A homeowners or condominium association may require association members to pay a mandatory fee for items provided to the members. The sales tax treatment of the fee depends on the type of amenities or services provided to the members. The fee may be used by the association to pay property taxes or certain utilities (e.g., garbage disposal, water) on the property owner's behalf, or it may be used to pay for maintenance of common area facilities in the community, such as building repairs, snow plowing, and lawn maintenance. The fee may also be used to pay for expenses incurred by the association to maintain recreational amenities and facilities in the community, such as swimming pools, tennis courts, golf courses, private beach areas, and basketball courts.
A mandatory association fee that provides members with taxable products or services, including the privilege of having access to or the use of amusement, entertainment, athletic, or recreational amenities or facilities, is subject to Wisconsin sales tax.
If the mandatory association fee provides members with both taxable and nontaxable products and services, the entire fee is subject to Wisconsin sales tax. However, if the association can reasonably allocate the nontaxable and taxable amounts (i.e., based on amount of time spent maintaining common areas, fair market value of the services provided, or some other reasonable method of allocation) and document the basis for the allocation, the association may charge Wisconsin sales tax only on the amount of the fee that relates to the taxable amounts.
Example 1: Condominium Association charges Property Owner $4,000 a mandatory association member fee per year. The mandatory association fee covers Property Owner's property taxes, certain utilities, common area maintenance, and building repairs. The $4,000 charge by Condominium Association to Property Owner is not taxable since the entire fee is for nontaxable products and services.
Example 2: Condominium Association charges Property Owner $15,000 a mandatory association member fee per year. The mandatory association fee provides the member with an annual membership at a nearby golf course, along with access to an outdoor swimming pool, basketball court, and tennis courts. The $15,000 charge by Condominium Association to Property Owner is taxable since the entire fee is for taxable admissions.
Example 3: Homeowners Association charges $10,000 a mandatory association member fee per year to all property owners in the Homeowners Association's community. The mandatory fee provides property owners with taxable admissions, since the owners have access to an outdoor swimming pool, tennis courts, a private beach area, and discounted green fees at a nearby golf course. A portion of the membership fee also covers costs of common area maintenance, including swimming pool repair, snow removal, and lawn maintenance. Homeowners Association is able to reasonably determine the portion of the fee that relates to common area maintenance based on amount of time the maintenance staff spend providing such maintenance. Therefore, Homeowners Association may charge tax only on the portion of the $10,000 fee that relates to the taxable admissions.
Note: The Homeowners Association's purchase of certain services, such as swimming pool repair and lawn maintenance are taxable.
Example 4: Same as
Example 3, except that Homeowners Association is unable to reasonably allocate the amount of the fee that relates to the maintenance charges. In this case, the entire $10,000 charge by Homeowners Association for the mandatory association member fee is taxable.
Note: A homeowners or condominium association may be organized as a nonprofit organization. A nonprofit homeowners or condominium association is required to charge Wisconsin sales tax on sales of taxable products and services, unless such sales are exempt occasional sales. Information for nonprofit organizations about the occasional sales exemption is provided in
Sales Tax Exemptions for Nonprofit Organizations.
April 30, 2018