I pay an annual fee to a country club just to hold a certificate that lets me apply for membership someday, even though I'm not a member and have no membership privileges — is that fee taxable as club dues?

Plain-English summary

Stephen R. Buschel lives in the "Windmill Farm" area of Armonk, New York, where residents are eligible to apply for membership in the nearby Windmill Club, a social club. Before a resident can actually become a Club member, the resident must first obtain and maintain a "Membership Eligibility Certificate" (MEC) by paying an annual fee (over $10). Holding an MEC does not by itself grant any club membership rights — an MEC holder who hasn't separately joined and paid dues can't access club property (except as a guest of a paying member) and can't vote at club meetings. What the MEC does give the holder: a share in the joint ownership of the club's property (the lake, buildings, grounds) and a right to share in proceeds if the club sells assets. Buschel has paid the annual MEC fee for years but never joined the Club, never paid dues, and has no member rights. The Club had been collecting sales tax on his MEC payments, and Buschel argued that was wrong since holding the certificate doesn't buy him any membership privileges.

The Department agreed with Buschel on the "dues" question but ruled against him on the bigger question. New York taxes both (a) dues paid to a social/athletic club (over $10/year) and (b) any "initiation fee" paid to such a club (over $10), and it defines "initiation fee" broadly as any payment required as a condition precedent to membership — regardless of who it's paid to, and regardless of whether the payment is a life-membership certificate, stock, or (as here) a mere eligibility certificate.

The MEC payment isn't dues, because Buschel isn't a member and the payment doesn't buy him club privileges or use of facilities. But it is an initiation fee, precisely because the club's own by-laws make holding a valid MEC a condition precedent to ever becoming a member — you literally cannot join the Club without first obtaining and maintaining one. Since that initiation-fee payment exceeds $10, it's taxable under the state's 4% social/athletic club tax, plus the 3/8% Metropolitan Commuter Transportation District rate (since Windmill Club sits in the MCTD, which includes Westchester County) and Westchester County's own 3% local rate. The opinion notes this all assumes the Windmill Club is in fact a "social or athletic" club, which the by-laws suggest but don't state outright — a different type of organization would get a different answer. Compensating use tax, notably, never applies to club dues or initiation fees at all.

What this means for you

Homeowners' associations and residential communities with an affiliated country/social club

If your community requires residents to hold a paid "eligibility" or similar certificate before they can even apply for club membership, that payment is very likely a taxable initiation fee under New York law — even though the certificate holder has no membership rights yet. The "condition precedent to membership" test is broad and doesn't require that the payment buy any privileges.

Country clubs and social/athletic clubs billing prospective members

Structuring a payment as a non-membership "eligibility" fee doesn't get it out of New York's club tax if the club's own rules make that payment mandatory before someone can join — label it dues or something else, the initiation-fee definition still reaches it.

Accountants and tax professionals

The key statutory hook is Tax Law §1101(d)'s intentionally broad "initiation fee" definition — "any payment ... required as a condition precedent to membership ... regardless of the person or organization to whom it is paid." That reach is often broader than clients expect when structuring pre-membership certificate or deposit schemes.

Common questions

Q: If I pay a fee just to be "eligible" for club membership someday, but I'm not actually a member, is that fee taxable?
A: Likely yes, as a taxable "initiation fee" — even though it isn't "dues" — if the club's rules make holding that certificate a required condition before you can become a member.

Q: Does it matter that I get some benefits (like shared ownership rights) from holding the certificate, even without membership privileges?
A: No — the tax analysis turns on whether the payment is a condition precedent to membership, not on what specific rights the certificate itself confers.

Q: Does compensating use tax ever apply to club dues or initiation fees?
A: No. The Tax Law doesn't impose or authorize any state or local compensating use tax on club dues or initiation fees.

Q: Does this ruling apply to my club or HOA situation?
A: Not automatically. This is an Advisory Opinion binding only on the petitioner and only as to the facts he described — and it expressly assumes, without fully confirming, that the club here is a "social or athletic club." Your club's structure and by-laws may differ.

