Old Warson Country Club v. Director of Revenue

ROBERTSON, Judge,

concurring in result in part and dissenting in part.

The principal opinion concludes that the Old Warson Country Club (the Club) owes no sales tax on capital improvement assessments paid by members who maintain an equity interest in the Club. For emeritus *405members who no longer maintain an equity interest, however, the Club owes the state sales tax.

As I read the principal opinion, a payment by a Club member for which the member receives something other than recreational services is not subject to sales tax. Thus, the principal opinion holds that capital improvement assessment payments that result in a member receiving an equity interest in the Club or the ability to vote on issues relating to the management of the Club are not subject to sales tax.

The principal opinion’s analysis is consistent with the taxing scheme erected in section 144.020, RSMo 1994. Unlike the principal opinion, however, I believe that in measuring the sales tax consequences of capital improvement assessments for all recreational clubs, the same something-other-than-paymenfc-for-recreatdonal-services analysis the principal opinion employs results in no Missouri sales tax liability even for emeritus members of the Club. This result is more consistent with the regulations of the Department of Revenue, conforms with the factual determinations of the Administrative Hearing Commission, and avoids double sales tax liability in every instance.

The Administrative Hearing Commission found that the Club’s leadership designed its approximately $2.5 million capital improvement assessment program to accomplish the following:

Living Room: $200,000
Two new rugs with borders, drapes and curtains, reupholstery and refinishing, new chairs, tables, lamps and accent pieces, painting and wallcovering.
Main Dining Room: $120,000
Acoustical material ceilings and walls, carpeting, draperies, reupholstery chairs, new accent pieces, painting and wallcover-ing.
Eagle’s Nest (an adjunct to the dining room): $115,000
Recessed lights, new chandeliers, new chairs, carpeting, draperies, accessories, painting and wallcovering.
Trophy Room: $60,000
Installed old chandeliers from Eagle’s Nest, improved entry way and wall shelves, new draperies, trophy case, reupholstering chairs, accessories, replacing two tables.
Entry Vestibules and Loggia: $48,000
Chandeliers, paintings, accent pieces, refinishing and reupholstering.
Eagle’s Nest Restrooms: $12,000 Resurfacing walls, new partitions, painting, wallcovering and accessories.
Sales tax on Purchases of Property; Contingency for Decorators: $45,000
Locker Rooms: $110,000
New lockers, vanities, sinks, mirrors, carpeting, lighting, painting, some new furniture in ladies’ locker room. Painting and redecorating in boys’ and girls’ locker rooms.
Men’s Restroom off Loggia: $10,000
Widening doorway and converting restroom for full handicap usage, redecorating and painting.
Trophy Room South Entry: $20,000
Screening off men’s locker room, opening area for corridor, new lighting, painting and wallcovering.
Trophy Room Kitchen: $30,000
Replacing hot service equipment, improving service area and screening part (sic) extending into Trophy Room.
Main Kitchen: $55,000
Installing combination ovens, tilt kettle, steam table, freezer, and replacing silver burnisher.
Mechanical Systems: $140,000
Reconditioning and upgrading heating and cooling system, replacing one hot water boiler.
Brick Patio and Walks: $45,000
Relaying patio and walks in sand and replacing damaged bricks
Outdoor Lighting: $20,000
Raising existing fixtures and increasing brightness, improving lighting on walkway to locker rooms
Elevator: $125,000
* * * * ⅜ *
*406Replacing and Rebuilding Greens: $400,-000
Mapping contours of existing greens, excavating to depth of nineteen inches, installing drains across bottom, rebuilding with special materials and soils in accordance with USGA standards, seeding with bent grass.
Supplemental Course Work: $110,000
Enhancing areas around greens, improving irrigation system, repairing course damage from construction equipment, proving [sic] covers for greens, repairing and repaving existing cart paths.
New Maintenance Building: $150,000
To store equipment under shelter and to bring club into compliance with government environmental and safety standards. Creek Erosion Control: $50,000
In 1990, flooding in a creek that runs through the golf course washed out retaining walls, two bridges, and three of the course’s golf cart crossings. To stop erosion in the creek bed, Old Warson installed a gabion wall, which is a wire mesh filled with rocks and anchored onto the side of the creek.
Contingency: $40,000
[Capital Debt Retirement: $550,000]

The AHC found that the Club completed the capital improvements within the budget.

