TAA 21A-020 Admissions
QUESTION: Would any portion of the Recreational Facilities Assessments paid to the Master Association by the Recreational Facilities Members after the Merger be subject to sales tax?
ANSWER: Yes. All of the Recreational Facilities Assessments paid to the Master Association after the Merger would be subject to tax except the Recreational Facilities Capital Assessments paid by the Members who were owners in the Community. The Recreational Facilities Capital Assessments paid by the Non-Resident Members, and the Recreational Facilities Dues Assessments and Recreational Facilities Membership Contributions paid by all members would be subject to tax.
November 10, 2021
Technical Assistance Advisement No. 21A-020
Sales and Use Tax – Admissions
XXXXX (“Petitioner”) (“Club”)
FEI No. XXXXX
BPN: XXXXX
Sections 212.02(1), 212.04(1)(a), 213.22(1), 617.0302(16), and 720.301, Florida Statutes (“F.S.”)
Rule 12A-1.005(4)(a), (4)(b), (4)(c), and (4)(d)3., Florida Administrative Code (“F.A.C.”)
XXXXX (“Association”)
FEI No. XXXXX
BPN: XXXXX
XXXXX (“Community”)
Dear XXXXX:
This letter is a response to your petition on behalf of Petitioner dated January 22, 2021, for the Florida Department of Revenue’s (the “Department’s”) issuance of a Technical Assistance Advisement ("TAA") with regard to whether recreational facilities assessments paid to a homeowners’ association by its recreational facilities members would be subject to sales tax. 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, Florida Administrative Code. This response to your request constitutes a TAA and is issued to you under the authority of s. 213.22, F.S.
Requested Advisement
Whether any portion of the Recreational Facilities Assessments paid to Association by the Recreational Facilities Members after the Merger would be subject to sales tax.
Facts
Club is a Florida not-for-profit corporation, and Association is a Florida not-for-profit corporation which is a homeowners’ association, as described in s. 720.301(9), F.S. Association is organized as a homeowners’ association for the purpose of owning and maintaining certain common areas and enforcing certain restrictions beneficial to owners of residences located in the residential community, known as Community. For property tax purposes the value of Association property is allocated to the value of the units owned by owners of residences in Community.
The Club and the Association are contemplating a merger of Club into Association (“Merger”). Currently, these functions are performed in accordance with the XXXXX Declaration of Covenants, Conditions and Restrictionsfor XXXXX, dated December 9, 2005 (the “Existing Declaration”). On April 5, 2006, a Certificate of Amendment for the Existing Declaration was recorded by Association (the “Mandatory Membership Amendment”). The Mandatory Membership Amendment provides that persons or entities obtaining title to residences (“Units”) are required to acquire equity memberships in Club (“Equity Memberships”). Owners at the time of the recording of the Mandatory Membership Amendment who were not holders of Equity Memberships were not required to acquire them; however, subsequent purchasers of those owners’ Units were required to acquire Equity Memberships.
The Club is a member-owned, not-for-profit Florida corporation which is owned by the holders of Equity Memberships of the Club (“Equity Members”). The Club currently owns, operates and maintains golf course, fitness, tennis, swimming, dining and other related facilities as well as a clubhouse (the “Recreational Facilities”). The Club currently has four categories of Equity Members: 1) Full Members, who are granted access to all of the Recreational Facilities; 2) Sports Members, who are granted limited access to the golf course facilities and unlimited access to the rest of the Recreational Facilities; 3) Tennis Members, who are granted access to all of the Recreational Facilities except the golf course facilities; and 4) Social/Fitness Members, who are granted access to all of the Recreational Facilities except the tennis and golf facilities. Currently, there are XXX Full Members, XXX Sports Members, XXX Tennis Members and XXX Social/Fitness Members who are also owners of residences in the Community. In addition to the Equity Members who own residences in the Community, there are currently XXX Full Equity Members, XXX Sports Equity Members and XXX Tennis Equity Members who are not owners of property in the Community (collectively, the “Non-Resident Equity Members”).
