95-001179RX John&Apos;S Island Club, Inc. vs. Department Of Revenue Status: Closed DOAH Final Order on Thursday, June 15, 1995.

Summary: Rule exceeds agency`s rulemaking authority and conflictsd with law implemented.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

JOHN'S ISLAND CLUB, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 95-1179RX

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

__________________________)

FINAL ORDER

Pursuant to notice, the above matter was heard before the Division of

Administrative Hearings, by its assigned Hearing Officer, Donald R. Alexander,

on April 10, 1995, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Richard A. Lotspeich, Esquire

Post Office Box 271

Tallahassee, Florida 32302-0271

For Respondent: James F. McAuley, Esquire

Lisa M. Raleigh, Esquire

Department of Legal Affairs

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

The issue is whether existing Rule 12A-1.005(5)(d)1.b., Florida

Administrative Code, is an invalid exercise of delegated legislative authority

as alleged by petitioner.

PRELIMINARY STATEMENT

This case began on March 10, 1995, when petitioner, John's Island Club,

Inc., filed a petition challenging the validity of Rule 12A-1.005(5)(d)1.b.,

Florida Administrative Code, a rule administered by respondent, Department of

Revenue. As grounds, petitioner generally alleged that the rule constitutes an

invalid exercise of delegated legislative authority because the agency exceeded

its rulemaking authority and the rule conflicts with the law implemented. After

being reviewed for legal sufficiency, the petition was assigned to the

undersigned Hearing Officer on March 14, 1995.

By notice of hearing dated March 15, 1995, the final hearing was scheduled

on April 10, 1995, in Tallahassee, Florida. At final hearing, petitioner

presented the testimony of Wayne Miller, its business manager; Andrea Thurn, a

certified public accountant and accepted as an expert in tax accounting; Melton

H. McKown, III, a Department of Revenue tax audit specialist supervisor; and

Kathy Henley, a Department of Revenue assistant bureau chief in the division of

ad valorem tax. Also, it offered petitioner's exhibits 1-8. All exhibits were

received in evidence. Respondent presented the testimony of Melton H. McKown,

III, and Kathy Henley. Also, it offered respondent's exhibit 1 which was

received in evidence.

The transcript of hearing was filed on April 14, 1995. Proposed findings

of fact and conclusions of law were filed by the parties on May 17, 1995. A

ruling on each proposed findings has been made in the Appendix attached to this

Final Order.

FINDINGS OF FACT

Based upon all of the evidence, the following findings of fact are

determined:

A. Background

1. Petitioner, John's Island Club, Inc. (petitioner or the club), is a

not-for-profit corporation which owns and operates a private country club

facility in the John's Island residential development in Indian River County,

Florida. It provides a variety of recreational facilities to its members.

Among the amenities are three golf courses, nineteen tennis courts, a tennis

building, a beach club, a club house, a swimming pool, and dining facilities.

2. Respondent, Department of Revenue (DOR), is a statutorily created

agency charged with the administration of the state revenue laws, including

Chapter 212, Florida Statutes, and rules promulgated thereunder. As a result of

an amendment made in 1991 to Subsection 212.02(1), Florida Statutes, DOR is

authorized by law to impose an admissions tax on "dues and fees" paid to private

membership clubs providing recreational facilities. As a private membership

club, petitioner is subject to this tax.

3. Beginning on July 1, 1994, petitioner made an assessment on each member

to raise capital for the purpose of repairing and replacing many of its physical

facilities. During the six month period ending December 31, 1994, $10,441,897

was collected from the members and made available to the club. Rule 12A-

1.005(d)1.b., Florida Administrative Code, which was adopted by DOR in December

1991 to implement the admissions tax on dues and fees, imposes a tax on "(a)ny

periodic assessment (additional paid-in capital) required to be paid by members

of an equity or non-equity club for capital improvements." Under the authority

of that rule, DOR required that petitioner pay the applicable sales tax on the

assessment collected through December 31, 1994, or $730,932.79, and that it

continue to pay the tax as other similar assessments are made in the future.

4. Claiming that the rule exceeds DOR's grant of rulemaking authority, and

it modifies, enlarges, and contravenes the law implemented, petitioner filed a

petition for administrative determination of invalidity of existing rule. DOR

denies all allegations and asks that the validity of its rule be upheld.

B. The Club and the Assessment

a. The composition of the club

5. The club began operation in 1969 but was purchased by its members in

1986. It is an equity private membership club but issues no stock.

6. The club has two types of memberships: golf and sports social.

Currently, the cost of a golf equity membership is $85,000 while the cost of a

sports social membership is $30,000. After payment of these fees, the member

receives a membership certificate, which represents his or her equity ownership

interest in the club. At the present time, there are 1125 golf memberships and

257 sports social memberships. Of the 1125 golf memberships, the original

developer still owns 67.

7. In addition to having to purchase a membership, members must also pay

annual dues. A golf member pays $4,875 in annual dues while a sports social

member pays $2,760 in annual dues. A sales tax is also collected on these dues.

The dues are used to cover operating expenses such as insurance, administrative

costs, staff salaries, and maintenance costs. In addition, members pay fees for

additional services such as golf cart use, golf bag storage, locker room use,

and golf and tennis lessons.

