Are an association's membership fees taxable when membership comes with both goods (a guidebook, a magazine) and services, and is tax refundable if a member cancels?

Plain-English summary

An association for instructors and trainers in a recreational sport charges an annual membership fee ($50–$250 by level). For the fee, a member gets a bundle: an instructor's guidebook, the right to display/use the association's marketing material, access to buy sport merchandise for resale, an option to become certified, and a one-year subscription to a sport-industry magazine the association publishes. It asked whether the fee is taxable, whether all or only part is taxable, and whether tax is refundable on a prorated cancellation refund.

The Department's analysis:

• A taxable sale needs a transaction + a taxable event — a transfer of tangible personal property for consideration (Rule 39-26-102(10)). The membership delivers tangible goods (the guidebook, marketing material, and magazine subscription), so the fee appears to meet the requirements of a taxable sale.
• But the fee also buys non-taxable things: the right to buy merchandise for resale (an intangible or exempt wholesale transaction) and the option to get certified (a service or intangible) — none of which are taxable.
• True-object / inconsequential-value test. When a transaction bundles taxable goods with non-taxable services or intangibles, the Department treats the whole thing as non-taxable if the true object is the services/intangibles and the value of the tangible property is inconsequential (A.D. Stores v. Department of Revenue, 19 P.3d 680 (Colo. 2001)). The Department couldn't decide in a GIL whether the goods here are inconsequential — that's a facts question. (It noted not all membership fees are taxable: e.g., a fee that just grants store access without transferring property may not be taxed, while one whose dominant purpose is delivering magazines is.)
• Refund on cancellation. Sales tax is transactional, so post-sale events generally don't change the liability (GIL 07-033). Colorado allows a tax refund only when the retailer gives a full refund of the purchase price (§ 39-26-102(5)). A partial (prorated) refund presumably means the buyer used the property, so no tax refund — unless the partial refund is for unused property (e.g., a canceled magazine subscription refunding the issues not yet delivered, or an inconsequential-value handbook plus unused marketing material).

What this means for you

Associations and membership organizations

If your membership fee delivers tangible goods (a printed guidebook, a magazine, merchandise), the fee can be taxable — possibly in full, even if services come along — unless the goods are inconsequential next to the true object of the membership. To stay non-taxable, the dominant value must clearly be services/intangibles with only trivial property changing hands. Bundling a substantial magazine subscription into the fee pushes toward taxable.

Members and finance teams

On cancellation refunds, expect no sales tax back on a partial refund unless it covers property you never received (like undelivered magazine issues). A full refund of the purchase price gets the tax back.

Accountants and tax professionals

Two doctrines: the bundled-transaction true-object/inconsequential-value test (A.D. Stores, 19 P.3d 680) — non-taxable only if services/intangibles dominate and the TPP is inconsequential — and the transactional-tax + full-refund rule for refunds (§ 39-26-102(5); GIL 07-033), where partial refunds for unused property can support a partial tax refund. The Department expressly declined to weigh the inconsequentiality in a GIL. Same true-object framework as [[gil-14-001-promotional-videos]]; the transactional/refund thread also runs through [[gil-15-006-late-payment-fees]] and [[gil-15-008-discharged-maintenance-contract]].

Common questions

Q: Are membership fees taxable in Colorado?
A: It depends. If the member receives tangible goods for the fee, it can be a taxable sale. If the true object is non-taxable services or intangibles and the goods are inconsequential, the whole fee can be non-taxable. It's a facts-and-circumstances question.

Q: If only part of the membership is goods, is only part taxable?
A: Not necessarily. Colorado uses a true-object test for bundles — the whole fee is non-taxable only if services/intangibles dominate and the property is inconsequential; otherwise the fee can be taxable.

Q: A member canceled and got a prorated refund — do I refund the sales tax?
A: Generally no on a partial refund, because it presumes the property was used. But if the partial refund is for unused property (like magazine issues not yet delivered), a corresponding tax refund is permitted.

