ORDERS:
FINAL ORDER AND DECISION
STATEMENT OF THE CASE
This is a contested case brought by the Petitioner, Dataw Island Club, Inc. ("Dataw"), against the Beaufort County Tax Assessor
("Assessor") concerning property valuation for the 1998 tax year. The Petitioner exhausted all prehearing remedies with the Assessor
and the Beaufort County Tax Equalization Board ("Equalization Board"). Jurisdiction is granted to the Administrative Law Judge
Division ("ALJD") by S.C. Code Ann. § 12-60-2540 (2000) and S.C. Code Ann. § 1-23-600 (Supp. 1999). After notice to all parties,
a hearing was conducted on August 8, 2000 at the ALJD in Columbia, South Carolina.
ISSUE PRESENTED
Whether or not certain property owned by Dataw Island Club, Inc. is "homeowners' association property" and, therefore, eligible for
the special valuation authorized by S.C. Code Ann. § 12-43-227 (2000) and S.C. Code Ann. § 12-43-230 (2000) ("Special Valuation
Statutes")?STIPULATIONS OF FACTS
1. The Dataw Island Club, Inc. has been formed to operate, for the recreational use and
pleasure by its members, certain facilities, including two (2) eighteen hole golf courses designated as the Cotton Dike Course and the
Morgan River Course, both located on Dataw Island, Beaufort County, South Carolina.
2. The subject parcels are described as follows:
(a) A parcel consisting of 2.3 acres, inclusive of one building, a part of the maintenance property of Dataw Island Club, Inc. This
property is designated as Parcel 142, on Tax Map 10C, within District R300, of the tax records of Beaufort County.
(b) A parcel consisting of 301.5 acres, and encompassing the Cotton Dike and the Morgan River golf courses and related amenities
on Dataw Island. This property is designated as Parcel 130, on Tax Map 10B, within District R300, of the tax records of Beaufort
County.
(c) Both of these parcels will be collectively referred to as the "Property."
3. The Dataw Island Club was, as of December 31, 1997, subject to those certain by-laws effective as of October 1, 1996, as
amended through December 31, 1997.
4. Article II of the By-Laws addresses the qualifications, classifications, and rights of members of the Dataw Island Club.
Subsection 2.1.1 of Article II states, in part, that "members of the club shall be such persons as are admitted to membership by action
of the Board of Directors of the Club . . . in its sole and absolute discretion pursuant to the provisions of these By-Laws upon payment
of such Equity Payment or membership fee amounts, dues, fees and assessments as may be established from time to time by the
Board of Directors, for the particular class of membership."
5. Subsection 2.2 of Article II of the By-Laws sets forth six separate classes of membership, designated as Classes A through F.
6. Class A membership is established by Article II, Subsection 2.2.1, in conjunction with Article IV, Subsection 4.1.1 of the By-Laws.
Class A members, who must be owners of interests in lots or dwelling units on Dataw Island, "have the right to use any and all of the
Club facilities." Article II, Subsection 2.2.1.1(i). Rights of use of Class A members are not subject to cancellation by the Board of
Directors.
7. Class B membership is established by Article II, Subsection 2.2.2, in conjunction with Article IV, Subsection 4.1.1 of the By-Laws.
Class B members, who must also be owners of interest in lots or dwelling units on Dataw Island, have the right to use some club
facilities, but have no right to use "the golf courses and related facilities," except such limited use as may be authorized by the Board
of Directors." Article II, Subsection 2.2.2.1(i). Rights of use of Class B members are not subject to cancellation by the Board of
Directors.
8. Class C membership is established by Article II, Subsection 2.2.3. The By-Laws authorize the offering of Class C memberships
"exclusively to non-owners of a lot or dwelling unit on Dataw Island." Article II, Subsection 2.2.3.1. Class C memberships, if sold by
the Board, would have the right to use all club facilities. Class C memberships, if sold, would have been subject to cancellation by
action of the Board of Directors. Article II, Subsection 2.2.3.3. Class C members are not entitled to vote, and are not entitled to share
in the assets of the club upon dissolution. No Class C memberships have ever been offered for sale by the Board of Directors. Class
C memberships were eliminated by amendment of the By-Laws subsequent to the tax year in question.
