recreational property is with Taxpayer. However, the
website reflects no value for Association-owned property.
TAXPAYER POSITION
Taxpayer claims that membership dues are not subject to sales tax imposed by section
212.04, F.S. Taxpayer cites Rule 12A-1.005(4)(d)3., F.A.C., because Taxpayer claims
Taxpayer is an association receiving mandatory membership dues payments from
members as a condition of ownership of property. The dues are for the use of common
areas with the property owned by the members. The common areas are the recreational
facilities used by the members but owned by Taxpayer.

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Taxpayer claims that the payments are mandatory for several reasons. First, the
Taxpayer’s request provides that membership dues and fees are determined prior to the
fiscal year by Taxpayer’s Board to pay for annual operating and capital needs of
Taxpayer. Second, only one member may join Club for each residential unit or parcel
and that person must be designated by the other owners of the unit of parcel when the
membership application is made. The member is subject to approval and is jointly and
severally liable with the owners for the payment of all dues, assessments, fees, and other
charges made to the designated member. Also, if the dues and other charges are not paid,
the Taxpayer may place a lien on the member’s equity interest, including the member’s
certificate and right to the return of the capital contribution amounts.
Taxpayer claims Taxpayer is an association in substance and in function, because
Taxpayer qualifies as an association according to section 720.301(9), F.S., and all
purchasers of a unit or parcel in Community must be a member of Association and
Taxpayer. Taxpayer cites Downey v. Jungle Den Villa Recreational Association, Inc.,
525 So.2d 438 (Fla. 5th DCA 1988), that a recreational association organized to provide
an entity for ownership, operation, and management of recreational facilities for the use
of all unit owners was, in substance and in function, acting as an association. Taxpayer
claims Taxpayer should be deemed a “de facto” association.
The request cites the Articles that provide Taxpayer’s purpose is to own and
administer the golf courses, tennis courts, swimming facilities, clubhouse, fitness
center, and other recreational amenities for the benefit of the Taxpayer’s
members, who are owners of parcels or units in Community. The request
provides that the owners are liable for the membership dues and other charges of
the members, and that Taxpayer may place a lien on the membership certificate
and equity capital contribution of the member for failure to pay the dues and other
charges. In addition, Taxpayer may place a lien on amounts due Association, the
member’s condominium association, or the member’s homeowner association.
Taxpayer is entitled to use remedies, such as foreclosure against the membership
certificate and securing judgments for unpaid sums. Also, each member is
entitled to one vote.
In regard to Taxpayer’s claim that the membership dues were required to be paid
as a condition of ownership, the request provides that members are required to file
an application. The request also provides that members and owners have joint
and several liability, and that Association and Taxpayer members are the same.
Taxpayer argues that the recreational facilities are common elements or common areas.
Taxpayer relies on the Declaration’s definition of “Country Club Property” and “Country
Club Owner.” In addition, Taxpayer maintains that the Country Club Property is intended
for the use Taxpayer’s members and their guests and invitees and that Taxpayer is
responsible for the management, maintenance, and operation of the Country Club

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Property. Taxpayer cites Downey, 525 So.2d 438, providing that the court found that the
real property to be used for the recreational facilities, the legal title of which was in the
entity created to own, operate, and manage the recreation facilities, was actually a
“common element.”
APPLICABLE AUTHORITY AND DISCUSSION
Section 212.04(1), F.S., provides, in part, the following:
(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, in part, the following:
(1) The term "admissions" means and includes the net sum of money after
deduction of any federal taxes for admitting a person … 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, … 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 ….
Section 212.04(1), F.S., requires each person selling admissions to collect sales tax on the
sales price or actual value received from admissions. Section 212.02(1), F.S., defines the
term “admissions.” The definition specifically includes as admissions payments of all
dues and fees paid to private clubs and membership clubs providing recreational or
physical fitness facilities.
Taxpayer’s website provides that Taxpayer is a private equity membership club
with refundable equity. Members are required to make capital contributions.
Taxpayer’s members receive membership certificates, are eligible to vote, and are
entitled to received a return of the capital contribution paid once accepted as a
member. Based on these facts, Taxpayer is a private member owned
organization.

