Were the initial sale and later reissuance of true equity memberships in a recreational club taxable as admissions?

Plain-English summary

The Florida Department of Revenue concluded that the initial sale and later reissuance of a recreational club's equity memberships were not taxable admissions.

Members received certificates evidencing ownership, voting rights in club decisions, and a proportionate right to assets upon dissolution. The interests were transferable through the club, and some members also could receive proceeds on reissuance. Those features made the contributions payments for equitable ownership rather than taxable dues or fees for access.

The conclusion addressed the equity membership contribution. The club's separate dues and other charges for use of recreational facilities remained a distinct category under the admissions rules.

What this means for you

Member-owned clubs and developers

Substance matters: certificates, meaningful voting rights, dissolution rights, and transferability supported ownership treatment.

Accountants and club managers

Separate the price of the equity interest from recurring dues and user charges.

Common questions

Q: Was the equity membership contribution a taxable admission?
A: No.

Q: Did the ruling exempt all club dues and fees?
A: No. It addressed the sale and reissuance of the equity ownership interests.

Citations and references

• Fla. Stat. §§ 212.02(1), 212.04, and 213.22
• Fla. Admin. Code r. 12A-1.005(4)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 13A-012

Original ruling text

Executive Director
Marshall Stranburg

SUMMARY
TAX: Sales and Use Tax
TAA NUMBER: TAA 13A-012
ISSUE: Admissions
STATUTE CITE(S): Section(s) 212.02, 212.04, F.S.
RULE CITE(S): Rule 12A-1.005, F.A.C.
QUESTION: Whether sale and resale of equitable membership interests in Taxpayer are subject to the
tax imposed on admissions?
ANSWER: No. Taxpayer demonstrated that the purchase of equitable membership interests are not dues
or fees and not taxable admissions as provided by Rule 12A-1.005(4), F.A.C.
May 15, 2013

Subject: Technical Assistance Advisement – TAA 13A-012
Sales and Use Tax
Admissions– Sale and resale of equity membership interest
Section(s) 212.02(1), 212.04, Florida Statutes (“F.S.”)
Rule(s) 12A-1.005, Florida Administrative Code (“F.A.C.”)
XXXXXX (“Developer”)(“Petitioner”)
FEI Number: XXXXX
XXXXXX (“Community”)
XXXXXX (“Club”)
Business Partner Number: XXXXX
Dear XXXX:
This letter is a response to your petition dated March 4, 2013, for the Department’s issuance of a
Technical Assistance Advisement (“TAA”) to Petitioner, concerning sales and resale of equity
membership interests in Club. Your petition has been carefully examined, and the Department
finds it to be in compliance with the requisite criteria set forth in Rule Chapter 12-11, F.A.C.
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Tony Powell, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2
This response to your request constitutes a TAA and is issued to you under the authority of
section 213.22, F.S.
Issue
Are the sale and resale of Club’s equity memberships by either Developer or Club subject to
sales tax?
Facts
Developer is a Delaware limited liability company, authorized to do business in Florida.
Developer currently owns certain developed and to be developed real property at Community
that is located in Florida. The property in Community is sold as developed lots to builders and/or
homeowners (the “Lot Purchasers”), who will construct a residence on such developed lots.
Community includes a golf course and other club facilities (together, the “Club Facilities”) made
by Developer.
Club was formed as a Florida not-for-profit corporation under Chapter 617, Florida Statutes.
Club’s Articles of Incorporation provide that it is a member-owned club. The Articles provide
for voting and dissolution rights.
The Club Facilities were conveyed by the Developer to Club in exchange for all of the
outstanding equity memberships (“Equity Memberships”) of Club. The Equity Memberships
were then sold in conjunction with the sale of lots in Community.
There are two categories of Equity Memberships, which provide the owners of Equity
Memberships (the “Equity Members”) with certain privileges to use the Club Facilities. One
category of Equity Membership provides privileges primarily as a sport member with nominal
golf use privileges, and the other category of Equity Membership provides privileges as a golf
member with full golf privileges. Both categories of Equity Membership provide privileges
relating to the social and dining elements of the Equity Club.
The lots within Community are encumbered by certain covenants. One covenant (the
“Covenant”) requires mandatory membership by any Lot Purchaser acquiring a lot within
Community. The Lot Purchaser is required to acquire and maintain an Equity Membership in
Club. A Lot Purchaser is obligated to pay a membership contribution (“Equity Membership
Contribution”) to acquire the Equity Membership.
Initially, each Lot Purchaser who purchases a developed lot from the Developer will be required
to purchase one of the Equity Memberships held by the Developer, and the Equity Membership
Contribution paid by such Lot Purchaser would be delivered to the Developer as consideration