While the majority of the owners of the units in the Community are Equity Members of the Club, there are XXX owners who are not Equity Members, who were not required to purchase Equity Memberships at the time of the Mandatory Membership Amendment and who have no privileges to use the Recreational Facilities (the “Grandfathered Owners”). There is also another group of Non-Equity Owners that entered into a settlement agreement with the Club and the Master Association in which they were able to obtain Non-Equity Dining Memberships (“Dining Memberships”). These memberships allow these owners to use the dining-related areas of the Recreational Facilities. Dining Members are not obligated to pay dues for their use of the Recreational Facilities. Currently, XXX owners have Dining Memberships. Owners who have Dining Memberships (“Non-Member Owners”) can transfer those memberships to purchasers of their Units, in which case, subsequent purchasers would not have to purchase Equity Memberships in the Club. The Club also has XXX Non-Equity Memberships (in addition to the Dining Memberships), which provide the members privileges to use the Recreational Facilities based on an arrangement between the Club and its predecessor in interest. Persons with these memberships: 1) have no ownership interest in the Club or the Recreational Facilities; 2) have no voting privileges in the Club; and 3) will continue to have access to the Recreational Facilities on a limited basis after the Merger.
Club and Association desire to merge in a transaction whereby which Association will be the surviving corporation. Although Club and Association are still in the process of finalizing the documentation related to the Merger, it is contemplated that the Merger will be consummated substantially as follows. The Club will be merged with and into Association, as authorized by section 617.0302(16), F.S. Association, as the surviving corporation, will continue to be a Florida not-for-profit corporation and a homeowners’ association, pursuant to section 720.301(9), F.S. Owners who are Equity Members of the Club will remain as members of Association with rights, privileges and responsibilities consistent with the categories of membership that they had in the Club, as will be described in the XXXXX Declaration (the “XXXXX Declaration”) and the XXXXX By-Laws of Association (the “XXXXX By-Laws”). The Plan of Merger, XXXXX Declaration and XXXXX By-Laws are sometimes singularly and collectively referred to as the “Merger Documents.”
After the Merger, the Association will own and control all the property previously owned by the Club, including the Recreational Facilities, by operation of law. Club will also execute a deed conveying the real property component of the Recreational Facilities to Association. Once the Recreational Facilities become part of the Common Areas, each owner in the Community will have a right and easement of enjoyment in and access to the Common Areas for their intended purposes, subject to: 1) the Merger Documents; 2) their privileges as holders of Recreational Facilities Memberships or as Non-Member Owners; and 3) the payment of assessments and other fees or charges imposed by the Association. The easement will be perpetual and non-exclusive and will be appurtenant to the title to each Unit. However, only Recreational Facility Members will have access to the Recreational Facilities.
After the Merger, the Equity Members will exchange their Equity Membership Certificates for Recreational Facilities Membership Certificates, which will be issued by Association. As Recreational Facilities Members, their privileges to use the Recreational Facilities will be the same as those they had as Equity Members. Any owners who were grandfathered from having to acquire Equity Memberships will be grandfathered from having to acquire Recreational Facilities Memberships; however, as was the situation with Equity Memberships, purchasers of Grandfathered Owners’ Units will be required to acquire Recreational Facilities Memberships of at least the level of the Social/Fitness category. There will be four categories of Recreational Facilities Memberships in the Master Association: 1) Full Memberships; 2) Sports Memberships; 3) Tennis Memberships; and 4) Social/Fitness Memberships. It is contemplated that the Club members, including the Non-Resident Equity Members, will have the same access rights to the Recreational Facilities based on their categories of membership after the Merger that they had prior to the Merger. Grandfathered Owners will not have access to the Recreational Facilities after the Merger unless they upgrade to become Recreational Facilities Members. Dining Members will continue to have the same privileges with regard to use of the facilities that they had prior to the Merger.
Following the Merger, all owners will have equal voting rights for general Association matters, including voting on the election of the Master Association’s Board of Directors, but Recreational Facilities Members will continue to be granted “weighted voting” on certain recreational facilities matters. It is also contemplated that the cost of owning and operating the Common Areas, other than the Recreational Facilities, will be determined based on the Common Area Budget and will be shared equally by all owners as “Common Assessments” after the Merger. The Common Assessments will include an allocation of such assessments for a reserve for Common Areas, exclusive of the Recreational Facilities.