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Rule 12A-1.005(4)(a)1., F.A.C., provides that dues and user fees paid to any organization
that provides physical fitness or recreational facilities, such as golf courses, tennis courts,
swimming pools, yachting, and boating are subject to tax. Taxpayer owns and provides
to its members the facilities enumerated by the Rule. As such, the dues and fees paid for
the right to use the facilities are admissions as defined by section 212.02(1), F.S.
Taxpayer maintains the membership dues are exempt as payments to a homeowners’
association. Taxpayer cites Rule 12A-1.005(4)(d)3., F.A.C. This provision was added to
Rule 12A-1.005, F.A.C., effective December 16, 1991. It 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 condominium association,
   homeowners’ association, or cooperative 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.
   Sections 33-38, Chapter 92-49, Laws of Florida (“L.O.F.”), created sections 617.301617.306, F.S., governing homeowners’ associations. Sections 44-51, Chapter 2000-258,
   L.O.F., transferred and renumbered the sections regarding homeowners’ associations to
   Chapter 720, F.S.
   Section 720.302(3)(b), F.S., provides that Chapter 720, F.S., does not apply to parcels
   intended for commercial use. This includes areas used by businesses to make sales to the
   general public who are non-members. Section 720.301, F.S., provides, in part, the
   following:
   (1) “Assessment” or “amenity fee” means a sum or sums of money
   payable to the association, to the developer or other owner of common
   areas, or to recreational facilities and other properties serving the parcels
   by the owners of one or more parcels as authorized in the governing
   documents, which if not paid by the owner of a parcel, can result in a lien
   against the parcel.
   (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.

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(3) “Community” means the real property that is or will be subject to a
declaration of covenants which is recorded in the county where the
property is located. The term “community” includes all real property,
including undeveloped phases, that is or was the subject of a developmentof-regional-impact development order, together with any approved
modification thereto.

(9) “Homeowners’ 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…. (Emphasis added)
Taxpayer is not a homeowners’ association because Taxpayer is responsible for the
operation of Club and not Community as required by section 720.301(9), F.S. As
provided herein, Taxpayer is a private membership equity club. Taxpayer’s website
provides as such, and Taxpayer requires capital contributions to be paid before
membership is accepted. Taxpayer reports as a social club for federal income tax
purposes. Taxpayer issues membership certificates and allows voting rights.
The payments made entitle members to continued use of Taxpayer’s recreational
facilities. Failure to pay membership dues to Taxpayer for use of property owned by
Taxpayer and operated by Club can result in placement of a lien on the membership
interest in Taxpayer and the right of return of the capital contribution made to Taxpayer.
The lien is not placed against the member’s parcel.
The membership dues to Taxpayer are not an assessment as defined by section
720.301(1), F.S., because a lien cannot be placed on the owner’s parcel. This is because
only Association can only place the lien on the parcel. Taxpayer may only place a lien
against the membership interest and the right to entitlement by a member to the return of
capital.
Although parcel and unit owners in Community have automatic membership in
Association, Taxpayer requires the owners to file an application for membership. Then,
the application must be approved. Therefore, membership is not a condition of
ownership; only the filing of the application is such a condition. Furthermore, Taxpayer
is not authorized to place a lien on the owner’s parcel for failure to pay membership dues.
Also, Taxpayer only operates the recreational facilities and does not operate all of the
common areas of Community. In addition, Taxpayer has other income from nonmembers. Therefore, Taxpayer is not a homeowner’s association as provided for by
section 720.301(9), F.S. Taxpayer is a private equity membership club and subject to the
provisions of section 212.04, F.S.