8. When a member decides to resign or retire from the club, he or she may

resell the membership to the club (but not a third party) and receive the

greater of (a) the initial amount paid by the retiring member, or (b) 80 percent

of the current membership cost (with the remaining 20 percent retained by the

club in a separate capital improvement account).

b. The assessment

9. In 1992, the club began studying the feasibility of repairing and

replacing many of its physical facilities. The total cost of the proposed work

was set at $16,372,000. By majority vote taken in the spring of 1994, the

members decided to raise capital for the work by imposing a capital assessment

on each current member. It was agreed that the capital contribution would be

$12,000 from each golf member and $11,150 from each sports social member.

However, the payment of the capital contribution was not intended to, and did

not result in any, decrease in the dues which members were required to pay for

the use of the club's facilities. A failure to pay the assessment would result

in suspension from the club.

10. Three different options were made available to the members for the

manner of payment of the capital contribution. The options included (a) a

single payment, (b) payment over a three-year period, or (c) payment of interest

only until such time as the member either sold the membership or left the club.

After making payment in full, the member would be issued a certificate of

capital contribution. It is noted that the developer was required to pay the

capital contribution for his 67 golf memberships. Further, any person joining

the club after the imposition of the assessment would likewise be required to

pay the assessment.

11. Beginning in July 1994, the club began collecting the capital

contribution from its members. From July through December 1994, some

$10,441,897 was collected. A total sales tax of $730,932.79 has been paid on

those collections. Shortly thereafter, petitioner opted to file this rule

challenge.

C. The Rule and its Origin

12. Rule 12A-1.005(5)(d)1.b. provides as follows:

(d)1. Effective July 1, 1991, the following

fees paid to private clubs or membership clubs

as a condition precedent to, in conjunction

with, or for the use of the club's recreational

or physical fitness facilities are subject to

tax.

* * *

b. Any periodic assessments (additional paid in

capital) required to be paid by members of an

equity or non equity club for capital improvements

or other operating costs, unless the periodic

assessment meets the criteria of a refundable

deposit as provided in sub-subparagraph 2.e. below.

* * *

Under the terms of the rule, the capital contri-

bution assessed by the club does not qualify as

a refundable deposit. This is because any

difference between the amount collected by the

club upon the sale of a membership to a new member,

and the amount which was paid to the retiring

member, is retained by the club.

13. Because Rule 12A-1.005, Florida Administrative Code, covers a wide

array of items subject to taxation, the DOR cites Sections 212.17(6), 212.18(2),

and 213.06(1), Florida Statutes, as the specific authority for adopting the

rule, and Sections 212.02(1), 212.031, 212.04, 212.08(6) and (7), 240.533(4)(c),

and 616.260, Florida Statutes, as the law implemented. There is no dispute

between the parties, however, that in adopting sub-subparagraph 1.b., which

contains the challenged language, the agency was relying principally on

Subsection 212.02(1), Florida Statutes, as the law being implemented. That

subsection defines the term "admissions" for sales tax purposes. Although the

parties did not specifically say so, DOR relies on Section 212.17(6), Florida

Statutes, as its source of authority for adopting the rule. That subsection

authorizes DOR to "make, prescribe and publish reasonable rules and regulations

not inconsistent with this chapter . . . for the enforcement of the provisions

of this chapter and the collection of revenue hereunder."

14. For the purpose of assisting DOR in administering the Florida Revenue

Act of 1949, which imposes a sales and use tax on various transactions, Section

212.02, Florida Statutes, provides definitions of various terms used in the

chapter, including the term "admissions." Prior to the 1991 legislative

session, subsection 212.02(1) read in pertinent part as follows:

(1) The term "admissions" means and includes

. . . all dues . . . 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.

15. During the 1991 legislative session, the definition of the term

"admissions" was expanded by the addition of the following underscored language:

(1) The term "admissions" means and includes

. . . 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, excercise, and fitness

facilities.

Thus, the legislature added the term "fees" to the term "dues" for those amounts

"paid to any private clubs and membership clubs" which would be subject to the

admissions tax.

16. Prior to the above change in substantive law, rule 12A-1.005(5), as it

then existed, provided that dues paid to athletic clubs which provided

recreational facilities were taxable. However, subparagraph (5)(c) of the rule

also provided that

(c) Capital contributions or assessments to an

organization by its members are not taxable as

charges for admissions when they are in the

nature of payments made by the member of his

or her share of capital costs, not charges

for admission to use the organization's

recreational or physical fitness facilities

or equipment, and when they are clearly shown

as capital contributions on the organization's

records. Contributions and assessments will

be considered taxable when their payment results

in a decrease in periodic dues or user fees

required of the payor to use the organization's

recreational or physical fitness facilities or

equipment.

Therefore, capital contributions were not taxable unless they resulted in

decreased dues. That is to say, if a club levied an assessment on members and

concurrently lowered its monthly dues, the assessment would be deemed to be

taxable and in contravention of the rule. Thus, the effect of the rule was to

prevent a club from renaming "dues" as "capital contributions" or "assessments"

in order to avoid paying a tax on the dues.

17. After the change in substantive law, the DOR staff began preparing

numerous drafts of an amendment to its rule to comply with the new statutory

language. At one stage of the drafting process, a DOR staffer recommended that,

because the legislature had not provided a definition of the term "fee," the DOR

should adopt a rule which provided that capital contributions be "not taxable if

assessed under an equitable membership."

18. Relying on what it says is the legislative intent, the DOR eventually

proposed, and later adopted, the rule in its present form. In doing so, the DOR

relied upon the terms "capitalization fees" and "capital facility fees" which

are found in certain legislative history documents pertaining to the new

legislation.