Recreational Facilities Members will be assessed for the costs of owning and operating the Recreational Facilities (the “Recreational Facilities Assessments”). The Recreational Facilities Assessments will include the following assessments: 1) the Recreational Facilities Dues Assessments; 2) the Recreational Facilities Membership Contributions; and 3) the Recreational Facilities Capital Assessments. Payments required to be paid to Association for the costs of owning and operating the Recreational Facilities (sometimes referred to as “Recreational Facilities Dues Assessments”) will be shared in the same manner as dues are shared under the Existing Club Documents, with Full Members paying the highest level of dues, followed by Sports Members, Tennis Members and Social/Fitness Members. After the Merger, persons purchasing a Recreational Facilities Membership will also be required to make a recreational facilities membership contribution (“Recreational Facilities Membership Contribution”) to the Association, the amount of which will vary depending on the category of membership acquired. Even though members of the Club are referred to as “Equity Members,” they will exchange their “Equity Membership Certificates” for Recreational Facilities Certificates after the Merger, and they will be required to make capital contributions.
Each fiscal year, Association will also be authorized to collect capital assessments related to the Recreational Facilities (the “Recreational Facilities Capital Assessments”), which will include a minimum capital reserve assessment in the same proportion as the Recreational Facilities Dues Assessments (the “Recreational Facilities Minimum Assessment”), in addition to assessments for capital repairs, replacements, improvements and additions that have been approved by the Recreational Facilities Members in accordance with the Merger Documents. The Recreational Facilities Capital Assessments will be separately stated on the invoices for assessments and: 1) will be placed in a segregated account; 2) will be used solely for capital repairs, maintenance, replacements, improvements, expansions and additions to the Recreational Facilities (or debt service or like items related to the financing of such items); and 3) will not be included in operating revenue or be used to pay for operating expenses of the Master Association or the Recreational Facilities.
An owner’s obligation to pay all assessments, including the Common Assessments and the Recreational Facilities Assessments, will be secured by a lien on the owner’s Unit. In the event that there is a dissolution of the Association and a liquidation of its assets after the Merger, all owners of property in Community will share in the liquidation of the Association’s assets. All Recreational Facilities Members (both members who are owners and Non-Resident Members) will be entitled to receive a share of the proceeds from the liquidation of the Recreational Facilities assets up to the value of their Recreational Facilities Certificates. If any assets of the Recreational Facilities are left after that, the remaining owners in the Master Association will share in those assets.
Law and Discussion
Selling or receiving anything of value by way of admissions, unless otherwise exempt by administrative rule or statute, is taxable. See s. 212.04(1)(a), F.S. Section 212.02(1), F.S., provides, in relevant 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 . . . golf, tennis, swimming, athletic, exercise, and fitness facilities . . . .” Therefore, fees or assessments that are paid in order to use recreational facilities, as in the instant case, would, generally, be taxable as admissions. The three Recreational Facility Assessments that will be paid after the Merger are: 1) the Recreational Facilities Dues Assessments; 2) the Recreational Facilities Membership Contributions; and 3) the Recreational Facilities Capital Assessments.
With regard to the Recreational Facilities Dues Assessments, Taxpayer’s representatives argue that these Assessments are not dues or user fees subject to tax when they are charged to members up to the level of the Social/Fitness category because they contend that these assessments meet the four criteria in Rule 12A-1.005(4)(d)3., F.A.C. Taxpayer’s representatives refer to this as the “HOA Exemption.” Rule 12A1.005(4)(d)3., F.A.C., provides, in relevant part:
(d) Fees paid to private clubs or membership clubs that do not entitle the payor to the use of the club’s recreational or physical fitness facilities are not subject to tax. Examples of such fees are:
. . .
3. Mandatory dues and fees paid to a . . . homeowners’ association . . . when they are required to be paid as a condition of ownership or occupancy of real property and the club facilities are part of the common elements or common areas of the real property.
