Sales and Use Tax - TAA 13A-011 Admissions

SUMMARY

QUESTION: Whether certain dues and fees paid to use shooting range and other facilities are subject to sales tax.

ANSWER: Yes. The annual dues, tournament fees, and insurance fees are taxable admissions. However, initiation fees and capital assessments related to the equity member’s equitable interest in the club are not admissions as provided by Rule 12A-1.005(4), F.A.C. Also, late fees are not subject to sales tax.

May 6, 2013

Subject: Technical Assistance Advisement – TAA 13A-011 
Sales and Use Tax 
Admissions 
Section(s) 212.02(1), 212.04, Florida Statutes (“F.S.”) 
Rule 12A-1.005, Florida Administrative Code (F.A.C.) 
XXXXXXXXXXXX., Petitioner (“Taxpayer”) 
Business Partner#: XXXXXX

Dear XXXXXX: 
This letter is a response to your petition dated January 22, 2013, for the Department’s issuance of a Technical Assistance Advisement (“TAA”) to Taxpayer, concerning its dues and fees charged to its members. Your petition has been carefully examined, and the Department finds it to be in compliance with the requisite criteria set forth in Rule Chapter 12-11, F.A.C. This response to your request constitutes a TAA and is issued to you under the authority of section 213.22, F.S.

Issue 

Whether certain dues and fees charged by Taxpayer are subject to sales tax? 

Facts 

Taxpayer is a Florida Non-Profit Corporation organized as a social club under section 501(c)(7) of the Internal Revenue Code. Taxpayer is a private member-owned club. Copies of the Articles of Incorporation, By-Laws, Club Policies and Range Rules, Membership Application, and Membership card were provided. The By-Laws provide for liquidation and voting rights to members.

Taxpayer’s premises include a XXXXXXXXX. Members are entitled to the use of the XXXXX. There is also a clubhouse, pavilions, and storage sheds. Taxpayer also has mowers and tractors.

Payment of annual dues entitles the members to use the range areas for shooting, placement of targets, and to conduct other similar activities. Members provide their own firearms, ammunition, target stands, targets, safety equipment, etc. There is no “pro shop” on the premises. However, whenever Taxpayer makes sales of tangible personal property, sales tax has been collected and remitted. In addition, Taxpayer has collected and remitted sales tax on rentals of space.

Dues are used primarily to maintain the grounds. The members do not pay a usage fee each time they come to the property. In addition to annual membership dues, Taxpayer receives application fees, insurance fees, impact fees, late fees, and tournament entry fees. Late fees are assessed for untimely payment of dues and fees. Insurance fees are a mandatory fee and used to pay for Taxpayer’s insurance policies. No additional rights are granted or obtained by members by virtue of payment of the insurance fees or late fees.

New members are required to pay an application fee. Payment of the application fee entitles a member to an equitable ownership interest, including voting and liquidation rights. New members are also assessed a one-time impact fee primarily for the purpose of resurfacing and maintaining the private road on Taxpayer’s property. In addition to maintaining the private access road, other capital expenditures have been made for the drainage systems, new buildings, and reconfiguration of impact berms, and to maintain other improvements. Capital expenditures exceed the amounts collected from the impact fees.

Shooting competitions are conducted on Taxpayer’s premises. Taxpayer charges entry fees to participants. Spectators do not pay an admission fee to the tournaments.

Taxpayer’s Position

Taxpayer asserts that its charges are not an admission as defined by section 212.04, F.S., because the Taxpayer’s premises are not a place of amusement, place of sport, or place of recreation. The improvements on Taxpayer’s premises do not include recreational or physical fitness facilities and are not sufficient to be considered a place of amusement, place of sport, or place of recreation. The area that the members use for target shooting is unimproved land. 
In addition, Taxpayer asserts that the application/orientation fees are not taxable, because they are initiation fees for the purchase of an equitable ownership interest. The late fees and insurance fees are not subject to sales tax, because they do not entitle the members to any additional rights.