D. Legislative History of the Law Implemented

19. Although a number of bills related to the subject of a sales tax on

admissions, the bill enacted into law was identified as Committee Substitute for

House Bill 2523 (CS/HB 2523). The legislative history of the various bills

relating to this subject has been received in evidence and considered by the

undersigned.

20. In early 1991, the House and Senate considered bills which addressed

amendments to the sales tax on admissions. The first time the issue was

addressed was at a meeting on February 21, 1991, of the Subcommittee on Sales

Tax of the House Committee on Finance and Taxation. The discussion at the

meeting indicated that the intent of the bill was to close a loophole that

allowed physical fitness facilities to change their pricing structure to charge

a higher initiation fee, which was not taxable, and thereby reduce their monthly

dues, which were taxable, so as to reduce the revenue below that originally

anticipated by this tax on admissions.

21. This is corroborated by the bill analysis of the proposed committee

bill that was offered, PCB FT 91-3A, which summarized the problem and solution

as follows:

Section 212.02(1), F. S. was amended during

the 1990 Legislative Session to include in

the definition of admissions those "dues"

of "membership clubs" providing "physical

fitness" facilities. Some clubs have attempted

to avoid the tax (on dues) by shifting a

substantial portion of the members' payments

from "dues" to "initiation fees."

Section 212.02(1), F. S., is amended to include

"fees" as well as "dues" in the definition of

admissions. All fees, including initiation fees

and capitalization fees, paid to private clubs

and membership clubs providing recreational or

physical fitness facilities would be subject to

the sales tax on admissions.

22. It is unclear, but likely, that PCB FT 91-3A became House Bill 2417

(HB 2417). The bill analysis and economic impact statement on HB 2417, which

was prepared by the House Committee on Appropriations, contained identical

language to that in the bill analysis on PCB FT 91-3A.

23. At the same time, the Senate was considering Senate Bill 1128, which

later became Committee Substitute for Senate Bill 1128 (CS/SB 1128). On March

14, 1991, a staff analysis and economic impact statement on CS/SB 1128 was

prepared by the Senate Committee on Finance, Taxation and Claims. It provided

that:

Section 212.02(1), Florida Statutes, defines

"admissions" for sales and use tax purposes.

Monthly fees of clubs with major facilities

such as tennis courts, a swimming pool or a

golf course have always been subject to the

sales tax. During the 1990 Legislative Session

this statute was amended to include dues on

membership clubs providing physical fitness

facilities, and not having these other major

facilities.

According to the DOR, such clubs have attempted

to avoid payment of this tax by shifting a

substantial portion of the members payments

from dues to initiation fees which are not taxed.

Accordingly, the purpose of the proposed statutory

amendment was "to include initiation fees as well

as dues in the definition of admissions."

24. HB 2417 was passed by the House on April 17, 1991, and was sent to the

Senate, where it was referred to the Committee on Finance, Taxation and Claims.

HB 2417 died in that Committee. CS/SB 1128 was passed by the Senate on April 4,

1991, and was sent to the House, where it died in messages.

25. A separate bill, Committee Substitute for House Bill 2523, which

addressed similar issues to those addressed in HB 2417 and CS/SB 1128, was

passed by the House on April 4, 1991, and was sent to the Senate where it was

passed with amendments. The Bill was then returned to the House where further

amendments were adopted. The Bill was again sent to the Senate with a request

for the Senate to concur with the House amendments. The Senate refused to

concur and the Bill was sent to a conference committee.

26. The conference committee on finance and taxation met on April 19,

1991. The entirety of the discussion of the committee on this issue is as

follows:

Senator Jenne: The - - going down to number 21,

admissions, initiation fees. The House includes

capitalization fees.

Representative Abrams: Which is this?

Mr. Weiss: The Senate bill just states initiation

fees are additionally included. The House bill,

I believe, says that it's just all fees, which

would include whether they called them initiation

fees or capital facility fees or whatever.

Representative Abrams: Because we are using

something other than initiation - -

Mr. Weiss: It's a fee that is going to be included.

Representative Abrams: Yes, they were using - -

they were breaking down categories of fees to

avoid the tax, I think is what the deal was there.

That gets us how much?

Senator Jenne: Okay, well, it doesn't matter,

because you can do it.

Representative Abrams: Okay, good.

Although the terms "capital facility fees" and "capitalization fees" were used

during the discussion, contrary to DOR's assertion, it is far from clear that

the intent of the amendment was to make taxable all capital contributions and

assessments paid by members of private clubs providing recreational facilities.

When placed in context with the prior debate before the committees and their

staff analyses, it is much more likely that the intent was to close a loophole

then used by physical fitness clubs who were renaming dues as fees in order to

avoid taxes.

27. The report of the conference committee was received by both houses on

April 30, and CS/HB 2523 was passed by both houses the same day. The conference

committee report for the bill contains only the following language describing

the sales tax on admissions/initiation fees:

Includes all recreational or physical fitness

facility fees in the definition as admissions.

The official conference committee report contains no reference to the terms

"capitalization fees" or "capital facility fees." Neither does it make

reference to the terms "assessment" or "paid in capital," which are the terms

used by DOR in its rule.

