Is a travel-club membership fee taxable in NY when it only covers out-of-state hotel stays and a cruise, and does the customer's NY residency matter?

Plain-English summary

The petitioner, a New York LLC, sells two-year travel-program memberships (about $4,000) by phone. A member gets, at no extra charge, three one-week hotel/resort vacations and a seven-night cruise, plus the right to book nine more discounted weeks -- all at hotels outside New York. A separate unaffiliated company (Company B) handles all reservations and fulfillment; the cruise is run by national cruise lines to their chosen destinations. Members can't resell the benefits. The petitioner asked whether the membership fee is taxable and whether the customer's New York residency matters.

The Office of Counsel concluded the fee is not taxable, regardless of residency:

• Hotel-occupancy tax is location-based. New York's tax on hotel room rent (Tax Law 1105(e)(1)) applies only where the occupancy occurs in New York. Whether the occupant is a New York resident is irrelevant. None of the program's hotel stays are in New York.
• The cruise isn't taxable. The included cruise is not subject to sales and use tax (TSB-A-98(46)S).
• Not taxable club dues. The fee isn't dues of a social or athletic club under Tax Law 1105(f)(2), because members hold no proprietary interest, don't control any social/athletic activities, and don't participate in selecting members or management (20 NYCRR 527.11(b)(5); TSB-A-08(12)S).
• Result: because no part of the fee is for a New York occupancy or any other item subject to New York tax, the membership sales are not taxable.

What this means for you

Travel clubs and membership-vacation sellers

A membership that buys only out-of-state lodging and a cruise generally isn't a New York taxable sale -- New York's lodging tax reaches only in-state stays. Selling from a New York office, or to New York residents, doesn't change that.

Watch the in-state edge case

The result hinges on no New York occupancy being part of the package. Add New York hotel nights and that portion could become taxable. And if your membership gave members real control (proprietary interest, governance), the club-dues tax could come into play.

Common questions

Q: We're a NY company selling to NY residents -- is the membership taxable?
A: No. The hotel-occupancy tax depends on where the stay occurs, not the seller's or buyer's location. Out-of-state stays aren't taxed.

Q: Is the cruise portion taxable?
A: No. The cruise is not subject to New York sales and use tax.

Q: Could this ever be taxed as club dues?
A: Only if members had a proprietary interest or controlled the club's activities/membership/management. Here they don't, so it's not club dues.

Citations and references

• Tax Law section 1105(e)(1) (sales tax on hotel room occupancy in New York)
• Tax Law section 1105(f)(2) (dues of social or athletic clubs)
• 20 NYCRR section 527.11(b)(5) (social/athletic club; member control)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2013.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a13_28s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-13(28)S
Sales Tax
September 9, 2013

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S120705B

The Department of Taxation and Finance received a Petition for Advisory Opinion from
name redacted (Petitioner). Petitioner asks whether the fee it collects from customers for its
travel programs, which includes the right to stay at hotels outside of New York, take a cruise,
and receive certain discounts in regard to other hotel stays outside New York, is subject to tax,
and whether the New York residency status of the customer would make any difference. We
conclude that, because no part of the fees are paid for occupancies occurring in New York, or
any other item subject to New York sales and use tax, the fees would not be taxable regardless of
the customer’s residency status for sales tax purposes.
Facts
Petitioner, a limited liability company doing business in New York, solicits individuals
(“Customers”) by telephone to become members of a travel program. In connection with the
program, each Customer enters into a “Membership Purchase Agreement” with Petitioner, under
which the Customer agrees to pay approximately $4,000 to the Petitioner. Payment of that sum
entitles the Customer to be a member for two years. Within the two year period, the Customer is
entitled, at no additional charge, to (1) three one-week vacations at certain hotels and resorts
(collectively, the “Hotels”) in many States but not New York; and (2) a seven-night cruise (the
“Cruise”). The Cruise to which a member is entitled under the program is sold by national cruise
lines and is to destination(s) chosen by the cruise line and preannounced to the public. The
cruise ship remains under the control of the cruise ship's captain and crew at all times during the
cruises. In addition to these benefits, the Customer is entitled to book up to nine additional
weeks at Hotels within the two year period at a heavily discounted price for each of the nine
weeks. The hotels in question are outside New York. Petitioner states that, while it subcontracts
the travel reservations and related responsibilities to Company B, as discussed below, Petitioner
remains liable under its membership purchase agreement with Customers. The Membership
Purchase Agreement bars the customer from reselling any benefits under the agreement.
Company B is a Hotel distribution company that has access to numerous Hotels
throughout the United States and is not affiliated with Petitioner. Petitioner pays $1,850 for each
agreement to Company B in exchange for Company B assuming all of the responsibilities in
connection with the acceptance and maintenance of reservations, cancellations, customer
complaints, and all other services related to the travel club. Petitioner is not a party to and has no
liability in connection with the contracts Company B enters into with hotels and cruise lines to
fulfill its duties under its contract with Petitioner. Similarly, while Petitioner sub-contracts the
travel reservations and related responsibilities to Company B, Petitioner remains legally liable

-2-

TSB-A-13(28)S
Sales Tax
September 9, 2013

under the original Customer Contract for those services. Of the $1,850, Petitioner and Company
B have agreed that $350 is attributable to 50% of the cost of the Cruise (with Company B
incurring the other $350). As part of the parties’ agreement, Company B agrees to have an
exclusive relationship with Petitioner. This exclusive relationship is necessary to ensure that
Hotel rooms will always be available to Customers.
After enrolling in the travel program, a Customer books all reservations with Company
B. Specifically, a Customer will either call Company B (or access Company B’s internet
platform) to reserve the Cruise, the three one-week vacations and the nine additional weeks at
Hotels. The Customer provides all payments for the nine weeks of Hotel reservations directly to
Company B.
Analysis
The sales tax on the rent from a hotel room occupancy in Tax Law § 1105(e)(1) applies
only where the occupancy occurs in New York. Whether the occupant is a New York resident is
not relevant. Here, the facts indicate that a membership sold by Petitioner entitles a member to a
week-long cruise, three weeks of hotel stays, and the right to purchase at a discount nine
additional weeks of hotel stays. As described herein, the Cruise provided to members is not
subject to sales and use tax (see TSB-A-98[46]S). None of the hotel stays would occur in
New York. Accordingly, Petitioner’s sales of memberships as described herein are not subject to
sales and use tax.
Petitioner’s membership fees are also not dues of a social or athletic club, and thus, are
not taxable under section 1105(f)(2), because Petitioner’s members do not possess any
proprietary interest in Petitioner, control any social or athletic activities, or participate in the
selection of members or club management (see 20 NYCRR § 527.11[b][5]; TSB-A-08[12]S).

DATED: September 9, 2013

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy 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. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.