Were separately billed country-club assessments used to repay golf-course renovation debt taxable admissions?

Subject

Capital Improvement Assessments

Plain-English summary

The country club's capital assessments were not taxable admissions. Equity members paid the assessments to retire debt incurred for a major golf-course renovation and redesign. The club separately billed the amounts and placed the proceeds in a separate account used for debt service.

The assessments did not give members a right to use the club, did not reduce membership dues or fees, and did not pay operating expenses. Florida therefore treated them as owner capital contributions rather than taxable club dues or admission fees.

The Department relied on the same distinction recognized in the John's Island Club decision: paid-in capital for genuine capital improvements did not fall within the ordinary meaning of club “dues” or “fees.”

What this means for you

A club assessment is not nontaxable merely because the invoice calls it “capital.” The ruling depended on equity-member status, a specific capital project, separate billing and accounting, restricted use for capital debt, and no connection to facility access, reduced dues, or operating costs.

Common questions

Q: Did the assessments buy or preserve access to club facilities? No. The Department expressly found that they did not entitle members to use the facilities.

Q: Could the club use the assessment proceeds for operations? Not under the described facts. The proceeds were segregated and used to service the capital-project debt.

Q: Did the assessments replace ordinary dues or fees? No. They did not reduce the club's membership dues or fees.

Citations and references

• Fla. Stat. §§ 212.02(1), 212.04 — club dues and fees included in taxable admissions
• Fla. Admin. Code r. 12A-1.005(5)(d)1.b. — periodic club assessments for capital improvements or operating costs
• Florida Department of Revenue v. John's Island Club, Inc., 680 So. 2d 475 (Fla. 1st DCA 1996)
• Oklahoma City Golf & Country Club v. Oklahoma Tax Commission, 825 P.2d 267 (Okla. 1992)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

OCR citation check: both case citations in the scanned ruling resolved in the required list-mode verification. The names, reporters, court abbreviations, years, and operative holding were also reread against the official PDF images.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-067

Original ruling text

SUMMARY

Capital assessments charged to member owners of equity
membership in country club to pay off loan incurred by
capital improvement expenditures are not taxable
"admissions" pursuant to section 212.04, F.S., where the
assessments are substantively a capital contribution by the
member owners of the club. The assessments did not entitle
the member to use the club's facilities, did not result in

a decrease in the club membership dues or fees and they

were not used to pay operating expenses.

Aug 24, 1998

Re: Technical Assistance Advisement - TAA-98A-067
Sales and Use Tax; Capital Improvement Assessments
Section 212.04, F.S., Section 212.02(1), F.S.

Rule 12A-1.005(5)(d)1.b., F.A.C.

Dear:

This is in response to your letter of XXX, requesting an
advisement regarding the assessments made against equity club
members of the Taxpayer. You provided copies of the bylaws,
credit agreement, financial statements, and member billing

letters.

FACTS

The Taxpayer was reincorporated in 1974 under Chapter 617 of the
Florida Not-For-Profit Corporation Act. The Taxpayer is a

private, equity membership country club with amenities such as
restaurant facilities, golf pro shop, an 18-hole golf course and

a limited number of tennis courts. The purpose of the Taxpayer

is to operate a private social club for the benefit of its

members. There are varying member classifications, with varying
rights. Equity members receive a membership certificate in lieu

of stock upon paying a minimum of $8,000 for the certificate,

plus initiation fees. Non-equity members are selected from an
approved waiting list with a predetermined priority. Prior

initiation fees are credited to additional initiation fees when
purchasing an equity ownership. Equity members and some other
membership classifications have full use privileges, while some

are restricted in use privileges.

The Taxpayer's Board of Governors adopted an annual budget
sufficient to maintain and operate the club and to fulfill its
obligations. Upon such adoption of the annual budget, the Board
of Governors sets forth the annual dues rates and fees for each
respective membership category charged to each member of the
club. No member may waive or otherwise escape liability for the
amounts charged without risk of being expelled and having their
membership certificate confiscated, if applicable. As of
September 30, 1994, Founder member's equity was $2,159,581.
Membership dues, fees, and operating assessments are recognized
as revenue on a pro rata basis over the period covered by the

billing.

In 1994, the Taxpayer obtained a line of credit for $2,500,000.
The loan proceeds were used to fund a major course renovation
and redesign. The debt is to be paid by the end of 2001. The
audited financial statements reflected that $2,803,004 were
expended for the renovation and redesign. An assessment was
levied against the member owners. The assessment was billed
monthly, with the monies deposited into a separate account from
the operations fund. The bank was granted a perfected security
interest in the Taxpayer's personal property including without
limitation the Taxpayer's rights to assess and collect
assessments from the members. The loan agreement provided for
various restrictive covenants and negative pledge agreements

related to real property.

QUESTION PRESENTED

Are the capital assessment billings subject to state sales tax?

TAXPAYER'S POSITION

It is your position that the capital assessment charged to the

members for repayment of debt directly related to funding a
member approved golf course capital project is a capital
assessment exempt from sales tax. You believe it is similar to
the assessments in Florida Department of Revenue v. John's

Island Club, Inc., 680 So.2d 475, (Fla 1st DCA 1996).

