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Sales and Use Tax TAA 13A-012 Sale and Resale of Equity Membership

SUMMARY
TAX: Sales and Use Tax
TAA NUMBER: TAA 13A-012
ISSUE: Admissions
STATUTE CITE(S): Section(s) 212.02, 212.04, F.S.
RULE CITE(S): Rule 12A-1.005, F.A.C.
QUESTION: Whether sale and resale of equitable membership interests in Taxpayer are subject to the tax imposed on admissions?
ANSWER: No. Taxpayer demonstrated that the purchase of equitable membership interests are not dues or fees and not taxable admissions as provided by Rule 12A-1.005(4), F.A.C.

May 15, 2013

Subject: Technical Assistance Advisement – TAA 13A-012
Sales and Use Tax
Admissions– Sale and resale of equity membership interest
Section(s) 212.02(1), 212.04, Florida Statutes (“F.S.”)
Rule(s) 12A-1.005, Florida Administrative Code (“F.A.C.”)

XXXXXX (“Developer”)(“Petitioner”)
FEI Number: XXXXX
XXXXXX (“Community”)
XXXXXX (“Club”)
Business Partner Number: XXXXX

Dear XXXX:

This letter is a response to your petition dated March 4, 2013, for the Department’s issuance of a Technical Assistance Advisement (“TAA”) to Petitioner, concerning sales and resale of equity membership interests in Club. 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

Are the sale and resale of Club’s equity memberships by either Developer or Club subject to sales tax?

Facts

Developer is a Delaware limited liability company, authorized to do business in Florida. Developer currently owns certain developed and to be developed real property at Community that is located in Florida. The property in Community is sold as developed lots to builders and/or homeowners (the “Lot Purchasers”), who will construct a residence on such developed lots. Community includes a golf course and other club facilities (together, the “Club Facilities”) made by Developer.

Club was formed as a Florida not-for-profit corporation under Chapter 617, Florida Statutes. Club’s Articles of Incorporation provide that it is a member-owned club. The Articles provide for voting and dissolution rights.

The Club Facilities were conveyed by the Developer to Club in exchange for all of the outstanding equity memberships (“Equity Memberships”) of Club. The Equity Memberships were then sold in conjunction with the sale of lots in Community.

There are two categories of Equity Memberships, which provide the owners of Equity Memberships (the “Equity Members”) with certain privileges to use the Club Facilities. One category of Equity Membership provides privileges primarily as a sport member with nominal golf use privileges, and the other category of Equity Membership provides privileges as a golf member with full golf privileges. Both categories of Equity Membership provide privileges relating to the social and dining elements of the Equity Club.

The lots within Community are encumbered by certain covenants. One covenant (the “Covenant”) requires mandatory membership by any Lot Purchaser acquiring a lot within Community. The Lot Purchaser is required to acquire and maintain an Equity Membership in Club. A Lot Purchaser is obligated to pay a membership contribution (“Equity Membership Contribution”) to acquire the Equity Membership.

Initially, each Lot Purchaser who purchases a developed lot from the Developer will be required to purchase one of the Equity Memberships held by the Developer, and the Equity Membership Contribution paid by such Lot Purchaser would be delivered to the Developer as consideration for such Equity Membership. By acquiring an Equity Membership, each Lot Purchaser obtains all of the rights of an Equity Member under the membership documents of Club, which are currently in effect and include Articles of Incorporation, Bylaws, Membership Plan, and Rules and Regulations (collectively, the “Membership Documents”).

Pursuant to the Covenant, when a Member sells his or her home or lot in Community, the buyer of that Member’s home or lot is required to acquire an Equity Membership, which may be a reissuance of the selling Member’s Equity Membership or an Equity Membership on a resigned Member’s waiting list (a “Reissued Equity Membership”). In that event, Club is the entity that is selling such Reissued Equity Membership by virtue of its reissuance of a previously issued Equity Membership. Upon the sale of the Reissued Equity Membership by the Club, (a) the Developer receives seventy-five percent (75%) of the Equity Membership Contribution paid for the Reissued Equity Membership until the Turnover Date (as defined below), as additional consideration for the Club’s purchase of the Club Facilities from the Developer, and (b) the Club retains the remaining portion of the Equity Membership Contribution (i.e., 25% until the Turnover Date, then 100% after the Turnover Date), which amount is required to be placed into a capital expenditure reserve account of Club. The funds placed into the account are earmarked for certain extraordinary capital repairs and replacement to the Club Facilities and other capital repairs, replacements, and improvements to the Club Facilities to the extent such expenditures exceed the general capital reserve funds of the Club.

