Are a golf club's member dues, its mandatory 'subvention' fee, and its non-member playing fees subject to NY sales tax?

Plain-English summary

The petitioner is a not-for-profit fraternal organization that operates a golf course. Under by-laws adopted in 2007, anyone who wants to be a member must buy at least one "subvention certificate" for $1,000. A subvention certificate gives the holder: a proportional share of the club's assets (chiefly the land under the course) if the club dissolves; possible periodic payments; automatic pass-through to a surviving spouse/heir on death; and voting control over major matters (by-law changes need a two-thirds vote; selling the course or changing the dissolution provisions needs an 80% vote). The holders are the club's "voting members." Separately, non-members of the public may play by paying per-round course fees or annual playing fees; they get no ownership, proprietary interest, vote, or say over club functions. The club asked whether its member dues, the subvention fee, and the non-member playing fees are taxable.

The Office of Counsel concluded:

• Member dues -- taxable. Tax Law 1105(f)(2) taxes dues of a social or athletic club (over $10/year). Whether the entity is a "club" turns on factors in 20 NYCRR 527.11(b)(5) -- including whether members control activities or hold a proprietary interest. Here the subvention certificates give members a proprietary right (share of assets on dissolution, voting control, inheritance), so the entity is a club despite its not-for-profit status (contrast Antlers Country Club, where control/property were held by non-member stockholders). The members' dues -- including charges for their own use of the course (greens fees) -- are taxable.
• Subvention fee -- taxable initiation fee. Because buying a subvention is a condition precedent to membership, it's an initiation fee under Tax Law 1101(d)(7) (20 NYCRR 527.11(a)(2)) and is taxable.
• Non-member playing fees -- not taxable. Non-members get no proprietary interest or membership, so their annual playing fees and course fees aren't club dues under 1105(f)(2). They're also not taxable admissions under 1105(f)(1), because they're charges to participate in a sporting activity, which that section excludes.

What this means for you

Golf, athletic, and social clubs

The line between taxable club dues and nontaxable playing/greens fees is proprietary interest and control. If the people paying get an ownership-like stake -- a share of assets on dissolution, voting power over the organization, inheritable rights -- they're members of a "club" and their dues (including their own facility use) are taxable, and any mandatory buy-in is a taxable initiation fee. If a payer is just buying access to play with no ownership or governance rights, that fee is not taxable -- it's a charge to participate in a sport, which the admissions tax excludes. Not-for-profit status doesn't change this analysis.

Players

A membership that gives you a real stake/vote will carry tax on your dues; a pay-to-play arrangement with no ownership rights generally won't.

Common questions

Q: Are our members' golf dues taxable?
A: Yes, if members hold a proprietary interest or control the organization (here, via subvention certificates) -- that makes you a taxable club, and member dues (including their greens fees) are taxable.

Q: Is the mandatory $1,000 subvention fee taxable?
A: Yes. As a required condition of membership it's a taxable initiation fee.

Q: What about non-members who just pay to play?
A: Not taxable -- their playing/course fees aren't club dues, and a charge to participate in a sport isn't a taxable admission.

Citations and references

• Tax Law section 1105(f)(2) (dues of social or athletic clubs)
• Tax Law section 1105(f)(1) (admission charges)
• Tax Law section 1101(d)(7) (initiation fee)
• Tax Law section 1101(c)(6) (dues)
• 20 NYCRR section 527.11(b)(5) (club or organization; proprietary interest)
• 20 NYCRR section 527.11(a)(2) (initiation fee)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2011.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a11_12s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-11(12)S
Sales Tax
April 8, 2011

