Was a country club's monthly member assessment for clubhouse capital improvements subject to Florida admissions tax?

Plain-English summary

The country club's monthly charge could be an exempt capital assessment rather than taxable dues or admissions. It had to meet seven characteristics, including a specified amount imposed proportionally, separate billing and accounting, no payment for membership or facility use, no dues reduction, and exclusive use for capital improvements or related debt service rather than operating expenses.

Paying the assessment in installments did not prevent exemption. Interest, loan costs, and legal fees directly related to the capital improvements also counted as part of the total capital cost. Any portion used for operating expenses, however, would be taxable as dues or fees.

What this means for you

Labels are not enough. A club must be able to show through its member demand, bills, books, and actual spending that the assessment is a defined capital contribution separate from ordinary dues and operating revenue.

Common questions

Q: Can a capital assessment be paid monthly? Yes. A specified assessment may be paid in a lump sum or installments.

Q: Must it be separately stated and accounted for? Yes. The ruling required separate billing and separate accounting outside operating revenue.

Q: Can assessment proceeds pay interest and closing costs? Yes, if the interest, loan costs, and legal fees are directly related to the capital improvements.

Q: What if part of the money pays operating expenses? That portion would be taxable as dues or fees.

Citations and references

• Fla. Stat. §§ 212.02(1), 212.04(1)(a)-(b) — club admissions, dues, and fees
• Fla. Admin. Code r. 12A-1.038(1) — burden to establish exemption
• Department of Revenue v. John's Island Club, 680 So. 2d 475 (Fla. 1st DCA 1996)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-038

Original ruling text

SUMMARY

A Country Club that owns a golf course and clubhouse and
provides social and recreational facilities for its
members. The Club seeks advice regarding the taxability of
an assessment it plans to charge its members to make
capital improvements to the club facilities. The capital
improvements will be financed through a mortgage. Members
will pay the assessment in installments.

A capital assessment is distinguishable from an admission
charge, and would ordinarily have the following
characteristics: (1) it would be a specific demand or
request by the club upon its membership, as a whole or as a
class for a certain sum of money which is paid
proportionally by each member of the class (which may be
paid in installments); (2) it would not be paid to obtain
membership or for the right of the member to use the club's
recreational or physical fitness facilities or equipment;
(3) it would be separately stated on the billing to the
member; (4) when paid, it would be separately accounted for
on the club's books and records, and not reflected as an
operating revenue account; (5) it would be used to pay for
capital improvements to the club facilities, or for debtservice on the financing thereof; (6) it would not result
in a decrease of membership dues or fees; and (7) the
proceeds from it would not be used to pay for any operating
expenses. If these characteristics are present in the
assessment contemplated by the Club, then the assessment
will be considered a capital assessment that is exempt from
tax.

Interest, loan costs, and legal fees directly related to
the capital improvements are considered part of the total
cost of the capital improvements.

Aug 19, 1999

Re: Technical Assistance Advisement 99A-038
Sales and Use Tax - Assessment Charged to Country Club
Members for Capital Improvements
Section: 212.04, F.S.
Petitioner: XXX (herein "Club")
FEI: XX

Dear :

This letter is a response to your petition dated September 1,
1998, 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 12-11, F.A.C. This response to
your request constitutes a TAA and is issued to you under the
authority of s. 213.22, F.S.

FACTS

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

The [Club] is a not for profit entity. It owns land and a
clubhouse building and other amenities. The [Club] leases a
golf course from [City] on a long-term basis. The [Club] is
a non-equity membership entity operated on a semi-private
basis. Members of the [Club] are allowed to use the
facilities in exchange for the payment of monthly dues and
the related charges. Residents of [City] may use the golf
course on a daily basis. The members are not charged green
fees, but residents pay a green fee for an arrangement
similar to a daily membership.

The members of the [Club] do not pay for an equity
ownership[;] they pay an initiation fee and monthly dues.
If they resign they are not due any money. There is not
any provision regarding the payment of any amount to any
member upon termination of the club.

The Board of Directors ("Board") of the [Club] decided to

approach the members about making capital improvements by
renovating the clubhouse facilities that the [Club] owns.
The membership approved the renovations. The Board
determined that there were two possible means of paying for
the renovations.

The first method would be a one-time assessment to each
member for his share of the capital improvements. The
Board feels that this would be a financial strain on a
number of its members and has abandoned this approach.

The second method proposed to pay for the capital
improvements is the creation of a monthly capital
assessment. Each member would be assessed a set specified
amount on a monthly basis to pay for the capital
improvements. In order to accomplish this it is necessary
to obtain a loan for the capital improvements. As soon as
the debt on the renovations is paid[,] the assessment ends.
This assessment is not in lieu of a dues increase. The fee
structure remains the same, before and after the
assessment. Only the members are paying for the
renovations.