Applicable Law and Discussion

Section 212.04, F.S., imposes the sales tax on all amounts received from admissions. 
Section 212.02(1), F.S., provides, in part, the following:

(1) The term "admissions" means and includes the net sum of money after deduction of any federal taxes for admitting a person or vehicle or persons to any place of amusement, sport, or recreation or for the privilege of entering or staying in any place of amusement, sport, or recreation, including, but not limited to, … exhibitions, games, … or any place where charge is made by way of sale of tickets, gate charges, seat charges, … participation fees, entrance fees, or other fees or receipts of anything of value measured on an admission or entrance or length of stay … in any place where there is any exhibition, amusement, sport, or recreation, and all dues and fees paid to private clubs and membership clubs providing recreational or physical fitness facilities …. (Emphasis added)

Taxpayer’s premises include an area used as an outdoor shooting range by members and tournament participants. A place of sport includes a place in which shooting sports are conducted. A place of recreation includes a place that allows for recreational shooting. Both activities are conducted by the members and by tournament participants. As such, Taxpayer’s premises are a place of sport or recreation. Thus, “dues” and “fees” paid by members to Taxpayer are “admissions” as defined by s. 212.02(1), F.S. This includes annual dues paid to use Taxpayer’s shooting ranges are subject to the sales tax imposed upon admissions.

The tournament entry fees are participant fees. Participant fees and entry fees are included in the definition of the term “admissions” provided by s. 212.02(1), F.S. As with the annual dues payments, the Taxpayer’s shooting ranges are used by the participants for the duration of the tournament. Rule 12A-1.005(3)(j), F.A.C., provides, in part, “Charges made for the privilege of entering or engaging in any kind of activity for which no admission charge is made to spectators are subject to tax.” This includes the tournament entry fees. Therefore, as with the annual dues, the tournament entry fees are an admission and subject to sales tax. 

The insurance fees are a pass through charge of Taxpayer’s overhead cost for insurance. This cost is associated with operating expenses and not capital expenditures. Therefore, the insurance fee is essentially part of the charge for admissions. A member receives no additional benefit from the payment of insurance fees. As such, the sales tax is required to be collected by Taxpayer on the insurance charge paid by the members.

The late fees paid by only some members could be avoided by simply paying dues and fees timely. The late fees do not entitle the members to additional rights and are therefore not subject to the sales tax imposed upon sales of admissions.

Taxpayer maintains that the application fees are initiation fees and not subject to sales tax. Initiation fees are addressed by Rule 12A-1.005(4)(a)1.a. and (4)(b)1., F.A.C., which provide, in part, the following: 

(a)1. Dues and user fees paid to any organization, including athletic clubs … and organizations that provide physical fitness facilities or recreational facilities, … are subject to tax. Dues and user fees do not include:

a. Charges for initiation into, or for joining, an organization that are paid by persons to obtain an equitable ownership interest in the organization. The equitable ownership interest may be transferrable, with or without consideration, directly to another party or to the organization.

**** 

(b) For purposes of this rule: 

1. The phrase, “equitable ownership interest,” means an interest that entitles a person to receive from the organization evidence or indicia of such ownership, the right to vote on decisions of the organization that are subject to determination by the organization’s members or owners, and the right to receive a proportionate share of the organization’s assets upon its dissolution, unless all such net assets are distributable upon dissolution to an organization exempt from federal income taxation or to a qualifying common interest realty association. The ownership interest must be reflected by the issuance of stock, a membership certificate, or similar instrument evidencing an ownership interest in the organization. (Emphasis added)

If the application fee is considered an initiation fee paid to receive an equitable ownership interest as defined by Rule 12A-1.005, F.A.C., then the application fee is not “dues” or “fee” in regard to the definition of the term “admission” as provided by s. 212.02(1), F.S. See Rule 12A-1.005(4)(a)1.a., F.A.C. Members must receive voting rights and liquidation rights. In addition, Taxpayer is required to reflect the membership ownership interest by issuance of stock, a membership certificate, or similar instrument evidencing the ownership interest in Taxpayer. See Rule 12A-1.005(4)(b)1., F.A.C. The By-Laws provide that members in good standing receive voting and liquidation rights. Payment of the application fee is required to be a member in good standing. Therefore, so long as the ownership interest is reflected by issuance of stock, a membership certificate, or similar instrument, then the application fee is considered an” initiation fee” as provided by Rule 12A-1.005(4)(a)1.a., F.A.C., and therefore not within the definition of the term “admission” as provided by s. 212.02(1), F.S. Therefore, the application fee charged by Taxpayer is not subject to sales tax.

