Was a country club's separately billed mandatory capital assessment taxable as an admission or membership charge?

Plain-English summary

Florida treated the country club's mandatory capital assessment as nontaxable because it was a genuine equity-enhancing capital charge rather than dues or an operating charge.

The club billed regular membership dues separately. It placed the capital assessment in a separate account, recorded it separately, and limited its use to mortgage payments for clubhouse and golf-course rebuilding and purchases of capital equipment.

Eight continuing characteristics mattered

Florida matched the arrangement to eight characteristics in its rule. Among them, the charge was a specific separate demand on equity members, did not reduce regular dues, was not used for operating expenses, and was paid by members holding voting, transfer, and liquidation rights evidenced by membership certificates and bylaws.

The Department's conclusion applied only so long as the assessment continued to maintain all eight characteristics.

What this means for you

Clubs seeking capital-assessment treatment should separate the charge from dues in invoices, books, and bank accounts; restrict expenditures to qualifying capital purposes; and document members' equity rights. A label such as “capital reserve” alone did not establish the result.

Common questions

Q: Did the assessment have to be voluntary?
A: No. The ruling involved a mandatory recurring assessment.

Q: Could the club use the money for ordinary operations?
A: No. The facts restricted it to the mortgage and capital equipment.

Q: Did separate billing matter?
A: Yes. The assessment appeared separately from membership dues and was separately accounted for and deposited.

Q: Was the conclusion unconditional?
A: No. Florida required the assessment to continue meeting all eight characteristics.

Citations and references

• Fla. Stat. § 212.02(1) — admissions definition
• Fla. Stat. § 212.04 — tax on admissions
• Fla. Admin. Code r. 12A-1.005(4) — club capital assessments
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 03A-044

Original ruling text

SUMMARY

QUESTION: Whether sales tax is due on mandatory capital
assessments made against the members of a country club and
used for capital expenditures and improvements.

ANSWER - Based on Facts Below: Because the capital
assessment meets the criteria from Section 212.02(1), F.S.,
Section 212.04, F.S., and Rule 12A-1.005, F.A.C., it
qualifies as a non-taxable capital assessment which
enhances the member's equity interest in the Club.

Sep 03, 2003

RE: Technical Assistance Advisement 03A-044
Admissions - Capital Assessments
Sales and Use Tax
Section 212.02(1), F.S.
Section 212.04, F.S.
Rule 12A-1.005, F.A.C.
XXX (Club)
Taxpayer Identification Number: XX

Dear :

This is in response to your letter dated June 30, 2003,
regarding the taxability of a capital assessment imposed upon
the members of the above referenced Club. Your petition has
been carefully examined and the Department finds it to be in
compliance with the requisite criteria set forth in Chapter 1211, F.A.C. This response to your request constitutes a
Technical Assistance Advisement (TAA) and is issued to you under
the authority of Section 213.22, F.S.

ISSUE

Whether sales tax is due on mandatory capital assessments made
against the members of the Club and used for capital

expenditures.

FACTS

In your letter, you stated the facts relevant to the taxpayer's
situation as follows:

The Club is a Florida not-for profit corporation organized
for the benefit of its members. The Club charges operating
dues to its members on a semi-annual basis. The Club
recently rebuilt its clubhouse building and a substantial
portion of its golf course facility, which was paid by a
combination of a member capital assessment and the proceeds
from a mortgage note payable. The Club has annual capital
purchase requirements for golf course equipment, clubhouse
equipment and office equipment. The Club has a separate
bank account that is designated specifically for the
purchase of equipment and making of mortgage note payments.

For the fiscal year beginning October 1, 2002, the Club
began making a separate recurring capital assessment to
each member on a semi-annual basis. The following matters
apply to this assessment:

1. The Club charges separate membership dues to its
   members entitling them to the use of the Club's
   facilities.
2. The Club is making the capital assessment for the
   purpose of paying the mortgage note used in rebuilding
   its clubhouse building and golf facility and for the
   purpose of purchasing capital equipment, which
   enhances the value of the member's interest in the
   club....
3. The capital assessment is a specific demand to its
   equity members. The Club has a specified amount that
   must be repaid on the mortgage note payable and has a
   specified annual capital equipment budget.
4. The capital assessment will be separately accounted
   for as a capital assessment on the Club's books and
   deposited in a separate bank account designated for
   the making of mortgage payments and purchasing capital

equipment.

5. The assessment is separately stated on each member's
   bill as "Capital Reserve" while the membership dues
   are stated separately....
6. The Club members are required to continue to pay
   regular membership dues and the capital assessment
   does not cause a decrease in those dues.
7. The capital assessment will be used specifically for
   making payments on the mortgage note payable, which
   was specifically used for rebuilding the Clubhouse and
   golf course facility, and for capital equipment
   purchases consisting of new furniture, fixtures, and
   equipment for the clubhouse building and golf course
   facility. The capital assessment would not be used
   for operating expenses.
8. Members of the Club are equitable members. Each
   member is issued a membership certificate that
   provides a right to vote on decisions of the
   organization that are subject to determination by the
   Club's members and the right to receive a
   proportionate share of the Club's assets upon its
   dissolution....

