Were mandatory homeowner assessments taxable because a residential developer also provided security services?

Plain-English summary

The mandatory homeowner assessments were not subject to sales tax under the amended covenants reviewed. The developer's employees provided gate and patrol services to homeowners, but neither category of covenant charge expressly referred to security services or promised security as part of the package being purchased.

Florida's rule treated residential-development security as taxable when it was expressly billed or included by agreement in a service package. Here, an outdated sales contract mentioned security, but the operative amended covenants defined the charges as road maintenance and, for one property class, roads, parks, garbage, and other owner-benefit functions without naming security.

What this means for you

The result turned on the governing documents and what the mandatory charge actually bought. Security work occurring in the community did not by itself make the covenant assessments taxable on these facts.

Common questions

Q: Were the employees merely serving their employer? No. The ruling said they provided security to homeowners on the developer's behalf.

Q: Why was the assessment still untaxed? The operative covenants did not expressly charge for security or include it in the agreed package.

Q: Would a separately stated security charge be different? Yes. The cited rule treated an express charge for residential security as taxable.

Citations and references

• Fla. Stat. § 212.05(1)(j) — protection services
• Fla. Admin. Code r. 12A-1.0092(2) — housing-facility security charges
• Fla. Admin. Code r. 12A-1.0161(1), (7)(a) — mixed-service transactions
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-051

Original ruling text

SUMMARY

QUESTION: Does sales tax apply to lump sum mandatory
assessments imposed on homeowners, as a condition of
ownership and occupancy of land in the Taxpayer's real
estate development, for a package of services that happen
to include security services performed by Taxpayer's
employees?

ANSWER - Based on Facts Below: Taxpayer's employees, on
behalf of the Taxpayer, are providing security services to
homeowners, and not to Taxpayer. A lump sum mandatory
assessment imposed for a package of services which includes
security services is normally subject to sales tax.
However, in this situation, Taxpayer's Covenants establish
two types of mandatory charges imposed on the homeowners,
neither of which makes a reference to the provision of
security services. Thus, charges to homeowners, for
mandatory assessments under Taxpayer's Covenants, are not
subject to sales tax because no portion of the charge is
expressly for security services and there is no agreement
that security services will be included in the package for
which the charge is made.

Sep 21, 1999

Re: Technical Assistance Advisement 99A-051
XXX [hereinafter "Taxpayer"]
XXX [hereinafter "development"]
Sales and Use Tax - Mandatory Assessments on Homeowners
Section: 212.05(1)(j), Florida Statutes (F.S.)
Rules: 12A-1.0092 and 12A-1.0161(7)(a), Florida
Administrative Code (F.A.C.)

Dear :

This is a response to your letter of April 27, 1999, requesting
a Technical Assistance Advisement (TAA) regarding the above-

referenced matter. This response to your request constitutes a
TAA under Chapter 12-11, F.A.C., and is issued to you under the
authority of Section 213.22, F.S.

FACTS

In your letter you state:

[Taxpayer] is a Florida corporation. The Corporation, which
was formed to acquire and develop real estate, has
developed and is continuing to develop a Florida
residential community called [development]. The [Taxpayer]
has over the years sold residential lots in the community,
and continues from time to time to do so. The residential
community is a gated community. The [Taxpayer] owns and
maintains all of the roads, the park lands and the lakes.
It owns and operates the recreational facilities, including
a golf course, tennis courts, croquet courts, a swimming
pool, and a clubhouse. The [Taxpayer] also owns citrus
grove areas adjacent to the gated community. Some of the
groves are owned by others who bought them from the
[Taxpayer].

All of the roads in these areas are owned by the
[Taxpayer], however.

[Taxpayer] has employees who provide services in the nature
of security for the [development] areas encompassing the
residential community, recreational facility and its
groves. [Taxpayer] personnel man the entrance gate to the
gated community. They patrol the [Taxpayer]-owned roads and
provide security for the [Taxpayer]-owned property and the
community.

