Were a Florida yacht club's initiation fees exempt as purchases of equitable ownership interests?

Plain-English summary

Florida ruled that a nonprofit yacht club's initiation fees were taxable admissions, not exempt purchases of equitable ownership interests. The Department also stated that the club's dues were taxable.

The equity exception required three things: an ownership certificate or similar evidence, voting rights on member decisions, and a proportionate share of assets on dissolution unless a specified exempt distribution applied.

The club failed each part. Its wallet card showed only that a member was in good standing, not that the member owned equity. Only Regular members could vote; several other membership classes could not. And the dissolution formula produced differing distributions based on membership class and length rather than proportionate ownership.

The club described itself as social and disputed that it provided recreational facilities, but its website described waterfront docks, hookups, showers, and restrooms for members and guests. Its initiation fees were therefore not sheltered by the claimed equity-membership treatment.

What this means for you

Calling a fee an equity initiation payment is not enough. Club governing documents and actual member rights must support ownership evidence, voting, and proportionate dissolution rights.

Common questions

Did a membership card prove equity? No. It showed good standing only.

Did all members have voting rights? No. Only one membership class did.

Were monthly dues taxable too? Yes, according to the advisement.

Citations and references

• Fla. Stat. §§ 212.02 and 212.04, and Fla. Admin. Code r. 12A-1.005, as quoted and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10A-021

Original ruling text

SUMMARY
QUESTION: Are initiation fees paid to Club are exempt from tax as purchases of equity
membership in the Club?
ANSWER: No. Initiation fees paid to Club are subject to tax as admissions. The Club’s
Articles of Incorporation, including Amendments, and the Club’s By-laws do not indicate
that the initiation fee entitles the members to an equitable ownership interest in the Club.

May 6, 2010
XXX
Re:

Technical Assistance Advisement 10A-021
Sales and Use Tax – Initiation Fees/Yacht Club
Section: 212.02, 212.04, Florida Statutes (F.S.)
Rules: 12A-1.005, Florida Administrative Code (F.A.C.)
Petitioner: XXX. [hereinafter “Club”]

Dear XXX:
This letter is a response to your petition dated March 11, 2010, for the Department's
issuance of a Technical Assistance Advisement ("TAA") concerning the above
referenced party and matter. Your petition has been carefully examined, and the
Department finds it to be in compliance with the requisite criteria set forth in Chapter 1211, Florida Administrative Code. This response to your request constitutes a TAA and is
issued to you under the authority of Section 213.22, F.S.
Issue
Whether initiation fees paid to Club are exempt from tax as purchases of equity
membership in the Club.
Presented Facts
Your petition sets forth the following information:
[Club] is a Florida corporation not for profit. Each member, upon joining, is
required to pay an initiation fee, as well as monthly dues, each of which has been
subjected to Florida sales tax as calculated in [County].
Despite its name, Club is solely a social club composed on members having an
interest in boating, some of whom presently own boats and others of whom do
not.

Technical Assistance Advisement
Page 2

The Club provides no recreational or physical fitness facilities to its members, but
only a place to eat, drink and socialize. It does organize activities for its members
at locations other than the Club site.
The Club does have a clubhouse containing a kitchen, bar and eating facilities, but
does not provide golf, tennis or boating facilities, such as dockage, to its
members. There is no swimming pool. All sales of food and beverage are taxed
separately as consumed.
The word “Yacht” in the name of the Club is not descriptive of any facilities
provided to its members, but only a common area of interest.
In reviewing the Florida Sales and Use Tax Law and its interpretations, and the
Florida Administrative Code, it does not appear that the initiation fees (as
opposed to the dues) should be subject to the Sales Tax.
Pursuant to Rule 12A-1.005(4)(a)1.a.[,] Florida Administrative Code, initiation
fees are not taxable if they are paid to obtain an equitable ownership interest in
the organization.
[Rule 12A-1.005(4)(b)1., Florida Administrative Code,] defines equitable
ownership [in part] as “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’s members or owners, and the right to receive a proportionate
share of the organization’s assets upon its dissolution[. . . .]”
Club members did pay their initiation fees to acquire such equitable interests.
Each member on joining receives indicia of membership, in the form of a wallet
sized membership card, which is updated annually to reflect the member being in
good standing. The reason for the use of this card, rather than a larger certificate,
is to allow the member to conveniently keep it in a wallet and exhibit it to other
yacht clubs, when [traveling], to obtain the benefits of reciprocity afforded by
such other clubs to members in good standing of a fellow club. . . .
Also enclosed are copies of Club’s Articles of Incorporation (originally filed
under the name of [predecessor name] and later amended to change the name) and
the Amendment to the Articles, as well as the Club’s Bylaws.
Article VIII of the Articles of Incorporation provides that “Every member of the
Club shall be a voting member of the Club. Each member shall be entitled to one
(1) vote.” [However, in the Amendment to the Articles, this provision was
“eliminated in its entirety.”]

