Were mandatory social-membership dues paid to a homeowners association for common recreational facilities subject to Florida sales tax?

Plain-English summary

The mandatory social-membership dues were exempt from Florida sales tax. Every homeowner had to maintain social membership as a condition of owning a dwelling unit, could not avoid the charge by declining to use the facilities, and faced a continuing property lien and possible foreclosure for nonpayment.

The association owned and operated the common areas, including restaurant facilities, golf courses, tennis courts, and related amenities. The social dues covered common-area losses and overhead rather than an optional admission purchased separately by a member.

Optional charges were different. Golf and tennis memberships, food and beverage minimums, and other separately billed member purchases remained taxable.

What this means for you

The exemption required all four elements identified by the Department: mandatory payment, payment to a homeowners association, payment as a condition of ownership or occupancy, and club facilities that are common elements or common areas of the real property.

A charge does not become exempt merely because an HOA collects it. Voluntary upgrades and separately purchased benefits remain subject to the ordinary admissions or sales-tax rules.

Common questions

Q: Why were the social dues mandatory? The declaration required payment regardless of use, made membership a condition of ownership, and allowed a lien and foreclosure for nonpayment.

Q: Did the facilities qualify as common areas? Yes. They had been transferred to the association and were maintained for association members.

Q: Were optional golf and tennis memberships exempt too? No. Their optional nature made them taxable.

Q: What about food, beverages, or minimum charges? The ruling said optional separately billed charges, including food and beverage minimums, were taxable.

Citations and references

• Fla. Stat. § 212.02(1) — admissions include private-club recreational dues and fees
• Fla. Stat. § 212.04(1) — tax on admissions
• Fla. Admin. Code r. 12A-1.005(5)(d)2.d. — exemption for qualifying mandatory homeowners-association dues
• Fla. Stat. § 617.301(2) and (7) — common areas and homeowners-association requirements
• Downey v. Jungle Den Villas Recreational Ass'n, Inc., 525 So. 2d 438 (Fla. 5th DCA 1988) — association-held recreational property as a common element
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-052

Original ruling text

SUMMARY

Mandatory social membership dues paid to a homeowner's association required to be paid as a condition of ownership of real property are exempt where the homeowner's association club facilities are common areas of the real property. The dues are mandatory because a lien is placed on the property for nonpayment, the homeowner's association can foreclose on the lien, and membership is required upon purchasing the real property as a condition of ownership.

Aug 11, 1997

Re: Technical Assistance Advisement 97A-052 Sales and Use Tax Property Owner's Association, Mandatory Assessments Rule 12A-1.005(5)(d)2.d., F.A.C. XXX ("Association")

Dear :

This is in response to your letter of April 25, 1997, requesting a technical assistance advisement (TAA) concerning the applicability of sales tax to mandatory assessments paid by a homeowner to a property owners association.

FACTS

The Association was incorporated in the State of Florida on November 21, 1985 under Chapter 617 of the Florida Not-ForProfit Corporation Act. You enclosed a copy of the Declaration of Protective Covenants, Conditions, and Restriction for the Association (the Declaration) by which the Association, the Association members, and the developer are governed. The Association owns and operates common areas, including country club type amenities such as restaurant facilities, golf and tennis pro shops, two 18-hole golf courses and 30 tennis courts for its members. This property was transferred by deed from the

developer to the Association. The purpose of the Association is to take title to, operate, administer, manage, lease and maintain the Association common areas, the golf courses, and the tennis club.

The Association has four categories of membership, common area maintenance, social, golf, and tennis. When an individual purchases a residence (real property) in the community, they are required at a minimum to purchase a common area maintenance and social membership in the club. A golf or tennis membership is optional. All homeowners in the community are required to become social members as a condition to residential ownership and are charged an annual common area maintenance and social membership fee. The social membership fees are a continuing lien against the member's dwelling unit. Common area maintenance fees provide for such direct expenses as common area maintenance expenses, security services, cable television, as well as allocated general and administrative and general insurance costs. Social membership dues are set to cover losses for common areas such as the restaurant and the bar and are applied to overhead expenses such as insurance, administrative, utilities, maintenance, and housekeeping costs. Optional charges for items directly purchased by a member such as food and beverages are taxed to the member.