Taxpayer’s representatives restate the four criteria in Rule 12A-1.005(4)(d)3., F.A.C., that must be met in order for the Recreational Facilities Dues Assessments not to be subject to tax as: 1) the dues or fees must be mandatory; 2) the dues or fees must be paid to a homeowners’ association; 3) the dues or fees must be required as a condition of ownership or occupancy of real property; and 4) the club facilities to which the payments relate must be part of the common elements or common areas.
All new owners of residential units except certain grandfathered units involving dining privileges only are required to be at least a Social/Fitness Membership in Association, and the Community residential purchaser may obtain a Sports or Full Membership as an option to use Association’s golf, tennis, and other facilities, of which the unit purchaser is then obligated to pay an additional assessment amount.
When a new owner purchases a Unit the obligation to pay at least the Social/Fitness Member Dues Assessments and easement use rights will run with title to the land and the Master Association will be authorized to impose Recreational Facilities Dues Assessments which, if left unpaid, could result in a lien on the Unit.
With regard to the second requirement, that the dues be paid to a homeowners’ association, Taxpayer’s representatives state that Association meets the definition of a homeowners’ association, as defined in s. 720.301(9), F.S. The third requirement in subparagraph (4)(d)3. is that the Recreational Facilities Dues Assessments be required to be paid to the homeowners’ association as a condition of ownership or occupancy of real property. This requirement is satisfied based on the information provided that demonstrates that Association was formed pursuant to Chapter 720, F.S.
The fourth requirement in Rule 12A-1.005(4)(d)3., F.A.C., is that the Recreational Facilities be part of the common elements or common areas of the real property. Based on the facts provided, this requirement is satisfied. Ownership of the Recreational Facilities will be transferred to Association by operation of law during the Merger and the Club will also execute a deed conveying its ownership interest in the real property component of the Recreational Facilities to Association. The Recreational Facilities will become part of the Common Areas owned by Association and will be part of Community. The unit owners will be given easement rights to use the Common Areas, including the Recreational Facilities, consistent with their status as Recreational Facilities Members or Non-Member Owners.
Taxpayer believes that Social/Fitness Member Dues Assessments paid by Recreational Facilities Members to Association after the Merger should not be subject to sales tax by virtue of the exemption in Rule 12A1.005(4)(d)3., F.A.C. They believe that any amount of Recreational Facilities Dues Assessments charged to Full Members, Sports Members and Tennis Members that is in excess of the amount of the Social/Fitness Dues Assessments (collectively, the “Excess Dues”) is not exempt from the sales tax on admissions because payment of the Excess Dues is not mandatory. They also believe that any dues required to be paid by Non-Equity Members or Non-Resident Equity Members who become Recreational Facilities Members upon the Merger would be subject to sales tax.1*
Taxpayer’s representatives contend that the second type of Recreational Facilities Assessments, i.e., the Recreational Facilities Membership Contribution, should be exempt pursuant to Rule 12A-1.005(4)(a)1.a., F.A.C., under what they term the “Equitable Ownership Interest Exception.” Rule 12A-1.005(4)(a)1.a., F.A.C., provides, in relevant part, that dues and user fees subject to the sales tax on admissions do not include:
[c]harges for initiation into, or for joining, an organization that are paid by persons to obtain an equitable ownership interest in the organization. . . .
Taxpayer’s representatives go on to quote a portion of the “equitable ownership interest” definition:
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 . . . .2*
See Rule 12A-1.005(4)(b)1., F.A.C. Taxpayer claims that the Recreational Facilities Membership Contributions should be exempt from the sales tax on admissions under the Equitable Ownership Interest Exemption because: 1) all Recreational Facilities Members of the Master Association have an “ownership interest” in the Master Association; 2) all Recreational Facilities Members are entitled to receive a Recreational Facilities Membership Certificate evidencing such ownership; 3) all Recreational Facilities Members of the Master Association have a right to vote; and 4) all Recreational Facilities Members have a right to receive a share of the Master Association’s assets upon liquidation.
