Does a public golf course owned by a nonprofit's single-member LLC have to charge Connecticut admissions tax on daily and seasonal greens fees?

Plain-English summary

A tax-exempt organization — one the U.S. Treasury has recognized as a 501(c)(3) — set up a single-member LLC to own and run a golf course that is open to the public. Golfers pay greens fees to play, either daily or on a seasonal basis. The LLC asked the Department of Revenue Services whether Connecticut's admissions tax applies to each kind of fee.

DRS split the answer:

• Daily greens fees are exempt. Connecticut's admissions tax applies to charges for admission to a place of amusement, entertainment, or recreation, but the law carves out daily charges that let a patron participate in an athletic or sporting activity. DRS (citing its own Informational Publication) treats daily greens fees at a commercially operated golf course as exactly that kind of exempt daily charge.
• Seasonal greens fees are taxable. There is a separate exemption for admissions to an event where all of the proceeds go exclusively to a federally income-tax-exempt entity. Seasonal golf charges can qualify — for example, seasonal fees at a municipally owned and operated course are exempt. The problem here is who owns the course. DRS recognizes a single-member LLC as a separate legal "person" from its owner. Because it was the LLC (which the Treasury has not separately recognized as a 501(c)(3)) — not the exempt parent organization — that owned, operated, and collected the fees, the nonprofit exemption did not reach the seasonal greens fees, so they are taxable.

The take-away is that the form the nonprofit chose mattered. Had the exempt organization itself owned and run the course, the seasonal fees could have been exempt; running it through a separate LLC broke that exemption.

What this means for you

Golf courses, driving ranges, and other recreation operators

Charging by the day for the right to play or participate is generally outside the admissions tax — daily greens fees, and similar per-day or per-hour participation charges, ride on the athletic/sporting-activity exemption. Season passes and seasonal memberships are treated differently: they only escape the tax under the narrower "proceeds inure to a tax-exempt entity" exemption, which turns on the exempt status of the entity actually collecting the money.

Nonprofits operating through an LLC or other subsidiary

This is the sharp lesson. A 501(c)(3)'s federal exemption does not automatically flow down to a single-member LLC it forms. DRS respects the LLC's separate existence, so the subsidiary is treated as its own taxable "person" unless the Treasury has separately recognized that entity as exempt. If you want an activity's revenue to qualify for an exempt-entity carve-out, pay close attention to which legal entity owns and operates it and collects the receipts.

Accountants and tax professionals

The seasonal-fee result rests on entity classification, not on the nature of golf. DRS applied the "person" definitions in Conn. Gen. Stat. § 12-540(1) (admissions tax) and § 12-407(a)(1) (sales and use tax), and its long-standing position — from SFA Folio Collections, Inc. v. Bannon, 217 Conn. 220 (1991), and Special Notice 99(3) — that a single-member LLC's separate existence is respected. The daily-fee exemption is § 12-541(2); the exempt-entity exemption the seasonal fees failed is § 12-541(a)(3).

Common questions

Q: Are daily greens fees taxable in Connecticut?
A: No. Daily charges that entitle a patron to participate in an athletic or sporting activity — including daily greens fees at a commercially operated golf course — are exempt from the admissions tax under Conn. Gen. Stat. § 12-541(2).

Q: Why are the seasonal greens fees taxable when the daily ones aren't?
A: Seasonal fees don't fit the daily-participation exemption, so they can only be exempt under a different rule — admissions where all proceeds go to a federally tax-exempt entity. Here the collecting entity was a single-member LLC that the Treasury had not recognized as tax-exempt, so that exemption didn't apply.

Q: Doesn't the parent's 501(c)(3) status cover the LLC?
A: Not for this purpose. DRS recognizes a single-member LLC as a separate "person" from its owner. The exemption looks at whether the LLC itself has been determined tax-exempt, and it had not been.

Q: Would seasonal fees be exempt if the nonprofit ran the course directly?
A: The ruling indicates that if the exempt organization itself owned and operated the course, the seasonal greens fees would qualify for the exemption under Conn. Gen. Stat. § 12-541(a)(3). Using a separate LLC is what defeated it here.

Q: Does this ruling apply to my facility?
A: Not automatically. A Connecticut Ruling binds DRS only for the taxpayer and facts it addressed. If your operating entity's exempt status or ownership structure differs, the result could differ too.

Citations and references

Statutes:

• Conn. Gen. Stat. § 12-541(a) (admissions tax on charges for admission to a place of amusement, entertainment or recreation)
• Conn. Gen. Stat. § 12-541(2) (exemption for daily charges to participate in an athletic or sporting activity)
• Conn. Gen. Stat. § 12-541(a)(3) (exemption where all proceeds inure exclusively to a federally income-tax-exempt entity)
• Conn. Gen. Stat. § 12-540(1) (definition of "person" for the admissions tax)
• Conn. Gen. Stat. § 12-407(a)(1) (definition of "person" for sales and use tax)

Administrative guidance and cases:

• Informational Publication 2008(11), Exemptions from Admissions Tax
• Special Notice 92(22), Charges for Participation in Athletic or Sporting Activities Provided by Exempt Entities
• Special Notice 99(3), Effect of Recent Federal Tax Law Changes on the Taxation of Limited Liability Companies and S Corporations and their Shareholders
• Announcement 95(3) (obsoleting certain amusement/recreation pronouncements on repeal of that sales-tax provision)
• SFA Folio Collections, Inc. v. Bannon, Commissioner of Revenue Services, 217 Conn. 220, 585 A.2d 666 (1991) (separate existence of a single-member entity respected)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 2017-2

Original ruling text

Ruling 2017-2, Admissions Tax - Golf Course Greens Fees

FACTS:

An organization that the United States Treasury Department has determined, by letter, to be an organization described in Section 501(c)(3) of the Internal Revenue Code (the “Organization”) has formed a single-member limited liability company (the “Company”). The Company has not sought or received a determination of exemption by the United States Treasury Department. The Company owns and operates a golf course that is open to the public. Members of the public pay greens fees to the Company to play golf at the golf course, with payments made on either a daily or a seasonal basis.

