Were equity-membership contributions to a nonprofit Florida country club taxable as admissions, dues, or fees?

Plain-English summary

Florida ruled that the club's membership contributions purchased equitable ownership and were not taxable admissions, dues, or fees.

Equity members received membership certificates and voting rights, shared proportionately in net assets upon liquidation, and held interests that could appreciate or depreciate when transferred or redeemed. The contributions were accounted for and used for capital improvements rather than ordinary club operations.

Those ownership characteristics distinguished the contributions from taxable annual dues, which members paid to use, maintain, and operate the club facilities. The TAA emphasized that the classification is fact-specific and depends on the membership documents and the rights actually received.

What this means for you

Country clubs and developers

Calling a payment "equity" is not enough. The member must receive real ownership attributes, such as governance, liquidation, and value-change rights, and the payment should be treated consistently as capital.

Accountants and tax professionals

Separate capital contributions from operating dues in the governing documents and accounting records. Florida taxed the dues but not the ownership purchase described here.

Common questions

Were the equity contributions taxable? No. They purchased equitable ownership in the nonprofit corporation.

What ownership rights mattered? Voting rights, proportional rights to liquidation proceeds, and the possibility that the interest's value would appreciate or depreciate.

Were annual dues exempt too? No. The ruling distinguished the nontaxable equity contribution from taxable dues paid to operate and use the club.

Does every capital-labeled club payment qualify? No. The Department said each club's documents and actual rights must be analyzed case by case.

Citations and references

• Fla. Stat. §§ 212.02(1), 212.04
• Fla. Admin. Code R. 12A-1.005(5)(a), (d)2.c.
• Fla. Stat. § 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-019

Original ruling text

SUMMARY

Rule 12A-1.005(5)(d)2.c., F.A.C., provides that payments
made to membership clubs for the purchase of equitable
ownership in a corporation, are not "fees" which are
subject to tax on admissions. Membership certificates
issued to equity members allow members to control the
corporation through their voting rights. Only equity
members receive a pro rata share of liquidated assets if
the club is sold. Equity members' interest may appreciate
in value if sold, resulting in a capital gain. Payments
are to be accounted for and used solely for capital
improvements. Such payments are not "fees" which are
subject to tax on admissions.

May 05, 1999

Re: Technical Assistance Advisement TAA-99A-019
Sales and Use Tax: Equity Memberships in a Nonprofit
Country Club
Section 212.04, F.S., Section 212.02(1), F.S.
Rule 12A-1.005, F.A.C.
XXX ("Club"), Petitioner, FEI# XX
XXX ("Developer"), FEI# XX

Dear :

This is in response to your letter XX, requesting a technical
assistance advisement regarding sales of equity memberships in a
nonprofit country club. It is your position that membership
contribution paid by equity members to the Club, the Developer,
and for prior equity members on the sale or exchange of equity
memberships should not be subject to the admissions tax. You
agree that sales tax is due on annual dues.

STATED FACTS

The following facts are reprinted in part herein, as stated

in your letter:

The Club is a Florida not-for-profit corporation
established pursuant to [Chapter] 617, F.S. The facilities
to be owned by the Club will include championship golf
courses, related practice facilities, maintenance
facilities, a clubhouse and related facilities, tennis
courts, a tennis proshop, a tennis and fitness facility
(with restaurant), a swimming pool, and golf storage
facility (all of such facilities are sometimes hereinafter
referred to as the "Club Facilities"). Historically, the
Club Facilities were owned or operated by the Developer,
its affiliates or their respective predecessors in
interest. In addition to the Club Facilities, the Developer
developed a residential development contiguous to the Club
Facilities ("Residential Development"). Pursuant to a nonequity membership program ("Non-Equity Program") previously
established by the Developer, the residents of the
Residential Development, as well as a limited number of
non-residents, were offered the opportunity to obtain the
right to use the Club Facilities by paying the Developer a
refundable membership deposit ("Deposit"). The Deposit was
refundable to persons ("Non-Equity Members") acquiring a
non-equity membership ("Non-Equity Membership") upon the
earlier to occur of: (i) thirty (30) years after the
payment of the Deposit; or (ii) upon the resignation by a
Non-Equity Member after the resigned Non-Equity Membership
was repurchased by the Club and reissued to a successor
Non-Equity Member who paid the then current Deposit to the
Club. In addition to the Deposit, Non-Equity Members were
required to pay annual dues in order to use the Club
Facilities.