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

PETITION NO. S110112C

Petitioner, name redacted, asks whether the annual playing fees it charges members and nonmembers for the use of its golf course are subject to sales and use taxes. We conclude that the annual
dues paid by Petitioner’s members are subject to tax, because the members gain a proprietary interest
in the Petitioner within the meaning of §527.11(b)(5) of the Sales and Use tax regulations. We also
conclude that the subvention fee prospective members are required to pay is, itself, subject to tax
pursuant to section of the Sales and Use tax regulations as an initiation fee (See §527.11(a)(2) of the
Sales and Use Tax Regulations, and §1105(f)(2) and §1101(d)(7) of the Tax Law). However, the
annual playing fees charged by Petitioner to non-members who use its golf course are exempt from
tax, because the non-members do not obtain any proprietary interest or status in Petitioner under
Petitioner’s by-laws, and the charge is not a taxable admission under section §1105(f)(1) of the Tax
Law because it is for access to a sporting facility to partake in sporting activities in which the patron is
a participant.
Facts
Petitioner is a not-for-profit Fraternal Organization (but not one that operates under a lodge
system for the purposes of §1105(f)(2)(ii)(A) of the Tax Law) that operates a golf course. In 2007,
Petitioner adopted a new set of by-laws that changed the financial structure of the organization. Under
the previous by-laws, anyone who paid the annual membership dues (playing fees) became an
automatic member of the club. Along with this membership came the right to be on the Petitioner’s
Board of Directors and the right to vote on all club business, including election of officers and all
financial matters.
The new bylaws give Petitioner’s Directors the right to issue “subvention certificates” to
members regardless of whether they use Petitioner’s golf course. A subvention certificate confers
various rights and benefits upon the holder, in particular a proportional share of Petitioner’s assets if
the Petitioner is dissolved. Petitioner describes the subventions in the following manner:
A subvention is a form of corporate financing. Essentially, a subvention is a type of interest
with attributes of both equity and debt securities that enable the Club to accept from its
members and non-members, money and/or property, but not services. Through subventions,
the Club is able to raise and receive funds from public minded governmental and private
agencies, public corporations, private companies, or individuals without incurring corporate
debt. Subventions are particularly suitable to not-for-profit corporations, since profit from
operational income would not be the basic motive of the corporation.
All members, and anyone seeking to become a member of Petitioner, are required to purchase
at least one subvention, at a cost of $1,000. Members of the public seeking to play on the course are
not required to purchase a subvention or become a member of Petitioner. They simply pay a fee to use
the course. The purchaser of a subvention is not required to pay any annual playing fees or to even

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Sales Tax
April 8, 2011

play golf at the Petitioner’s course. Fifty percent of the current subvention holders pay the annual
playing fee for access to the golf courses. The subvention certificates are not redeemable or
transferable except through Petitioner’s treasurer.
Petitioner’s Board of Directors is authorized to provide for the periodic payment on the
amount of the subvention held by each member. This payment, however, may not exceed two-thirds
of the maximum interest rate authorized by the applicable provisions of the General Obligations Law
of the State of New York. Petitioner’s by-laws provide:
In the event of dissolution or final liquidation of the Club, all of the property and
assets of the Club, after payment of its debts, will be distributed, as permitted by New
York law or a court having jurisdiction, among the members in good standing in
proportion to the number of Subvention Certificates owned by each.
This provision is intended to provide for the distribution of Petitioner’s chief asset, the land under the
playing area, which would be sold in the event of a dissolution or final liquidation. Also, upon the
death of a member, any subvention certificates held by that member automatically pass to the
surviving spouse. If the deceased member is not survived by a spouse, then a legatee or heir will have
the right to acquire the deceased member's subvention certificates without the payment of any
additional purchase price.
The holders of the subvention certificates are described by the by-laws as the “the voting
members of the club.” They are designated as “members” or collectively as “the membership.” Along
with membership comes the right to vote for members of the board of directors. While the day to day
administration of Petitioner’s affairs is vested in the Board of Directors, any changes to the
Petitioner’s by-laws require a two-thirds vote of the membership. Certain financial transactions
require “the vote of at least eighty percent (80%) of all of the members entitled to vote.” This includes
the sale of any real property which contains the golf playing area, any amendment to the by-laws or
articles of incorporation that “in any manner restricts the rights or privileges of the voting members
[the subvention holders] of the club.” In addition, any changes to the dissolution or liquidation
provisions (Article 21.6 of the Petitioner’s by-laws as quoted above) or any capital assessments
required against the membership to cover operational deficits requires an 80% vote of the membership.
Petitioner also allows non-members to play golf at its facilities, both by paying for individual
rounds or through the payment of annual playing fees. Petitioner places no restriction on the number
of annual playing fees sold and does not restrict who may purchase them. As only holders of a
subvention are members of the Petitioner, non-members paying annual fees have little influence over
Petitioner’s activities. Petitioner states that non-members who pay the annual playing fee will:
a. Pay no initiation fee.
b. Have no ownership rights in the club.
c. Have no proprietary interests in the club.
d. Have no control over the club’s social functions, leagues or tournaments. The
board of directors is not obligated to accept opinions or suggestions regarding club
rules or policies from any non-member.
Non-members may elect to pay either annual playing fees or separate course fees to play on
Petitioner’s course.