Citations and references

Statutes:

• Tax Law §1101(d) (definitions of "dues" and "initiation fee")
• Tax Law §1105(f)(2) (state sales tax on social/athletic club dues and initiation fees over $10)
• Tax Law §1109 (MCTD surcharge on club dues/initiation fees)
• Tax Law §1210(a)(1) (Westchester County's local sales tax authority)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2008.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a08_58s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-08(58)S
Sales Tax
October 8, 2008

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S080708A

The Department received a petition for an advisory opinion from Stephen R. Buschel (hereafter “Petitioner”)
on July 8, 2008. Petitioner provided additional information relating to the Petition on August 29th and September 23rd,
2008. Petitioner asks whether annual payments to a country club for a Membership Eligibility Certificate are dues
subject to sales and use taxes. Because possession of a Membership Eligibility Certificate is a condition precedent to
membership in the club, Petitioner’s payments to the club for that certificate constitute initiation fees subject to New
York State and local sales taxes, even though the payments are not dues and do not entitle Petitioner to membership
privileges in the club. Compensating use taxes do not apply to club dues or initiation fees.
Facts
Petitioner resides in the “Windmill Farm” area of Armonk, New York. Residents of the Windmill Farm area
are entitled to apply for membership in the Windmill Club, a social club in Armonk, Westchester County, New York
(hereafter, the “Club”). According to Petitioner, before a resident can become a member of the Club and use its
facilities, the resident must obtain a valid “Membership Eligibility Certificate” (hereafter, “MEC”). A resident must
make an annual payment to maintain his or her MEC. The annual MEC payment is in excess of $10.00 per year. If an
MEC holder does not join the Club membership and pay regular dues, the resident is not allowed access to club
property (except where he or she is a guest of a dues-paying club member). The Club’s annual dues for members are
also greater than $10.00 per year. Petitioner has made annual payments to the Club for an MEC but has not joined the
Club, does not pay dues, and has no rights of a member. Petitioner has not paid any entrance fees or special fees under
Article 2, section 5 of the Club’s By-Laws or house charges under section 7 of Article 2 of the By-Laws. The Club has
collected sales tax on Petitioner’s annual payments for his MEC. Petitioner asserts that those MEC payments are not
subject to sales tax as social club dues because mere possession of the MEC does not entitle Petitioner to any rights of
membership in the Club.
Petitioner submitted a copy of the Club’s By-Laws with his petition. Article 1, Section 1, of the By-Laws
provides that any Windmill Farm owner or resident is eligible for membership in the Club if he or she possesses an
MEC in good standing. Section 2 of Article 1 of the By-Laws provides that every MEC holder in good standing will
remain in good standing subject to the terms and conditions of the By-Laws and that the annual price of the MEC will
be set by the Club’s Board of Governors. The annual MEC offering price is a pro-rated share of the Club’s non­
operating expenses, including insurance, real estate taxes, and various maintenance and administrative expenses. Any
Windmill Farm owner or resident who purchases an MEC is entitled to become a Club member by paying the current
initiation fees, annual dues, and Capital Maintenance Program fees. A Windmill Farm owner who purchases an MEC
and who subsequently sells his or her home is entitled to transfer his or her MEC to the new owner/resident of the
home. The new owner/resident is then entitled to become a Club member by paying the prevailing initiation fee,
annual dues, and Capital Maintenance Program fees. If a Windmill Farm owner or resident has not purchased an
MEC, he or she may still become a Club member by paying a membership surcharge, in addition to the current
initiation fees, annual dues, and Capital Maintenance Program fees. Although a person who holds only an MEC is not
entitled to Club membership or privileges, the MEC holder is entitled to share in the joint ownership of the Club’s
property, such as the lake, building, grounds, and all other property. Also, the MEC holder, though not a Club