Pursuant to the Non-Equity Program, the Developer reserved
the right to convert the Club Facilities to an equity
member owned club. Consistent with the foregoing, the
Developer has elected to convert the Club Facilities to an
equity member owned club and, in furtherance of the
foregoing, the Developer has prepared the Plan for the
Offering of Equity Memberships in the Club, a copy of which
is attached hereto ("Equity Membership Plan"). The

following exhibits to the Membership Plan are also attached
hereto for your reference: (i) Exhibit A -Subscription
Agreement without exhibits; (ii) Exhibit B -Articles of
Incorporation for the Club; (iii) Exhibit C - By-Laws of
the Club; (iv) Exhibit D - General Club Rules; and (v)
Exhibit E - Marketing Access and Use Agreement.

Pursuant to the Equity Membership Plan and the Subscription
Agreement attached as an exhibit thereto, the Developer
will cause title to the Club Facilities to be conveyed to
the Club on the Transfer Date (as defined in the
Subscription Agreement to be on or about the date of the
Membership Plan). As partial consideration for the
conveyance of the Club Facilities to the Club, the Club
will transfer to the Developer on the Transfer Date all of
the equity memberships permitted to be issued in the Club
("Equity Memberships"), which shall consist of 1,200 Full
Memberships and a total of 500 undesignated memberships
which may be issued as either Sports, Tennis and/or
Social/Fitness Memberships, as determined by the Developer,
in its sole discretion. Title and the Equity Memberships
will initially be transferred in escrow pending the
Developer's determination to proceed with the Membership
Plan, which shall occur on or before December 31, 1999. In
addition to the Equity Memberships, the Club will pay to
the Developer as additional consideration for the transfer
of the Club Facilities to the Club an amount equal to
twenty percent (20%) of the membership contributions
retained by the Club upon the transfer of each Equity
Memberships [sic] by the equity members ("Equity Members")
prior to the Turnover Date (as hereinafter defined).

As described in the Membership Plan, each Equity Member
will have an ownership interest in the Club and will be
entitled to vote as provided in the Membership Plan and the
Club's By-Laws. Pursuant to Article VIII of the Articles
of Incorporation, Equity Members will have the voting
rights provided in the By-Laws of the Club. Article VI of
the Articles of Incorporation further provides that the
Club shall have no capital stock and shall be composed of
members rather than shareholders. Article VI further

provides that the Club is required to issue membership
certificates to evidence the ownership of an Equity
Membership in the Club. As noted above, all of the
membership certificates will be initially issued to the
Developer which will make all initial sales of such
memberships to Equity Members as provided in the Membership
Plan. Consistent with the Developer's ownership of the
Equity Memberships transferred to the Developer on the
Transfer Date, the Developer will have the right to retain
all of the proceeds from the initial sale of such Equity
Memberships. Pursuant to Article XIII of the Articles of
Incorporation, in the event of dissolution or final
liquidation of the Club, all of the property and assets of
the Club, after payment of its debts, shall be distributed
among the holders of the Equity Memberships in proportion
to the value of their memberships.

Pursuant to Article XIV of the Articles of Incorporation,
the Developer may make an initial sale of Equity Membership
to any person approved by the Developer, as provided in the
Membership Plan. After the initial sale of an Equity
Membership by the Developer, an Equity Membership may be
transferred only through the Club in accordance with the
procedures set forth in the By-Laws and the Membership
Plan. Under these procedures, the Club is generally
obligated to repurchase a resigned membership only when a
person acceptable to the Club is willing to acquire the
resigned membership and has paid the then current required
membership contribution. In general, the amount to be
repaid to the resigned Equity Member will be eighty percent
(80%) of the membership contribution then charged for the
resigned member's category of Equity Membership and the
balance of such membership contribution will: (i) be
retained by the Club after the Turnover Date; or (ii) be
paid to the Developer prior to the Turnover Date.