As the principal opinion reports, Club members paid varying amounts for capital assessments depending on their membership status. The Club designated one-third of the capital improvement assessments paid as equity payable upon termination of membership. Only emeritus members did not share in the return of equity or receive a bookkeeping entry on the Club’s books showing an equity interest.

Missouri imposes sales tax “upon all sellers for the privilege of engaging in the business of ... rendering taxable service at retail in this state.”1 For taxable services, “[a] tax equivalent to four percent of the amount paid [is due] for admission ..., or fees paid to, or in any place of amusement, entertainment or recreation, games and athletic events... .”2

I believe these statutory provisions create a link between the fee or charge paid and the purposes for which they are paid. Sales tax is due only where the fee or charge paid is paid for a taxable service at retail.

The principal opinion says that the question at the fulcrum of this case is whether the Club is rendering taxable service at retail generally. Respectfully, I suggest that the question framed by the principal opinion is incomplete. It is incomplete because it either assumes that all fees paid to the Club are in return for the Club rendering taxable services at retail or it believes that no such linkage between the fee and the taxable service is necessary.

I submit that the more accurate statement of the issue is whether the Club is rendering a taxable service at retail in return for the capital improvement assessment the members pay. In answering this question, I acknowledge that the record supports a conclusion that the payment of the assessment permits a member to continue to pay monthly dues to use the Club facilities. It does not necessarily follow, however, that payment of the assessment is the necessary quid pro quo for the Club rendering taxable service at retail to the member.

The Director recognizes a difference between monthly dues and initiation fees in her regulations. It appears that that difference is founded on an understanding that there must be a connection between the fee charged and the rendering of taxable services at retail.

Amounts paid in or to a not-for-profit organization by members for the sole purpose of obtaining initial membership rights to participate in ownership, operation and control of the club are not subject to tax. All amounts periodically paid in or to a not-for-profit organization by members for any purpose other than obtaining initial membership rights are a business activity and are subject to tax. All operating assessments or operating fees are taxable.
*407Any other assessment or fee charged by an existing club solely to build or create a new place of amusement or real property addition to a place of amusement is not a fee in or to a place of amusement and is not subject to sales tax.3

The principal opinion also depends on the need for linkage between a fee or charge paid and the provision of recreational services rendered as a condition of sales tax liability. This is the only explanation I can find for the ownership/participate-in-management-based distinction it adopts. But if the necessary linkage is broken for a purchase of equity or the right to vote on management issues, it is surely broken as well for payments by members to purchase personal property and construction services.

The record in this case shows exactly how the Club anticipated spending the assessment. The members’ assessment payments bought paint, wallpaper, draperies, furnishings, equipment, fencing, skilled and unskilled labor and a host of other improvements. The members did not purchase the opportunity to use the recreational facilities with their capital improvement assessment payments.

The record also shows that the Club paid sales tax on the purchases of personal property and taxable service it purchased with the members’ capital improvement assessment payments. As to some (though not all) of the members’ payments, the principal opinion results in double sales taxation of these purchases. Admittedly, this is a small sum. But its size does not render the legal issue unimportant.

For the reasons expressed, I concur with the principal opinion’s conclusion that some members’ capital improvement assessment payments are not subject to sales tax. Because I believe that none of the members’ capital improvement assessment payments are subject to sales tax, I respectfully dissent from that portion of the majority opinion reaching a different result.

. Section 144.020.1, RSMo 1994.

. Section 144.020.1(2), RSMo 1994.

. 12 C.S.R. 10-3.048(3)