Taxpayer asserts that the charge for the impact fee is a capital assessment and not subject to sales tax. Rule 12A-1.005(4)(a)1.c., F.A.C., provides that dues and user fees do not include capital assessments levied by an organization against persons who are, or seek to become, members of an organization. Rule 12A-1.005(4)(b)2.b., F.A.C., defines the words “capital assessment.”

It provides:

(b) For purposes of this rule:

****

2.b. The phrase “capital assessments” means payments made by members of an organization that by themselves do not entitle an individual to use the facilities or equipment of an organization and that are used solely for capital expenditures, for capital improvements to the organization’s facilities, or for direct allocation to debt servicing such expenditures and improvements by the organization.

In regard to capital expenditures used from a capital assessment against new members, Rule 12A-1.005(4)(a)1.b., F.A.C., provides that dues and fees do not include:

b. Additional charges paid by an equity member when joining an organization that are used by the organization solely for capital expenditures, capital improvements to the organization’s facilities, or for debt servicing such expenditures and improvements by the organization. Examples of these types of payments and the use of such amounts include amounts expended for rebuilding and/or replacing the grass on greens or fairways; rebuilding and/or replacing bunkers; planting of additional trees; resurfacing and/or construction of tennis courts; resurfacing and/or construction of swimming pools; amounts expended for new furniture, fixtures and equipment; amounts expended for clubhouse renovations; amounts expended for kitchen equipment and utensils; amounts expended to improve the irrigation system; amounts expended to acquire assets to enable the club to comply with environmental laws; amounts expended for acquiring maintenance equipment; amounts expended for new golf carts; and amounts expended for the installation of equipment on golf carts. Repairs to, or maintenance of, existing capital assets that do not materially add to the value or appreciably prolong the useful life of a capital asset are not deemed to be capital expenditures or capital improvements by the organization. 

In addition, in order for the road impact fees to be considered a capital assessment, all criteria provided for by Rule 12A-1.005(4)(a)2., F.A.C., must besatisfied. It provides, in part, the following:

2. Recurring or nonrecurring … capital assessments, paid to an organization in a lump sum or by installments, are not subject to tax when such payments are: 

a. Separately accounted for and not recorded in an operating revenue account by the organization. 

b. Not paid for the right to use the organization’s recreational, physical fitness, or other facilities or equipment without subsequent periodic payments; 

c. Not used to effect a decrease in user fees or periodic membership dues; and 

d. Not used to pay for the operating expenses of the organization.

The use of the fees to pay for road maintenance, reconfiguration of the target areas, drainage system, and other improvement additions are capital expenditures provided for by Rule 12A-1.005(4)(a)1.b., F.A.C., and are not subject to tax. Based on the facts provided, the impact fees appear to be used solely for capital expenditures, and the fees were not intended for use as operating expenses. No additional rights were obtained from the payment of the impact fees. When such funds are used for debt service of prior capital expenditures or placed into an account for pending capital expenditures, then the fees received are capital assessments, so long as the other criteria provided for by Rule 12A-1.005(4)(a)2., F.A.C., are satisfied. Criteria that must be met include separate accounting of the funds received from the fees, that annual dues are not reduced, and that none of the fees are used to pay operating expenses.

Conclusion

The following charges are “admissions” as defined by s. 212.02(1), F.S., and subject to sales tax as provided by s. 212.04(1), F.S.: 

• Annual dues 
• Tournament fees 
• Insurance fees

The following charges are not an “admission” defined by s. 212.02(1), F.S.:

• Late fees 
• Application fees paid to purchase an equitable interest 
• Impact fees used solely to pay for capital expenditures 

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 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 advice is based, may subject similar future transactions to a different treatment than 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 section 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 10 days of the date of this letter.

Respectfully, 
Chuck Wallace 
Technical Assistance & Dispute Resolution 
850-717-7541 
Record ID: 138783