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Analysis
Tax Law §1105(f)(2) 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, and on the initiation fee alone, regardless of the amount of dues, if such initiation fee is in
excess of ten dollars.” Tax Law §1101(c)(6) defines dues as any “membership fee including any
assessment, irrespective of the purpose for which 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.” Sales and Use Tax Regulation §527.11(b)(5)
defines a club or organization as “any entity which is composed of persons associated for a common
objective or common activities . . . . 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.”
Petitioner, as a golf club, is an athletic club; the question is whether Petitioner is a club or
organization for the purposes of §527.11(b)(5) of the Sales and Use Tax Regulations. Under the
current by-laws, the terms “club membership” and “subvention holder” are synonymous. All
members of the club must purchase a subvention certificate, and no one who plays golf at Petitioner’s
facility who is not a holder of such a subvention certificate is considered a member. While Petitioner
allows non-members to play at the course, they are afforded no membership privileges. The
Petitioner’s by-laws make no provision for these users whatsoever. Cf. Antlers Country Club, Inc.,
Tax Appeals Tribunal, (November 19, 1992) (Entity was not a “club” because both control and
property interest of the club were held by the stockholders, who were not all members of the club).
The subvention certificates sold to the membership also confer the right to potentially receive
periodic payments while held by the member (if such payments are approved by the board) and the
holder is entitled to receive a proportional share of Petitioner’s assets if the club is liquidated and its
property, including the playing course, is sold. These subvention certificates pass to the holder’s heirs
upon death, and Petitioner’s by-laws place severe restrictions on the Board’s ability to alter the bylaws in terms of any significant financial matter. Indeed, any change to the by-laws that would restrict
the rights or privileges of the voting members (the subvention holders) of the club requires a twothirds vote of the membership. Any change which would affect the member’s interest in Petitioner’s
assets upon dissolution or liquidation of the club requires an 80% vote of the membership. Therefore,
notwithstanding Petitioner’s status as a not-for-profit corporation, the subvention certificates are being
used to afford the members of the club a proprietary right within the meaning of §527.11(b)(5)(i) of
the Sales and Use Tax Regulations. The dues paid by Petitioner’s members are therefore subject to
sales tax pursuant to Tax Law §1105(f)(2). For the purposes of §527.11(b)(2)(i) of the Sales and Use
Tax Regulations, the term “dues” would include any charge to the member for social or sports
privileges or for their own use of the facilities, such as a greens fee. Moreover, because the subvention
fee is a condition precedent to membership and a mandatory contribution required from any person
seeking membership, it is an initiation fee pursuant to §1101(d)(7) of the Tax Law and is also subject
to tax.
The annual playing fees and course fees charged to non-members are not club dues and are not
subject to tax under §1105(f)(2) of the Tax Law. The annual playing fees and course fees charged to
non-members are also not taxable admissions under §1105(f)(1) of the Tax Law, because the fees

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April 8, 2011

constitute charges for a participatory sporting activity, and are specifically excluded from the tax
imposed by that section.

DATED: April 8, 2011

NOTE:

/S/
DANIEL SMIRLOCK
Deputy Commissioner and 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.