Are membership dues charged by a business-development networking organization taxable as social or athletic club dues?

Plain-English summary

The petitioner runs an independent business-development (networking) organization whose members are mostly entrepreneurs and family-owned businesses. It hosts business-development lunch meetings (at the Harvard Club) plus a few annual social events, and members come to grow their businesses through referrals and personal introductions. It charges application fees and quarterly dues, and asked whether those dues are taxable.

The Office of Counsel concluded the dues are NOT taxable.

• NY taxes dues only to a "social or athletic club." Tax Law 1105(f)(2)(i) imposes sales tax on dues to a social or athletic club; "dues" is broad (1101(d)(6)), and a "social or athletic club" is one whose material purpose or activity is social or athletic (1101(d)(13)).
• This is a "club or organization" -- but not a social club. It meets the broad definition of a club or organization (20 NYCRR 527.11(b)(5)). But a social club is one whose material purpose is arranging functions for members to congregate for social interrelation (527.11(b)(6)) -- and that's not this group. Its material purpose is to promote members' businesses by providing a structured networking forum.
• The members' obligations prove the point. The most compelling facts: members must attend a minimum number of meetings, describe their business and the leads/introductions they're seeking, and provide business leads to other members. In short, businesses pay to join solely to access the business-promotion opportunities -- members even report a return on investment (revenue generated) of many times their dues, and claim the dues as a business expense.
• The test. It's not whether the club has any social features, but whether those features are a material purpose or merely incidental (Union League Club of Chicago). Here the social events are incidental to the business mission.

What this means for you

Networking, referral, and trade organizations

Dues are taxable only if your group is a social or athletic club -- i.e., social/athletic activity is a material purpose. A group built around business promotion (mandatory meetings, required pitches, lead-sharing, ROI expectations) is generally not a social club, even if it holds occasional dinners or a holiday party. Document the business obligations you impose on members; they're strong evidence the purpose is commercial, not social.

The flip side

If social/recreational activity becomes a material purpose (not just incidental), dues over $10/year can become taxable. The label and the occasional event don't decide it -- the real reason members join and stay does.

Common questions

Q: We're a business-networking group that meets for lunch -- are our dues taxable club dues?
A: Generally no. If your material purpose is promoting members' businesses (with required attendance, pitches, and lead-sharing), you're not a social club, so dues aren't taxable.

Q: We also hold a holiday party and a golf outing. Does that make us a social club?
A: Not by itself. The test is whether social/athletic activity is a material purpose or merely incidental to a business mission.

Citations and references

• Tax Law section 1105(f)(2)(i) (dues to social or athletic clubs)
• Tax Law section 1101(d)(6) (dues defined)
• Tax Law section 1101(d)(13) (social or athletic club defined)
• 20 NYCRR 527.11(b)(5) (club or organization defined)
• 20 NYCRR 527.11(b)(6) (social club defined)
• Union League Club of Chicago v. United States, 4 F. Supp. 929 (Ct. Cl. 1933)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2010.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a10_26s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-10(26)S
Sales Tax
June 21, 2010

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

PETITION NO. S091006A

On October 6, 2009, the Department of Taxation and Finance received a Petition for Advisory
Opinion from name and address redacted. Petitioner asks whether membership dues it charges for
business development services are subject to sales tax. Petitioner is not operating a social or athletic
club; therefore, its membership fees are not subject to sales tax.
Facts
Petitioner is an independent business development organization whose members mostly
consist of entrepreneurs, individual proprietorships, and family-owned businesses that have achieved a
certain level of economic success through developing long-term client relationships, word-of-mouth
recommendations, and personal and/or professional references. Although public companies are
welcome to join, the focus is on developing organic business growth through personal introductions
and recommendations rather than techniques usually employed by large-scale corporations that often
seek to stimulate short-term sales through more costly methods such as promotional advertising
campaigns. The members generate revenue between 3 to 100 million dollars a year; average revenue
is $5 to $10 million.
Most members have experienced growth in their business and continue to believe that they can
grow their business most effectively by marketing themselves as being more prompt and responsive,
efficient, dependable, and trustworthy than their competitors and paying a particularly high level of
attention to their clients’ individual needs. This type of marketing is especially effective through
word-of-mouth recommendations. Petitioner’s business philosophy is that, by exposing its members
to a process of continual learning and exploring each other’s respective business, each member can
serve as an extended sales force for each other member, thereby exponentially increasing each
member’s business exposure in targeted niche markets.
In order to achieve this type of cohesion among its members, Petitioner hosts business
development lunch meetings three times per month at the Harvard Club. It also hosts an evening
networking reception three times a year, an annual golf outing, and a holiday party. These meetings
are run on a very tight schedule. Each member is expected to complete a certain amount of
“homework” prior to the meeting: (1) preparation of a three to five minute description of the
member’s business and how it distinguishes itself from its competitors; (2) a description of one or two
specific leads/contacts or individual introductions that the member is looking for; and (3) a description
of one or two specific business leads that the member can offer to the other members or an offer to
make a personal introduction(s) to potential business clients in specific markets (for example, a

