Are monthly dues paid to a nonprofit homeowners association subject to Kansas sales tax?

Plain-English summary

A nonprofit homeowners association whose amenities include a country club asked the Department to confirm that the monthly dues and assessments its members pay are exempt from Kansas sales tax. After reviewing the association's Articles of Incorporation and its Declaration of Covenants, the Department confirmed the group is a nonprofit homeowners association, and that the country club is an asset owned by the members through the association — not a separate legal entity.

For its Foundation Members (the property owners), the answer is exempt. K.A.R. 92-19-22a(c)(5) provides that sales tax does not apply to "charges paid to nonprofit homeowners associations by members for use and maintenance of the association's recreational facilities, if membership is limited to a specified development, subdivision, or area and the facility is operated for the benefit of the property owners or their tenants." The association fit that description, so the dues and assessments its Foundation Members pay are not subject to sales tax.

But the Department drew a line at Associate Members. Because associate members are not property owners, any dues they pay for access to the association's recreational facilities are subject to sales tax. The exemption is tied to the members being property owners in the development — associate members fall outside it.

What this means for you

Homeowners associations with recreational amenities

Dues that property-owner members pay a qualifying nonprofit HOA for use and upkeep of the association's own recreational facilities are exempt — but only where membership is tied to a specific development and the facilities serve the property owners or their tenants. If you also sell access to non-owner ("associate") members, those charges are taxable. Keep the two membership classes separate for tax purposes.

Members paying HOA dues

If you're a property-owner member, your dues for the association's recreational facilities shouldn't carry sales tax. If you're an associate member who isn't a property owner, your access dues are taxable.

Common questions

Q: Are homeowners-association dues subject to Kansas sales tax?
A: Not when paid by property-owner members to a qualifying nonprofit HOA for use and maintenance of the association's recreational facilities, under K.A.R. 92-19-22a(c)(5).

Q: Does having a country club change the answer?
A: No, as long as the club is the association's own recreational facility owned by the members (not a separate entity). Here the country club was an asset of the association, so member dues stayed exempt.

Q: What about associate members who don't own property?
A: Their dues for access to the facilities are taxable — the exemption only covers property-owner members.

Citations and references

• K.A.R. 92-19-22a(c)(5) — exempts from sales tax charges paid to a nonprofit homeowners association by members for use and maintenance of the association's recreational facilities, where membership is limited to a specified development, subdivision, or area and the facility is operated for the benefit of the property owners or their tenants; the basis for exempting Foundation Members' dues while taxing non-owner associate members' dues.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2010-010

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

December 3, 2010

XXXXXXXXXXX
XXXXXXXXXXX
XXXXXXXXXXX
XXXXXXXXXXX

XXXXXXXXXX,

This letter is in response to your letter dated November 2, 2010. In your letter you request that we confirm that monthly dues & assessments paid by Foundation Members to XXXXXXXX. are in fact charges paid to a nonprofit homeowners association and are therefore exempt from Kansas Retailers’ Sales tax under K.A.R. 92-19-22a(c)(5).

Upon reviewing XXXXXXX’s Articles of Incorporation and Declaration of Covenants, Conditions, Restrictions and Dedication of Easements, it has been determined that XXXXXXXX is in fact a nonprofit homeowners association with a country club as an included recreational facility. As stated in XXXXXXX’s Articles of Incorporation, the country club is an asset of XXXXXXX owned by its Foundation Members. The country club is not a separate and distinct legal entity from XXXXXXX.

K.A.R. 92-19-22a(c)(5) states, “Admissions and charges that shall not be subject to sales tax shall include the following: (5) charges paid to nonprofit homeowners associations by members for use and maintenance of the association’s recreational facilities, if membership is limited to a specified development, subdivision, or area and the facility is operated for the benefit of the property owners or their tenants.”

Accordingly, the dues paid by Foundation Members to XXXXXX are not subject to sales tax. However, because they are not property owners, any dues paid by Associate Members to XXXXXX for access to XXXXXXX’s recreational facilities are subject to sales tax.

This is a private letter ruling pursuant to K.A.R. 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This ruling will be revoked in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially effects this private letter ruling.

Sincerely,

Mark D. Ciardullo
Designee of the Secretary of Revenue

KAF

Date Composed: 12/08/2010 Date Modified: 12/08/2010

Table 1

Table 2