The recreational facilities in the community are operated
on an invitational, discretionary membership basis.
Homeowners in [development] are not required to be members,
and some homeowners are not members. Dues and charges for
the use of these recreational facilities are imposed only
on those who are members and their guests. Sales tax is

charged, collected and remitted on such dues and charges.

All of the residential property in the community is subject
to deed covenants which run with the land. Among the deed
covenants is one which requires the property owner to pay
mandatory assessments for "maintaining the roads and
parks..., collecting and disposing of garbage and other
refuse, and carrying on other functions for the benefit" of
the residential property owners. Consequently, as a
condition of ownership and occupancy of residential
property in the community, the property owner is required
to pay mandatory assessments for maintenance of the park
lands and the lakes, for maintenance of the roads, for
security, for garbage collection and disposal, and for
maintenance of fire hydrants and fire lines. No homeowner
may waive or escape liability for these assessments. The
assessments are made monthly and are imposed in a single
sum that does not differentiate between the components
involved.

Occasionally, in the course of performing their duties for
the [Taxpayer], employees of the [Taxpayer] will check on
vacant houses to determine if doors are locked or windows
are broken, and generally to ensure that the community has
not been the subject of an unauthorized intrusion.
Similarly, when a resident of the community is away from
the community, the [Taxpayer]'s personnel will turn a
resident's house alarm off or on to allow housekeepers or
contractors access to the premises and to restore the house
to a secure condition. The [Taxpayer]'s personnel also
deliver any daily newspapers to the residents.

During the course of a 1995 audit of the [Taxpayer] for the
years 1992-1995, the auditor for the Department of Revenue
questioned whether a portion of the assessments might be
subject to sales tax because of the inclusion of security
services in the items covered by the assessments. These
activities include staffing the entrance gate and
patrolling the corporate roads. Such services are performed
by employees of the [Taxpayer]. Upon review by the agent's
supervisors of the question raised, the Department

determined that the property assessments were not detective
or guard services subject to the sales tax, within the
meaning of Section 212.05(1) of the Florida statutes,
and in July of 1996 the auditing agent's proposed tax
adjustment was withdrawn. See Exhibit A.... (Emphasis
Supplied.)

Further information was provided, including:

1) A copy of the Articles of Incorporation;
2) Bylaws of Taxpayer including a chronology of
amendments;
3) A copy of a sample sales contract dated April 28,
1994;
4) Copies of two billing statements, one dated March,
1996 and another dated May, 1999. The March, 1996
statement identifies the mandatory assessment as a
"park service fee." The May, 1999 statement
identifies the mandatory assessment as a "park
maintenance fee;" and
5) A document titled "Complete Text of All Covenants With
1998 Amendments Incorporated" (hereinafter "Amended
Covenants"), together with a copy of the covenants
that existed prior to the Amended Covenants
(hereinafter "Prior Covenants").

The sample billing statements demonstrate that the mandatory
assessment is imposed as a lump sum charge, designated either as
"Park Service Fees" or "Park Maintenance Fees." The Amended
Covenants document provides the following relevant information:

(7) That the property in [development] shall for purposes
of these conditions, covenants and agreements be divided
into three classes, as follows:

Class One: property owned by the party of the first part,
its successors or assigns, which is not in the Class Two
Property Area, as hereinafter defined;

Class Two: property that is located in the Class Two

Property Area, defined as Blocks 13A through H and 1 and 2;
14A through J and 2 and 3; 15A through N; 22 through 24;
40; 42 through 55 (except 52A); and 58B through F on the
Preliminary Plan of [development], revised to August, 1958;

Class Three: property sold and conveyed by the party of the
first part, its successors or assigns, which is not in the
Class Two Property Area;