Q: When is sales tax fully refundable?
A: When the retailer gives a full refund of the purchase price (§ 39-26-102(5)).

Q: Can I rely on this letter?
A: No. A General Information Letter is general guidance, is not binding on the Department, and makes no determination on any specific facts. It also doesn't cover self-collected home-rule city taxes.

Citations and references

Statutes and rules:
- §§ 39-26-104(1)(a), 39-26-202, C.R.S. (sales/use tax on tangible personal property, not services)
- 1 CCR 201-4, Department Rule 39-26-102(10) (definition of "sale")
- § 39-26-102(5), C.R.S. (tax refund on a full refund of the purchase price)
- Department Rule 24-35-103.5 (GIL / PLR procedure)

Cases and guidance:
- A.D. Stores Co. v. Department of Revenue, 19 P.3d 680 (Colo. 2001) (true-object test)
- Colorado GIL 07-033 (sales tax is transactional; later events don't change liability)

Source

• Landing page: Colorado Sales & Use Tax Letter Rulings
• Original PDF: GIL-14-008.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-14-008
April 28, 2014
XXXXXXXXXXXXXX
ATTN: XXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
Re: Membership Fees
Dear XXXXXXXXXX,
You submitted on behalf of your client (“Association”) a request for guidance to determine the
applicability of sale or use tax on membership fees.
The Colorado Department of Revenue (“Department”) issues general information letters and private
letter rulings. A general information letter provides a general overview of the relevant tax issues
and is not binding on the Department. A private letter ruling provides a specific determination for a
specific set of facts, is binding on the Department but not on the taxpayer, and requires payment of
a fee. For more information about general information letters and private letter rulings, please see
Department Rule 24-35-103.5 at www.colorado.gov/revenue/tax > Tax Library > Rulings.
The Department initially treats your request as one of a general information letter. If you would like
the Department to issue a private letter ruling on the issues you raise, you can resubmit a request
and fee in compliance with Department Rule 24-35-103.5. It is important to remember that general
information letters, such as this one, are general discussions of tax law and are not a determination
of the tax consequence of any particular action or inaction.
Issue
1. Are membership fees subject to Colorado sales or use tax?
2. If membership fees are taxable, is the entire charge taxable or only a portion thereof?
3. If membership fees are taxable and the member cancels before the end of the
membership period, and a prorated refund is issued by Association to the member, is
the refunded amount subject to a refund of sale or use tax? If so, what is the basis for
the refund?
Background
Association is an association for instructors and trainers of the recreational sport and entertainment

