Were mandatory social dues paid by homeowners to a Chapter 617 association taxable admissions?

Subject

Mandatory Homeowners' Association Social Dues

Plain-English summary

The homeowners' mandatory social membership dues were exempt from Florida admissions tax, provided the taxpayer actually qualified as a Chapter 617 homeowners' association. The Department found that the submitted declaration, articles, and bylaws satisfied the rule's four requirements.

The dues were mandatory; they were paid to a homeowners' association; payment was a condition of owning a home; and the covered club facilities were part of the property's common elements or common areas. Unpaid dues could become a lien on the dwelling unit and be foreclosed like a mortgage.

Social members received access to clubhouses, restaurant and kitchen facilities, swimming pools, dressing rooms, open areas, and roadways. Golf courses and tennis courts were not treated as common areas, and golf or tennis access required an additional optional membership. Those optional charges—and other voluntarily incurred charges—remained taxable.

What this means for you

Florida's rule was a narrow exception to the general tax on private-club dues. Mandatory payment alone was not enough. The payment also had to be a condition of property ownership, go to a qualifying homeowners' association, and cover facilities that were part of the common areas or elements.

The Department expressly declined to interpret Chapter 617 or confirm the association's legal qualification. If it did not qualify as a Chapter 617 corporation, the same social dues were taxable admissions.

Common questions

Q: What four conditions supported the exemption? Mandatory dues, payment to a homeowners' association, payment required by property ownership, and club facilities included in the common areas or elements.

Q: Why did the ownership condition matter? Every homeowner had to become a social member, and unpaid dues could become a continuing lien against the home.

Q: Did social dues include golf and tennis access? No. Social members needed separate optional golf or tennis memberships, and those optional dues were taxable.

Q: Were food, beverages, or other optional purchases exempt? No. The association taxed food and beverage purchases, and the Department said voluntarily incurred fees or charges were taxable.

Q: Did the Department confirm the association was legally a Chapter 617 corporation? No. The exemption was conditional on that status, which the Department said it was not responsible for deciding.

Citations and references

• Fla. Stat. §§ 212.02(1), 212.04(1) — taxable admissions and recreational-club dues
• Fla. Admin. Code r. 12A-1.005(5)(d)2.d. — four-part exception for mandatory association dues
• Fla. Stat. § 617.301(1), (2), (7) — assessments, common areas, and homeowners' associations
• Fla. Stat. § 617.304(1) — availability of common areas and recreational facilities
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-021

Original ruling text

SUMMARY

The taxpayer, a corporation registered with the Secretary

of State as a Chapter 617 homeowners' association, collects
social membership dues from homeowners in the community.
The taxpayer seeks a determination that the social
membership dues are exempt from tax. In the taxpayer's
situation, the social membership are mandatory and required
to be paid as a condition of the ownership of real

property. Furthermore, the facilities that the social

members are entitled to use are part of the common elements
or common areas of real property. Nevertheless, social
members do not have access to the golf courses or tennis
courts that are part of the homeowners’ association unless
they pay an additional golf or tennis fee. On the facts as
presented, the social membership dues are exempt from tax
so long as the taxpayer, in fact, qualifies as a Chapter

617 corporation. If the taxpayer does not qualify asa
Chapter 617 corporation, the social membership dues are

considered admissions and thus subject to tax.

Apr 08, 1998

Re: Technical Assistance Advisement 98A-021
Sales and Use Tax
Social Membership Dues Paid to a Corporation Registered as
a Ch. 617 Corporation Not-For-Profit
Rule 12A-1.005(5)(d)2.d., F.A.C.

Dear:

This response to your letter of February 25, 1998,
constitutes a Technical Assistance Advisement (TAA) issued in
accordance with the provisions of Chapter 12-11, Florida
Administrative Code (F.A.C.), and pursuant to the authority
granted by s. 213.22, Florida Statutes (F.S.).

FACTS

XXX (Taxpayer) is a not-for-profit Florida Corporation
incorporated on November 1, 1984, under Chapter 617 of the
Florida Not-for-Profit Corporation Act. Taxpayer sets forth the

facts it believes to be relevant as follows:

The [Taxpayer] owns and operates the common areas of the
community for its members, including the country club
amenities such as restaurant facilities, golf and tennis

pro shop, two 18-hole golf courses and 21 tennis courts.
This property was transferred by deed to the [Taxpayer] for
the purpose of operation, administration, management, lease
and maintenance of the common areas, the golf courses and
the tennis club. The purpose of the [Taxpayer] is to take

title to, operate, administer, manage, lease and maintain

the [Taxpayer's] common areas, the golf courses, and the

tennis club.

The [Taxpayer] has four categories of membership, common
area maintenance, social, golf, and tennis. 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.
A golf or tennis membership is optional. 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 cannot vote on matters

which specifically relate to golf or tennis.