That the Class Two property shall be liable for charges by
the party of the first part, its successors or assigns, for
maintaining the roads in the Class Two Property Area; that
the Class Three property shall be liable for charges by the
party of the first part, its successors or assigns, for
maintaining the roads and parks in [development] that are
outside the Class Two Property Area, collecting and
disposing of garbage and other refuse, and carrying on
other functions for the benefit of the Class Three property
owners; that the said part... of the second,... heirs and
assigns, as the owner... of such property, covenant and
agree to pay such charges to the said party of the first
part, its successors and assigns, and the party of the
first part, its successors and assigns, is granted a lien
on such property of the part... of the second part to
secure such charges not so paid by the part... of the
second part,... heirs and assigns.

(9) That all the conditions, covenants, and agreements
above expressed shall be binding upon the said part... of
the second part,... heirs and assigns, and shall be held to
run with and bind the land and premises hereby conveyed,
and all subsequent owners and occupants thereof, until
January 1, 2020, and thereafter from term to term of twenty
years as follows: as to property in the Class Two Property
Area, upon the consent of the majority in acreage of the
Class Two property owners, their heirs and assigns; and as
to the Class Three property, upon the consent of a majority
in acreage of both the Class One and Class Three property
owners, their heirs and assigns;

PROVIDED, HOWEVER, that any of the conditions, covenants

and agreements contained herein may be at any time and in
any manner changed as follows: as to any changes applicable
to property in Class Two Property Area, with the consent of
a majority in acreage of the Class Two property owners,
their heirs and assigns; as to any changes applicable to
the Class Three property, with the consent of a majority in
acreage of both the Class One and Class Three property
owners, their heirs and assigns; provided further, that if
any such change would increase the obligations imposed on
the land hereby conveyed, the consent of the owner or
owners for the time being of the land hereby conveyed shall
also be required;....

The sample sales contract provided the following:

Property in [development] is subject to uniform deed
covenants as set forth in deeds issued by [Taxpayer].
Among the uniform deed covenants is one that imposes an
annual charge for support of road and park maintenance,
garbage and refuse disposal, security and other functions
for the joint benefit of property owners. The amount
imposed pursuant to the covenants is $25.00 per acre per
year. This shall be adjusted as of the date of actual
closing of title. This amount specified in the deed
covenants was fixed many years ago and is not adequate to
cover the costs of the services.

[Taxpayer] assesses park service charges, in addition to
those imposed by the deed covenants, in order to continue
the services. The purpose of this agreement is to reflect
the obligation of all residential property owners to share
the cost in an equitable manner.

Park Service Fee - [Taxpayer] charges a monthly park
service fee to all residential properties in [development]
for services of the kind described above. The fee is in
two parts: (a) a standard amount based on the acreage of
each parcel of land, whether or not improved with a
dwelling; and (b) a standard amount per home or dwelling
unit, regardless of the size of the parcel of land or

dwelling. [Taxpayer], from time to time, determines the
amount of the fee (both the per home amount and the per
acre amount) upon consideration of the cost of the
services. The fee is in addition to the annual charge
pursuant to the deed covenants. The fee does not cover
water supply, for which [Taxpayer] makes separate charges
based on metered usage.

Owner's Agreement - In consideration for [Taxpayer's]
continued furnishing of the kind of services described
above, and in consideration of the [Taxpayer's] assessment
of fees upon all residential properties in [development]
according to the method indicated above. Owner agrees to
pay the fee promptly upon submission of a statement by
[Taxpayer] to Owner. Owner's obligation runs with Owner's
property and binds Owner's successors in ownership.

This letter, with your signed acceptance and that of the
Sellers, on the lines provided therefor, constitutes the
contract between the parties hereto.

REQUESTED ADVISEMENT

Whether sales tax applies to the mandatory assessments imposed,
as a condition of ownership and occupancy of land, on homeowners
in the Taxpayer's real estate development for a package of
services?

