Were a nonprofit yacht club's initiation fees and annual membership dues subject to sales tax?

Plain-English summary

A Florida nonprofit yacht club charged an initiation fee when it accepted a member and annual membership fees for use of its facilities.

Florida did not tax the initiation fee because the joining member obtained an equitable ownership interest meeting the rule's requirements. Those requirements included evidence of ownership, voting rights, and a right concerning the organization's assets on dissolution, subject to the rule's nonprofit distribution alternative.

Annual membership dues were taxable because they entitled members to use yachting, boating, and other recreational facilities.

What this means for you

An initiation charge and recurring dues can receive different treatment. The initiation exemption requires genuine ownership rights; payments for facility use remain taxable admissions.

Common questions

Why was the initiation fee exempt? It purchased an equitable ownership interest documented by the club's governing rights.

Were annual dues exempt too? No. Annual fees granting facility use were taxable.

Does nonprofit status alone exempt initiation fees? No. The ruling relied on satisfaction of the equitable-ownership requirements.

Citations and references

• Fla. Stat. §§ 212.02(1) and 212.04(1) (club dues as admissions and admissions tax)
• Fla. Admin. Code r. 12A-1.005(4)(a)1.a., (b)1., (c) (equitable ownership and facility-use fees)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05A-051

Original ruling text

SUMMARY
QUESTION: Are the initiation fees charged to join a yacht club subject to Florida sales tax as "admissions" when the
initiation fees provide those joining with an equitable ownership interest in the yacht club?
ANSWER - Based on Facts Below: Based on the facts and documents provided with the request, Florida sales tax is
not due on the initiation fees charged to join the yacht club because all of the requirements of Rule 12A1.005(4)(a)1.a., and (b)1., F.A.C. have been met. The annual membership fees paid by members entitling them to use
the facilities, however, will be subject to Florida sales tax pursuant to Rule 12A-1.005(4)(c), F.A.C.

December 8, 2005

Re: Technical Assistance Advisement 05A-051
XXX ("the Taxpayer")
FEIN: XX
Initiation fee for a not-for-profit yacht club
Sales and Use Tax
Sections 212.02 and 212.04, Florida Statutes ("F.S.")
Rule 12A-1.005, Florida Administrative Code ("F.A.C.")
Dear:
This response is in reply to your letter dated August 29, 2005, requesting the Department's issuance of a Technical
Assistance Advisement ("TAA") pursuant to Section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding the
Department's position on the issue of initiation fees at a not-for-profit yacht club. An examination of your letter has
established that you have complied with the statutory and regulatory requirements for issuance of a TAA. Therefore,
the Department is hereby granting your request for issuance of a TAA.
Along with your letter, you also provided us with a copy of the Articles of Incorporation, selected provisions of the bylaws and a sample membership card.
ISSUE
Are the initiation fees charged to join a yacht club subject to Florida sales tax as "admissions" when the initiation fees
provide those joining with an equitable ownership interest in the yacht club?
FACTS
Your letter provides, in part:

***
[The Taxpayer] is a Florida not-for-profit corporation organized for the benefit of its members. An initiation fee is
charged to join the organization after the prospective member follows a defined procedure for admission as specified
in [the Taxpayer's] by-laws. Members are required to pay separate annual membership due[s] entitling them to the
use of [the Taxpayer's] facilities. The payment of the initiation fee upon acceptance of membership entitles the
member to the following:

1. A membership card showing the term of validity and the member’s account number as described in [the Taxpayer's]
   by-laws. An example of a sample membership card is attached. The member also receives a membership package,
   which includes a copy of the by-laws and articles of incorporation[]. The membership card is updated annually upon
   the continuing payment of membership dues. Non-payment of dues and other obligations can lead to termination of
   membership pursuant to provisions of the by-laws.
2. Article III, Section B of the Articles of Incorporation state[s] that the majority vote of a quorum of members present
   or voting by written proxy at a membership meeting shall be sufficient to take action on behalf of the corporation.
3. Article VII of the Articles of Incorporation state[s] that upon dissolution or final liquidation, the Corporation may
   make such distributions to its members as may be permitted by the court having jurisdiction of the dissolution or final
   liquidation.

REQUESTED ADVISEMENT
Your letter also provides, in part:

[The Taxpayer] requests advisement on whether the above-stated initiation fee would not be subject to sales tax as a
charge to obtain an equitable ownership interest as described in Rule 12A-1.005(4)(a)1.a.[, F.A.C.] This issue would
apply [] to future transactions.
APPLICABLE STATUTES AND RULES
Section 212.02(1), F.S., provides:
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:
(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....

Rule 12A-1.005, F.A.C., provides, in part:
(1)(a) Every person is exercising a taxable privilege when such person sells or receives anything of value by way of
admissions, as defined in s. 212.02(1), F.S., except those admissions that are specifically exempt. Such seller is
required to collect on each admission charge for 10 cents or more the amount of tax provided for by the applicable
bracket provided in s. 212.12(9), F.S. Each admission is a single sale.

(4) DUES AND INITIATION FEES, EQUITY AND NONEQUITY 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) 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.

(c) Fees paid to private clubs or membership clubs as a condition precedent to, in conjunction with, or for the use of
the club's recreational or physical fitness facilities are subject to tax. Examples of such fees are:

1. User fees paid by members or nonmembers to an organization that entitle the payor to use the organization's
   recreational or physical fitness facilities or equipment.
2. Dining room minimum fees.
3. Social membership fees when such payments are required of members who hold no equitable interest in, or
   ownership of, the club.
4. Periodic payments required to be paid by members or any payment required of a nonmember in order to use the
   club's facilities.

DISCUSSION
All "dues and fees" paid to private clubs and membership clubs providing recreational or physical fitness facilities,
including yachting and boating, are "admissions" under Section 212.02(1), F.S., and are subject to Florida sales tax.
See Section 212.04(1), F.S.
However, under the Florida Administrative Code, the term "dues and user fees" does not include charges for initiation
into an organization by persons who obtain an "equitable ownership interest" in the organization. See Rule 12A1.005(4)(a)1.a., F.A.C.
Rule 12A-1.005(b)1., F.A.C., defines the term "equitable ownership interest" as follows:
1. An interest that entitles a person to receive from the organization evidence or indicia of such ownership (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 right to vote on decisions of the organization that are subject to determination by the organization's members or
owners; and
3. 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.
Fees paid in conjunction with, or for the use of, a club's recreational facilities are subject to Florida sales tax. See Rule
12A-1.005(4)(c), F.A.C.
CONCLUSION

Based on the facts and documents you provided with your request, Florida sales tax is not due on the initiation fees
charged to join the Taxpayer's yacht club because all of the requirements of Rule 12A-1.005(4)(a)1.a., and (b)1.,
F.A.C. have been met. The annual membership fees paid by members entitling them to use the Taxpayer's facilities
will be subject to Florida sales tax pursuant to Rule 12A-1.005(4)(c), F.A.C.
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, 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,
Eric R. Peate
Senior Attorney
Technical Assistance and Dispute Resolution
(850) 922-4714
Ctrl # 16332