United States

Are special assessments subject to state tax?

ECLUB NEWS  | 

In the aftermath of recent natural disasters in the United States, RSM has issued disaster-relief resources to assist organizations with business insurance claims, damages assessment, tax relief, systems recovery or any other business continuity effort, including accounting considerations specific to private clubs and their employees.

One question that many Florida clubs may have in the wake of Hurricane Irma is regarding special assessments as a result of the recent disaster and if these assessments are subject to sales tax. Are the assessments taxable, and what waivers or exemptions are available?

Hurricane Wilma and the Florida Department of Revenue
In 2006, the Florida Department of Revenue (Department) issued a Technical Assistance Advisement (TAA) in response to a private club’s request for guidance related to the taxability of a special assessment levied on the club’s equity members to repair and renovate facilities damaged as a result of Hurricane Wilma. The TAA response indicated that the club sustained substantial damage to its facilities during the hurricane. Damage to the facilities was in the form of structural leaks, significant damage requiring removal of trees, stumps and other repairs to recreational facilities. The Department stated in the TAA that in general, if the following conditions or circumstances are met, the hurricane assessment may be exempt:

  1. The equity assessment or payment will not entitle the members to use the club's facilities or equipment.
  2. The assessment is intended as an investment to maintain or enhance the value of the member's interest in the club.
  3. The assessment is a specific involuntary demand made by the club on its equity membership for a certain sum of money.
  4. The payments of the assessment must be separately accounted for on the club's books and record, and not reflected as an operating revenue account.
  5. The assessment must be separately stated on each member's bill.
  6. The assessment must not be used to effect a decrease in member fees or periodic membership dues.
  7. The assessment must not be used to pay for the operating expenses of the club.
  8. The assessments must be paid by members with an "equitable ownership interest" in the club.

What this means for clubs today
It is likely the hurricane expenses incurred would not be recorded as operating expenses which the Department would deem taxable. If the expenditures do not meet capitalization requirements, the expenditures would be reflected as nonoperating expenses and potentially exempt from Florida’s sales tax.

To whom could this apply?
While this article is specific to the state of Florida, if you have incurred expenses related to recent hurricanes in the country, there may be tax relief available to your organization. If you would like to discuss this with one of our state and local specialists, please contact us.