Technical Assistance Advisement
Page 3
Article IX [as amended] states [“The manner in which the Officers and Directors
are to be elected or appointed shall be in accordance with the by-laws of the
Corporation.”]
Article III of the Bylaws provides that each [Regular] member is entitled to one
vote in the affairs of the Club[. Only “Regular” members are entitled to a vote.
Non-Resident, Visiting, Trial, One-Day, Luncheon, and Corporate Members are
not entitled to a vote.] Article VII provides that at the annual meetings of
members “shall be for the purpose of electing officers, members of the Board, and
for any other business that may arise.”
Article X of the Bylaws provides that upon dissolution or winding up of the Club,
its assets shall be distributed first to pay the liabilities of the Club [including
taxes, mortgages, and similar obligations, secondly to “holders of ‘Founders’ or
‘Members’ Certificates,” and finally to “members in good standing of the Club
and eligible to vote,”] based upon a formula therein set forth. . . .
The membership card indicates that a member is a member in good standing, and it does
not indicate the class of membership, or whether the member is an equity member.
Article IV of the By-laws states that “[i]n no event shall initiation fees, dues or any part
thereof be refunded to a resigning member or a deceased member’s estate after the day of
formal induction.”
Article VIII of the By-laws states that “each new member [is issued] a membership
packet containing items decided upon by the Board.”
No article of the Articles of Incorporation, including the amendment thereto, or of the
By-laws discusses issuance of the “Founders” or “Members” certificates referenced in
Article X of the By-laws discussing the distribution of assets upon dissolution of the
Club. No article of any of the documents indicates that any class of member holds
ownership interest in the Club.
Although Taxpayer’s petition asserts that no recreational facilities are provided, the
Club’s website states on the “boating schedule” page that:
Our facilities are situated on a four acre site with over 350 feet of waterfront. We
have a 180 foot fixed dock and a 35 foot floating dock. Water, electrical hookups,
shower and restroom facilities are available for members and guests. . . .

Law and Discussion
Section 212.04(1)(a), Florida Statutes, states as follows:

Technical Assistance Advisement
Page 4
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.
Section 212.02(1), Florida Statutes, defines the term “admissions” in pertinent part as
follows:
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 . . . .
Rule 12A-1.005(4), Florida Administrative Code, states in pertinent part as follows:
(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 transferrable, 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.
   (Emphasis Supplied)
   Three requirements are set forth by rule to establish whether a person is purchasing
   equitable ownership in an organization.

Technical Assistance Advisement
Page 5
The first requirement is that the purchase entitles the person to receive from the
organization evidence or indicia of ownership reflected by the issuance of stock, a
membership certificate, or similar instrument evidencing ownership interest in the
organization. Club’s articles and by-laws do not indicate that such evidence is issued.
Club’s membership card only indicates whether a member is “in good standing” with the
Club; it does not indicate that a member holds equity in the ownership of the Club.
The second requirement is that the purchase of the equity ownership provides the
member the right to vote on decisions of the organization that are subject to
determination by the organization’s members or owners. The Club’s by-laws limit voting
rights to one class of membership known as “Regular” members. The other several
classes of membership do not have voting rights.
The third requirement is that the members/owners of the organization have 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 By-laws
allow that, after payment of certain obligations, holders of “Founders” or “Members”
certificate may be paid the face value of the certificates, and any remaining funds will be
distributed to members in good standing and eligible to vote based on a formula set forth
in the By-laws. However, the distribution is not proportionate, because eligible members
receive the distribution in differing amounts based on criteria, including their class of
membership and their length of membership.
Therefore, initiation fees paid to Club are subject to tax; the initiation fees are not exempt
as purchases of equitable ownership interest in the Club.
Although the question was not specifically posed, dues paid to Club are subject to tax.

Conclusion
Initiation fees paid to Club are subject to tax as admissions. The Club’s Articles of
Incorporation, including Amendments, and the Club’s By-laws do not indicate that the
initiation fee entitles the members to an equitable ownership interest in the Club.

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
upon 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 from that which is expressed in this response.

Technical Assistance Advisement
Page 6
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 10 days of the date of this letter.

Sincerely,

Sara D. Faulkenberry
Senior Tax Specialist
Technical Assistance and Dispute Resolution
Control # 80911