When a homeowners association collects quarterly assessments from lot owners and passes them through to a separately-owned country club as the price of club access, who owes sales tax — the club, or the homeowners association?

Plain-English summary

A subdivision's homeowners association and a private country club (a separate legal entity with a pool, gym, tennis and basketball courts) have an arrangement where lot owners automatically get club access based on lot ownership, without paying club dues directly — but the association pays the club a quarterly per-lot "support assessment," and the association in turn bills each lot owner the identical amount. Both the club's invoices to the association and the association's bills to lot owners included a line item labeled "sales tax." The association asked who actually owes the tax.

Texas ruled the club is responsible — not the association. Texas taxes "amusement services," defined broadly to include membership in a private club that provides recreational, sports, dining, or social facilities. The club is the entity with legal ownership and control over that amusement service, so it's the "provider" and "seller" who must collect and remit tax on whatever it's paid for members (or member-equivalents) to access its facilities — including the support assessments the association forwards to it, even though lot owners technically become Club members without directly paying Club dues.

The association, by contrast, isn't selling an amusement service at all: it doesn't own or control access to the club, and it isn't collecting the assessments for membership in itself — it's just channeling the same dollar amount from lot owners to the club. So the association doesn't need to charge sales tax on its own pass-through billings. But because the association's past invoices to lot owners already had a "sales tax" line item, it must remit whatever it collected under that label to the state (as a statutory trustee of any amount held out as tax) unless it refunds those amounts to the lot owners instead.

What this means for you

Homeowners associations with country club or amenity arrangements

If your association is just passing through an identical dollar amount from lot owners to a separately-owned club or facility operator, you generally aren't the taxable seller — the club or operator is. But stop labeling your own pass-through billings as "sales tax" unless you're prepared to remit whatever you collect under that label, or refund it.

Country clubs and private recreational facility operators

If lot or property ownership automatically confers club access (even without directly-paid dues), the value flowing to you through an association's support assessments is still taxable amusement-service revenue — the ownership-based "free" membership structure doesn't avoid the tax; it just changes who's paying it (the association, on lot owners' behalf).

Accountants and tax professionals

This ruling untangles a three-party billing chain (club → association → lot owner) into the correct single point of taxation using the "provider of an amusement service" definition in Rule 3.298(a)(4) — a useful template for other master-planned-community/private-club fact patterns. Also note the separate trust-fund holding: even a non-liable party (the association) that collected amounts labeled "sales tax" must remit or refund them under Section 111.016(a).

Common questions

Q: Does the homeowners association need a sales tax permit?
A: No — since it isn't selling any taxable item or service (it's only passing through assessments for the club's benefit), it doesn't need to register for a permit under Section 151.202(a), based on the facts presented here.

Q: What happens to sales tax the association already collected from lot owners?
A: The association must remit it to the state, because it held those amounts in trust once collected under a "sales tax" label — unless it instead refunds those amounts to the lot owners.

Q: Does the fact that lot owners can become Club members without paying separate dues change the analysis?
A: No. The ruling treats the support assessments as effectively the price of club access "without regard" to whether Lot Owners formally opt into membership, since paying the assessment is what keeps their Club access active.

Q: Does this ruling apply to my HOA/club fee-passthrough arrangement?
A: Not automatically. This is a private letter ruling binding only on the Comptroller as to this taxpayer's specific facts. A different corporate or billing structure between an association and a club could shift the analysis.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051, § 151.010 (sales tax imposition; taxable item)
• Tex. Tax Code § 151.0028(a), (b) (Amusement Services, definition)
• Tex. Tax Code § 151.0101(a)(1) (amusement services as a taxable service)
• 34 Tex. Admin. Code § 3.298(a)(1)(G)(xvi), (a)(4), (b) (Amusement Services; provider defined)
• Tex. Tax Code § 151.005(3) (club dues/assessments as a "sale")
• Tex. Tax Code § 151.007(e) (sales price of private club membership)
• Tex. Tax Code § 151.008(a) ("Seller" or "Retailer")
• Tex. Tax Code § 151.202(a) (sales tax permit application)
• Tex. Tax Code § 151.310(a)(2); 34 Tex. Admin. Code § 3.322(e) (501(c)(4) exemption; application requirement)
• Tex. Tax Code § 111.016(a) (trust-fund duty for amounts collected as tax)
• 34 Tex. Admin. Code § 3.2(c)(1) (offsets/refund of erroneously collected amounts)
• Comptroller's Decision No. 109,132 (2017); No. 44,162 (2009); No. 101,711 (2010)
• STAR Accession Nos. 9607L1423G12 (July 22, 1996), 9706571L (June 17, 1997), 201809004L (Sept. 7, 2018)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202008007L

Original ruling text

Alert: As of 01/15/2015, a place of business is defined as "an established outlet, office, or location operated by a seller for the purpose of selling taxable items to those other than employees, independent contractors, and individual persons affiliated with the seller."

