Was an entire homeowners' monthly assessment taxable when it funded both recreational amenities and general community services?

Plain-English summary

The South Carolina Department of Revenue ruled that the club's entire monthly homeowner assessment was not subject to admissions tax. The fee funded both access to amusement facilities and nontaxable community functions.

The taxable portion paid for access to and use of the swimming pool, fitness center, tennis and bocce courts, and community clubhouse. Amounts supporting unrelated common-area security, landscaping, and road maintenance were not admissions—except that those same expense categories had to be included to the extent they supported amusement facilities.

The ruling calculated the taxable percentage by dividing all direct and indirect amusement-facility expenses by the club's total direct and indirect expenses, then applying that percentage to the monthly assessment.

What this means for you

Clubs and homeowner communities

A mixed assessment should not automatically be treated as wholly taxable or wholly exempt. Use the organization's actual expense records to identify the portion purchasing access to places of amusement.

Accountants and property managers

Include indirect costs tied to recreational facilities—not just obvious program costs. Security, landscaping, and road maintenance can enter the numerator to the extent associated with the facilities.

Homeowners

The legal charge was for paid access or use, not simply for membership in a property community. General common-area services remained outside the admissions component.

Common questions

Q: Was the full monthly assessment taxable?
A: No. Only the expense-allocated portion representing access to and use of amusement facilities was taxable.

Q: Which amenities counted as places of amusement?
A: On these facts, the pool, fitness center, tennis and bocce courts, and clubhouse access funded by the assessment.

Q: How was the taxable share computed?
A: Amusement-related direct and indirect expenses divided by total direct and indirect expenses, multiplied by the monthly assessment.

Q: Did security and landscaping stay entirely outside the calculation?
A: No. Their portion associated with amusement facilities had to be included in amusement expenses.

Q: Can another homeowners' association rely on this PLR?
A: No. It binds the Department only for the requesting taxpayer and stated facts.

Citations and references

• S.C. Code §§ 12-21-2410 and 12-21-2420 (admission as the paid right to enter or use a place of amusement)
• Savannah Lakes Village Club, Inc. v. South Carolina Department of Revenue, 97-ALJ-17-0286-CC (S.C. Admin. L. Ct. Mar. 11, 1998) (expense-allocation method)
• Marchant v. Hamilton, 297 S.C. 497, 309 S.E.2d 781 (1983) (weight of administrative interpretation)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR09-2.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P.O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org

SC PRIVATE LETTER RULING #09-2

SUBJECT:

Homeowners’ Association Membership Assessment
(Admissions Tax)

REFERENCES:

S. C. Code Ann. Section 12-21-2410 (2000)
S. C. Code Ann. Section 12-21-2420 (2000, Supp. 2008)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 2008)
S. C. Code Ann. Section 1-23-10(4) (Supp. 2008)
SC Revenue Procedure #05-2

SCOPE:

A Private Letter Ruling is an advisory opinion issued to a specific
taxpayer by the Department to apply principles of law to a specific set of
facts or a particular tax situation. It is the Department’s opinion limited to
the specific facts set forth, and is binding on agency personnel only with
respect to the person to whom it was issued and only until superseded or
modified by a change in statute, regulation, court decision, or another
Departmental advisory opinion, providing the representations made in the
request reflect an accurate statement of the material facts and the
transaction was carried out as proposed.

Question:
Is the entire homeowners’ membership assessment for XYZ Club, Inc. subject to the admissions
tax?
Conclusion:
The entire homeowners’ membership assessment for XYZ Club, Inc. is not subject to the
admissions tax.
Since a portion of the homeowners’ membership assessment for XYZ Club, Inc. is used to
maintain common areas unassociated with the places of amusements (e.g., security, landscaping
and road maintenance), only the portion of the homeowners’ membership assessment that allows
homeowners entrance to, and use of, the places of amusements maintained and operated by XYZ
Club, Inc. is subject to the admissions tax.

1

The determination as to what portion of the homeowners’ membership assessment for XYZ
Club, Inc. allows homeowners entrance to, and use of, the places of amusements and is subject to
the admissions tax is calculated as follows:

1. Determine a percentage by dividing all the expenses (direct and indirect) associated
   with all places of amusement for which the assessment is paid by the total expenses
   (direct and indirect) of XYZ Club, Inc.
2. Apply the above percentage to the total monthly homeowners’ membership
   assessment. 1
3. The result is the portion of the homeowners’ membership assessment for XYZ Club,
   Inc. that allows homeowners entrance to, and use of, the places of amusements.
   Note: The portion of security, landscaping and road maintenance expenses associated with any
   places of amusement must be included in the expenses (direct and indirect) associated with all
   places of amusement for which the assessment is paid.
   Facts:
   XYZ Club, Inc. (“XYZ”) is the owner and operator of a for-profit golf and country club in South
   Carolina. XYZ also owns the common property of the real estate development that surrounds the
   golf course.
   XYZ charges a “lump sum” membership assessment each month to every homeowner inside the
   real estate development for the use of the community property, excluding the golf facilities. This
   membership assessment allows homeowners access to, and use of, the swimming pool, fitness
   center, tennis and bocce ball courts and community clubhouse for dining and special events. The
   invoice sent to the homeowner each month separately states the admissions tax.
   A portion of the revenue from the membership assessment is also allocated to the maintenance of
   the real estate development’s common grounds, which includes security, landscaping and road
   maintenance.
   Discussion:
   Code Section 12-21-2420 imposes the admissions tax and states in part:
   There must be levied, assessed, collected, and paid upon paid admissions to
   places of amusement within this State a license tax of five percent. The license
   tax may be listed separately from the cost of admission on an admission ticket. …

1

Since XYZ separately states the admissions tax on its invoices to homeowners, it is not necessary to reduce the
monthly homeowners’ membership assessment by the admissions tax as was described in the “Findings of Fact” in
the Administrative Law Court decision in Savannah Lakes Village Club, Inc. v. South Carolina Department of
Revenue, 97-ALJ-17-0286-CC (S.C. Admin. L.Ct., filed March 11, 1998).