9. Class D membership is established by Article II, Subsection 2.2.4.1. The By-Laws authorize the offering of Class D memberships
"exclusively to non-owners of a lot or dwelling unit on Dataw Island." Article II, Subsection 2.2.4.1. Class D members would have
had no right to use the golf courses and related facilities, except such limited use as may have been authorized by the Board of
Directors. Class D memberships would have been subject to cancellation by action of the Board of Directors. Article II, Subsection
2.2.4.3. Class D members are not entitled to vote and are not entitled to share in the assets of the club upon dissolution. No Class D
memberships have ever been offered for sale by the Board of Directors. Class D memberships were eliminated by amendment of the
by-laws subsequent to the tax year in question.
10. Class E membership is established by Article II, Subsection 2.2.5. According to this subsection, "[a] Class E membership is a
class of non-equity membership in the Club, which is of limited duration, and is to be offered primarily to persons who do not own a
lot or dwelling unit on Dataw Island." Class E membership is further divided into three subcategories which are full membership,
social membership, and dining membership. Article II, Subsection 2.2.5.2. Class E Full members have the right to use any and all
Club facilities. Although Class E Social members have the right to use many Club facilities, they have no right to use the golf
courses and related facilities, except such limited use as may be authorized by the Board of Directors. Class E Dining members are
entitled only to use the Club lounge and restaurant facilities. Article II, Subsection 2.2.5.2. After July 1, 1996, the only category of
Class E membership available to a person owning a lot or dwelling unit on Dataw Island is the Class E Dining membership. There
are, and were as of December 31, 1997, Class E Full memberships and Class E Social memberships which had been issued to owners
of lots or dwelling units on Dataw Island. Class E memberships are subject to cancellation by action of the Board of Directors.
11. Class F membership is defined as "a class of honorary membership in the Club which may be awarded from time to time by
action of the Board of Directors." Article II, Subsection 2.2.6.1. Class F members are entitled to full use of all Club facilities. Class
F membership may be granted regardless of ownership of property at Dataw Island. Subsection 2.2.6.1 of the By-Laws states that "a
Class F membership is not transferable in any manner and will terminate upon death or resignation from the Club of the Class F
member." It has been the practice of the Board, however, to require annual renewal of Class F memberships by action of the Board of
Directors.
FINDINGS OF FACT
Having carefully considered the testimony and the arguments of both sides, and taking into account the credibility of the evidence and
witnesses, I find by a preponderance of the evidence:
1. Notice of the time, date, place, and subject matter of the hearing was given to all parties in a timely manner.
2. On October 1, 1996, ALCOA South Carolina, Inc. transferred the Property to the Petitioner.
3. The Assessor set the initial value of the Property for tax year 1998 at $16,247,170 for the golf and recreation facilities and
$206,200 for the maintenance area.
4. Petitioner formally protested these valuations to the Assessor in a letter dated February 14, 1998. Petitioner also submitted a
special valuation application to the Assessor pursuant to the Special Valuation Statutes on October 20, 1999.
5. On July 28, 1999, the Assessor sent a letter to Petitioner stating that the Property did not meet all of the criteria necessary to be
treated as homeowners' association property, and, therefore, was not eligible for the special valuation pursuant to the Special
Valuation Statutes. On October 29, 1999, the Assessor sent a "Notice of Final Action" to Petitioner stating that the value of the
Property had been reduced to $10,400,000.
6. Petitioner appealed to the Equalization Board and challenged the Tax Assessor's decision not to apply the Special Valuation
Statutes and also challenged the appraised value of the Property.
7. The Equalization Board heard the appeal on January 19, 2000. In a letter dated January 20, 2000, the Equalization Board
determined that the Property's value would remain at $10,400,000 and that the Property did not qualify for special valuation treatment
under the Special Valuation Statutes. However, the only issue before this Division is whether the Property qualifies for special
valuation treatment under the Special Valuation Statutes.
