Golf and Social Membership Dues Paid to a Country Club

SUMMARY

QUESTION:Are social and golf membership dues paid to Country Club by its members exempt from tax pursuant to Rule 12A-1.005(4)(d)3., F.A.C.?

ANSWER: No. The golf and social membership dues under advisement fail to meet the criteria provided in Rule 12A-1.005(4)(d)3., F.A.C.

June 29, 2007

RE:Technical Assistance Advisement 07A-020

XXX

FEI #: XX

Sales Tax – Golf and Social Membership Dues Paid to a Country Club

Chapter 212, Florida Statutes (“F.S.”)

Rule 12A-1.005, Florida Administrative Code (“F.A.C.”)

Dear:

This response is in reply to your letter dated XXX, requesting the Department’s issuance of a Technical Assistance Advisement (“TAA”) pursuant to Section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding the Department’s position concerning the taxability of golf and social membership dues paid to Club. An examination of your letter has established that you have complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for issuance of a TAA.

Stated Facts

In your letter of XX,you provide in part:

The Club was incorporated in the State of Florida under Chapter 617 of the Florida Not-For-Profit Corporation Act. Restated Articles of Incorporation (Exhibit B), Restated By-Laws for [Club] (Exhibit C), Amended and Restated By-Laws of … (“POA” or Master Association”), (Exhibit D) and Restated Declaration of Covenants and Restrictions … (Exhibit E) are attached. From these documents it can be determined that the Club is structured to own, operate, preserve and maintain the Country Club Area and the golf, tennis and other recreational and social facilities located thereon for the benefit of its members. The Club is specifically addressed and subject to all applicable terms of the Declaration of Covenants and Restrictions of … (the residential community).

The Club has one basic category of membership: Equity (resident) Members. When an individual purchases a residence (a unit or parcel of real property) in the community, they are required to obtain membership in the Club. This is stated in

the Restated Declaration of Covenants and Restrictions 4.11 “Country Club Membership”All Owners shall be required to apply for a membership in the Country Club on terms established and existing for membership at the time the Owner’s application is submitted. Article III section 1(b) of the Restated Articles of Incorporation of [Club] states in part that eligibility for membership to the Club is offered to one Owner of each Unit … who is approved for membership. Only unit owners may be members of the Club. Thus memberships in the POA and Club are mirrored.

Article IV, of the Restated Articles of Incorporation of [Club] states that members consist of Owners of a Unit within [Community]. Membership in the Club shall be as determined by its Restated By-Laws. The Restated By-Laws state in Article III that the Club may offer 695 equity golf and equity social memberships of which a maximum of 25 may be equity social memberships. The members will make an equity contribution and pay an initiation fee. Each member shall be entitled to one vote. Very importantly, all members (either golf or social) make the identical same equity contribution at the then going rate irrespective of the compulsory membership category.

The POA is governed by Section 617, Florida Statutes and Section 720.201(9), Florida Statutes.

As you mentioned, copies of the Articles of Incorporation for the Master Association and Club, Amended and Restated Bylaws for the Master Association and Club, and the Declaration of Covenants and Restrictions for Communitywere provided for our review. During our telephone conference on February 6, 2007, we inquired about information contained in theaforementioned governingdocuments. Specifically, we asked about the ramifications for failure to pay country club dues, the membership application process, references to club members who are not unit owners, and social members’ access to golf facilities. We were orally informedof the following:

The Club has filed liens on homeowners’ units for failure to pay Club dues.

Prior to purchasing a unit or parcel in Community, potential buyers must be approved. If a buyer is approved to purchase a home in Community, he or she is approved for membership in Club.

The Developer created club memberships for founding members. Founding members are entitled to membership in the Club regardless of whether or not they own a unit in Community. There are currently three such memberships in total, and all three Club members are currently unit owners.

Social members are entitled to a reduced number of golf rounds and pay reduced annual membership dues.

On February 12, 2007, we received a copy of correspondence addressed to Club from Club’s attorney, which provides in part:

… [W]e have in the past, filed a lien that included the amounts due to the Country Club…. The property at issue was located in a condominium which is within [Community]. The individual owed the Condominium Association, the Property Owners Association and the Country Club.

***

Applications for Club membership are treated in the same process as applications for approval for purchasing real estate. There is no distinction between the two applications. While a form is used, it is primarily for information gathering …. If an individual is approved for membership in the property owners’ association, which permits that person to purchase a home, then that person is entitled to become a member of the club…. But once a purchaser of real property is approved, he or she is eligible for club membership and club membership is mandatory.

Issue

Are social and golf membership dues paid to Club by its members exempt from Florida sales tax pursuant to Rule 12A-1.005(4)(d)3., F.A.C.?

Applicable Authority

Section 212.04(1)(a), F.S., provides:

(1)(a)It is hereby declared to be the legislative intent that every person is exercising a taxable privilege whosells or receives anything of value by way of admissions.

Section 212.02(1), F.S., defines the term “admission” in part as:

… the net sum of money after deduction of any federal taxes for admitting a person … 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 … and all dues and fees paid to private clubs and membership clubs providing recreational or physical fitness facilities, including, but not limited to, golf, tennis, swimming, yachting, boating, athletic, exercise, and fitness facilities ….