You provide several factors you feel are relevant. The Founder
members approved the special assessment to perform a specific
major, golf course (capital) renovation project. The Taxpayer
secured bank financing to fund the construction/renovation
expenditures. The Founder members approved a Fiscal Reform Plan
which, among other things, approved billing all members a

special assessment in various stipulated amounts (depending upon
membership category) to repay the debt related to funding the
capital project. The Taxpayer separately billed the assessment

to members on a monthly basis. The Taxpayer separately
accounted for the assessment proceeds and physically designated
the assessment proceeds to a separate bank account. Amounts
disbursed from the account were only made payable to the Bank
for debt service costs. The special assessment dollars were not
commingled with operating funds and had no impact on dues rates.
The special assessment dollars were expended in accordance with
the originally stipulated terms of the member approved fiscal
reform plan. The taxpayer expended more dollars on the capital
project than what was borrowed, supporting that the debt was

entirely capital funding related.

APPLICABLE AUTHORITY

Section 212.04, F.S, provides in part:

212.04 Admissions tax; rate, procedure, enforcement.--
(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....

The term "Admissions" is defined under s. 212.02(1), F.S., in

part as follows:

The following terms and phrases when used in this chapter
have the meanings ascribed to them in this section, except

where the context clearly indicates a different meaning:

(1) 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.

Rule 12A-1.005(5)(d)1.b., F.A.C., provides:

(5) DUES AND INITIATION FEES, EQUITY AND NONEQUITY
MEMBERSHIPS, CAPITAL CONTRIBUTIONS AND ASSESSMENTS,
REFUNDABLE AND NONREFUNDABLE DEPOSITS, AND USER FEES.

(d)1. Effective July 1, 1991, the following fees paid to
private clubs as condition precedent to, in conjunction
with, or for the use of the club's recreational or physical

fitness facilities are subject to tax.

b. Any periodic assessments (additional paid in capital)
required to be paid by members of an equity or non-equity
club for capital improvements or other operating costs,
unless the periodic assessment meets the criteria of a
refundable deposit as provided in sub-subparagraph 2.e.

below....

Section 212.04, F.S., taxes all "dues" and "fees" paid to

private and membership clubs providing recreational or physical
fitness facilities, including, but not limited to golf, tennis,
swimming . . ., unless specifically exempt. Rule 12A-1.005(5),

F.A.C.

"Dues" and "fees" are not defined in Chapter 212, F.S., or in
Rule 12A-1.005, F.A.C.; therefore, we must look to the ordinary
usage of the terms, as was done in Oklahoma City Golf and

Country Club v. Oklahoma Tax Commission, 825 P.2d 267 (OKI.

1992). In that case, the court used the definition of "dues" as
found in Black's Law Dictionary 450 (5th ed. 1979)("Black's")

and Webster's Third New International Dictionary 699
(1963)("Webster's"). Black's defines "dues," as applied to

clubs, as "sums paid toward support and maintenance of same and
as a requisite to retain membership." "Dues" are defined by
Webster's as "the fee or charge required for membership,

affiliation, initiation, use, subscription."

For the term "fees," it is appropriate to look to the dictionary
definition for the common meaning of the term in the same manner
as the court did in the above cited case. "Fees" are defined in

The American Heritage Dictionary (2nd Collegiate ed. 1991) as "a

fixed charge."

In John's Island Club, supra, the club argued that the rule

exceeded the Department's grant of rulemaking authority, and
modified, enlarged, and contravened the law implemented. The
court determined that additional paid in capital does not fall
within the generally understood definition of "dues" or "fees"
as applied to a club. The terms "dues" and "fees" are not
defined by statute, and the statute does not specifically
authorize an admissions tax on any type of paid in capital. In
the absence of clearer legislative consideration of what was
meant by the terms "capitalization fees" and "capital facility
fees," the court concluded that the rule at issue was
inconsistent with the provisions of chapter 212, F.S.
Furthermore, the court emphasized that the absences of clear
legislative intent inure to the benefit of the taxpayer and that
the position of the Department is contrary to accepted
principles of accounting from which common understanding of
terms such as "capitalization" may be derived as clearly
disclosed in the record of those proceedings. Accordingly, the
order to invalidate rule 12A-1.005(5)(d)1.b., F.A.C. was
affirmed by the District Court.

RESPONSE

The equity members in John's Island Club, supra, were assessed

for expenditures related to capital improvements. The
assessments were made to pay off indebtedness created by the
expenditures. Here, assessments were made against the equity
members of a country club to pay off indebtedness incurred to

fund major capital improvements. The assessments did not

entitle the members to use the club's facilities, did not result

in a decrease in the club membership dues or fees, and they were
not used to pay operating expenses. The assessments were made
in a specific amount and were separately billed to the members.
The capital assessments here are not "dues" and "fees" and are

not subject to the tax.

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 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

wishes made to the request or response.

Sincerely,

Charles Wallace

Senior Tax Specialist

Technical Assistance and Dispute Resolution

CW!
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