All members receive one voting right. Members who purchase an optional golf or tennis membership, maintain their single voting status. Social members who have not purchased golf or tennis options can not vote on matters which specifically relate to golf or tennis.

The Board of Directors of the Association adopts an annual budget sufficient to maintain and operate the Association and to fulfill the obligations of the Association. Upon such adoption of the annual budget, the Board of Directors sets forth the common area maintenance fees and dues for each respective membership category charged to each member of the Association. No member may waive or otherwise escape liability for the amounts charged each resident of the community association by non-use of the common areas or facilities or abandonment of his or her parcel.

In the event any Association member shall fail to pay any amounts charged, the Association has the right to file an action in equity to foreclose its lien. The lien may be foreclosed by an action in the name of the Association in like manner as a foreclosure of a mortgage on real property.

QUESTION

Are the social membership dues subject to state sales tax?

YOUR POSITION

You argue that the membership fees along with the common area maintenance assessment are not a taxable admission pursuant to Rule 12A-1.005(5)(d)2.d., F.A.C., because the fee is mandatory, the fee is paid to a homeowner's association, the fee is required to be paid as a condition of ownership, and the club facilities are part of the common elements or common areas of the real property. You claim social membership status as well as common area maintenance membership status is required when purchasing real property in the Association community. You agree that both golf and tennis related membership dues are subject to sales tax based upon their optional nature with regard to occupancy of real property in the Association community.

STATUTORY AND REGULATORY AUTHORITY

Section 212.04(1), F.S., states in part:

(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., states:

(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.

Rule 12A-1.005(5)(d)2.d., F.A.C., states:

2. The following payments made to private clubs or
   membership clubs are not "fees" which are subject to tax on admissions.

d. Mandatory dues and fees paid to a... homeowners' 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.

Section 617.301, F.S., states in part:

(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....

(7) "Homeowners' association" or "association" means a Florida corporation responsible for the operation of a community 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....

DISCUSSION

Rule 12A-1.005(5)(d)2.d., F.A.C., provides four criteria. The fee must be (1) mandatory, (2) paid to a homeowner's association, (3) required to be paid as a condition of ownership, and (4) the club facilities are part of the common elements or common areas of the real property.

The fees were mandatory, because section 8.01 required that members pay the fees regardless if they used the common areas or not. The Declaration provides that there is an affirmative covenant of the residential owners to pay the social membership dues. The Declaration agreement provides that the social membership dues are a continuing lien on a member's dwelling unit. Failure to pay the fees may result in foreclosure on the dwelling unit.

Here, the fees were paid to a homeowner's association. The Association was organized as a not-for-profit homeowners' association pursuant to section 617.301(7), F.S. The Declaration provides that the Association is responsible for the common areas. The Association is authorized by the Declaration to impose assessments and collect the social membership dues. The Association may foreclose for nonpayment.

The third criterion is also a requirement under section 617.301(7), F.S. The Declaration required the dwelling owners

to obtain a social membership as a condition of ownership. Here, the parcel owners, or the residential owners, are required to be members as a condition of parcel ownership. The Declaration provides that members are required to maintain membership as a condition of ownership of the dwelling units.

The fourth criterion requires that the club facilities be part of the common elements or common areas. The Declaration required that the club facilities, including the golf course, tennis courts, and other recreational facilities part of the common area, were transferred to the Association by deed as required in section 617.301(2), F.S. The Declaration provides that the property maintained by the Association is common areas for the use of Association members. In Downey v. Jungle Den Villas Recreational Assn., Inc., 525 So.2d 438 (Fla 5th DCA 1988), the Fifth District Court of Appeal found that the real property to be used for the recreation facilities the legal title of which was in the entity created to own, operate and manage the recreation facilities, was actually a "common element."

DETERMINATION

Based on a review of the Declaration and other documentation provided, the social membership fees are exempt pursuant to the criteria established in Rule 12A1.005(5)(d)2.d., F.A.C. However, any optional charges separately billed to the members are taxable, including food and beverages minimums and golf and tennis memberships.

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 advise 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 and your request are public records under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of Section 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 the confidentiality of such information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or response.

Sincerely,

Charles Wallace
Senior Tax Specialist
Technical Assistance and Dispute Resolution

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