Rule 12A-1.005(4)(d)3., F.A.C., provides:

(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 condominium association, homeowners' association, or cooperative 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.

The term “homeowners’ association” is defined in Section 720.301(9), F.S., as follows:

(9) "Homeowners' association" or "association" means a Florida corporation responsible for the operation of a community or a mobile home subdivision in which the voting membership is made up of parcel owners or their agents, or a combination thereof, and in which membership is a mandatory condition of parcel ownership, and which is authorized to impose assessments that, if unpaid, may become a lien on the parcel. The term "homeowners' association" does not include a community development district or other similar special taxing district created pursuant to statute.

Discussion and Analysis

Florida law provides that the sale of admissions is subject to tax unless specifically exempt. Dues and fees paid to private clubs or membership clubs for the use of the club's recreational or physical fitness facilities are considered admissions and are subject to tax. An exemption is provided for mandatory dues and fees that are paid to a condominium association, homeowners' association, or cooperative 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.

Essentially, there are four requirements that must be satisfied in order for the exemption granted in Rule 12A-1.005(4)(d)3., F.A.C., to apply. In construing statutory exemptions from tax,the Department must follow the fundamental rule of statutory construction established by the Florida Supreme Court, which mandates that exemptions from, or exceptions to, taxing statutes are special privileges granted by the legislature and must be strictly construed, "with any doubt being resolved in favor of the state." State v. Dickinson, 286 So.2d 259 (Fla. 1974).

The first requirement that must be satisfied is that payment of the dues in question must be mandatory. You provide in your letter:

Article VIII Section 4 of the Restated By-Laws of [Club] states that the Board of Directors shall determine the dues and other charges to be charged to Club Members for the fiscal year of the Club. Club dues, plus any applicable sales taxes, shall be due and payable annually, in advance, at the beginning of the Club’s fiscal year.

Article VII Section[] 6 of the Restated By-Laws [Club] entitled “Liens” states that the Club shall have a lien on the Member’s certificate for any unpaid assessments, dues or other charges.

Article IX Section 8 of the Restated By-Laws of the [Master Association] states that the Master Association shall have a lien on the Member’s Unit … for any unpaid assessments, dues or other charges.

The Club and POA dues are mandatory and if left unpaid will be subject to a lien on the members’ certificate and property.

Although you maintain that both the Club and POA dues are mandatory, we must point out that it is the golf and social membership dues paid to the country club that are under advisement.

The Declaration of Covenants and Restrictions requires owners of a unit within Community to apply for membership in the Club on terms established and existing for membership at the time of applying. Club members are required to pay fees and membership dues assessed by the Club pursuant to separate documents established for the Club. (Declaration, Article IV, Section 4.11) The Club Bylaws provide that membership in the Club is offered to one owner of each unit within Community who must be approved for membership. (Club Bylaws, Article III, Section 1(b).) Club’s Bylaws require all members to pay dues, assessments or other charges to the Country Club. (Club Bylaws, Article VII, Section 4.) Unpaid assessments, dues or other charges shall result in the Club having a lien on the member’s certificate and entitlement to return on any capital contribution. (Club Bylaws, Article VII, Section 6.)

The Club offers 695 golf and social memberships. A maximum of 25 of the 695 memberships may be social. (Club Bylaws, Article III, Section 1(a).) Golf members are fully participating and entitled to full access to, and use of, all the Club’s golf, tennis, fitness, and social facilities. (Club Bylaws, Article III, Section 1(d).) Social members are entitled to full access to, and use of, all the club’s tennis, fitness, and social facilities. (Club Bylaws, Article III, Section 1(e).)

All new members approved for membership will be golf members unless the buyer wishes to purchase a different class of membership, if available. (Club Bylaws, Article III, Section 1(j).)

The governing documents provide that allowners of a unit within Communitymust apply for membership in the club and pay their respective dues, golf or social. There is no evidence in the governing documents that all unit owners must be social members. The governing documents do indicate that all new owners will be golf members, but then provide new owners with an option to purchase a different class of membership, if available. Thus, there is also no evidence that all unit owners must be golf members. Consequently, we cannot conclude that social membership

dues are mandatory for all owners of a unit within Community, nor can we conclude that golf membership dues are mandatory for all owners of a unit within Community.

The second requirement that must be met is that the fees must be paid to a condominium association, homeowners’ association or cooperative association. You indicate in your letter:

Section 720.301(9) F.S. states in part: “Homeowners’ association” or “association” means a Florida corporation responsible for the operation of a community or a mobile home subdivision in which the voting membership is made up of a parcel owners or their agents, or a combination thereof, and in which membership is a mandatory condition of parcel ownership, and which is authorized to impose assessments that, if unpaid, may become a lien on the parcel.

In Downey v. Jungle Den Villas Recreational Association, Inc. 525 So. 2d 438 (Fla. 5th DCA 1988), the Fifth District Court of Appeal held that a recreational association (or club) which was organized to provide an entity for ownership, operation, and management of recreational facilities for the use of all unit owners was, in substance and function acting as an association. Here the club was deemed a “de facto” association. Since all of the members who purchase a unit in … community must be a member of both the club and the POA, the Club qualifies as an “association”.

