Are Illinois membership fees taxable when members also receive guides, magazines, and marketing materials?

Plain-English summary

A recreational-sport association charged annual membership fees of $50 to $250. Benefits included an instructor guidebook, rights to display marketing material, access to buy merchandise for resale, certification eligibility, a one-year magazine subscription, and marketing materials. It asked whether the fee was taxable and how refunds would be handled.

IDOR said it could not provide a specific answer on the limited facts. The general rule is that a membership fee is an intangible and is not subject to Retailers' Occupation Tax or Use Tax when the membership rights do not include tangible personal property. See 86 Ill. Adm. Code 130.401(d).

If the membership charge entitles the customer to property—or to a service with property transferred incident to it—the charge may create Retailers' Occupation Tax, Service Occupation Tax, Service Use Tax, or Use Tax liability, depending on the seller's or serviceman's activities. The relevant general rules are Rules 130.101, 150.101, 140.101, and 160.101.

Because the described membership included physical materials, the GIL did not resolve the tax base or the refund question.

What this means for you

Associations and membership businesses

Separate pure membership rights from physical benefits. Guidebooks, magazines, merchandise, and marketing materials can change the tax analysis even when the main charge is called a membership fee.

Accountants and tax professionals

This GIL does not authorize treating the entire described fee as nontaxable. More facts are needed about the property transferred and the activities involved.

Common questions

Are all membership fees exempt from Illinois sales and use tax? No. Pure membership rights generally are intangible, but included tangible property can create liability.

Did IDOR decide how much of this fee was taxable? No. It expressly declined a specific answer on the limited facts.

Did the letter answer the prorated-refund question? No. That issue remained unresolved because the underlying tax treatment was not determined.

Citations and references

• 86 Ill. Adm. Code 130.101 and 130.401(d)
• 86 Ill. Adm. Code 150.101
• 86 Ill. Adm. Code 140.101 and 160.101

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2014.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2014/st-14-0012.pdf

Original ruling text

ST 14-0012-GIL 04/03/2014 SERVICE OCCUPATION TAX
Membership fees are generally considered intangibles and are not subject to Retailers’ Occupation Tax or Use
Tax. If a membership charge entitles the customer to receive an item of tangible personal property or to receive
a service and tangible personal property is transferred incident to the service, the charge may result in Retailers’
Occupation Tax liability, Service Occupation Tax liability, or Use Tax liability. See 86 Ill. Adm. Code
130.401(d) and 86 Ill. Adm. Code 140.101. (This is a GIL.)
April 3, 2014

Dear Xxxx:
This letter is in response to your letter dated December 10, 2013, in which you request
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
On behalf of our client, we are requesting a written advisory opinion pertaining to the
taxability of a membership fee collected by our client from individuals in your state. Our
client is requesting this opinion from you in order to better comply with your jurisdiction’s
tax collection and reporting requirements. We are providing the following facts
regarding our client: their membership fees, as well as the benefits provided to their
customers in exchange for the membership fees.
Company Description
Our client is an association for instructors and trainers of a recreational sport and
entertainment industry.
The association exists to promote the sport and the
association’s brand name, to bring awareness to environmental causes, and to sell
association and sporting merchandise related to the sport.
Membership Fees
Our client offers their customers a membership to the recreational sport association for
an annual membership fee.
a)

Annual membership fee costs $50 - $250, depending on the level of
involvement with the association, i.e. instructor, retail store, or resort.

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April 3, 2014

b)

The membership fee covers the remainder of the current year and the
entire following calendar year.

c)

The membership is subject to annual renewal.

Membership Fee Benefits
In exchange for payment of this fee, the customer is entitled to receive the following
benefits:







An instructor’s guide book;
Rights to display association marketing material;
Access to purchase associated sport merchandise from our client for resale;
Ability to become certified in this recreational sport;
One-year subscription to a sport industry magazine {published by our client};
Marketing materials for use as instructors, retail stores, or at a resort.

Questions:
1) Is the membership fee subject to sales or use tax in your jurisdiction?
2) If the membership fee is taxable, what is the basis for tax? The entire
charge or a portion thereof?
3) If the membership is taxable, and the member cancels before the end of
the membership period, and a prorated refund is issued by our client to
their customer, is the refunded amount subject to a refund of sales or
use tax? If so, what is the basis for the refund?
Please provide any statutory or regulatory guidance related to your ruling where
applicable. We understand that by not providing our client’s identity with this request
that the opinion you provide may be non-binding.
Thank you in advance for your timely response to this request.
DEPARTMENT’S RESPONSE:
The Department cannot provide a specific answer to your request based on the limited facts
presented regarding the memberships and fees.
The Illinois Retailers’ Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property to purchasers for use or consumption. 86 Ill. Adm.
Code 130.101. The Use Tax Act imposes a tax upon the privilege of using in this State tangible
personal property purchased at retail from a retailer. 86 Ill. Adm. Code 150.101. If no tangible
personal property is being transferred to the customers, then neither Illinois Retailers’ Occupation Tax

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April 3, 2014

nor Use Tax would apply. Likewise, the Service Occupation Tax Act and Service Use Tax are
imposed on the transfer of tangible personal property incident to sales of service. 86 Ill. Adm. Code
140.101 and 160.101. If no tangible personal property is being transferred to customers incident to
the services being provided, then neither Illinois Service Occupation Tax nor Service Use Tax would
apply.
Generally, the Department does not consider receipts from the sale of membership fees to be
gross receipts from the sale of tangible personal property. Rather, a membership fee is considered an
intangible, which is not subject to Retailers' Occupation Tax or Use Tax liability. 86 Ill. Adm. Code
130.401(d). This is the case when the sale of membership rights does not include the transfer of
tangible personal property. However, if the membership charge entitles the customer to receive an
item of tangible personal property or to receive a service and tangible personal property is transferred
incident to that service, then that charge may result in either Retailers’ Occupation Tax liability,
Service Occupation Tax liability or Use Tax liability, depending upon the serviceman’s activities. See
86 Ill. Adm. Code 140.101.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,

Cara Bishop
Associate Counsel

CB:lkm