United States

The three criteria of non taxable equity membership initiation and joining fees

ECLUB NEWS  | 

Regardless of whether they are called initiation fees or joining fees, the amount paid by a person to obtain an equitable ownership interest in a club are not subject to sales tax in Florida – that is if three criteria are met.

Rule 12A-1.005(4), Florida Administrative Code, states the following three criteria must be met to establish that a person is purchasing equitable ownership in a club:

  1. The equity member must receive evidence of equity ownership in the club. Such documentation can be a membership certificate that indicates the member holds an ownership interest in the club.
  2. The equity member must have the right to vote on decisions of the club that are subject to determination by the members.
  3. The equity member must have the right to receive a proportionate share of the club’s assets upon its dissolution, unless all net assets are distributable upon dissolution to an organization exempt from federal income tax or to a qualifying common interest realty association. The club’s by-laws or rules and regulations should include a provision concerning the liquidation or dissolution of assets by the club.

A special note on the third criterion: If the club’s by-laws are silent on the issue, as many are, adding a provision is highly encouraged.

Remember that state laws vary and this highlights only Florida. The McGladrey Club Service Team welcomes questions regarding the provisions of other states and about specific clubs.