Prior to the Turnover Date, the Club Facilities are to be
operated in a manner comparable to the past operation of
the Club Facilities and in accordance with the approved
budget. During such time, the Developer will be responsible
for funding any operating deficits and will retain any

operating profits. The Developer, however, will not be
obligated to fund the cost of any capital improvements
other than the improvements to the Club Facilities
specifically described in the Membership Plan and in the
Subscription Agreement. After the Turnover Date, the Club
will be responsible for all operating deficits and will
retain all operating profits. The amount of dues
established and agreed upon by the Developer and
representatives of the Equity Members is designed to
represent the appropriate amount required in order to
properly maintain and operate the Club Facilities in the
manner such facilities were maintained and operated prior
to the equity conversion.

RELEVANT AUTHORITY AND ANALYSIS

Section 212.04, 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....

The term "Admissions" is defined, in part, under s. 212.02(1),
F.S., as follows:

The following terms and phrases when used in this chapter have
the meanings ascribed to them in this section, except where the
context clearly indicates a different meaning:

(1) 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, except physical fitness
facilities owned or operated by any hospital licensed under
chapter 395.

Rule 12A-l.005(5) (a) and (d)2.c., F.A.C., provides:

(5) DUES AND INITIATION FEES, EQUITY AND NONEQUITY MEMBERSHIPS,
CAPITAL CONTRIBUTIONS AND ASSESSMENTS, REFUNDABLE AND
NONREFUNDABLE DEPOSITS, AND USER FEES.

(a)1. Dues paid to any organization, including athletic clubs,
health spas, civic, fraternal, and religious clubs, and
organizations which provide physical fitness facilities or
recreational facilities such as golf courses, tennis courts,
swimming pools, yachting, boating, athletic, exercise, and
fitness facilities, are taxable....

(d)...2. The following payments made to private clubs or
membership clubs are not "fees" which are subject to tax on
admissions...

c. Purchase of equitable ownership in a corporation (stock or
certificates of membership in nonprofit clubs organized under
the provisions of Chapter 617, F.S., or stock in a for-profit
club organized under the provisions of Chapter 607, F.S.).

Section 212.04, F.S., taxes all "dues" and "fees" paid to
private and membership clubs providing recreational or physical
fitness facilities, including, but not limited to golf, tennis,
swimming, unless specifically exempt. Rule 12A-1.005 (5)
(d)2.c., F.A.C., provides that payments made for the purchase of
equitable ownership in a corporation (stock or certificates of
membership in nonprofit clubs organized under the provisions of
Chapter 617, F.S., or stock in a for-profit club organized under
the provisions of Chapter 607, F.S.) are not taxable "fees"
under section 212.04, F.S.

"Dues" and "fees" are not defined in Chapter 212, F.S., or in
Rule 12A-1.005, F.A.C.; therefore, we must look to the ordinary
usage of the terms, as was done in Oklahoma City Golf and
Country Club v. Oklahoma Tax Commission, 825 P.2d 267 (Okl.

1992). In that case, the court used the definition of "dues" as
found in Black's Law Dictionary 450 (5th ed. 1979) ("Black's")
and Webster's Third New International Dictionary 699 (1963)
("Webster's"). Black's defines "
"dues," as applied to clubs, as "sums paid toward support and
maintenance of same and as a requisite to retain membership."
"Dues" are defined by Webster's as "the fee or charge required
for membership, affiliation, initiation, use, subscription."

For the term "fees" it is appropriate to look to the dictionary
definition for the common meaning of the term in the same manner
as the court in the above cited case. "Fees" are defined in The
American Heritage Dictionary (2nd Collegiate ed. 1991) as "a
fixed charge."

It is a well established fact that "stock" in a corporation
represents a proportional ownership interest in the corporation.
The characteristics of stock are a right to participate
proportionately in all profits, and in management, and in the
distribution of net assets on liquidation. U.S. v. Evans, 375
F.2d 730, 731 (9th Cir. 1967) . In further support of these
characteristics of stock, I.R.S. Revenue Ruling 87-130, 1987 2CB, 69, identifies the critical entitlements as "valuation,
voting, and distribution rights."

Another characteristic of equity is that the payment therefor is
either fully refundable for the term of the membership as a
matter of right on the cessation of that membership, or is given
in exchange for an interest that may be transferred (or
redeemed) in an amount that reflects either the appreciation or
depreciation in the value of the corporation between the initial
date of payment and the date of transfer or redemption. To the
extent that any payment is irrevocably paid to the corporation
without any opportunity to recoup the payment upon sale or
redemption of the member's ownership interest, it is not deemed
a payment for the purchase of an equitable ownership.

