Are membership fees and golf-bay play charges at a golf-entertainment venue subject to Colorado sales tax?

Plain-English summary

The Colorado Department of Revenue ruled that membership fees and play charges at a golf-entertainment venue are not subject to sales tax. The business operates a Topgolf-style entertainment facility where guests hit golf balls from rentable bays. It sells two kinds of membership (a nominal one-time fee that lets members use the house golf clubs when they pay for a bay, and a higher monthly fee with unlimited play during set hours plus perks), and it sells "line-skip" passes that let a guest jump to the front of the bay queue.

Colorado taxes sales of tangible personal property but generally not services. The Department agreed with the taxpayer that the true object of these transactions is a nontaxable entertainment service — the opportunity to play golf — not the rental of the clubs and balls. A telling fact: members who bring their own clubs pay the same fee, which shows the value is in the chance to play, not in the equipment. The clubs and balls are merely incidental to the activity, like a chair provided for resting between turns. So:

• Membership fees (both the one-time and the monthly) — not taxable.
• Charges to play in a golf bay — not taxable (the right to occupy the bay and play is a service; the included clubs don't change that).
• Line-skip passes — not taxable (a separately sold service).

Food and drink from the venue's restaurant/bar were separate and optional, so they weren't swept into the analysis (and ordinary restaurant food/drink is taxable on its own).

What this means for you

Entertainment, recreation, and "eatertainment" venues

If your true product is an experience — play time, an activity, access to a facility — and any equipment you hand out is incidental to that experience, Colorado is likely to treat the charge as a nontaxable service. The fact that customers pay the same whether or not they use your equipment is strong evidence the equipment isn't the object of the sale. Keep genuinely taxable items (retail merchandise, food and drink) separately stated and optional so they're analyzed on their own.

Fitness clubs, ranges, and membership-based businesses

A membership that buys access to an activity or facility can be a nontaxable service even though some tangible items come with it. But watch for bundles where the membership actually delivers taxable goods (for example, downloadable software or digital products) — those can flip the result. The line is whether the tangible/taxable component is incidental or is itself an object of the sale.

Accountants and tax professionals

This is a clean application of the true-object test from City of Boulder v. Leanin' Tree, Inc., 72 P.3d 361 (Colo. 2003) (and GIL 12-001): in a mixed transaction, ask whether the tangible property is merely incidental to a predominant service. Note the Department contacted several home-rule cities, all of which treated these transactions the same way — but that's persuasion, not a guarantee (see the home-rule caveat below).

Common questions

Q: Are gym or activity-venue memberships taxable in Colorado?
A: In this ruling, the golf-entertainment memberships were not taxable, because the true object was a nontaxable entertainment service and the equipment provided was incidental. Your facts may differ — a membership that delivers taxable goods can be taxable.

Q: Why weren't the golf clubs and balls treated as a taxable rental?
A: Because they were incidental to the activity, not its object. Members who brought their own clubs paid the same fee, showing the value was the opportunity to play, not the equipment.

Q: Are the line-skip passes taxable?
A: No. The Department treated a line-skip pass as a separately sold service, not the sale or rental of tangible personal property.

Q: What about food and drink at the venue?
A: Those charges were separate and optional, so they weren't part of this ruling. Restaurant/bar food and drink are generally taxable in Colorado in their own right.

Q: Does this ruling apply to my business?
A: Not automatically. A private letter ruling binds the Department only for the taxpayer and facts it was issued to and cannot be relied on by anyone else. It shows the Department's reasoning; your facts may differ.

Q: Does this cover city sales tax?
A: No. The Department administers state and state-collected local taxes only; self-collected home-rule cities set their own rules. The Department noted that several home-rule cities treated these transactions the same way, but that doesn't bind them — check with each.

Citations and references

Statutes and cases:
- § 39-26-104(1), C.R.S. (sales tax on tangible personal property, generally not services)
- City of Boulder v. Leanin' Tree, Inc., 72 P.3d 361 (Colo. 2003) (true-object test for mixed transactions)
- GIL 12-001 (true object of mixed transactions)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-17-004.pdf