The amounts billed to the members are separately stated on
their monthly billing statements. The amounts received
from the members are kept in a separate account, are being
used only for the capital improvements and debt retirement,
and are being treated as a contribution to capital for
accounting purposes.

The Club was issued a Letter of Technical Advice, dated August
5, 1998, discussing this issue.

REQUESTED ADVISEMENT

The taxpayer endeavors to determine:

1. Whether the Country Club, a non-equity club, can charge its
   members a special assessment, which will be placed in a
   separate account, accounted for as a contribution to
   capital, and used to retire debt, without being subject to

sales tax on the assessment?

2. If so, whether the interest paid on the debt constitutes a
   capital improvement or if the assessment must be split
   between the principal part (capital improvements) and the
   interest part?

3. Can the special assessment be charged as a set specified
   amount each month, which amount would be used to retire the
   debt?

4. Which costs can be paid that are considered capital
   improvements, and do the soft costs such as loan fees and
   legal fees to close the transaction qualify as part of the
   capital improvement?

Discussion, Analysis, and Conclusion of Law

Section 212.04(1)(a), F.S., sets forth the "legislative intent
that every person is exercising a taxable privilege who sells or
receives anything of value by way of admissions."

Section 212.04(1)(b), F.S., provides:

(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.... (Emphasis Supplied)

Section 212.02(1), F.S., provides in pertinent part:

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.... (Emphasis
Supplied)

Rule 12A-1.038(1), F.A.C., provides in part:

It is the specific legislative intent that each and every
sale, admission, use, storage, consumption, or rental is
taxable under Chapter 212, F.S., unless such sale,
admission, use, storage, consumption, or rental is
specifically exempt. The exempt status of the transaction
must be established by the dealer....

According to Taxpayer's TAA Request, the Club is a not for
profit entity that owns land, a clubhouse building, and other
amenities, and leases a golf course from the city on a long-term
basis. Members of the Club use the facilities in exchange for
the payment of monthly dues and related charges. The members are
not charged green fees, but nonmembers who are residents of the
city and wish to use the golf course must pay a green fee for
each day of use.

Members of the Club do not have equity in the club. Each member
pays an initiation fee and monthly dues. Members are not
entitled to receive any money upon resignation from, or
termination of membership in, the club.

When the Club's Board recently brought before the members a
proposal to renovate the clubhouse facilities, the members
approved the renovation plans. To fund the approved
renovations, the Board considered two methods of imposing
assessments on the members. Under the first method, each member
would be assessed, and required to pay, a one-time, lump-sum
assessment for the member's share of the capital improvements.
However, the Board believes that this first funding method would
be a financial strain on a number of its members, and has
decided to utilize the second method of imposing the assessment.

The second method is to impose a "monthly capital assessment."
(TAA Request, p. 2). Each member would be assessed a set
specified amount on a monthly basis to pay for the capital
improvements. In order to accomplish the second method, the
Club must secure a loan for the capital improvements. The
assessment would end as soon as the debt on the renovations was
paid.

The TAA Request recites that the contemplated assessments would
not be in lieu of a dues increase, and that the members' dues
would remain the same after the assessments. The amounts billed
to the members will be separately stated on their monthly
billing statements. Furthermore, the amounts received from the
members will be kept in a separate account, used only for the
capital improvements and debt retirement, and treated as
contributions to capital for accounting purposes.

The Club seeks to charge its members a special assessment, as a
monthly charge, which will be placed in a separate account and
accounted for as a contribution to capital, without being
subject to sales tax on the assessment.

Pursuant to the Florida Statutes, all dues and fees paid for
admission to use club facilities are taxable. Sections
212.02(1) and 212.04(1), F.S. As the First District Court of
Appeal noted in Dept. of Revenue v. John's Island Club, 680
So.2d 475, 477 (Fla. 1st DCA 1996), "[t]he terms 'dues' and
'fees' are not defined by statute."

In that case, the court considered whether dues and fees
included assessments charged by John's Island Club, a not-forprofit recreational facility, to its members for repair and
replacement of the facilities. Id. at 476. Any person joining
the club after the imposition of the assessment would be
required to pay the assessment. Id. Although members were
entitled to the value of their contribution if they resigned
from the club, the value of the contribution decreased by 10%
each year. Id. Thus, after ten years, the contribution "had no
redemptive value." Id.

In determining the meaning of "dues and fees" under Section
212.02(1), F.S., the court adhered to the fundamental principle
that statutes should be construed based on the plain and
ordinary meaning of the terms adopted by the legislature. Id.
at 477; see Parker v. State, 406 So.2d 1089, 1091 (Fla.
1981)(observing that legislative intent is the "pole star" by
which courts are to be guided when interpreting statutory
provisions); Aetna Cas. & Sur. Co. v. Huntington Nat'l Bank, 604
So.2d 1315 (Fla. 1992)(providing that legislative intent is

gleaned from the plain language of the statute). Applying this
principle, the court held that "additional paid in capital does
not fall within the generally understood definition of 'dues'
and 'fees' as applied to a club." John's Island Club, supra at

477. Moreover, the court expressly invalidated Rule 12A1.005(5)(d)1.b., F.A.C., which provided that capital assessments
     were subject to tax. Id. at 477-78.