ISSUES:

Are the daily greens fees subject to admissions tax?

Are the seasonal greens fees subject to admissions tax?

RULINGS:

The daily greens fees are exempt from admissions tax under Conn. Gen. Stat. § 12-541(2) as daily admission charges that entitle patrons to participate in an athletic or sporting activity.

The seasonal greens fees are subject to tax because the exemption set forth in Conn. Gen. Stat. § 12-541(3) does not apply to the Company.

DISCUSSION:

Admissions tax is imposed on charges for admission to any place of amusement, entertainment or recreation. Conn. Gen. Stat. § 12-541(a).

There is an exemption from admissions tax for d aily charges entitling patrons to participate in an athletic or sporting activity. Conn. Gen. Stat. § 12-541(2). Charges that qualify for this exemption include but are not limited to daily or hourly charges for daily greens fees at commercially operated golf courses. Informational Publication 2008(11) , Exemptions from Admissions Tax. Therefore, the daily greens fees charged by the Company that entitle patrons to play rounds of golf on a specific day are exempt from admissions tax. This exemption, however, does not apply to seasonal greens fees.

With respect to seasonal greens fees, the Company has inquired whether the exemption for admissions to an event for which all of the proceeds inure exclusively to an entity that is exempt from federal income tax under the Internal Revenue Code would be applicable even though the Company is the entity actively engaged in and assuming the financial risk associated with the event. Conn. Gen. Stat. § 12-541(a)(3). In Special Notice 92(22) , Charges for Participation in Athletic or Sporting Activities Provided by Exempt Entities , the Department states that “seasonal charges for playing golf at a municipally owned and operated golf course are . . . exempt from the admissions tax.” [1] Therefore, if the Organization owned and operated the golf course, the seasonal greens fees would qualify for exemption under Conn. Gen. Stat. § 12-541(a)(3).

However, under the facts set forth above, the Company owns and operates the golf course, not the exempt Organization. The Department recognizes the separate legal existence of a single-member limited liability company (SMLLC) from its sole member:

For purposes of the sales and use tax , the separate existence of an SMLLC will be recognized. See Conn. Gen. Stat. § 12-407(1) [now Conn. Gen. Stat. § 12-407(a)(1)] (definition of person ) and SFA Folio Collections, Inc. v. Timothy F. Bannon, Commissioner of Revenue Services , 217 Conn. 220, 585 A.2d 666 (1991). In general, therefore, the sales and use tax laws apply to SMLLCs as they would to any other person as that term is defined in Conn. Gen. Stat. § 12-407(1).

Special Notice 99(3) , Effect of Recent Federal Tax Law Changes on the Taxation of Limited Liability Companies and S Corporations and their Shareholders (emphasis in original).

The definition of person for purposes of the admissions tax in Conn. Gen. Stat. § 12-540(1) [2] is essentially the same as the definition of the term for purposes of sales and use taxes in Conn. Gen. Stat. § 12-407(a)(1). [3] Therefore, as is the case for sales and use taxes, the admissions tax laws apply to SMLLCs as they would to any other person as the term is defined in Conn. Gen. Stat. § 12-540(1). Because the United States Treasury Department has not determined, by letter, that the Company is an organization described in Section 501(c)(3) of the Internal Revenue Code, the exemption of Conn. Gen. Stat. § 12-541(3) does not apply to seasonal greens fees collected by the Company.

LEGAL DIVISION

February 6, 2017

[1] Although this Special Notice has been obsoleted and is no longer considered determinative with respect to sales and use taxes imposed on amusement and recreation services occurring on and after January 1, 1994, its discussion of admissions tax remains valid. Announcement 95(3) , Administrative Pronouncements And Rulings Relating To Amusement And Recreation Services And Health Club Services Obsolete By Repeal Of Tax On Such Services .

[2] Conn. Gen. Stat. § 12-540(1): “Person” means and includes any individual, firm, copartnership, joint venture, association of persons however formed, social club, fraternal organization, corporation, limited liability company, estate, trust, fiduciary, receiver, trustee, syndicate, the United States, this state or any political subdivision thereof or any group or combination acting as a unit, and any other individual or officer acting under the authority of any court in this state.

[3] Conn. Gen. Stat. § 12-407(a)(1): “Person” means and includes any individual, firm, copartnership, joint venture, association, association of persons however formed, social club, fraternal organization, corporation, limited liability company, foreign municipal electric utility as defined in section 12-59, estate, trust, fiduciary, receiver, trustee, syndicate, the United States, this state or any political subdivision thereof or any group or combination acting as a unit, and any other individual or officer acting under the authority of any court in this state.