August 24, 2019

Colorado Court of Appeals: Memberships in Golf Club are Licenses, Not Interests in Land, and Should Not Be Considered for Tax Valuation Purposes

The Colorado Court of Appeals issued its opinion in Roaring Fork Club, LLC v. Pitkin County Board of Equalization on Thursday, December 5, 2013.

Valuing a Private, Non-equity Golf Club Property for Property Taxes.

The Pitkin County Assessor determined the value of a golf club property owned by the Roaring Fork Club, LLC for tax year 2011. The Pitkin County Board of Equalization (BOE) affirmed this value over the club’s objection. The Board of Assessment Appeals (Board) agreed with the BOE. On appeal, the club asserted that the assessor should not have included the value of sold club memberships in the assessment of the club’s property. The Court of Appeals agreed.

The club’s property is open only to its members. Membership rights are retained for life unless sold or relinquished or revoked by the club. The club uses membership deposits to improve the property and maintain the improvements. The deposits are treated as a liability for accounting purposes because all or a part of them are refunded if members maintain their membership for at least thirty years or if they resign earlier and replacement members fill their spots.

The club’s amenities were completed in 1999 and the club had sold about 82% of the memberships by 2011. The club argued that the value of the sold memberships should not be considered in determining the actual value of the club’s property for property tax purposes because they are not interests in the real property. The BOE contended the membership deposits were effectively prepaid rent on leasehold interests and they would escape taxation if not included in the property value.

On appeal, the Court interpreted the membership agreement and then determined how that interpretation fit into the requirements of the property tax statute. The club and the BOE agreed that the income approach was the proper method to value the club’s property. However, the BOE argued that the memberships are an interest in land, like a leasehold, and should be included in the value under the “unit assessment rule.” The club contended the sold memberships are licenses and licenses are not an interest in land. The Court agreed with the club. Specifically, it found: (1) the membership agreement is not a lease; (2) memberships are not life estates; (3) the membership agreement does not give members any other taxable interest in the club’s property; (4) the membership agreement establishes that memberships are revocable licenses; (5) the unit assessment rule does not apply to these memberships; and (6) the sold memberships are not usufructory interests. Accordingly, the Board’s order was reversed and the case was remanded to hold a hearing to determine the actual value of the club’s property without taking into account the value of the sold memberships.

Summary and full case available here.

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