After John's Island Club, supra at 477, it is clear that capital
assessments are not "dues" or "fees." What constitutes a
capital assessment, however, is less certain since this term is
not statutorily defined. In determining what constitutes a
capital assessment, the Department must look to the plain and
ordinary meaning of the term.

"Assessment" is defined in Webster's New World Dictionary (1986,
p. 82) as "an amount assessed." "Assess," in turn, means "to
impose a fine, tax, or special payment on (a person or
property)." Id. "Special assessment" is separately defined as
"a special tax levied on a property to pay for a local public
improvement, as a sewer, that will presumably benefit that
property." Id. at 1286. An assessment, therefore, is in the
nature of an involuntary charge, not regularly recurring, for a
special purpose. On the other hand, "dues" and "fees" are fixed
amounts, which are periodically paid, for the privilege of
membership in a club, and which are directed to the maintenance
of the club. See Thompson v. Wyandach Club, 127 N.Y.S. 195, 200
(N.Y. 1911); Garden City Golf Club v. Corwin, 57 F.2d 283, 286
(E.D.N.Y. 1932). See also John's Island Club v. Department of
Revenue, Fla. Admin. Order No. 95-1179RX (April 10, 1995).

In order for a payment to be considered a capital assessment by
a club to its members, and not a charge for admissions, the
payment would ordinarily have the following characteristics:

(1) It would be a specific demand or request by the club upon
its membership, as a whole or as a class for a certain sum of
money which is paid proportionally by each member of the class
(which may be paid in installments);

(2) It would not be paid to obtain membership or for the right

of the member to use the club's recreational or physical fitness
facilities or equipment;

(3) It would be separately stated on the billing to the member;

(4) When paid, it would be separately accounted for on the
club's books and records, and not reflected as an operating
revenue account;

(5) It would be used to pay for capital improvements to the club
facilities, or for debt-service on the financing thereof;

(6) It would not result in a decrease of membership dues or
fees; and

(7) The proceeds from it would not be used to pay for any
operating expenses.

According to the Club, the contemplated assessment will be
separately stated on the members' monthly billing statements,
will be placed in a separate account and accounted for as a
contribution to capital, will be used only for capital
improvements and debt retirement, and will not result in a
decrease in fees. Therefore, the assessment has characteristics
3, 4, 5, 6, and 7, discussed above. Additionally, since the
"fee structure remains the same, before and after the
assessment," members will still be required to pay dues before
they will be entitled to use the Club facilities. (TAA Request,
p. 2). The assessment also has characteristic 2.

As to characteristic 1, regarding the assessment being a charge
of a specified amount, paid as a lump sum or in installments, it
is unclear whether the Club has identified a specified amount
for the assessment. If a specified amount has been identified
then the assessment will qualify, whether the payment of the
amount is made in one lump-sum or in installments.

Next, the Club seeks advice about what costs will be considered
attributable to capital improvements. Capital improvements
include any amount paid for permanent improvements that increase
the value of any property or estate, and any amount paid to

restore the property. In addition, capital improvements include
repairs to capital assets that arrest deterioration and
appreciably prolong the life of the property. See Black's Law
Dictionary (6th Edition). Expenditures for repairs and routine
maintenance that do not materially add to the value of the
asset, or appreciably prolong its useful life, would appear to
be operating expenses, and not for capital improvements. See
John's Island Club v. Department of Revenue, Fla. Admin. Order
No. 95-1179RX (April 10, 1995).

Finally, the Club inquires whether the portion of the payments
attributable to interest, loan costs, and legal fees will be
subject to tax. So long as the interest, loan costs, and legal
fees are directly related to the capital improvements, they are
considered part of the total cost of the capital improvements.
Thus, it is appropriate for the Club to pay these expenses with
the proceeds of the assessment for capital improvements. The
assessment remains exempt. Under no circumstances, however,
should any portion of the assessment be used to cover operating
expenses. If any portion of the assessment were used for
operating expenses, it would be in the nature of a due or fee,
as it would be directed to the operation of the club. Thus,
that portion of the assessment would be subject to sales tax.

So long as the assessments contemplated by the Club have the
seven characteristics set forth above, they appear not to be
"dues and fees" and, therefore, are exempt from tax.

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.

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,

Sara D. Faulkenberry
Tax Law Specialist
Technical Assistance and Dispute Resolution
850/414-9838
[email protected]

Control #33841