2

Code Section 12-21-2410 defines the terms “admissions,” “place,” and “person” and states:
For the purpose of this article and unless otherwise required by the context:
(1) The word “admission” means the right or privilege to enter into or use a place
or location;
(2) The word “place” means any definite enclosure or location; and
(3) The word “person” means individual, partnership, corporation, association, or
organization of any kind whatsoever.
In summary, the admissions tax is imposed upon the paid right or privilege to enter into or use a
place of amusement.
The admissions tax statute defines the word “admissions”; however, it does not elaborate as to
what constitutes a “paid admissions.” It has been the longstanding policy of the Department to
tax for admissions tax purposes only that portion of a property owners’ assessment that
represents the price of the admissions. (A property owners’ assessment is one that typically
allows the property owner access to, and use of, places of amusements within a real estate
development, pays the costs of maintaining and operating these places of amusement, and also
pays the costs of maintaining and improving the common areas and providing security for the
real estate development.)
The Department’s longstanding method of calculating the taxable portion of a property owners’
assessment is described by the Administrative Law Court in Savannah Lakes Village Club, Inc v.
South Carolina Department of Revenue, 97-ALJ-17-0286-CC (S.C. Admin. L.Ct., filed March
11, 1998), as follows:

19. The Department assessed dues paid for the use and enjoyment of the golf
    course and country club. Since the membership dues paid to Taxpayer also
    provide funding for nontaxable amenities, the Department calculated the portion
    subject to admissions tax in the following manner:
    a. The Taxpayer provided cash flow statements for the years 1991 through 1993.
    The cash flow statements indicated no allocation of monthly dues to the various
    amenities. Taxpayer identified operating expenses on the cash flow statements
    attributable to the golf course and country club.
    b. For each year under audit, the Department developed a percentage of the
    operating expenses attributable to the golf course and country club by dividing the
    operating expenses identified by Taxpayer as being attributable to the golf course
    and country club by the total amount of operating expenses of the Taxpayer.

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c. The total amount of dues received for each respective year was then reduced by
the applicable admissions tax. 2 The percentage described above was then applied
to this total to determine the portion of the dues paid for the use and enjoyment of
the golf course and country club.

20. The Department has used this method of apportioning taxable membership
    dues consistently in other cases.
    Administrative interpretation of statutes by the agency charged with their administration and not
    changed by the legislative body are entitled to great weight. Marchant v. Hamilton, 297 S.C.
    497, 309 S.E.2d 781 (1983). When as in this case, the construction or administrative
    interpretation of a statute has been applied for a number of years and has not been changed by
    the legislature, there is created a strong presumption that such interpretation or construction is
    correct. Ryder Truck Lines, Inc. v. South Carolina Tax Commission, 248 S.C. 148, 149 S.E.2d.
    435 (1966); Etiwan Fertilizer Company v. South Carolina Tax Commission, 217 S.C. 354, 60
    S.E. 2d 682 (1950).
    Based on the above, it is the opinion of the Department that since a portion of the homeowners’
    membership assessment for XYZ is used to maintain common areas unassociated with the places
    of amusements (e.g., security, landscaping and road maintenance), only the portion of the
    homeowners’ membership assessment that allows homeowners entrance to, and use of, the
    places of amusements maintained and operated by XYZ is subject to the admissions tax.
    The determination as to what portion of the homeowners’ membership assessment for XYZ
    allows homeowners entrance to, and use of, the places of amusements and is subject to the
    admissions tax is calculated as follows:
21. Determine a percentage by dividing all the expenses (direct and indirect) associated
    with all places of amusement for which the assessment is paid by the total expenses
    (direct and indirect) of XYZ.
22. Apply the above percentage to the total monthly homeowners’ membership
    assessment. 3
23. The result is the portion of the homeowners’ membership assessment for XYZ that
    allows homeowners entrance to, and use of, the places of amusements.

2

This step is only necessary if the admissions tax is not separately stated from the admissions price on the bill to the
property owner.
3
Since XYZ separately states the admissions tax on its invoices to homeowners, it is not necessary to reduce the
monthly homeowners’ membership assessment by the admissions tax as was described in the “Findings of Fact” in
the Administrative Law Court decision in Savannah Lakes Village Club, Inc. v. South Carolina Department of
Revenue, 97-ALJ-17-0286-CC (S.C. Admin. L.Ct., filed March 11, 1998).

4

Note: The portion of security, landscaping and road maintenance expenses associated with any
places of amusement must be included in the expenses (direct and indirect) associated with all
places of amusement for which the assessment is paid.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Ray N. Stevens
Ray N. Stevens, Director
March 16
, 2009
Columbia, South Carolina

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