CONCLUSIONS OF LAW
Based upon the above Findings of Fact, I conclude, as a matter of law, the following:
1. The ALJD has subject matter jurisdiction over this action pursuant to S.C. Code Ann. § 12-60-2540 (2000) and S.C. Code Ann. §
1-23-600 (Supp. 1999).
2. S.C. Code Ann. § 12-43-227 (2000) is titled "Valuation of homeowners' association property" and provides the following:
The fair market value of homeowners' association property, as defined in Section 12-43-230, for ad valorem tax purposes is defined
as the nonqualified earnings value to be determined by the capitalization of the property's nonqualified gross receipts. For purposes
of this section, "nonqualified gross receipts", means the gross receipts from the use of the property other than:
(1) amounts received as membership dues, fees, or assessments from the members of the homeowners' association; and
(2) amounts received from the developer of the property owned by the homeowners' association as reported on the most recently filed
application submitted pursuant to Section 12-43-230. If additional reporting is required pursuant to Section 12-43-230, nonqualified
gross receipts shall be determined utilizing gross receipts from the most recent completed tax year. After a piece of property's
nonqualified gross receipts have been established, they must be capitalized to determine nonqualified earnings value by utilizing a
capitalization rate of twenty percent. Notwithstanding any other provision of this section, in the event of real property with zero or de
minimus nonqualified gross receipts, the special valuation of homeowners' association property shall not result in any homeowners'
association property being valued at a rate less than five hundred dollars an acre.
2. S.C. Code Ann. § 12-43-230(d) (2000) is applicable to property tax years beginning after 1997 and it states the following:
(d) For purposes of this article, "homeowners' association property" means real and personal property owned by a homeowners'
association if:
(1) property owned by the homeowners' association is held for the use, benefit, and enjoyment of members of the homeowners'
association;
(2) each member of the homeowners' association has an irrevocable right to use and enjoy on an equal basis, property owned by the
homeowners' association, subject to any restrictions imposed by the instruments conveying the right or the rules, regulations, or
bylaws of the homeowners' association; and
(3) each irrevocable right to use and enjoy property owned by the homeowners' association is appurtenant to taxable real property
owned by a member of the homeowners' association.
Subject to making the appropriate application pursuant to this subsection, a homeowners' association may designate one or any
number of its qualifying tracts or parcels as homeowners' association property for purposes of the special valuation contained in
Section 12-43-227.
As used in this subsection, "homeowners' association" means an organization which is organized and operated to provide for the
acquisition, construction, management, and maintenance of property.
3. Dataw Island Club, Inc. meets the definition of a "homeowners' association" under S.C. Code Ann. § 12-43-230(d) (2000)
because Dataw was organized to operate certain real estate for the recreational use and pleasure of its members.
4. The property owned by Dataw qualifies for special valuation if the three pronged test that is set forth in S.C. Code Ann. § 12-43-230(d)(1)-(3) (2000) is met.
5. Dataw meets the first prong of this test which states that "property owned by the homeowners' association is held for the use,
benefit, and enjoyment of members of the homeowners' association." S.C. Code Ann. § 12-43-230(d)(1) (2000). Dataw Island
Club, Inc. was formed to operate this property for the recreational use and pleasure of its members.
6. The second prong of the test states that "each member of the homeowners' association has an irrevocable right to use and enjoy on
an equal basis, property owned by the homeowners' association, subject to any restrictions imposed by the instruments conveying the
right or the rules, regulations, or bylaws of the homeowners' association." S.C. Code Ann. § 12-43-230(d)(2) (2000). 7. The
Assessor argues that Dataw does not meet the second prong of this test because Dataw's By-laws set forth specific and separate
classes of membership and, therefore, all of the members do not enjoy the property on an equal basis. Also, the Assessor asserts that
some members' rights to use and enjoy the property are revocable.
8. The third prong of the test states that "each irrevocable right to use and enjoy property owned by the homeowners' association is
appurtenant to taxable real property owned by a member of the homeowners' association." S.C. Code Ann. § 12-43-230(d)(3)
(2000).