Technical Assistance Advisement
Page 3
for such Equity Membership. By acquiring an Equity Membership, each Lot Purchaser obtains
all of the rights of an Equity Member under the membership documents of Club, which are
currently in effect and include Articles of Incorporation, Bylaws, Membership Plan, and Rules
and Regulations (collectively, the “Membership Documents”).
Pursuant to the Covenant, when a Member sells his or her home or lot in Community, the buyer
of that Member’s home or lot is required to acquire an Equity Membership, which may be a
reissuance of the selling Member’s Equity Membership or an Equity Membership on a resigned
Member’s waiting list (a “Reissued Equity Membership”). In that event, Club is the entity that is
selling such Reissued Equity Membership by virtue of its reissuance of a previously issued
Equity Membership. Upon the sale of the Reissued Equity Membership by the Club, (a) the
Developer receives seventy-five percent (75%) of the Equity Membership Contribution paid for
the Reissued Equity Membership until the Turnover Date (as defined below), as additional
consideration for the Club’s purchase of the Club Facilities from the Developer, and (b) the Club
retains the remaining portion of the Equity Membership Contribution (i.e., 25% until the
Turnover Date, then 100% after the Turnover Date), which amount is required to be placed into a
capital expenditure reserve account of Club. The funds placed into the account are earmarked
for certain extraordinary capital repairs and replacement to the Club Facilities and other capital
repairs, replacements, and improvements to the Club Facilities to the extent such expenditures
exceed the general capital reserve funds of the Club.
The Membership Documents are applicable to all Equity Members, whether such Equity
membership is acquired from the Developer or from Club. The Membership Documents require
Club to issue to the Equity Members membership certificates (“Membership Certificates”). The
Membership Certificates represent the Equity Memberships. Only those persons holding Equity
Membership (i.e., the Equity Members) will have the right to vote on matters concerning Club.
The Membership Documents provide that as of a certain date (the “Turnover Date”), the
Developer will turn over the management control of Club to the Equity Members.
The Membership Documents also provide the Equity Members with the following rights: (i) the
right to attend annual meetings of the Equity Members, which will commence after the Turnover
Date; (ii) 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; (iii) the right to receive notices of and to
attend special meetings of the Equity Members; (iv) the right to vote for an election of the Board
of Directors of Club following the Turnover Date; (v) the right to participate in liquidating
distributions in the event Club is dissolved and liquidated, which distributions (after the payment
of the Club’s debts) would be allocated among the Equity Members, as permitted by Florida law
or a court having jurisdiction, in proportion to the value of the Equity Memberships as last
established.
The Membership Documents provide that certain founding Equity Members have a right to
receive a payment upon the resignation and reissuance of such Equity Membership, as provided
in their respective membership agreement. However, Equity Memberships issued in the future
may not include a right to receive a payment upon the resignation and reissuance of such Equity

Technical Assistance Advisement
Page 4
Memberships. However such Equity Members will nonetheless continue to have the right under
the Membership Documents to participate in liquidating distributions upon a dissolution and
liquidation of the Equity Club as provided in clause (v) of the preceding paragraph above. In
addition, Developer and/or Club are required to file Form 1099 with the Internal Revenue
Service when an Equitable Membership is transferred.
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 maintain and operate Club.
Applicable Law and Discussion
Section 212.04, Florida Statutes (“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 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, …
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 … 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 ….
Rule 12A-1.005(4)(a)1.a. and (b), Florida Administrative Code (“F.A.C.”), provide, in
part, the following:
(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,

Technical Assistance Advisement
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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.
   Section 212.04, F.S., requires that an admission provider collect sales tax on the sales
   price or amount received from the sales of admissions. Section 212.02(1), F.S., defines
   the term “admissions.” It includes dues and fees collected by private and membership
   clubs. This includes dues and fees collected by Club. However, dues and fees do not
   include the initiation fees paid by an equity member for receipt of an “equitable
   ownership interest,” as defined by Rule 12A-1.005(4)(b), F.A.C. Based on the
   information provided, the Equity Memberships and Reissued Equity Memberships are
   equitable ownership interests that are not considered dues and fees. As required by Rule
   12A-1.005(4)(b), F.A.C., the Equity Members receive membership certificates that
   provide they are Equity members; the Equity members receive liquidation rights; and the
   equity members have sufficient voting rights. Also, certain Equity Members are entitled
   to a portion of the sales proceeds when the Equity Membership is transferred. Also, as
   provided by Rule 12A-1.005(4)(a), F.A.C., the memberships are transferable to the
   Equity Club. As such, the Equity Memberships and Reissued Equity Memberships are
   equitable membership interests for purposes of Rule 12A-1.005, F.A.C. Thus, the initial
   membership contribution is not considered a dues or fee paid to a membership or private
   club. Therefore, the initial membership contribution is not an admission. Since the
   resale relates to an equitable membership interest and not to an admission, the amount
   received is not an admission either. Thus, the charge is not subject to the sales tax
   imposed by s. 212.04, F.S.

Technical Assistance Advisement
Page 6
Conclusion
The sale and resale of Club’s equity memberships by Developer and Club are not subject to sales
tax imposed by s. 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,

Charles Wallace
Technical Assistance & Dispute Resolution
850-717-7541
Record ID: 141247