August 4, 2020

RE: Private Letter Ruling No. 20200213145019

Dear **,

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE 1] We are responding to your request dated Feb. 14, 2020, and additional information received on Feb. 22, Feb. 28., April 1, and May 14, 2020. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance regarding collecting and remitting sales tax in connection with certain assessments made by ** (Taxpayer) and ** (Club).

Facts Presented

Taxpayer is the property owner’s association for **(Subdivision), a subdivision development in CITY, Texas. Taxpayer was organized as a Texas nonprofit corporation. The lot owners in Subdivision (Lot Owners) are bound by Taxpayer’s by-laws as well as by certain covenants, conditions, and restrictions relating to the lots. See Taxpayer’s Company Agreement (By-Laws) and First Amendment and Correction to Amended Declaration of Covenants, Conditions and Restrictions for Subdivision, Club and Taxpayer (DCCRs).

The Club is a private, members-only country club and a separate legal entity. The Club’s amenities include a swimming pool, gym equipment, beach, basketball and tennis courts. Lot Owners may become members of the Club based on lot ownership without paying dues to the Club, but are subject to the Club’s rules and regulations. See DCCRs at 1.5(b), (c), (d). Once lot ownership is turned over for the third time, new Lot Owners must pay an initiation fee to the Club. Club memberships are available by invitation to individuals who are not Lot Owners.

Taxpayer is required to pay quarterly support assessments to the Club equal to the number of lots in the Subdivision multiplied by a certain amount per lot. By-Laws at 7.2(a) and 7.3(b). The Club’s invoices to Taxpayer have a line item for sales tax.

Lot Owners are required to pay quarterly support assessments for the Club to Taxpayer equal to the quarterly support assessment that Taxpayer pays the Club. By-Laws at 7.2(a). Lot Owners must pay these assessments irrespective of whether they become or remain members in the Club. DCCRs at 1.5(e). Taxpayer’s billing statements to Lot Owners have a line item for sales tax.

Taxpayer is required to pay the full amount of the Club’s support assessments irrespective of Taxpayer’s collection of support assessments from Lot Owners. By-Laws at 7.3(b). However, the Club denies access to Lot Owners who have not paid the support assessments to Taxpayer. Property Owners Membership Agreement Terms and Conditions (TaCs) at 4(b).

Taxpayer states it qualifies for exemption from federal income taxes as an exempt entity under Section 501(c)(4) of the Internal Revenue Code. However, Taxpayer has not applied for tax exemption with the Comptroller.

Questions, Rulings, and Analysis

Our restatement of your questions is shown below, followed by our responses and analysis.

Question One: Is the Club’s charge to Taxpayer subject to sales tax?

Ruling One: Taxpayer is responsible for paying tax on support assessments charged by the Club. Taxpayer is not responsible for charging sales tax on its support assessments to Lot Owners.

Analysis for Question One: Section 151.051 (Sales Tax Imposed) imposes tax on each sale of a taxable item in this state. Section 151.010 (Taxable Item) defines “taxable item” as tangible personal property and taxable services.

Section 151.0101(a)(1) (“Taxable Services”) provides that taxable services include amusement services. “Amusement services” is defined as “the provision of amusement, entertainment, or recreation” including “membership in a private club or organization that provides entertainment, recreational, sports, dining, or social facilities to its members.” Section 151.0028(a), (b) (“Amusement Services”). Membership in a country club is taxable as an amusement service. Rule 3.298(a)(1)(G)(xvi), (b) (Amusement Services).

Rule 3.298(a)(4) defines a “provider of an amusement service” as “[t]he person who has legal rights of ownership over, or the legal right to provide, present, or offer, an amusement, entertainment, or recreation that is rendered on a regular basis at a fixed location, and for which admissions are sold . . . .”

A seller that sells a taxable item is required to add the amount of the tax to the sales price. Section 151.052(a) (Collection by Retailer). A “seller” is defined as a person “engaged in the business of making sales of taxable items . . . .” Section 151.008(a) (“Seller” or “Retailer”).

Section 151.005(3) (“Sale” or “Purchase”) defines a “sale” in part as “the collection of dues or a fee, charge, or assessment, including an initiation fee, by a club or organization for membership or a special privilege, status, or membership classification in the club or organization . . . .”

Section 151.007(e) (“Sales Price” or “Receipts”) provides that “[t]he sales price of membership in a private club or organization consists of the dues, fees, and other charges and assessments, including initiation fees, required for membership or a special privilege, status, or membership classification in the club or organization.” Amounts paid by club members to maintain membership and continue to enjoy the privileges and opportunities afforded to members are included in the taxable sales price of the amusement service. See, e.g., Comptroller’s Decision Nos. 109,132 (2017).