With regard to the Recreational Facilities Capital Assessments, they argue that these are exempt from sales tax because they qualify for what they refer to as the “Capital Contributions Exemption” found in Rule 12A-1.005(4)(a)2., F.A.C. Rule 12A-1.005(4)(a)2., F.A.C., provides:
2. Recurring or nonrecurring capital contributions or additional paid-in capital, or 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.
They contend that the criteria for the exemption will be met because the Recreational Facilities Capital Assessments will: 1) be invoiced separately from the Recreational Facilities Dues Assessment; 2) be deposited into a separate account; 3) not be included in operating revenue or be used to pay for operating expenses of the Master Association or the Recreational Facilities; and 4) be used solely for capital repairs, maintenance, replacements, improvements, expansions and additions to the Recreational Facilities (or debt service or like items related to the financing of such items). As a result, they contend that the Recreational Facilities Capital Assessments paid by all categories of membership should be exempt from the sales tax on admissions.
The second type of Recreational Facilities Assessments persons purchasing a Recreational Facilities Membership after the Merger will be required to pay is the Recreational Facilities Membership Contribution. Taxpayer’s representatives contend that these Membership Contributions will be exempt pursuant to Rule 12A-1.005(4)(a)1.a., F.A.C. Rule 12A-1.005(4)(a)1.a., F.A.C., provides, in relevant part that “charges for initiation into, or for joining, an organization that are paid . . . to obtain an equitable ownership interest in the organization” are not subject to tax. “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 . . . . The ownership interest must be reflected by the issuance of stock, a membership certificate, or similar instrument evidencing an ownership interest in the organization.
See Rule 12A-1.005(4)(b)1., F.A.C. Also see Rule 12A-1.005(4)(b)2.a. and b., F.A.C., regarding the definition of “capital contributions” and “capital assessments.”
As to capital contributions, the member must have an “equitable ownership interest” in Association. Based on the facts Association members that have ownership interest, such as the residential unit owners, qualify based on the facts provided. Also, the unit owners will have a right to receive a proportionate share of the Recreational Facilities’ assets upon liquidation. In addition, by making capital contribution to Association, the value of the unit owner’s residences will typically be preserved or enhanced. Therefore, the capital contributions are consistent to the definition of Rule 12A-1.005(4), F.A.C.
The third type of Recreational Facilities Assessment the Master Association will be authorized to collect from the Recreational Facilities Members, on an annual basis, is the Recreational Facilities Capital Assessments. As long as, in addition to those facts Taxpayer’s representatives stated about the Capital Assessments in the request for this TAA, the Assessments would not be paid for the right to use the Recreational Facilities without subsequent periodic payments, would not be used to effect a decrease in user fees or periodic membership dues, and would be used solely for capital expenditures, for capital improvements to the Recreational Facilities, or for direct allocation to debt servicing such expenditures and improvements, the Capital Assessments paid by the members who are owners would not be subject to tax. 3* See Rule 12A-1.005(4)(a)2.b.-c., and (4)(b)2.b., F.A.C.
Conclusion
The amount paid for the Recreational Facilities Dues Assessments in excess of the amount paid for Social Membership to Association after the Merger would be subject to tax. The Recreational Facilities Membership Contributions by unit owners that have an equitable ownership interest in Association, and the Recreational Facilities Capital Assessments, as provided herein, are not subject to tax so long as the criteria for Rule 12A-1.005(4), F.A.C., are satisfied.
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 that 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 15 days of the date of this letter.
Alan Fulton
Technical Assistance & Dispute Resolution
(1) With regard to Taxpayer’s representatives references to other Technical Assistance Advisements the Department has issued, it should be noted that Technical Assistance Advisements “. . . have no precedential value except to the taxpayer who requests the advisement . . . .” See s. 213.22(1), F.S.
(2) Taxpayer’s representatives do not include the last sentence of Rule 12A-1.005(4)(b)1., F.A.C., which provides: “The ownership interest must be reflected by the issuance of stock, a membership certificate, or similar instrument evidencing an ownership interest in the organization.”
(3) Capital assessments paid by Non-Resident Members would be taxable because Non-Resident Members would not be considered equity members. See Rule 12A-1.005(4)(a)1.b., F.A.C.