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member that sells medical supplies to hospitals may offer to make an introduction to a specific
hospital administrator that could benefit a member in the business of selling professional uniforms).
Petitioner submitted a copy of its Format and Structure outline given to members to assist them in
preparing for the meetings.
At meetings, cross-marketing is developed on two different levels. At the first level, members
engage in cross-marketing efforts at the individual tables during lunch. Approximately eight members
are seated at each table and the table chairpersons, who are selected by Petitioner’s Table Chair
Committee, are responsible for keeping the discussions on track and moving from member to member.
Contact information is exchanged where members make useful business connections at the table. At
the second level, introductions and exchanges occur at the floor level. Each member at the meeting is
afforded the opportunity to introduce the member’s business to the group as a whole, to submit
requests for business leads or introductions to the room, and to provide leads that may be useful to
other members. Petitioner submitted a copy of a sample meeting agenda.
In order to limit competition among its individual members, Petitioner offers two types of
memberships. The first is an exclusive membership pursuant to which the member will represent the
sole business in a particular category, e.g., boutique hotel design or restaurant equipment supply. The
second type of membership is an open membership, in which case there may be a maximum of two
companies in the same category. Exclusive members are required to attend at least 50% of the
business development meetings and open members are required to attend a minimum of one meeting
per quarter. Petitioner submitted a copy of its “Guide for New Member Candidates.”
Petitioner’s by-laws impose the following obligations on members:
1.
2.
3.
4.
5.
6.
7.

report to other members, without undue delay, all business information that may assist other
members to acquire additional business;
mention and recommend to friends and business associates, at all suitable times, the merits of
various association members;
act promptly on all business leads received from members;
file periodic reports with Petitioner’s Executive Director as to all business received from
fellow members;
notify a fellow member when a lead provided by a member results in a business transaction;
transact all business referred by a member in manner that reflects positively upon the fellow
member and the association;
familiarize themselves with various businesses represented by the association for purposes of
making as many recommendations of fellow members’ businesses as circumstances permit.

Petitioner charges a $1,200 application fee (to be refunded if the applicant is not invited to
join), a onetime fee of $750 upon full acceptance, and quarterly dues of $950 for the first year and
$1,200 thereafter. Petitioner believes that members join its organization with the expectation of

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Sales Tax
June 21, 2010

earning a multiple return on their dues, which they view as an investment. Petitioner’s members have
reported a return on investment (i.e., revenue generated) in the range of two to forty times their annual
dues, with the average return being ten times annual dues.
All members claim membership dues as a tax deductible business expense.
Analysis
Section 1105(f)(2)(i) of the Tax Law imposes sales tax on the 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. Tax Law section 1101(d)(6) defines “dues” as any dues or membership
fee including any assessment, irrespective of the purpose for which made. Tax Law section
1101(d)(13) defines “social or athletic club” as any club or organization of which a material purpose
or activity is social or athletic. Sales tax regulation section 527.11(b)(5)(i) defines “club or
organization” as follows:
The phrase club or organization means any entity which is composed of persons associated
for a common objective or common activities. Whether the organization is a membership corporation
or association or business corporation or other legal type of organization is not relevant. Significant
factors, any one of which may indicate that an entity is a club or organization, are: an organizational
structure under which the membership controls social or athletic activities, tournaments, dances,
elections, committees, participation in the selection of members and management of the club or
organization, or possession by the members of a proprietary interest in the organization. The
organizational structure may be formal or informal.
Regulation section 527.11(b)(6) defines “social club” as any club or organization which has a
material purpose or activity of maintaining quarters for arranging periodic dances, dinners, meetings,
or other functions affording its members an opportunity of congregating for social interrelation.
The test of taxability is not whether a club has any social features at all, but whether or not
such activities, viewed in the light of all the circumstances of its existence, including the declared
purpose of the organization as shown by its constitution and by-laws (if their provisions are enforced),
provide the real reason for its existence and enable it to secure members and retain them. Another way
to put the issue is whether the social features of the club involved are merely incidental or, on the other
hand, are a material purpose of the organization. Union League Club of Chicago v. United States,
supra. [Ct. Cl., 4 F. Supp. 929 [1933 CCH ¶9576].
While Petitioner’s organization is a club or organization, as that term is defined in the sales tax
regulations, it does not constitute a social club for purposes of sales tax. Petitioner is not engaged
primarily in affording its members an opportunity of congregating for social interrelation. Rather, the
material purpose of the club is to promote the businesses of the members by offering a networking
forum for them. The most compelling facts supporting this conclusion are the requirements that

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Petitioner imposes on members. Members are required to attend a minimum number of meetings.
When they attend meetings, members are required to describe their business and business
leads/introductions they are seeking. In addition, members must provide business leads to other
members. In sum, businesses pay Petitioner to become members in its organization solely in order
avail themselves of the business promotional opportunities that Petitioner provides.

DATED: June 21, 2010

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.