28. In the final bill analysis and economic impact statement prepared by

the House Committee on Finance and Taxation for CS/HB 2523 on June 12, 1991, or

43 days after the bill was passed, the analysis states that subsection 212.02(1)

was amended to include:

"fees" as well as "dues" in the definition of

admissions. All fees, including initiation

fees and capitalization fees, paid to private

clubs and membership clubs providing recreational

or physical fitness facilities would be subject

to the sales tax on admissions . . . This

amendment should also limit further attempts

to avoid taxation by renaming the fees collected

from members.

The staff analysis was obviously not available to members of the House or Senate

when they voted on the bill on April 30, 1991.

29. Although the final bill analysis used the term "capitalization fees,"

no where in any of the legislative history is there evidence of any legislative

consideration of what was actually meant by that term. This is also true of the

term "capital facility fees" which surfaced on one occasion prior to the passage

of the bill.

E. Capitalization Fees and Their Significance

30. The sole basis for the DOR including the tax on assessments for

capital improvements was the appearance in the legislative history of the terms

"capitalization fees" and "capital facility fees." Neither term has any meaning

to tax accountants. However, the accounting witnesses for both parties agreed

that, from an accounting perspective, the phrase "capital facilities" would be

understood to be assets having a life longer than one year.

31. A capital contribution is typically a one time payment for the

purchase of assets. It does not entitle the member to use the club. It is an

equity transaction, not an income transaction, and it represents an intent to

make an investment to improve the value of the membership assets separate and

apart from the payment of annual expenses for the receipt of some service.

32. "Dues" are a member's contribution to the operating costs of a club.

They are assessed over an annual period and they are recurring. They also

represent the payment that a member pays for admission to the organization. A

capital contribution paid by a member of an equity membership club is not

"dues."

33. "Fees" as applied to a club are user charges. They are voluntary so

that a member can decide whether or not to incur the charge based on whether the

member uses the particular service to which it relates. A capital contribution

is not a "fee."

CONCLUSIONS OF LAW

34. The Division of Administrative Hearings has jurisdiction over the

subject matter and the parties hereto pursuant to Sections 120.56 and 120.57(1),

Florida Statutes.

35. As the party challenging the rule, petitioner has the burden of

proving by a preponderance of the evidence that the challenged rule is an

invalid exercise of delegated legislative authority. Agrico Chemical Company v.

Dept. of Environmental Regulation, 365 So.2d 759, 763 (Fla. 1st DCA 1978).

36. Subsection 120.52(8), Florida Statutes, defines an invalid exercise of

delegated legislative authority as follows:

Invalid exercise of delegated legislative

authority means action which goes beyond the

powers, functions, and duties delegated by

the legislature.

The same statute goes on to provide in pertinent part that a proposed rule is

invalid if:

* * *

(b) The agency has exceeded its grant of rule-

making authority, citation to which is required

by s. 120.54(7);

(c) The rule enlarges, modifies, or contravenes

the specific provisions of law implemented,

citation to which is required by s. 120.54(7);

* * *

37. As grounds for invalidating the rule, petitioner contends that the

rule is an invalid exercise of delegated legislative authority because it

exceeds the DOR's rulemaking authority in Subsection 212.17(6), Florida

Statutes, and the rule enlarges, modifies and contravenes the provisions of

Sections 212.02(1) and 212.04, Florida Statutes.

38. Section 212.04, Florida Statutes, imposes a six percent sales tax on

admissions. More specifically, subsection (1)(a) thereof provides that:

(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.

Subsection 212.02(1), Florida Statutes, defines the term "admissions" in

relevant part as follows:

(1) The term "admissions" means and includes . . .

all dues and fees paid to any private clubs and

membership clubs providing recreational or physical

fitness facilities . . .

Therefore, the two statutes, when read together, clearly authorize an admissions

tax on "dues and fees" paid to private membership clubs providing recreational

facilities.

39. Following the legislature's amendment of the definition of

"admissions," which added the phrase "and fees" after the word "dues," the DOR

promulgated an amendment to Rule 12A-1.005(5)(d)1.b., Florida Administrative

Code, with the intention of implementing the legislative intent of the statutory

amendment. As amended, the challenged rule makes the following "fees" paid to

private clubs or membership clubs as a condition precedent to their use of the

club's recreational or physical fitness facilities subject to tax:

b. Any periodic assessments (additional paid in

capital) required to be paid by members of an

equity or non equity club for capital improvements

or other operating costs, unless the periodic

assessment meets the criteria of a refundable

deposit as provided in sub-subparagraph 2.e. below.

40. The terms "dues" and "fees" are not defined by statute, and the

statute does not specifically authorize an admissions tax on any type of

"assessment" or any form of "paid in capital." Thus, in order for the rule to

be valid, the terms "assessment" and "paid in capital" must be included within

the meaning of the term "dues and fees."

41. Petitioner contends that its position must be upheld for two reasons.

First, it argues that when the words "dues," "fees" and "assessment" are given

their plain and ordinary meaning, it is clear that each has a separate and

distinct meaning, and that in no way can dues or fees be reasonably construed to

include an assessment. Second, even if one looks beyond the usual and ordinary

meaning of the terms and examines the legislative intent, the legislature simply

intended to close a loophole used by health fitness clubs, and it did not intend

to impose a tax on a private membership club's capital contribution.

42. In its proposed final order, DOR first contends that its construction

of the term "fees" as being inclusive of a capital contribution or assessment is

reasonable, and under the well-established principle that an agency's

construction of a statute is entitled to great deference, its interpretation

should not be overturned unless shown to be clearly erroneous or unreasonable.

Second, DOR suggests that the legislative intent supports the premise that the

term "fees" is an inclusive term for a variety of charges, including the capital

contribution assessed by petitioner.