APPLICABLE LAW

The following statutory and administrative provisions are
relevant to the issue under advisement:

Section 212.05(1)(j), F.S., provides that tax is due and
payable:

1. At the rate of 6 percent on charges for all:

a. Detective, burglar protection, and other protection
services (SIC Industry Numbers 7381 and 7382)....

Rule 12A-1.0092, F.A.C., provides, in pertinent part:

(1) Persons who provide any of the services enumerated in
Industry Numbers 7381 and 7382 of the Standard Industrial
Classification Manual, 1987, are dealers in a taxable
service and are required to charge sales tax on the total
taxable sales price of the service.

(2)(a) Detective, burglar protection, and other protection
services are those services which are rendered to minimize
or prevent loss or damage to life, limb, or property and
are of a kind typically performed by security or alarm
system companies, or are those investigative services which
are rendered to obtain evidence or other information for
legal, business, employment, or personal purposes of a kind
typically performed by detective or investigative agencies.
These taxable services include:

1. Armored car service;

2. Burglar or fire alarm or other security system devices
   monitoring and maintenance;

a. The installation of alarm or security systems that
remain tangible personal property is governed by the
provisions of Rule 12A-1.016, F.A.C.

b. The installation of alarm or security systems that
become a part of real property is governed by the
provisions of Rule 12A-1.051, F.A.C.

c. The monitoring or maintenance of alarm or security
systems is a taxable service for systems that are
considered to be either tangible personal property or a
part of real property. The term maintenance includes any
inspection of an alarm or security system to confirm its
proper working order. The term maintenance does not include
the expansion or upgrade of an existing system, but does
include the replacement of defective components.

3. Detective agency services;

4. Dogs, rental of for protective services;

5. Fingerprint service;

6. Guard service;

7. Investigators, private;

8. Lie detector or polygraph services;

9. Passenger screening services;

10. Protective service, guard; and

11. Security guard service.

(d) Security Services Provided to Housing Facilities.

1. Security services, such as vehicle or foot patrols;
   gate, lobby, or entrance guard service; or personnel which
   may be dispatched from any other site upon request, are
   taxable. The following businesses or persons who charge for
   these services must also charge, collect, and remit tax on
   those services.

a. Developers, owners, or lessors of residential
developments who charge property owners or residents of
such developments.

2. A charge for the transactions enumerated in subparagraph
3. is considered to be made when:

a. A charge for security services is expressly noted on an
invoice given to the purchaser; or

b. A charge is made for a package of services which, by
agreement, includes security services. See Rule 12A1.0161(7)(a), F.A.C.

(e) The services in this rule are not taxable when provided

by employees to their employers. See Rule 12A-1.0161(3),
F.A.C.

(Emphasis Supplied.)

Rule 12A-1.0161(1) and (7)(a), F.A.C., provides:

(1)(a) A tax is imposed on the sale at retail or use in
this state of nonresidential pest control services
described in Rule 12A-1.009, F.A.C., nonresidential
cleaning services described in Rule 12A-1.0091, F.A.C., and
detective, burglar protection, and other protection
services described in Rule 12A-1.0092, F.A.C. The tax is
imposed at the rate of 6 percent of the total sales price
or cost price of such service. The tax shall be computed on
each taxable sale or use of a service for the purpose of
remitting the amount of tax due the state, and shall
include each and every such retail sale or use of a
service. The charge for services performed within this
state but used or consumed outside this state by the
purchaser is exempt from tax.

(b) For the purposes of this rule, a service shall mean
those services enumerated in paragraph (a) above.