Therefore, in substance and function, the Club is an “association” according to s[.] 720.301(9)[,] F.S….

Unlike the Master Association, which is incorporated as a homeowners’ association pursuant to Chapter 720, F.S., the Club is not. Instead, the Club is organized pursuant to Chapter 617, Florida Statutes. Club relies on Downey v. Jungle Den Villas Recreational Association, Inc., 525 So. 2d 438, (supra), as support forits position that it is a de facto homeowners’ association.

In Downey, the FifthDistrict Court of Appeal considered whether a recreationassociation created by several condominium associations "to provide an entity for the ownership, operation, and management of recreation facilities for the use of all present and futurecondominium unit owners," should be treated "as an entirelyindependent corporation not for profit or as a de factocondominium association subject to Chapter 718, Florida Statutes." Id. at 439-40. Pursuant to Section 718.110(4), F.S.(1985), a condominium association could not make a material alteration to a condominium without unanimous approval of allunit owners. Id. at 440. The recreation association was attempting to build a swimming pool, and to assess each owner a $450.00 charge for its construction, with the approval of a slim majority of unit owners. Id. Because the recreation associationin Downey held legal title to the property "for the use and benefit of unit owners of all phases in Jungle Den Villas," the court held it was a de facto condominium association. The association was thus required to obtain the unanimous consent of the unit owners before building the swimming pool or imposing an assessment for it. Id. at 441.

In determining that the master recreation association should be treated as a condominium association, the courtapplied the "constituency test." According to the court, the essential inquiry of the constituency test is whether the membership of the recreation association is composed "`only of condominium unit owners, and only condominium unit owners have rights in the property administered by the Association....'" Id.at 440. (quoting Siegel v. Division of FloridaLand Sales andCondominiums, Department of Business Regulation, 453 So.2d 414, 417 (Fla. 3d DCA 1984), quashed, 479 So.2d 112 (Fla. 1985).)

The court's determination that the recreation association was ade facto condominium association hinged upon the facts that: (1) the recreation association was "entirely owned and controlled by the unit owners," (2) the "property titled in the recreation association's name... [was] expressly held for the use and benefit of the condominium unit owners and no one else," (3) the "recreation association exist[ed] solely to serve the[] unit owners," and (4) the members of the recreation association were"[o]nly unit owners, and never non-unit owners." Id. at 441 (Emphasis Supplied)

In this instant case, the Master Association Bylaws indicate that “…[i]n the event there is a Member of the Club who owns any membership equity interest but who is not an Owner of a Unit within [Community], that Club Member shall also be entitled to one (1) vote.” (Master Association Bylaws, Article III, Section 2.) The Declaration also refers to Club Members who are not Owners of a Unit within Community. Specifically, the Declaration provides that “ … [a]

non-exclusive easement is hereby granted for ingress and egress … from the Country Club Property for all Members of the Country Club, regardless of whether such Members are also Owners….” (Declaration, Article 5, Section 5.1.6) And, the Club Bylaws indicate that certain social members may choose to retain their social memberships even if they sell their respective unit. The Club Bylaws provide “ … [w]ith the exception of the Members who are listed on the attached … who hold current social memberships and who may if they wish, transfer their social memberships along with the sale of their unit….” (Emphasis Supplied)

As previously mentioned, the Department inquired about these statements during a telephone conference on February 6, 2007, and was informed that founding members are granted membership in the club regardless of whether or not they are owners of a unit. The Department was also advised that such members are currently unit owners in Community. Despite that assertion, the governing documents reveal that membership in Club may consist of non-unit owners. Therefore, it cannot be concluded that membership in the club will never consist of non-unit owners.

In addition to the fact that Club failed to incorporate as a homeowners’ association, there is another reason why Club’s assertion that it is in substance and function a homeowners’ association fails. A homeowners’ association is authorized to impose assessments that if unpaid may become a lien on the parcel. When we asked for evidence of Club’s authority to place a lien on a unit owner’s parcel for failure to pay Club dues, we were informed and provided with documentation that a joint lien, which included amounts due the country club, has been filed in the past. However, there is no evidence in the governing documents granting the Club the authority to do such filing.

State agencies must adhere to the law established by the legislature in the Florida Statutes; agencies are not permitted to enlarge, modify, or contravene statutory provisions. SeeDepartment of Business Regulation v. Salvation Ltd., 452 So.2d 65 (Fla. 1st DCA 1984); Department of Health and Rehabilitative Services v. McTigue, 387 So.2d 454 (Fla. 1st DCA 1980);4245Corp. v. Division of Beverage, 371 So.2d 1032 (Fla. 1st DCA 1978); Florida Growers Coop, Transport v. Department of Revenue,273 So.2d 142 (Fla. 1st DCA 1973), cert. denied, 279 So.2d 33(Fla. 1973). The Florida Department of Revenue is not empowered to create additional varieties of homeowners' associations.