Additionally, you provided the following supplemental
documentation: Bylaws, Member Statement, and Annual Schedule of
Fees.

REQUESTED ADVISEMENT

Whether the above-described capital assessment would be subject
to sales tax under Rule 12A-1.005(4), F.A.C.

APPLICABLE STATUTES AND RULES

Section 212.02(1), F.S., provides:

(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.

Section 212.04(1), F.S., provides in part:

(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....

Rule 12A-1.005(4), F.A.C., provides in part:

(4) DUES AND INITIATION FEES, EQUITY AND NON-EQUITY
MEMBERSHIPS, CAPITAL CONTRIBUTIONS AND ASSESSMENTS,
REFUNDABLE DEPOSITS, AND USER FEES.

(a)1. Dues and user fees paid to any organization,
including athletic clubs, health spas, civic, fraternal,
and religious clubs, and organizations that provide
physical fitness facilities or recreational facilities,
such as golf courses, tennis courts, swimming pools,

yachting, boating, athletic, exercise, and fitness
facilities, are subject to tax. Dues and user fees do not
include:

a. Charges for initiation into, or for joining, an
organization that are paid by persons to obtain an
equitable ownership interest in the organization. The
equitable ownership interest may be transferable, with or
without consideration, directly to another party or to the
organization.

b. Additional charges paid by an equity member when joining
an organization that are used by the organization solely
for capital expenditures, capital improvements to the
organization's facilities, or for debt servicing such
expenditures and improvements by the organization. Examples
of these types of payments and the use of such amounts
include amounts expended for rebuilding and/or replacing
the grass on greens or fairways; rebuilding and/or
replacing bunkers; planting of additional trees;
resurfacing and/or construction of tennis courts;
resurfacing and/or construction of swimming pools; amounts
expended for new furniture, fixtures and equipment; amounts
expended for clubhouse renovations; amounts expended for
kitchen equipment and utensils; amounts expended to improve
the irrigation system; amounts expended to acquire assets
to enable the club to comply with environmental laws;
amounts expended for acquiring maintenance equipment;
amounts expended for new golf carts; and amounts expended
for the installation of equipment on golf carts. Repairs
to, or maintenance of, existing capital assets that do not
materially add to the value or appreciably prolong the
useful life of a capital asset are not deemed to be capital
expenditures or capital improvements by the organization.

c. Capital assessments levied by an organization against
persons who are, or seek to become, members of the
organization.

d. Capital contributions or additional paid-in capital paid
to an organization by individuals who have an equitable

ownership interest in the organization.

2. Recurring or nonrecurring capital contributions or
   additional paid-in capital, or capital assessments, paid to
   an organization in a lump sum or by installments, are not
   subject to tax when such payments are:

a. Separately accounted for and not recorded in an
operating revenue account by the organization;

b. Not paid for the right to use the organization's
recreational, physical fitness, or other facilities or
equipment without subsequent periodic payments;

c. Not used to effect a decrease in user fees or periodic
membership dues; and

d. Not used to pay for the operating expenses of the
organization.

(b) For purposes of this rule:

1. The phrase, "equitable ownership interest," means an
   interest that entitles a person to receive from the
   organization evidence or indicia of such ownership, the
   right to vote on decisions of the organization that are
   subject to determination by the organization's members or
   owners, and the right to receive a proportionate share of
   the organization's assets upon its dissolution, unless all
   such net assets are distributable upon dissolution to an
   organization exempt from federal income taxation or to a
   qualifying common interest realty association. The
   ownership interest must be reflected by the issuance of
   stock, a membership certificate, or similar instrument
   evidencing an ownership interest in the organization.

2. The phrases, "capital contributions or additional paidin capital" and "capital assessments," mean equity payments
   that by themselves do not entitle an individual to use the
   facilities or equipment of an organization and that are
   intended as an investment to maintain or enhance members'

and owners' interests in the organization....

RESPONSE

Section 212.04(1), F.S., provides that persons who sell or
receive anything of value by way of admissions are required to
collect sales tax on the amounts received for the admission.
Section 212.02(1), F.S., defines the term "admissions" to
include 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.

The statute does not define the term "dues." The general rule
of statutory interpretation is that common words used in a
statute are to be given their plain and ordinary meaning, unless
it appears that the words are being used in a technical sense.
See, State v. Tunnicliffe, 124 So. 279, 281 (Fla. 1929); Gasson
v. Gay, 49 So. 2d 525, 526 (Fla. 1950); State v. Egan, 287 So.
2d 1, 4 (Fla. 1973); and Parker v. State, 406 So. 2d 1089, 1091
(Fla. 1981). According to Black's Law Dictionary, page 501 (6th
Ed. 1990), dues, as applied to clubs, are defined as the "sums
paid toward support and maintenance of same and as a requisite
to retain membership." Likewise, according to Webster's II New
Riverside Dictionary, page 215 (1996), "dues" are defined as a
fee or charge for membership, as in a club. Since a person can
affix any label he or she chooses to any payment, the substance
of the transaction must be examined. See, Department of Revenue
v. Seaboard Coastline Railroad, Co., 480 So.2d 1349, 1353 (Fla.
1st DCA 1985).