The Board of Directors of the [Taxpayer] adopts an annual
budget sufficient to maintain and operate the [Taxpayer]
and to fulfill the obligations of the [Taxpayer]. Upon

such adoption of the annual budget, the Board of Directors
sets forth the common area maintenance fees and dues for
each respective membership. No member may waive or
otherwise escape liability for the amounts charged by the
community association even if the common areas or

facilities are not used or the dwelling unit is abandoned.

In the event any [Taxpayer] member shall fail to pay any
amounts charged, the [Taxpayer] 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 [Taxpayer] in

like manner as a foreclosure of a mortgage on real

property.

Taxpayer also provides copies of its "Declaration of
Protective Covenants, Conditions and Restrictions"
(Declaration), Articles of Incorporation (Articles), and Bylaws,
as amended, for the Department's consideration. A review of
Taxpayer's Declaration of Protective Covenants, Conditions, and
Restrictions reveals that golf and tennis membership is open to
nonresidents as well as residents. (Declaration, Articles 7,

8). Nevertheless, the nonresident golf and tennis members are
not considered members of the corporation, and are not permitted
to vote on issues under consideration by corporation's members.
(Declaration, Articles 6, 7, 8). The nonresident golf and

tennis members are permitted to vote only on issues under
consideration by the golf or tennis membership, respectively.

(Declaration, Article 6).

In addition, the Declaration, Articles, and Bylaws support
Taxpayer's claim that every homeowner in the community is
required to pay social membership fees. In this vein, the
Declaration provides that all unit owners must pay social
membership fees (assessments) for operating expenses.
(Declaration, Sections 1.23, 6.01, 6.02 and 9.01). Unpaid
assessments become a continuing lien against the owner's

dwelling unit; the lien is effective when recorded.

(Declaration, Section 9.02). The Articles and Bylaws are in
accord with the Declaration on the issue of an owner's duty to
pay social membership fees (Articles, Article V; Bylaws, Section
3).

Taxpayer's Declaration provides that all social members
have access to the corporation common areas, which include, but
are not limited to, recreation areas, open areas, and roadways.
(Declaration, Sections 3.01.1(a), 3.01.4). Under the
Declaration, recreation areas include clubhouses, restaurant
facilities, kitchen facilities, swimming pools, and dressing
rooms. (Declaration, Section 3.01.4) It is clear from the
Declaration that neither golf courses nor tennis courts are
treated by Taxpayer as part of the corporation common areas,
although Taxpayer, at points, suggests otherwise (See
Declaration, Section 3.01; compare Taxpayer's contention on page
4 of Taxpayer's request that "[t]he Declaration required that
the club facilities, including the golf course, tennis courts,

and other recreational facilities part of the common area...."

(emphasis supplied)).
Taxpayer's Declaration requires that Developer transfer the
club facilities by deed to the association. (Declaration,

Section 3.01.4)

ISSUE

Are the social membership dues subject to sales tax?

TAXPAYER'S POSITION

Taxpayer argues as follows:

The social membership fees, should not be taxable
admissions pursuant to Rule 12A-1.005(5)(d)2.d., F.A.C.,
because the fee is mandatory, the fee is paid toa
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. The social membership status is required when

purchasing real property in the Association community. We

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.

Taxpayer further argues that "the facts and circumstances
in this request are almost identical to those in TAA 97A-052 in
which the DOR ruled that the social membership dues were not
subject to the sales tax." Indeed, in setting forth the facts
applicable to its situation, Taxpayer closely tracks the

language of Technical Assistance Advisement 97A-052.

RELEVANT STATUTORY AND ADMINISTRATIVE AUTHORITY

Section 212.04(1), F.S., sets forth the legislative intent

regarding admissions, and provides in pertinent 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., in turn, provides in part that the

term "admissions":

... means and includes... 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. (Emphasis supplied).

Rule 12A-1.005(5)(d)2.d., F.A.C., interprets the statutes

addressing the tax on admissions and, with regard to homeowners’

associations, provides in part:

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 condominium

association, homeowners’ association, or cooperative

association when they are required to be paid asa

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. (Emphasis supplied).

Section 617.301(2), F.S., defines "common area" as:

... [A]ll 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;

(b) Real property committed by a declaration of covenants

to be leased or conveyed to the association.

Section 617.301(7), F.S., provides, in relevant part, that

a "homeowners' association” is:

... [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...

Section 617.301(1), F.S., defines an assessment as:

... [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.

Section 617.304(1), F.S., provides in part that "all common
areas and recreational facilities serving any homeowners’
association shall be available to parcel owners in the
homeowners’ association served thereby and their invited guests
for the use intended for such common areas and recreational

facilities."

ANALYSIS

Under Florida law, admissions are taxable unless
specifically exempt. Section 212.04(1), F.S. Moreover, dues
paid to private clubs providing recreational or physical fitness
facilities are taxable admissions. Sections 212.02(1), F.S.,
and 212.04, F.S. A narrow exception from this general rule is
provided for certain dues paid to homeowners’ associations.
Rule 12A-1.005(5)(d)2.d., F.A.C.