9. The Assessor argues that Dataw does not meet this prong of the test because the By-laws allow Dataw to accept members who do
not own interests in lots or dwelling units on Dataw Island. Furthermore, these members do not have an irrevocable right to use the
property because their membership is subject to cancellation by action of the Board of Directors.
10. Although the By-Laws refer to Class E "Memberships" and Class F "Memberships" of the Dataw Island Club, Inc., I find that the
holders of these memberships are simply "users" of Dataw's facilities rather than members. Class E and Class F "members" are
merely given the "right to use" the facilities. Article IV, Section 4.5.2 of the By-Laws states that "Class E and F members shall not
receive a membership certificate, but shall be entitled to receive such evidence of membership or right to use the Club facilities as the
Board of Directors shall, from time to time, establish." Furthermore, Article IV, Section 4.7.3 of the By-Laws states that a "Class E
or Class F Member shall have no right to transfer his membership or rights to use the Club facilities to a third party." Also, Class E
and Class F Memberships have no right to vote or to share in the assets upon dissolution. Furthermore, the Special Valuation Statutes
distinguishes between "qualified" and "nonqualified gross receipts" received by the homeowners' association. According to S.C.
Code Ann. § 12-43-227 (2000), "nonqualified gross receipts" are gross receipts from the use of the property other than "amounts
received as membership dues, fees, or assessments from the members of the homeowners' association." If a homeowners' association
could only have revenue from members of the homeowners' association to qualify for special valuation, then the legislature would
not have needed to define nonqualified gross receipts. Any revenue from Class E Memberships would need to be reported as
nonqualified gross receipts, and Dataw stated that it did report that revenue to the Assessor.
11. Because Class E and Class F "members" are only "users" of the facilities, these memberships should not be considered in
determining whether Dataw meets the second and third prong of the test set forth in S.C. Code Ann. § 12-43-230(d)(1)-(3) (2000).
Moreover, Class C and Class D "members" should not be considered because there are no Class C or Class D "members" of Dataw.
Therefore, only Class A and Class B members should be considered in determining whether Dataw meets the last two prongs of the
test. S.C. Code Ann. § 12-43-230(d)(1)-(3) (2000).
12. I find that Dataw meets the second prong of the test because Class A and Class B members have an irrevocable right to use and
enjoy on an equal basis the property owned by the homeowners' association. S.C. Code Ann. § 12-43-230(d)(2) (2000) Class A
members have the right to use all of the Club facilities and their rights of use are not subject to cancellation by the Board of Directors.
Article II, Subsection 2.2.1. Class B members have the irrevocable right to use some facilitites, but have no right to use the golf
course, except such limited use as may be authorized by the Board of Directors. Article II, Subsection 2.2.2.1. These Class B
members would have unlimited use of the golf course if they chose to pay the additional fees to become Class A members or Class B
members can use the golf course by paying a fee for every round of golf they play. Thus, Class A and Class B members can use the
facilitites on an equal basis, subject to restrictions imposed by the By-Laws. The restrictions are the amount of fees and dues that a
member must pay to use the facilities.
13. Furthermore, I find that Dataw meets the third prong of the test set forth in S.C. Code Ann. § 12-43-230(d)(3) (2000). Class A
and Class B members have an irrevocable right to use the Club facilities and Class A and Class B members must be owners of
interests in lots or dwelling units on Dataw Island. Therefore, "each irrevocable right to use and enjoy property owned by the
homeowners' association is appurtenant to taxable real property owned by a member of the homeowners' association." S.C. Code
Ann. § 12-43-230(d)(3) (2000).
14. Since Dataw meets the three prong test set forth in S.C. Code Ann. § 12-43-230(d)(1)-(3) (2000), the subject property owned by
Dataw is homeowners' association property and is entitled to special valuation authorized by S.C. Code Ann. § 12-43-227 (2000).
ORDER
IT IS THEREFORE ORDERED that the Petitioner is entitled to have the subject property assessed under S.C. Code Ann. § 12-43-227 (2000).
AND IT IS SO ORDERED.
________________________________
C. Dukes Scott
Administrative Law Judge
October 11, 2000
Columbia, South Carolina |