It is necessary to distinguish between those amounts that are
paid to Club for taxable dues or fees and those that are paid in
for the non-taxable equitable ownership interest in the Club.
Because each country club has such variable provisions in its

bylaws and membership agreements regarding the rights and
obligations that arise from payment of various portions of the
required membership fee, such determination must be made on a
case by case basis. In making each determination as to the
components of the particular total membership cost that are
taxable under Section 212.04, F.S., the Department will consider
the intent or motive of the parties, as evidenced by the
documents relevant to membership. See Oakland Hills Country Club
v.Commissioner, 74 USTC 35, 39 (1980).

In Florida Department of Revenue v. John's Island Club. Inc.,
680 So.2d 475 (Fla 1st DCA 1996), the subject club filed a
petition challenging the validity of Rule 12A-1.005 (5) (d)1.b.,
F.A.C. John's Island Club, Inc. argued that the rule exceeded
the Department's grant of rulemaking authority, and modified,
enlarged, and contravened the law implemented. The court
determined that additional paid in capital does not fall within
the generally understood definition of "dues" or "fees" as
applied to a club, that the terms "dues" and "fees" are not
defined by statute, and the statute did not specifically
authorize an admissions tax on all paid in capital. The court
determined, that in the absence of clearer legislative
consideration of what was meant by the terms "capitalization
fees" and "capital facility fees," the rule was inconsistent
with the provisions of chapter 212, F.S.

Capital contribution is defined in Black's Law Dictionary (5th
edition) as, "Cash, property, or services contributed by
partners to partnership. Various means by which a shareholder
makes additional funds available to the corporation (i.e.,
placed at the risk of the business) without the receipt of
additional stock. Such contributions are added to the basis of
the shareholder's existing stock investment and do not generate
income to the corporation." Contribution to capital is defined
in Black's Law Dictionary (5th edition) as, "A fund or property
contributed by shareowners as financial basis for operation of
corporation's business, and signifies resources whose dedication
to users of the corporation is made the foundation for issuance
of capital stock and which became irrevocably devoted to
satisfaction of all obligations of the corporation." Black's Law
Dictionary (5th edition) defines capital as, "In accounting, the

amount invested in a business." Black's Law Dictionary (5th
edition) defines capital expenditure as "Expenditure for long
term betterment or additions. Expenditure in nature of an
investment for the future chargeable to capital asset account.
An expenditure which should be added to the basis of the
property involved." Note that to be a capital contribution or
contribution of capital the payments must have been made by
someone with an ownership interest.

In the instant situation, the membership plan provides that
membership certificates are issued when membership contributions
are paid by Equity Members. Previously paid refundable deposits
may be credited toward the contribution amount required. In the
event of liquidation of the Club, the Articles of Incorporation
provide that the Equity Members are entitled to the net proceeds
from liquidation from the sales of assets after debts are paid.
Equity members are to be paid in proportion to the value of
their memberships at the time of liquidation. Equity members
have voting rights, so they are able to have an input in the
management of the club. Transfer rights are limited in the
sense that memberships must be sold to the Club. However,
membership contributions can appreciate or depreciate in value,
depending on future membership contribution amounts. Equity
members are required to pay dues in order to use Club
Facilities. Dues are determined based on projected and actual
operating expenses to properly maintain and operate the Club.
These factors tend to show that the members' primary motives are
for an investment in the purchase of an equitable interest in
the Club, not for the maintenance or operation of the Club.

DETERMINATION

Here, the membership contributions are paid to purchase an
equitable interest in the club. The purchases of equitable
interests are not taxable admissions as provided by Rule 12A1.005(5)(d)2.c., F.A.C. Thus, sales tax is not due on the
membership contributions.

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 advise 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 and your request are
public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of Section 213.22,
F.S. Your name, address, and any other details which might lead
to identification of the taxpayer must be deleted by the
Department before disclosure. In an effort to protect the
confidentiality of such information, we request you notify the
undersigned in writing within 15 days of any deletions you wish
made to the request or 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,

Charles Wallace
Senior Tax Specialist
Technical Assistance and Dispute Resolution
(850) 922-4734

C/W
Ctrl# 36312