(7)(a) If a transaction involves both the sale of a taxable
service as provided in subsection (1) above, and the sale
of a service that is not taxable, or if it involves both
the sale of a taxable service and the sale or use of
property that is not subject to sales or use tax, the
charges shall be separately identified and stated with
respect to the taxable and nontaxable portions of the
transaction. The tax shall apply to the transaction to the
extent that the consideration paid in connection with the
transaction is payment for the sale of taxable services.
Failure to separately state the charges shall create a
presumption that the entire transaction is a taxable
service. The burden shall be on the seller of the service
or the purchaser of the service, whichever is applicable,
to overcome this presumption by providing documentary
evidence (i.e., time sheets, schedules, receipts, or other

documents which support activities) as to the amount of the
transaction that is exempt from tax. If the Department
determines that the taxable and exempt portions of a
transaction are inaccurately stated, the Department is
authorized to adjust such portions with support by
substantial competent evidence.

DETERMINATION

Rule 12A-1.0092(2)(d)1., F.A.C., specifically states that
"[s]ecurity services, such as vehicle or foot patrols; gate,
lobby, or entrance guard service; or personnel which may be
dispatched from any other site upon request, are taxable." Under
Rule 12A-1.0092(2)(d)1.a., F.A.C., developers, owners, or
lessors of residential developments who charge property owners
or residents of such developments for security services must
charge, collect, and remit tax on the services. Further, Rule
12A-1.0092(2)(d)2., F.A.C., explains that a "charge for
services" is considered to be made either when a charge for
security services is expressly noted on an invoice given to the
purchaser, or when a charge is made for a package of services
that includes security services.

The Taxpayer's representative has asserted that "even if the
Department views the activities as within the definition of
security services they are performed by [Taxpayer's] own
employees and would not be taxable under the Rule." Rule 12A1.0092(2)(e), F.A.C., does state that security services are not
taxable when provided by employees to their employers. However,
in the instant situation, Taxpayer's employees, on Taxpayer's
behalf, are providing services to homeowners, and not to
Taxpayer.

Pursuant to the Prior Covenants, Taxpayer imposed on homeowners
a lump sum charge of twenty-five dollars ($25.00) per acre for
maintaining the roads and parks; for collecting and disposing of
garbage and other refuse; and for carrying on all other
functions for the joint benefit of all property owners. An
additional charge of an undisclosed amount was also imposed for
"park service charges" pursuant to the sales contract, a sample
of which is quoted above. However, the Amended Covenants, which

are quoted above, supersede the Prior Covenants referenced in
the sales contract and do not list a specific dollar amount for
the charge for services provided to the homeowners. The sales
contract currently in use still states that the covenants only
allow a twenty-five dollar ($25) charge.

The language in the sales contract seems to imply that the
charge imposed by the deed covenants is a charge for a package
of services that include security services. The sales contract
identifies the covenant charge as a charge for "support of road
and park maintenance, garbage and refuse disposal, security and
other functions for the benefit of property owners." Yet,
neither the Amended Covenants nor the Prior Covenants actually
make any reference to security services. The sales contract
goes on to state that the amount authorized by the covenants
does not cover the costs of the services. The sales contract
explains that park service charges are assessed, in addition to
the charge imposed by the covenants.

However, discussions with the Taxpayer's representative have
clarified two important issues. The Prior Covenants have been
replaced by the Amended Covenants, which no longer limit the
imposed charge to twenty-five dollars ($25). Further, the sales
contract sent to the Department is currently in use and has not
been updated to reflect the changes made by the Amended
Covenants.

The Amended Covenants, which are currently in use, establish two
types of charges. The first charge is to Class Two property
owners and is specifically designated as a charge "for
maintaining the roads in the Class Two Property Area." The
second charge is to Class Three property owners and is
specifically designated as a charge "for maintaining the roads
and parks..., collecting and disposing of garbage and other
refuse, and carrying on other functions for the benefit of the
Class Three property owners." The Amended Covenants do not make
any reference to security services.

Based upon the documentation received, the charges imposed upon
property owners by the Amended Covenants are not subject to
sales tax because no portion of the charge is expressly for

security services.

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 requests
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, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
Taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Jennifer J. Silvey
Attorney
Technical Assistance & Dispute Resolution

Control #: 37646