industry. Association exists to promote the sport, bring awareness to environmental causes, and
sell Association sporting merchandise related to the sport.
Association offers membership to Association for an annual membership fee. The annual
membership fee costs fifty to two hundred fifty dollars, depending on the level of involvement with
Association the member maintains, i.e., whether the member is an instructor, a retail store or a
resort.1 The membership fee covers the remainder of the current year and the entire following
calendar year, and is subject to annual renewal.
In exchange for payment of this fee, the member is entitled to receive the following benefits:
· An instructor’s guidebook;
· Right to display and use Association’s marketing material;
· Access to purchase sport merchandise associated with Association for resale;
· Option to become certified in the recreational sport;
· One-year subscription to a sport industry magazine (published by Association);
Discussion
Colorado levies sales tax on the sale or use of tangible personal property, but not on the sale of
services.2 In order to incur a sales tax liability, there must be a “sale” at retail. A “sale,” for sales and
use tax purposes, requires (1) a transaction and (2) a taxable event. Department Rule 39-26102(10) defines a sale as:
… any transaction, except as provided in 26-102.7(b), whereby a person, in exchange
for any consideration … transfers or agrees to transfer all or part of his interest … in
any tangible personal property to any other person; … Whether the transaction is
absolute or conditional, it shall be considered a sale if it transfers from a seller to a
buyer the ownership or possession of tangible personal property or specified services.
In the case at hand, Association provides members an instructor’s guidebook and a one-year
subscription to a sport industry magazine published by Association. Members are also given
marketing material that members can display and use. These items are tangible personal
property that the Association transfers to the members in exchange for payment of the
membership fee. The membership charge appears to meet all the requirements of a taxable
sale.3
However, the membership fee is also consideration for the right to purchase sport merchandise
associated with Association for resale and the option to become certified in the recreational
sport. The Department would likely view the former as an intangible or as an exempt wholesale
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Association has not indicated whether the higher price for membership includes additional materials or services.
Such effect could be relevant for any determination.
§§39-26-104(1)(a), and 202 C.R.S. You can view statutes on the Department’s website at
www.colorado.gov/revenue/tax >Tax Library > Statutes.
There are a many types of membership fees and some may not be subject to tax. For example, a membership
fee that allows access to a retailer’s store but payment of the fee does not transfer property to the member may
not be subject to tax. See, e.g., Massachusetts Letter Ruling 02-8 (2002) (membership fee to at access retailer’s
store is not subject to tax, but membership fee that transfers a certain number or unlimited video rentals is
taxable); New York Advisory Opinion TSB-A-92(66)S, 09/17/1992; Nutz and Boltz, Inc., v. Comptroller, see
ReveNews Vol. 21, No. 2, Spring 2000 (membership fee taxable because dominant purpose of fee was provision
of magazines, although some services provided); Texas Comptroller's Decision, No. 22,613, 03/02/1988
(membership fee allocated only because price for taxable items readily determinable);

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transaction and the latter as either a service or an intangible, none of which are subject to
sales tax.
When a transaction consists of both taxable property and non-taxable services or non-taxable
intangible property, the Department will generally treat the entire transaction as nontaxable if
the true object of the transaction is the acquisition of services (or intangibles) and the value of
the tangible personal property is inconsequential.4 However, we cannot determine, in the
context of a general information letter, whether the tangible personal property is
inconsequential.
Refund of Membership Fee
Association allows members to cancel their membership before the end of the membership
period. When this occurs, Association provides a prorated refund issued to the member. Sales
tax is a transactional tax and events subsequent to the taxable event generally do not affect
the tax liability created at the time of sale.5 However, Colorado law allows a tax refund if the
retailer gives a full refund of the purchase price.6 A partial refund of the purchase price
presumably means that the buyer has used the property to some extent and therefore no
refund of tax is allowed. However, if the refund is for property that has not been used, such as
in the case of a canceled magazine subscription and the refund reflects the magazines not yet
delivered, then a refund of tax for the partial refund of the purchase price is permitted. A partial
refund of the tax may be allowed if the handbook was of inconsequential value and the
marketing material was unused.
Miscellaneous
This letter represents the good faith opinion of Department personnel who are knowledgeable on
state taxes issues. However, the Department does not make a specific determination here on any
of the issues raised and the Department is not bound by this general information letter.
The Department administers state and state-administered local sales and use taxes. This letter
does not address sales and use taxes administered by home-rule cities and home-rule counties.
You may wish to consult with local governments which administer their own sales or use taxes
about the applicability of those taxes. Visit our web site at www.colorado.gov/revenue/tax for more
information about state and local sales taxes.
Enclosed is a redacted version of this letter. Pursuant to statute and regulation, this redacted letter
will be made public within 60 days of the date of this letter. Please let me know in writing within that
60 day period whether you have any suggestions or concerns about this redacted letter.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue
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AD Stores v. Department of Revenue, 19 P3d 680 (Colo. 2001).
See, e.g., General Information Letter 07-033. You can view this GIL, statutes, and other Department
publications by going to www.Colorado.gov/revenue/tax > Tax Library.
See, §39-26-102(5), C.R.S.

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