43. Because a taxing statute forms the source of authority for the rule,

several broad principles are applicable. First, statutes imposing taxes must be

clear and specific. Thus, a taxing statute may not be construed to impose a tax

unless its terms definitely so provide. See, e. g., State v. Green, 101 So.2d

805, 808 (Fla. 1958). Second, statutes conferring the authority to impose taxes

must be strictly construed against the taxing power, and any ambiguity in the

provisions of the statute should be resolved in favor of the taxpayer. Maas

Brothers, Inc. v. Dickinson, 195 So.2d 193, 198 (Fla. 1967). Accordingly, if

taxing statutes are drawn so that the legislative intent is in doubt, they must

be construed most strongly against the government and liberally in favor of the

taxpayer. See, e. g., The Department of Revenue v. Brookwood Associates, Ltd.,

324 So.2d 184, 187 (Fla. 1st DCA 1976). Therefore, where a taxing statute is

susceptible to two meanings, that meaning most favorable to the taxpayer must be

adopted. Walgreen Drug Stores Co. v. Lee, 28 So.2d 535, 536 (Fla. 1946).

44. Because the words "dues" and "fees" are not defined by statute, and

are words of common usage, both parties urge that they be construed in their

plain and ordinary sense. See Humana, Inc. v. Department of Banking and

Finance, 603 So.2d 672, 673 (Fla. 1st DCA 1992)(in absence of an express

statutory definition, a word of common useage should be accorded its common and

ordinary meaning). Standard dictionary definitions are reliable sources for

plain and ordinary language definitions. Sims v. State, 510 So.2d 1045, 1047

(Fla. 1st DCA 1987). However, "where the agency urges a construction based on

common, ordinary meanings, this mitigates, if it does not entirely eliminate,

the rule calling upon the court to accord 'great deference' to the agency's

interpretation of the statute." Schoettle v. Dept. of Administration, 513 So.2d

1299, 1301 (Fla. 1st DCA 1987); State Dept. of Insurance v. Insurance Services

Office, 434 So.2d 908, 912 n. 6 (Fla. 1st DCA 1978).

45. Although the parties have cited different sources for their dictionary

definition of the term "fees," both sources define a "fee" as a "fixed charge."

Webster's Tenth New Collegiate Dictionary at 426 (1993); American Heritage

Dictionary, New College Edition (year and page number not cited by respondent).

At the same time, the term "assessment" is defined in Webster's as "the act or

an instance of assessing" while the term "assess" is defined as meaning "to

impose (as a tax) according to an established rate" or "to subject to a tax,

charge, or levy." Id. at 69. The word "dues" is defined in Black's Law

Dictionary at 450 (5th Ed. 1976) as "certain payments; rates or taxes" and "(a)s

applied to clubs or other membership organizations, refers to sums paid toward

support and maintenance of same as a requisite to retain membership." Finally,

the term "paid in capital" is defined in Black's as "money or property given to

a corporation in exchange for the corporation's stock." Id. at 999.

46. From these definitions, it is clear that each term, "dues," "fees,"

"assessment" and "paid in capital," has a separate and distinct meaning. In no

case is either the word "dues" or "fees" defined to include the terms

"assessment" or "paid in capital."

47. Early case law, albeit from other jurisdictions, also recogizes the

distinction between the terms. In Thompson v. Wyandach Club, 127 N.Y.S. 195,

200 (N. Y. 1911), the court held as follows:

Every man experienced in business recognizes

the meaning of "assessment" as distinguished

from "fees" and "dues." Fees are the amount

paid for a privilege. They are not an obli-

gation as the payment is voluntary. Such is

an initiation fee of a club. With reference

to clubs and other membership corporations the

meaning of the word "dues" is settled. It

means the obligation into which the members

enter to pay a sum to be fixed, usually by the

by-laws, at recurring intervals for the main-

tenance of the organization. . . . An assessment

. . . is different. It is not a fee. It is

not dues. (Emphasis added)

In a later case, Garden City Golf Club v. Corwin, 57 F.2d 283, 286 (E.D.N.Y.

1932), the court agreed with this distinction and held that:

It must be conceded that there is a difference

between the term "dues" and the term "assessment."

Dues refer to the stated amounts which the members

must pay periodically for the continuing privilege

of membership. . . . (A)n "assessment" by a club

may be a specific demand or request by the club

upon its membership, as a whole or as a class,

for a certain sum of money; the proportion to be

paid by each member being stated. (Emphasis added)

48. Under the foregoing principles, several conclusions of law can be

drawn. First, DOR has asked that a construction of the word "fees" be based on

its common, ordinary meaning. As such, the rule calling for DOR to be accorded

"great deference" in its interpretation of a statute is mitigated, if not

eliminated altogether. Schoettle at 1301. Second, the common, ordinary meaning

of the term "fees" does not include an assessment, capital contribution or paid-

in capital. Indeed, in the context of a private membership club, such as John's

Island Club, the term "fees" is commonly understood to mean a fixed sum

voluntarily paid towards support and maintenance of the club as a requisite to

membership. Conversely, an assessment is an involuntary charge levied on each

member for a special purpose, and not recurring on a regular basis as in the

case of dues or fees. Third, the distinction between the terms "dues and fees"

and "assessment" has been recognized in the few judicial cases addressing this

issue. See, e. g., N. L. R. B. v. Food Fair Stores, Inc., 307 F.2d 3 (3rd Cir.

