Was a nonprofit private club's annual fee for inactive equity members taxable when it covered overhead but provided no access to club facilities?

Plain-English summary

The Florida Department of Revenue concluded that a private, member-owned nonprofit club did not owe sales tax on its annual inactive-member fee under the stated facts.

An equity member could move to inactive status while waiting for a replacement member to purchase the equity bond. Under the bylaws, the annual fee represented a prorated share of real and personal property taxes, insurance premiums, security, and other expenses. The fee would be refunded on a quarterly prorated basis when the bond sold.

Although Florida taxed private-club fees paid as a condition of, in conjunction with, or for recreational or physical-fitness facility use, this fee provided no such right. An inactive member could not use the facilities without converting to equity or social membership, which also brought a minimum food charge. The overhead fee therefore was not a taxable admission.

What this means for you

Private nonprofit clubs

The Department focused on what the inactive fee bought. A documented overhead allocation that preserved status but granted no facility access was nontaxable here.

Equity members awaiting bond sale

Paying the fee did not permit facility use. It maintained the inactive membership until a replacement member purchased the bond.

Accountants and tax professionals

Review bylaws, fee notices, refund provisions, and actual access rights. A different fee tied to recreational use could be taxable even if labeled an inactive-member or overhead charge.

Common questions

Q: What expenses did the annual fee represent?
A: A prorated share of real and personal property taxes, insurance premiums, security, and other expenses.

Q: Could an inactive member use club facilities?
A: No, not without converting to equity or social membership and becoming subject to the minimum food charge.

Q: What happened when the equity bond sold?
A: The yearly overhead charge was refunded on a quarterly prorated basis.

Q: Why was the fee nontaxable?
A: It maintained good standing while the bond awaited sale but did not grant use of recreational facilities.

Citations and references

• Fla. Stat. §§ 212.02(1), 212.04(1)(a), and 213.22
• Fla. Admin. Code r. 12A-1.005(5)(d)1.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-003

Original ruling text

Jan 09, 1997

Re: Technical Assistance Advisement 97A-003
Inactive Member Fee
ss. 212.02(1), 212.04, F.S.
Rule 12A-1.005, F.A.C.
Taxpayer: XXX
FEI#: XXX

Dear:

This response is to your petition which was faxed September 25,
1996, requesting the Department's issuance of a Technical
Assistance Advisement (TAA) pursuant to s. 213.22, F.S., and Ch.
12-11, F.A.C., regarding the referenced Taxpayer and matter.
Your letter and supporting documents provided the following

pertinent information.

FACTS PRESENTED

XXX ("Club") is a private, member-owned nonprofit organization.

The Club has equity members in addition to other types of
memberships. When an equity member wishes to be placed in an
inactive status pending sale of the equity membership bond, the
Club imposes a yearly fee. According to the Club's By-Laws, the
fee represents a pro-rated share of the annual real and personal
property taxes and all insurance premiums including security and

other expenses.

The annual notice of the fee sent to the member carries the

following stipulation:

Inactive members may not use the club facilities unless

they convert to equity/social membership in which event the
minimum food charge is applicable. On sale of Equity Bond,
yearly overhead charge will be refunded on a pro-rata basis

calculated quarterly.

REQUESTED ADVISEMENT

The issue in question is whether the inactive member fee imposed

by Club is subject to sales tax.

RELEVANT AUTHORITIES

Section 212.02(1), F.S., provides in part:

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... all dues and fees paid to
private clubs and membership clubs providing recreational
or physical fitness facilities, including but not limited

to golf, tennis...

Section 212.04(1)(a), F.S., provides:

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.

Rule 12A-1.005(5)(d)1., F.A.C. also provides in pertinent part:

1. ... [T]he following fees paid to private clubs or
   membership clubs as a condition precedent to, or in
   conjunction with, or for the use of the club's recreational

or physical fitness facilities are subject to tax.

ADVISEMENT

Pursuant to the referenced statutes and rule, dues and fees
charged for the use of recreational facilities are taxable. As
stated in the referenced rule, fees charged "as a condition
precedent to, or in conjunction with, or for the use of the
club's recreational or physical fitness facilities are subject

to tax."

Based on the facts provided, the payment of the inactive member
fee cannot be considered as a charge precedent to, or in
conjunction with, or for the use of the Club's premises since

the inactive member is not allowed to use the facilities without
converting to an equity/social member and paying a minimum food

charge.

The Department agrees with your conclusion that the fee is not
taxable since the fee merely allows the member to remain in good
standing with the club until the time his or her membership is
purchased by a replacement member, and does not allow the

inactive member use of the recreational facilities.

This response constitutes a technical assistance advisement
under s. 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 s. 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 and your request are
public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the department
before disclosure. In an effort to protect confidential
information, we request you notify the undersigned in writing
within 15 days of any deletions you wish made to the request or

this response.
Sincerely,
Edith Sapp
Tax Law Specialist

Tax Policy and Dispute Resolution

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