Club is an Amusement Service Provider

The Club is the person that has the legal rights of ownership over, or the legal right to provide, present, or offer membership in, the Club, which provides entertainment, recreational, sports, dining, or social facilities to its members. Thus, the Club is the provider and seller of an amusement service must collect tax on amounts it collects for membership or a special privilege, status, or membership classification in the Club. See Sections 151.0028(a), (b), 151.003(5), 151.008(a), 151.0101(a)(1), and 151.052(a); Rule 3.298(a)(4).

The support assessments that Taxpayer pays the Club are related to the ability of Lot Owners to access the Club without paying dues to the Club and are included in the taxable sales price of the amusement service. See Comptroller’s Decision No. 109,132 (2017). While Lot Owners can become Club members based on lot ownership, the Club requires Lot Owners to pay support assessments to Taxpayer in order to continue to access the Club. In effect, Taxpayer is collecting support assessment from Lot Owners on behalf of the Club and remitting these amounts to the Club. These support assessments are amusement services without regard of Lot Owners’ option to become members given support assessments provide a Club privilege to Lot Owners not shared by non-Lot Owners. As the seller of an amusement service, the Club’s must collect and remit tax on its support assessments to Taxpayer. See Comptroller’s Decision No. 44,162 (2009).

Taxpayer is not Amusement Service Provider

Taxpayer is not the provider of the amusement service. It does not have the legal rights of ownership over, or the legal right to provide, present, or offer membership in the Club. Taxpayer also is not making a sale of an amusement service with regard to the support assessments it collects from Lot Owners because it is not collecting the support assessments for membership or a special privilege, status, or membership classification in itself, but rather in the Club. Therefore, Taxpayer is not the provider or seller of an amusement service with regard to the support assessments to Lot Owners and is not required to charge tax on these assessments.

Taxpayer’s Exempt Status

Taxpayer states that it qualifies for exemption from federal income taxes under Section 501(c)(4) of the Internal Revenue Code. Section 151.310(a)(2) (Religious, Educational, and Public Service Organizations) provides a sales tax exemption for taxable items sold to certain organizations qualifying for an exemption from federal income taxes, including organizations that qualify under Section 501(c)(4). However, Taxpayer has not applied for exempt status with this office as required by Rule 3.322(e). Taxpayer may not claim an exemption on its purchases under Section 151.310(a)(2) until it has obtained exempt status.

Taxpayer can complete form AP-204 to apply for tax exemption. Forms and additional information about tax exemption is available online at https://comptroller.texas.gov/taxes/exempt/.

Question Two: Is Taxpayer required to have a sales tax permit?

Ruling Two: The Taxpayer is not required to have a sales tax permit given it presently does not sell any taxable items or services.

Analysis for Question Two: All sellers in this state are required to file with the Comptroller an application for a permit for each place of business. Section 151.202(a) (Application for Sales Tax Permit).

As explained above, Taxpayer is not selling an amusement service by charging support assessments to Lot Owners. Taxpayer states that it does not sell any other taxable items. Therefore, Taxpayer is not a seller under Section 151.008 and is not currently required to have sales tax permit.

Note on Sales Tax Previously Collected

For the previous sales tax collected from Lot Owners, Taxpayer must remit the sales tax to the state. Taxpayer will not be responsible for remitting sales tax to the state only if sales tax collected is refunded to Lot Owners. Rule 3.2(c)(1) (Offsets and Application of Credits and Payments to Liabilities; Unjust Enrichment).

Taxpayer’s support assessments to Lot Owners include a line item for sales tax. Section 111.016(a) (Payment to the State of Tax Collections) provides that “[a]ny person who receives or collects a tax or any money represented to be a tax from another person holds the amount so collected in trust for the benefit of the state and is liable to the state for the full amount collected plus any accrued penalties and interest on the amount collected.”

Taxpayer assessed Lot Owners for sales tax via an account history report and worksheet, with a charge of “sales tax” per a “Taxpayer assessment”; consequently, Taxpayer must remit the assessed sales tax to the State—this remittance is in addition to the sales tax paid by the Taxpayer to the Club.

In order for the Taxpayer not to responsible for remitting sales tax on their charges to Lot owners, Taxpayer must clearly state that any and all charges to Lot Owners for Taxpayer’s payments to the Club are reimbursements, not assessments, and the reimbursements must be on a dollar-for-dollar basis. See Comptroller’s Decision No.101,711 (2010), STAR Accessions Nos. 9607L1423G12 (July 22, 1996), 9706571L (June 17, 1997) and 201809004L (Sept. 7, 2018).

Comptroller’s Decisions and STAR documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 20200213145019.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE:

[1] Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.