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TSB-A-08(58)S
Sales Tax
October 8, 2008

member, is entitled to distributions if the Club sells any of its assets. An MEC holder cannot vote or take any action at
any Club meeting unless the person is also a member of the Club in good standing.
Section 4 of Article 1 of the By-Laws, entitled “Election to Membership,” provides that an applicant for
membership must submit a written application to the Club President or Secretary, together with payment of the
entrance fee and dues when payable. Section 9 of Article 1 provides Club membership cannot be assigned, transferred,
sold, or conveyed.
Section 2 of Article 2 of the By-Laws provides that a member who pays dues will be entitled to full
membership in the Club. Section 5 of Article 2 provides that the Board of Governors can require that persons also pay
entrance fees and special fees as a condition to admission to membership. Section 7 of Article 2 allows the Board of
Governors to establish a minimum house charge fee to be paid by every member. Section 7 also provides that the
member’s failure to pay that minimum fee is treated as the failure to pay dues. Under Article 1, section 12, members
who fail to pay their dues, house charges, and other fees will initially be suspended from membership, and then
expelled if non-payment continues for three months after suspension for non-payment.
Issue
Petitioner asks whether his annual payments to the Windmill Club for a Membership Eligibility Certificate
constitute dues of a social club subject to state and local sales and use taxes.
Analysis
Section 1105(f)(2) of the Tax Law, as relevant here, imposes the state’s four percent sales tax on dues paid to
any social or athletic club in this state if the dues of an active annual member, exclusive of the initiation fee, are in
excess of ten dollars per year, and on the initiation fee alone, regardless of the amount of dues, if the initiation fee is in
excess of ten dollars. Where the tax on dues applies to any such social or athletic club, the tax must be paid by all
members of the club, other than honorary members, regardless of the amount of their dues, and must be paid on all
dues or initiation fees for a period commencing on or after August first, nineteen hundred sixty-five. “Social or
athletic club” means any club or organization of which a material purpose or activity is social or athletic. “Dues”
means any dues or membership fee including any assessment, regardless of the purpose for which it is made, and any
charges for social or sports privileges or facilities, except charges for sports privileges or facilities offered to members'
guests which would otherwise be exempt if paid directly by such guests. “Active annual member” is a member who is
not a life member but who enjoys full club privileges as distinguished from the privileges enjoyed by a person holding
a nonresident membership, an associate membership, or other partial or restricted membership. “Initiation fee” means
any payment, contribution, or loan, required as a condition precedent to membership, whether or not that payment,
contribution, or loan is evidenced by a certificate of interest or indebtedness or share of stock, and regardless of the
person or organization to whom it is paid, contributed or loaned. See Tax Law 1101(d). Section 1109 of the Tax Law
imposes an identical 3/8 % rate of state sales tax on dues and initiation fees paid to social and athletic clubs located in
the area of the Metropolitan Commuter Transportation District (MCTD), which includes Westchester County.
Pursuant to the authority of section 1210(a)(1) of the Tax Law, Westchester County imposes an identical 3% sales tax
on dues and initiation fees paid to social and athletic clubs located in the county. The Tax Law does not impose or
authorize any state or local compensating use tax on club dues or initiation fees.

TSB-A-08(58)S
Sales Tax
October 8, 2008

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Petitioner states that the Club is a social club. The By-Laws petitioner submitted with the Petition do not state
the Club’s purposes but suggest it is a social and/or athletic club.
Petitioner’s annual payment to the Club for his MEC is not a payment of dues, since Petitioner is not a
member of the Club and the payment is not made for membership or privileges at the Club or for use of the Club’s
facilities. However, Petitioner’s payment for the MEC does constitute an initiation fee, since it is a payment required
as a condition precedent to Club membership under Article 1 of the Club’s By-Laws. As an initiation fee paid to a
social or athletic club in an amount in excess of $10.00, Petitioner’s payment for the MEC is subject to the state’s 4%
sales tax imposed by section 1105(f)(2). Likewise, it is subject to the 3/8% rate of state tax imposed in the MCTD,
since the Club is located in the MCTD, and also to Westchester County’s 3% rate of tax.
The foregoing analysis and conclusions assume, based on petitioner’s assertion, that the Club is a social or
athletic club. If it is not a social or athletic club, the conclusions would differ.

DATED: October 8, 2008

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the person
or entity to whom it is issued and only if the person or entity fully and accurately
describes all relevant facts. An Advisory Opinion is based on the law, regulations, and
Department policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.