1962)(an "assessment" is a charge levied on each member in the nature of a tax

or some other burden for a special purpose); Wyandach Club, supra; Garden City

Golf Club, supra; Rainbow Falls Fish and Game Club, Inc. v. Clute, 29 N.Y.S.2d

948, 950 (1941)("fees" are voluntary payments for particular privileges).

Therefore, respondent's contention that the word "fees" is inclusive of "any

fixed charge for capital improvements" is rejected as being contrary to the

plain and ordinary meaning of the term. Finally, given the principles governing

taxing statutes described in paragraph 43, subsection 212.02(1) should be

strictly construed against the taxing authority and in favor of the taxpayer.

This is especially true here since DOR proposes to tax the investments made by

the owners of the club for capital improvements, and for which the owners

receive nothing of "value by way of admissions."

49. Next, by looking at the available legislative history regarding the

1991 amendment to subsection 212.02(1), it is much more likely that the

legislature intended to close a loophole that was then used by physical fitness

clubs to avoid paying taxes on members' dues. More specifically, some clubs

were avoiding the tax on "dues" by shifting a part of the member's payments from

"dues" and renaming them "initiation fees." This is evidenced by discussions

in, and bill analyses prepared for, the House and Senate committees in February

and March 1991, as more fully discussed in findings of fact 20 and 23. While

admittedly a different numbered bill was finally passed by the legislature on

April 30, 1991, it contained the same substantive amendment as did earlier

versions of the legislation, and there is no clear indication that the

legislature's original intent had changed.

50. Even if there is some doubt as to what the legislature intended, as

there may arguably be here, case law instructs us that if this occurs, the

statute should be construed in a manner most favorable to the taxpayer. Green;

Brookwood Associates; Walgreen Drug Stores, supra.

51. Finally, prior to the 1991 amendment, there was no loophole for

renaming "dues" as "capital contributions" in order to avoid the tax on "dues."

This is because such action was specifically prohibited by then existing Rule

12A-1.005(5)(c), Florida Administrative Code. Therefore, it may be presumed

that when the legislature was considering amending subsection 212.02(1) to close

a loophole, its purpose in doing so was not to include assessments and capital

contributions within the term "fees."

52. In summary, DOR has adopted a rule which conflicts with the law

implemented, namely, subsection 212.02(1), and thus it is an invalid exercise of

delegated legislative authority. Because the rule is inconsistent with the

provisions of chapter 212, it also exceeds the agency's rulemaking mandate in

subsection 212.17(6) that it "make . . . rules and regulations not inconsistent

with this chapter."

Based on the foregoing findings of fact and conclusions of law, it is

ORDERED that Rule 12A-1.005(5)(d)1.b., Florida Administra-tive Code, is

determined to be an invalid exercise of delegated legislative authority on the

grounds it exceeds the agency's rulemaking authority and conflicts with the law

implemented.

DONE AND ORDERED this 15th day of June, 1995, in Tallahassee, Florida.

___________________________________

DONALD R. ALEXANDER

Hearing Officer

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 15th day of June, 1995.

APPENDIX TO FINAL ORDER

Petitioner:

1. Partially accepted in finding of fact 2.

2-3. Partially accepted in finding of fact 1.

4-5. Partially accepted in finding of fact 5.

6. Partially accepted in finding of fact 1.

7. Partially accepted in finding of fact 6.

8. Partially accepted in finding of fact 8.

9-10. Partially accepted in finding of fact 7.

11. Partially accepted in finding of fact 9.

12. Partially accepted in findings of fact 9 and 10.

13. Partially accepted in finding of fact 13.

14. Partially accepted in findings of fact 6 and 10.

15. Partially accepted in finding of fact 11.

16. Partially accepted in finding of fact 9.

17. Rejected as being unnecessary.

18. Partially accepted in finding of fact 12.

19. Partially accepted in findings of fact 13 and 15.

20. Partially accepted in finding of fact 20.

21. Partially accepted in finding of fact 21.

22. Partially accepted in finding of fact 22.

23. Partially accepted in finding of fact 23.

24-25. Partially accepted in finding of fact 24.

26. Partially accepted in finding of fact 25.

27. Partially accepted in finding of fact 26.

28-29. Partially accepted in finding of fact 27.

30-31. Partially accepted in finding of fact 28.

32. Partially accepted in finding of fact 29.

33. Partially accepted in finding of fact 2.

34. Rejected as being unnecessary.

35. Partially accepted in finding of fact 16.

36-44. Partially accepted in finding of fact 17.

45-46. Partially accepted in finding of fact 30.

47. Partially accepted in finding of fact 31.

48. Partially accepted in finding of fact 32.

49. Partially accepted in finding of fact 33.

Respondent:

1. Partially accepted in finding of fact 1.

2. Partially accepted in findings of fact 5 and 6.

3. Partially accepted in finding of fact 6.

4. Partially accepted in finding of fact 7.

5. Partially accepted in finding of fact 8.

6. Partially accepted in finding of fact 9.

7. Partially accepted in findings of fact 10 and 11.

8-9. Partially accepted in finding of fact 9.

10. Partially accepted in findings of fact 10 and 11.

11. Partially accepted in finding of fact 2.

12-13. Partially accepted in finding of fact 15.

14. Partially accepted in findings of fact 14 and 15.

15. Partially accepted in finding of fact 19.

16-17. Partially accepted in finding of fact 26.