The Membership Documents are applicable to all Equity Members, whether such Equity membership is acquired from the Developer or from Club. The Membership Documents require Club to issue to the Equity Members membership certificates (“Membership Certificates”). The Membership Certificates represent the Equity Memberships. Only those persons holding Equity Membership (i.e., the Equity Members) will have the right to vote on matters concerning Club. The Membership Documents provide that as of a certain date (the “Turnover Date”), the Developer will turn over the management control of Club to the Equity Members.

The Membership Documents also provide the Equity Members with the following rights: (i) the right to attend annual meetings of the Equity Members, which will commence after the Turnover Date; (ii) the right to call special meetings of the Equity Members after the Turnover Date by a request of ten percent (10%) of the Equity Members; (iii) the right to receive notices of and to attend special meetings of the Equity Members; (iv) the right to vote for an election of the Board of Directors of Club following the Turnover Date; (v) the right to participate in liquidating distributions in the event Club is dissolved and liquidated, which distributions (after the payment of the Club’s debts) would be allocated among the Equity Members, as permitted by Florida law or a court having jurisdiction, in proportion to the value of the Equity Memberships as last established.

The Membership Documents provide that certain founding Equity Members have a right to receive a payment upon the resignation and reissuance of such Equity Membership, as provided in their respective membership agreement. However, Equity Memberships issued in the future may not include a right to receive a payment upon the resignation and reissuance of such EquityMemberships. However such Equity Members will nonethe less continue to have the right under the Membership Documents to participate in liquidating distributions upon a dissolution and liquidation of the Equity Club as provided in clause (v) of the preceding paragraph above. In addition, Developer and/or Club are required to file Form 1099 with the Internal Revenue Service when an Equitable Membership is transferred.

The Membership Documents provide that Equity Members are required to pay dues and other charges in order to have access to and use of the Club Facilities. Dues are to be determined based on projected and actual operating expenses to maintain and operate Club.

Applicable Law and Discussion

Section 212.04, Florida Statutes (“F.S.”), provides, in part, the following:

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

(b) For the exercise of such privilege, a tax is levied at the rate of 6 percent of sales price, or the actual value received from such admissions, which 6 percent shall be added to and collected with all such admissions from the purchaser thereof, and such tax shall be paid for the exercise of the privilege as defined in the preceding paragraph….

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, … cover charges, greens fees, participation fees, entrance fees, or other fees or receipts of anything of value measured on an admission or entrance or length of stay … 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, including, but not limited to, golf, tennis, swimming, yachting, boating, athletic, exercise, and fitness facilities ….

Rule 12A-1.005(4)(a)1.a. and (b), Florida Administrative Code (“F.A.C.”), provide, in part, the following:

(a)1. Dues and user fees paid to any organization, including athletic clubs, health spas, civic, fraternal, and religious clubs, and organizations that provide physical fitness facilities or recreational facilities, such as golf courses, tennis courts, swimming pools, yachting, boating, athletic, exercise, and fitness 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.

Section 212.04, F.S., requires that an admission provider collect sales tax on the sales price or amount received from the sales of admissions. Section 212.02(1), F.S., defines the term “admissions.” It includes dues and fees collected by private and membership clubs. This includes dues and fees collected by Club. However, dues and fees do not include the initiation fees paid by an equity member for receipt of an “equitable ownership interest,” as defined by Rule 12A-1.005(4)(b), F.A.C. Based on the information provided, the Equity Memberships and Reissued Equity Memberships are equitable ownership interests that are not considered dues and fees. As required by Rule 12A-1.005(4)(b), F.A.C., the Equity Members receive membership certificates that provide they are Equity members; the Equity members receive liquidation rights; and the equity members have sufficient voting rights. Also, certain Equity Members are entitled to a portion of the sales proceeds when the Equity Membership is transferred. Also, as provided by Rule 12A-1.005(4)(a), F.A.C., the memberships are transferable to the Equity Club. As such, the Equity Memberships and Reissued Equity Memberships are equitable membership interests for purposes of Rule 12A-1.005, F.A.C. Thus, the initial membership contribution is not considered a dues or fee paid to a membership or private club. Therefore, the initial membership contribution is not an admission. Since the resale relates to an equitable membership interest and not to an admission, the amount received is not an admission either. Thus, the charge is not subject to the sales tax imposed by s. 212.04, F.S.

Conclusion

The sale and resale of Club’s equity memberships by Developer and Club are not subject to sales tax imposed by s. 212.04, F.S.
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,
Charles Wallace
Technical Assistance & Dispute Resolution
850-717-7541
Record ID: 141247

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