Were a Florida property owners' association's mandatory annual assessments taxable as club admissions or membership fees?

Plain-English summary

The association's regular annual general assessments were not taxable as admissions or club fees. They met all four requirements in the Department's rule: the assessments were mandatory, paid to a homeowners' association, required as a condition of owning property, and related to club facilities that were part of the community's common areas.

Every parcel owner had to be a member and pay the assessments even if the owner did not use the facilities. Unpaid assessments, late fees, interest, and collection costs became a lien that the association could foreclose. The association maintained common recreational property including a clubhouse, golf course, tennis courts, swimming pool, and beach-club facilities.

The ruling listed optional charges such as golf-cart and locker rentals, food and beverages, lessons, shop purchases, and guest fees, but it did not decide their tax treatment.

What this means for you

The result depended on the connection between the assessment and real-property ownership. Mandatory HOA charges tied to ownership and common-area facilities were different from ordinary voluntary private-club dues.

Associations should not extend this conclusion automatically to every amount billed to an owner or guest. Optional purchases and usage charges require their own analysis.

Common questions

Q: Could an owner avoid the assessment by not using the facilities? No. The declaration required payment regardless of use or abandonment of the parcel.

Q: Why did the common-area status matter? The rule excluded mandatory HOA dues and fees only when the club facilities were part of the real property's common elements or common areas.

Q: Could the association enforce nonpayment against the parcel? Yes. The assessments and related charges became a lien and could be foreclosed.

Q: Did the TAA exempt optional golf, food, lesson, shop, or guest charges? It did not decide those separately listed charges.

Citations and references

• Fla. Stat. § 212.02(1) — definition of admissions, including private-club dues and fees
• Fla. Stat. § 212.04(1) — tax on admissions
• Fla. Admin. Code r. 12A-1.005(5)(d)2.d. — mandatory HOA dues and fees tied to ownership and common areas
• Fla. Stat. § 617.301(2), (7) — common-area and homeowners' association definitions
• Downey v. Jungle Den Villas Recreational Ass'n, Inc., 525 So. 2d 438 (Fla. 5th DCA 1988) — recreation property owned by the managing entity treated as a common element
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-080

Original ruling text

Nov 19, 1997

Re: Technical Assistance Advisement 97A-080 Sales and Use Tax Property Owner's Association, Mandatory Assessments Rule 12A-1.005(5)(d)2.d., F.A.C. XXX (the "Original Association") XXX (the "Club") XXX ("Association") XXX ("Beach Club")

Dear :

This is in response to your letter of June 12, 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 Original Association was incorporated in the State of Florida under Chapter 617 of the Florida Not-For-Profit Corporation Act. Pursuant to Section 617.1105 of the Florida Business Corporation Act, the Original Association merged with the Club upon approval of the Board of Directors of the Club and the members of the Original Association on December 10, 1996. Both the Club and the Original Association community are one and the same. It was and remains a mandatory requirement that all individuals who purchase real property in said community are required to be members of both the Club and the Original Association. For this and other reasons, the two entities were appropriately merged with a single entity remaining as the surviving corporation under the new name of the Association.

No changes in the Articles of Incorporation or Bylaws of the corporations have been made, except for those changes made pursuant to law in the surviving corporation's (Association) Articles of Incorporation and Bylaws. You attached a copy of the Third Amended and Restated Declaration of Easements,

Covenants, Conditions, Restrictions, and Limitations (the "Declaration").

The Association owns, operates, maintains, and administers all recreational facilities and all of the other common properties. The Association formed and created a subsidiary, Beach Club, which will operate, maintain and administer the Beach Club property. The Association has the power and duty, with respect to the properties it owns, to administer and enforce the easements, covenants, conditions, restrictions, and other limitations, to maintain and administer the respective properties, and to collect and disburse the assessments. The purpose of the Association is (1) to provide for the maintenance, preservation, and architectural control of the development, (2) to promote the health, safety, and welfare of the residents within the Association property and (3) to acquire, construct, improve, equip, manage, and maintain, solely for the benefit, pleasure and recreation of the members of the Association, all aspects thereof on the Association property. Such Association property includes the clubhouse, other appropriate buildings and structures, golf course, tennis courts, swimming pool, and other facilities and amenities for the private and sole use by the members of the Association, members of their families and their guests and such other persons as may be permitted to use the beach club facility pursuant to the declaration.

All property owners of the Association are entitled to vote in the affairs of the Association. Again, all individuals who purchase homes (real property) within the community are required to become a member of the Association. The Association member's membership is appurtenant to and may not be separated from title to any parcel owned by the member.

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 annual general assessment charged to each member of the Association. At any time the Board of Directors deems it necessary, the Board has the right and power, during any fiscal

year, to adopt and levy an increase to such annual general assessment for the purpose of meeting its expenses and operating costs on a current basis. Each member is obligated to pay the annual general assessment. No member may waive or otherwise escape liablility for the assessments by non-use of the common areas or facilities or abandonment of his or her parcel.

Optional charges include golf cart rentals, locker rentals, food and beverage charges, meeting room rentals, fees for golf and tennis lessons, masseur and physical therapy fees, charges for purchases in golf and tennis pro shops, guest fees and any other fees and charges which are customarily charged directly to members of organizations.

Each member's parcel is subject to annual general assessments by the Association for the improvement, maintenance, and operation of the Association property. The amount is set at a level sufficient to meet the Association's obligations and may be increased for the purpose of meeting its expenses and operating costs on a current basis. The general assessments against each member's parcel together with late fees, interest, and costs of collection shall become a lien on the member's parcel, which may be foreclosed upon by the Association.

QUESTION

Are the annual regular assessments 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.

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 that must be satisfied for a fee not to be taxable. The fee must be (1) mandatory, (2) paid to a homeowner's association, (3) required to be paid as a condition of ownership of real property, and (4) must be for club facilities that are part of the common elements or common areas of the real property.

The annual general assessments are mandatory, because the members are required to pay the fees regardless of whether they used the common areas or not. Article VII, Section 6(b), of the Declaration provides that all charges against any parcel pursuant to the Declaration, together with such late fees,

interest thereon, and costs of collection thereof shall become a lien on the parcel. The assessments are imposed as a condition of ownership of a house.

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 assessments. 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 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. Article VII, Section 2, provides that each parcel is subject to annual general assessments by the Association for the improvement, maintenance and operation of the Association property, including the management and administration of the Association and furnishing of services as set forth in the Declaration.

The fourth criterion requires that the club facilities to which the fees relate are a part of the common elements or common areas. 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 regular annual general assessments are not taxable pursuant to the criteria established in Rule 12A-1.005(5)(d)2.d., F.A.C.

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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