Rule 12A-1.005(4)(a)1., F.A.C., provides that "dues" and "fees"
paid to an organization that furnishes recreational facilities,
such as golf courses, are subject to tax. However, this rule
continues to outline what types of payments are not considered
"dues" and "fees." Most relevant to the facts of the Club's
capital assessment is Rule 12A-1.005(4)(a)1.c., F.A.C., which
provides dues and fees do not include capital assessments levied
by an organization against persons who are, or seek to become,
members of an organization. "Capital assessments" are
specifically defined in Rule 12A-1.005(4)(b)2., F.A.C., to mean

equity payments that by themselves do not entitle an individual
to use the facilities or equipment of an organization and that
are intended as an investment to maintain or enhance members'
and owners' interests in the organization. (Emphasis added.)
Rule 12A-1.005(4)(b)1., F.A.C., provides characteristics
typically representative of an "equitable interest," such as
issuance of shares of stock or membership certificates. If a
member receives as the sole entitlement only the right to use
the Club's facilities in exchange for all payments to the Club,
such as with non-equity members, then the payments are dues or
fees. This includes payments that may be labeled as "capital
assessments."

Additionally, Rule 12A-1.005(4)(a)2., F.A.C., provides that
capital assessments paid to an organization in a lump sum or by
installments are not subject to tax when such payments are:

a. Separately accounted for and not recorded in an
operating revenue account by the organization[;]

b. Not paid for the right to use the organization_s
recreational, physical fitness, or other facilities or
equipment without subsequent periodic payments;

c. Not used to effect a decrease in user fees or periodic
membership dues; and

d. Not used to pay for the operating expenses of the
organization.

A capital assessment is not taxable because the assessment does
not entitle the payor to any additional rights or privileges of
membership, yet it enhances the value of the payor's membership.
Furthermore, a true capital assessment is a specific demand by
an organization upon its membership, as a whole or in classes,
for a certain sum of money proportionately from each member and
is an involuntary charge levied on each member for a special
purpose, and may or may not be on a recurring basis.

In sum, the contemplated assessment must meet the following
eight criteria gleaned from the above statute and rule to

qualify as a non-taxable capital assessment. One, the equity
assessment/payment will not entitle the members to use the
Club's facilities or equipment. Two, the assessment is intended
as an investment to maintain or enhance the value of the
member's interest in the Club. Three, the assessment is a
specific involuntary demand made by the Club on its equity
membership for a certain sum of money. Four, the payments of
the assessment must be separately accounted for on the Club's
books and records and not reflected as an operating revenue
account. Five, the assessment must be separately stated on each
member's bill. Six, the assessment must not be used to effect a
decrease in member fees or periodic membership dues. Seven, the
assessment must not be used to pay for the operating expenses of
the Club. Eight, the assessments must be paid by members with
an "equitable ownership interest" in the Club, as evidenced by
issuance of stock, a membership certificate, or similar
instrument.

According to the facts in the Club's request letter, the
contemplated assessment compares to the above-stated criteria as
follows. One, the Club charges annual dues (here billed as
Membership Dues), separate from the contemplated assessment
(here billed as Capital Reserve), to its members entitling them
to the use of the Club's facilities. Two, the Club has made the
contemplated assessment for the purpose of paying the mortgage
note used for renovating the clubhouse, and golf course
facility, and for the purpose of purchasing capital equipment,
thus enhancing the value of the member's interest in the Club.
Three, the Club will make a specific demand for a separate
recurring capital assessment to each member. Four, the
contemplated assessment will be separately accounted for as a
capital assessment on the Club's books and deposited in the
separate bank account described as an account that is
specifically designated for the purchases of capital equipment
and for making mortgage payments. Five, according to the
membership invoice provided by the Club, the contemplated
assessment would be separately stated on each member's bill as a
"Capital Reserve" fee, while the membership dues will be
separately stated as "Membership Dues." Six, the Club members
are required to continue to pay regular membership dues, and the
assessment will not cause a decrease in these dues. Seven, the

assessment will be used for capital equipment purchases and
payment of the mortgage note payable and would not be used for
operating expenses. (See, Rule 12A-1.005(4)(a)1.b., F.A.C.,
which provides a helpful list of examples of what the Department
considers to be acceptable expenditures.) Eight, the
assessments will be paid by members with an "equitable ownership
interest" in the Club, as evidenced by Article 3 of the Bylaws,
which details the classes of equity membership, issuance of
membership certificates, voting rights, alienability rights, and
liquidation/distribution rights.

Therefore, based on the facts presented in your letter and the
supplemental documentation you provided, the Club has shown that
the nature of the capital assessment qualifies as an exempt
capital assessment under the Rule, so long as the assessment
continues to maintain the eight requisite characteristics
mentioned above.

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 advise 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 Section 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,

Sebrina L. Wiggins
Attorney
Technical Assistance and Dispute Resolution
(850) 488-6386

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