Original ruling text

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

PLR-17-004

July 14, 2017
XXXXX
Attn: XXXXXXXX
XXXXXXX
XXXXXXX
XXXXXXX
Re: Membership Fees
Dear Mr. XXXX,
You submitted on behalf of XXXXXXXXXXXX (“Taxpayer”) a request for a private letter
ruling to the Colorado Department of Revenue (“Department”) pursuant to Department
Rule 1 CCR 201-1, 24-35-103.5. This letter is the Department’s private letter ruling. This
ruling is binding on the Department to the extent set forth in Department Rule 1 CCR 2011, 24-35-103.5. It cannot be relied upon by any taxpayer other than the taxpayer to whom
the ruling is made.
Issues
1. Is Taxpayer’s sale of XXXXX or XXXXX membership fees subject to Colorado
sales or use taxes?
2. Is the charge for XXXXX subject to sales tax?
Conclusions
1. Taxpayer’s sale of XXXXX or XXXXX membership fees are not subject to
Colorado sales or use taxes.
2. The charge for XXXXX is not subject to sales tax.
Background
Taxpayer operates a XXXXXX entertainment business in multiple states, including
Colorado. Taxpayer’s guests are able to participate in various golf-specific games at the
Taxpayer’s establishment. Taxpayer provides guests with golf clubs, golf balls, and
XXXXX. As part of the various games, guests hit golf balls onto Taxpayer’s outfield.
XXXXXXXXXXXXXX
Company has two different kinds of memberships. The XXXX membership fee is a
nominal, one-time charge required for all who wish to participate in games at the facility. It
entitles the member to use the facility’s golf clubs when they pay for the use of a golf bay
in order to engage in golf play. The XXXX membership fee is more than a nominal
amount and is charged on a monthly basis and includes unlimited use of a XXXXX,

unlimited play in golf bays during specific hours, a nominal food discount and a
complimentary membership for accompanying guests.
Taxpayer’s golf bays are available on a first-come, first served basis. However, Taxpayer
also sells XXXXX, where each XXXXX allows a guest to jump to the front of the line for
use of a golf bay.
In addition to golf game revenue, XXXXX, and membership fees, Taxpayer offers food and
drink for sale from a full service restaurant and bar area. Taxpayer’s charges for food and
drink are separate and optional from any charges for membership fees, golf games,
XXXXX, or other sales transactions.
Structure of Analysis
To determine whether sales or use tax is due, the Department will examine the following
questions:
1. Does the sale of the membership include the sale or use of tangible personal
property pursuant to § 39-26-104(1), C.R.S.
Discussion
1. Membership Fees.
Colorado imposes sales tax on the sale of tangible personal property but not generally on
the sale of services.1 Taxpayer argues that the true object of the XXXXXXX membership
fee is a non-taxable entertainment service. We agree. We note that members can use
their own golf clubs but neither the XXXXX nor XXXXX membership fee is reduced in such
circumstances. This suggests that the value of the transaction rests in the opportunity to
participate in golf games rather than the use of the tangible personal property.
One factor we typically consider in evaluating whether the true object of a transaction is a
sale of services or the sale or rental of tangible personal property is whether the property
is incidental.2 In this case, we considered whether the golf balls and clubs are incidental
to the opportunity to play golf. We conclude that these items are incidental. The balls and
clubs are but some of the physical assets made available to guests so that they may enjoy
the opportunity to play golf. If Company were to also provide, for example, a chair in
which to rest during between play, we would view the chair as nothing more than
incidental to the main activity of playing golf. For these reasons, we conclude that the true
object of the transaction is a service and not the rental of taxable tangible personal
property.3
2. Sales tax on the sale of golf games.
The right to occupy the bay and play golf are nontaxable services. Although the inclusion
of golf clubs might raise issues of a mixed transaction, for the reasons discussed in
section 1, above, we conclude that the charge for playing golf is not subject to tax.
3. XXXXX
The charge for XXXXX is a separately sold “service” and is not subject to tax.
1

§ 39-26-104(1), C.R.S.
See, e.g., City of Boulder v. Leanin' Tree, Inc., 72 P.3d 361, 363 (Colo.2003) and GIL 12-001.
3
The Department contacted several home rule cities and all treated similar transactions in the
same manner.
2

2

DR 4010A (06/11/14)

Miscellaneous
This ruling applies only to sales and use taxes administered by the Department. Please
note that the Department administers state and state-collected city and county sales taxes
and special district sales and use taxes, but does not administer sales and use taxes for
self-collected home rule cities and 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.
This ruling is premised on the assumption that Company has completely and accurately
disclosed all material facts. The Department reserves the right, among others, to
independently evaluate Company’s representations. This ruling is null and void if any
such representation is incorrect and has a material bearing on the conclusions reached in
this ruling. This ruling is subject to modification or revocation in accordance to Department
Regulation 24-35-103.5.
Enclosed is a redacted version of this ruling. Pursuant to statute and regulation, this
redacted version of the ruling 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 version of the ruling.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue

This ruling cannot be relied upon by any other taxpayer other than the taxpayer to
whom the ruling is made.

3

DR 4010A (06/11/14)