Homeowners’ association dues are exempt from tax only when
all of the following four requirements are met: (1) the dues
must be mandatory, (2) they must be paid to a homeowners'
association, (3) they must be required to be paid as a condition
of the ownership of real property, and (4) the club facilities
must be part of the common elements or common areas of the real

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

The Declaration, Articles, and Bylaws require homeowners to
pay social membership dues to the association. Unpaid social
membership fees become a continuing lien against the homeowners’
dwelling unit. Once a lien for social membership fees is
recorded, foreclosure proceedings may be initiated against the
member's dwelling unit. Therefore, it is evident that the dues
are mandatory for homeowners, and that the first requirement of

Rule 12A-1.005(5)(d)2.d., F.A.C., is met.

With regard to the second requirement, Section 617.301(7),
F.S., defines a "homeowners' association" as a Florida
corporation responsible for the operation of a community in
which the voting membership is made up of parcel owners or their

agents, in which membership is a mandatory condition of parcel

ownership, and which is authorized to impose assessments that

may become a lien on the parcel if not paid.

Taxpayer's Articles, filed with the Secretary of State,
state that the corporation is formed as "a corporation not-for-
profit under and in accordance with the provision of Chapter 617
of the Florida Statutes." Furthermore, Taxpayer's Declaration,
Articles, and Bylaws provide that homeowners in the community
must become social members of the association. These homeowners
are also required to pay the dues required of social members,
and are voting members of the association. If the homeowner's
social membership dues are not paid, then the unpaid dues become
a lien against the homeowner's dwelling unit. Taxpayer seems to
qualify as a homeowners’ association under Chapter 617, thereby

meeting the second requirement of the rule.

Based upon the express language of the Declaration, it is
clear that homeowners are required to pay the social membership

dues as a condition of the ownership of real property.

The third requirement of the rule is met.

Finally, in order for the dues to qualify for the
homeowners’ association exemption, the facilities must be part
of the common elements or common areas of the real property.
Section 617.301(2), F.S., defines "common area" as “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." Section 617.301(2)(b), F.S.,
further provides that common areas include real property
committed by a declaration of covenants to be leased or conveyed
to the association. In accordance with this provision,
Taxpayer's Declaration requires that the club facilities be
transferred by deed to the association. (See Declaration,

Section 3.01.4)

Additionally, Sections 3.01.04(a), (e), and (f) of
Taxpayer's Declaration provides that all social members have
access to the corporation common areas, which include, but are
not limited to, recreation areas, open areas, and roadways.

Under the Declaration, recreation areas include clubhouses,

restaurant facilities, kitchen facilities, swimming pools, and
dressing rooms. The tennis courts and golf courses are not

considered part of the corporation common areas.

Taxpayer cites Downey v. Jungle Den Villas Recreational
Assn., Inc., 525 So. 2d 438 (Fla. 5th DCA 1988), in which the

court considered whether a portion of property was a "common
element" of several different condominium associations when
legal title to the property was held by a recreation

association. The condominium associations created the
recreation association to hold title to, operate, and manage the
recreation facilities "for the use of all present and future
condominium unit owners." Id at 439. Section 718.103(7), F.S.
provides that common elements are "the portions of the
condominium property which are not included in the units."
Because the recreation association in Downey held legal title to
the property in question "for the use and benefit of unit owners
of all phases in Jungle Den Villas", the court held the property
was a "common element" of each individual condominium
association. Downey, 525 So. 2d at 441. In the instant
arrangement, there is no separate recreation association. Here,
the homeowners’ association itself holds title to, and

maintains, the property for the use and benefit of its members.

Pursuant to Taxpayer's Declaration, all social members are
entitled by virtue of owning of real property to use facilities
such as recreation areas, open areas, and roadways. These
facilities are part of the common elements or areas of the real
property, as defined in section 617.301(2), F.S. Accordingly,

the fourth requirement is met.

DETERMINATION

Review of the Declaration, Articles, and Bylaws indicates
that the social membership fees collected by Taxpayer meet the
four requirements of Rule 12A-1.005(5)(d)2.d., F.A.C.
Consequently, based on the facts as presented, the social
membership fees are exempt from tax. All fees or charges

voluntarily incurred by a member, however, are taxable.

Please note that this Advisement depends upon Taxpayer

qualifying as a Chapter 617 not-for-profit corporation. It is

neither the responsibility nor the intention of the Department

to construe Chapter 617 or to render an opinion whether Taxpayer
is in fact a Chapter 617 Corporation. See section 617.304(1),

F.S. (providing that "all common areas and recreational

facilities serving any homeowners’ association shall be

available to parcel owners in the homeowners’ association served

thereby and their invited guests for the use intended for such
common areas and recreational facilities." (Emphasis added)).
In the event that Taxpayer does not qualify as a Chapter 617
corporation, then the social membership dues collected by

Taxpayer are considered admissions and thus subject to tax.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., and 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 from that

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.

Should you have any questions concerning this Advisement,

please do not hesitate to contact me.

Sincerely,

Rebecca Newton Clarke

Attorney

RNC/
Cont. #33117