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Country Club property is not common area to the owners of units and parcels in
Community. If Country Club Property were a common area, then the individual parcels
and units would include the value of the property for property tax purposes and not
Taxpayer. See sections 718.120(1), F.S., and 193.0235, F.S.
Taxpayer cites Downey, 525 So.2d 438. In that decision, the incorporated association
was owned by only condominium unit owners. The association held title to recreational
facilities, and only unit owners could use the facilities. The developer held out in the
prospectus that the recreational facilities would be owned by the condominium
associations. The dispute addressed the association’s failure to obtain a unanimous vote
of condominium unit owners in making an assessment to pay for capital improvements,
as required by Chapter 718, F.S., governing condominium associations. The association
claimed it was not a condominium association. The court determined that the legislative
intent of protecting unit owners with a unanimous vote could not be avoided by setting up
an independent entity to perform the functions of the condominium association.
Although, the decision in Downey, 525 So.2d 438, is applicable in regard to protection of
condominium unit owners in regard to mandatory voting procedures to make assessments
by an association, the decision is not applicable to the application of Chapter 212, F.S.
Courts have long recognized that while a taxpayer is free to structure his transaction as he
chooses, “once having done so, he must accept the consequences of his choice, whether
contemplated or not . . . and may not enjoy the benefit of some other route he might have
chosen to follow but did not.” Commissioner v. National Alfalfa Dehydrating & Milling
Co., 417 U.S. 134, 149 (1974); North American Company v. Green, 120 So.2d 603, 610
(Fla. 1959) (“We are not privileged to make the taxability of a transaction dependent
upon any consideration of some alternative procedure which might not have been
taxable.”).
Because taxpayers have been accorded less freedom than tax authorities to disavow the
form they have chosen, they are generally bound to the tax consequences that follow
from their choice. See Bradley v. United States, 730 F.2d 718, 720 (11th Cir. 1984);
Illinois Power Co. v. Commissioner, 87 T.C. 1417, 1430 (1986), aff'd 896 F.2d 580 (D.C.
Cir. 1990); Regal Kitchens, Inc. v. Department of Revenue, 641 So.2d 158, 163 (Fla. 1st
DCA 1994)(Those who seek the protection afforded by incorporation must also accept
the burdens. Individuals may incorporate to shield themselves from personal liability, or
for many other reasons, but they may not then disavow the existence of the corporation
for the purpose of obtaining a tax advantage).
This judicial rule seeks to avoid the uncertainty that would result from allowing the
taxability of a transaction to depend on whether an alternative form exists under which
more favorable tax consequences would result. National Alfalfa, supra, at 149;
Department of Revenue v. McCoy Motel, Inc., 302 So.2d 440, 443 (Fla. 1st DCA 1974).
Thus, the form in which the parties cast a transaction generally determines its substance
for tax purposes. This is because taxpayers have the freedom to structure their
transactions as they see fit and are intimately acquainted with the facts underlying the
substance of the chosen transactional structure. Tax authorities, on the other hand, do not
have direct access to the facts underlying a particular transaction and must by necessity
rely upon the taxpayer’s representations regarding the transaction when determining the

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resulting tax consequences. See Plante v. Commissioner, 168 F.3d 1279, 1282 (11th Cir.
1999) ("If a party could alter the express terms of his contract by arguing that the terms
did not represent economic reality, the Commissioner would be required to litigate the
underlying factual circumstances of 'countless' agreements.") (quoting North Am. Rayon
Corp. v. Commissioner, 12 F.3d 583, 587 (6th Cir. 1993)).
Therefore, for the reasons provided herein, Taxpayer is a private equity membership club,
and the membership dues are for the use of Taxpayer’s facilities. Thus, the dues are
admissions as provided by section 212.02(1), F.S.
CONCLUSION
The membership dues paid to Taxpayer are not exempt, as provided for by Rule 12A1.005(4)(d)3., F.A.C., regarding mandatory payments to associations. Taxpayer’s
membership dues are subject to the sales tax imposed by section 212.04, 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 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.

Respectfully,

Chuck Wallace
Senior Attorney
Technical Assistance & Dispute Resolution
(850) 717-7541
Record ID: 103191