18. Partially accepted in finding of fact 21.

19-20. Partially accepted in finding of fact 12.

NOTE: Where a proposed finding has been partially accepted, the remainder has

been rejected as being unnecessary for a resolution of the issues, irrelevant,

cumulative, subordinate, not supported by the evidence, or a conclusion of law.

COPIES FURNISHED:

V. Carroll Webb, Director

Joint Administrative Procedures Committee

Holland Building, Room 120

Tallahassee, Florida 32399-1300

Liz Cloud, Chief

Bureau of Laws and Administrative Code

The Capitol, Room 1802

Tallahassee, Florida 32399-0250

Richard A. Lotspeich, Esquire

Post Office Box 271

Tallahassee, Florida 32302-0271

James F. McAuley, Esquire

Lisa M. Raleigh, Esquire

Department of Legal Affairs

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

A party who is adversely affected by this Final Order is entitled to judicial

review pursuant to Section 120.68, Florida Statutes. Review proceedings are

governed by the Florida Rules of Appellate Procedure. Such proceedings are

commenced by filing one copy of a notice of appeal with the agency clerk of the

Division of Administrative Hearings and a second copy, accompanied by filing

fees prescribed by law, with the District Court of Appeal, First District, or

with the district court of appeal in the appellate district where the party

resides. The notice of appeal must be filed within 30 days of rendition of the

order to be reviewed.

=================================================================

DISTRICT COURT OPINION

=================================================================

IN THE DISTRICT COURT OF APPEAL

FIRST DISTRICT, STATE OF FLORIDA

DEPARTMENT OF REVENUE, NOT FINAL UNTIL TIME EXPIRES TO

FILE MOTION FOR REHEARING AND

Appellant, DISPOSITION THEREOF IF FILED.

v. CASE NO. 95-2652

DOAH CASE NO. 95-1179RX

JOHN'S ISLAND CLUB, INC.,

Appellee.

___________________________/

Opinion filed March 27, 1996.

An appeal from an order of Division of Abdministrative Hearings.

Robert A. Butterworth, Attorney General, and James McAuley, Assistant Attorney

General, Tallahassee, for Appellant.

Richard A. Lotspeich, John T. Lavia, III, and Fred McCormack, of Landers &

Parsons, Tallahassee, for Appellee.

BARFIELD, J.

The Department of Revenue (DOR) appeals a final order determining Rule 12A-

1.005(5)(d)1.b., Florida Administrative Code, to be an invalid exercise of

delegated legislative authority. We affirm.

In 1949, the legislature first imposed a tax on "admissions." Prior to

1990, the definition of "admissions" included "all dues paid to private clubs

providing recreational facilities." The definition of "admissions" was amended

during the 1990 legislative session to include in the definition those "dues" of

membership clubs providing physical fitness facilities. In 1991, the

legislature again amended the definition of "admissions" by inserting "and

fees." The definition, as amended, provided:

(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, all dues and fees paid to

private clubs and membership clubs providing

recreational or physical fitness facilities. .

Prior to the above change in substantive law, rule 12A- 1, .005 (5)

provided that dues paid to athletic clubs which provided recreational facilities

were taxable. However, sub-paragraph (5)(c) of the rule also provided that:

Capital contributions or assessments to an

organization by its members are not taxable

as charges for admissions when they are in

the nature of payments made by the member of

his or her share of capital costs, not charges

for admission to use the organization's

recreational or physical fitness facilities or

equipment, and when they are clearly shown as

capital contributions on the organization's

records. Contributions and assessments will be

considered taxable when their payment results

in a decrease in periodic dues or user fees

required of the payor to use the organization's

recreational or physical fitness facilities or

equipment.

After the substantive amendment to section 212.02(1), DOR adopted rule 12A-

1.005(5)(d)1.b., which provides:

(d)1. Effective July 1, 1991, the following

fees paid to private clubs or membership clubs

as a condition precedent to, in conjunction

with, or for the use of the club's recreation-

al or physical fitness facilities are subject

to tax.

b. Any periodic assessments (additional

paid in capital) required to be paid by mem-

bers of an equity or non equity club for

capital improvements or other operating costs,

unless the periodic assessment meets the

criteria of a refundable deposit as provided

in sub-subparagraph 2.e. below.

John's Island Club, Inc. (club) is a not-for-profit corporation which owns

and operates a country club facility, providing recreational facilities to its

members. Each member must purchase a membership. The cost of the membership is

not subject to sales tax. A member who resigns is entitled to return of the

greater of: (a) the initial amount paid or (b) 80 percent of the current

membership cost. In addition to the membership charge, members pay annual dues.

Beginning on July 1, 1994, the club made an assessment on each member to raise

capital for the purpose of repairing and replacing many of its physical

facilities. Any person joining the club after the imposition of the assessment

would also be required to pay the assessment. The value of the contribution

decreased in value 10 percent each year. If a member retained membership

privileges for a period of ten years, the contribution had no redemptive value.

A member who resigned earlier would receive a portion of the contribution in

return. The club paid sales tax on the contributions pursuant to rule 12A-

1.005(5)(d)l.b.

The club filed a petition challenging the validity of rule 12A-

1.005(5)(d)1.b. The club argued the rule exceeded DOR's grant of rulemaking

authority, and modified, enlarged, and contravened the law implemented. DOR

asserted that the rule implemented the legislative intent, specifically relying

upon the terms "capitalization fees" and "capital facility fees" which are found

in certain' legislative history documents pertaining to the new legislation.

When reviewing a hearing officer's determination arising out of a section

120.56 quasi-judicial rule challenge proceeding, the appellate court's standard

of review is whether the hearing officer's findings are supported by competent,

substantial evidence. Adam Smith Enterprises, Inc. v. Department of

Environmental Regulation, 553 So.2d 1260 (Fla. 1st DCA 1989). The hearing

officer's findings in the present case are supported by competent, substantial

evidence. We agree with the hearing officer that the rule is an invalid

exercise of delegated legislative authority.

DOR correctly asserts that the legislative history supports the

unmistakable intention of the legislature to prevent evasion of the tax imposed

on dues. As noted by the hearing officer, a February 21, 1991, discussion of

the Subcommittee on Sales Tax of the House Committee on Finance and Taxation

indicated that the intent of the amendment was to close a loophole that allowed

physical fitness facilities to change their pricing structure to charge a higher

initiation fee, which was not taxable, and thereby reduce their monthly dues,

which were taxable. The result was a reduction of revenue below that originally

anticipated by the amendment taxing dues of physical fitness facilities.

DOR argues that the terms "capitalization fees" and "capital facility fees"

are also used throughout the legislative history and that the hearing officer

gave, no effect to use of the terms. DOR emphasizes a discussion of the

conference committee on finance and taxation which occurred on April 19, 1991.

The entirety of the discussion of the committee on this issue is as follows:

Senator Jenne: The - - going down to number

21, admissions, initiation fees. The House

includes capitalization fees.

Representative Abrams: Which is this?

Mr. Weiss: The Senate bill just states

initial fees are additionally included.

The House bill, I believe, says that it's

just all fees, which would include whether

they called them initiation fees or capital

facility fees or whatever.

Representative Abrams: Because we are using

something other than initiation

Mr. Weiss: It's a fee that is going to be

included.

Representative Abrams: Yes, they were using

- - they were breaking down categories of fees

to avoid the tax, I think is what the deal was

there. That gets us how much?

Senator Jenne: Okay, well, it doesn't matter,

because you can do it.

Representative Abrams: Okay, good.

As noted by the hearing officer, although the terms "capital facility fees"

and "capitalization fees" were used during the discussion, it is far from clear

that the intent of the amendment was to make taxable all capital contributions

and assessments paid by members of private clubs providing recreational

facilities. As noted above, the various discussions contained in the

legislative history indicate the intent of the amendment was to close a loophole

then used by physical fitness clubs who were renaming dues as fees in order to

avoid taxes. There is no indication in the legislative history that the

,legislature intended to make taxable a completely different type of transaction

which up until that point had been specifically excluded from taxation by rule.

We agree with the hearing officer that additional paid in capital does not

fall within the generally understood definition of "dues" or "fees" as applied

to a club. The terms "dues" and "fees" are not defined by statute, and the

statute does not specifically authorize an admissions tax on any type of paid in

capital. In the absence of clearer legislative consideration of what was meant

by the terms "capitalization fees" and "capital facility fees", we conclude the

hearing officer correctly determined that the rule at issue was inconsistent

with the provisions of chapter 212.

Not only does the absence of clear legislative intent inure to the benefit

of the taxpayer, but the position of DOR is contrary to accepted principles of

accounting from which common understanding of terms such as "capitalization" may

be derived as clearly disclosed in the record of these proceedings.

Accordingly, the order on appeal is affirmed.

KAHN, J., CONCURS. ALLEN, J., CONCURS IN RESULT WITH OPINION.

ALLEN , J., concurring in result.

I agree with the result reached by the majority. I do so because of the

generally understood meaning of the term "fees." Even if a strained

interpretation of the term might arguably encompass the contributions to capital

involved herein, I would be dissuaded from accepting such interpretation by the

canons of statutory construction which counsel that a strained interpretation of

a statute should not be adopted over a more reasonable interpretation, and that

an ambiguous tax statute is to be construed in favor of the taxpayer.

I do not join in the majority's reliance upon tidbits of legislative

history to discern "legislative intent." In my view, the law means what its text

most appropriately conveys, and we should content ourselves with reading it

rather than psychoanalyzing a few of the many who enacted it. See Bank One

Chicago N.A. v. Midwest Bank & Trust Co., 9 Fla. L. Weekly Fed. 5362, 5366 (U.S.

Jan. 17, 1996)(Scalia, J., concurring in part) United States v. Public Util.

Comm'n of Cal., 345 U.S. 295, 319 (1953)(Jackson, J., concurring).

MANDATE

From

DISTRICT COURT OF APPEAL OF FLORIDA

FIRST DISTRICT

To the Honorable Donald R. Alexander, Hearing Officer

Division of Administrative Hearings

WHEREAS, in that certain cause filed in this Court styled:

JOHN'S ISLAND CLUB, INC.

v. CASE NO. 95-2652

DOAH CASE NO. 95-1179RX

DEPARTMENT OF REVENUE

The attached opinion was rendered on March 27, 1996.

YOU ARE HEREBY COMMANDED that further proceedings be had in accordance with said

opinion, the rules of this Court and the laws of the State of Florida.

WITNESS the Honorable E. Earle Zehmer

Chief Judge of the District Court of Appeal of Florida, First District and

the Seal of said court at Tallahassee, the Capitol, on this 12th day of April,

1996.

___________________________________________

(seal) Jon S. Wheeler

Clerk, District Court of Appeal of Florida,

First District