Are membership dues for a business-networking / referral association subject to NY sales tax as social or athletic club dues?

Plain-English summary

The petitioner is an incorporated business-development association of entrepreneurs, sole proprietors, and family-owned businesses. Its purpose (per its by-laws) is to exchange business information, encourage cooperation, and connect members with business opportunities. It grants exclusive membership by category (one plumber, one electrician, etc.) to limit competition among members, hosts business lunch meetings four times a month (plus a golf outing, holiday party, and open houses), and requires members to attend at least 50% of meetings, report business leads, recommend fellow members, and give periodic talks about their businesses. It charges a $300 application fee (refunded if not invited to join) and $300 quarterly dues, and had been collecting sales tax on the dues. It asked whether the fees and dues are taxable.

The Office of Counsel concluded the fees and dues are not taxable. Tax Law 1105(f)(2) taxes dues only of a social or athletic club -- a club "of which a material purpose or activity is social or athletic" (1101(d)(6), (13)).

• It is a "club." Under 20 NYCRR 527.11(b)(5), a club/organization is people associated for a common objective; a key factor is whether members control admission and activities (e.g., new members must be sponsored/approved by members). Here the membership -- directly or through its all-member officers/board -- controls admission and activities, and no outside party owns it. So it is a club.
• Not an athletic club: it has no sports privileges or facilities.
• Not a social club: a social club's material purpose is arranging dances, dinners, or functions for members to congregate for social interaction (527.11(b)(6)). This association's material purpose is to promote members' businesses through a networking forum. The required minimum attendance, the duty to describe one's business and seek leads, and the duty to provide leads to other members show that members pay primarily for business-promotion opportunities, not socializing (cf. TSB-A-10(26)S).

Because it is neither a social nor an athletic club, the application fee and dues are not subject to sales tax -- and the association had been collecting tax it did not owe.

What this means for you

Networking groups, referral organizations, business associations

Charging membership dues does not automatically trigger sales tax. Dues are taxable only for a social or athletic club. If your group's material purpose is business development -- structured referrals, required participation, business presentations -- it is generally not a social club, and dues are not taxable, even if you also hold an annual dinner or golf outing. (If you have been collecting tax, review whether you owed it.)

Where the line is

Owning or providing sports facilities makes you an athletic club. A material purpose of social congregating (dances, dinners, social functions) makes you a social club. Incidental social events tied to a business or educational purpose do not.

Common questions

Q: We charge membership dues -- are they automatically taxable?
A: No. Only dues of a social or athletic club are taxable. A business-development/networking club's dues are not.

Q: We host lunches, a golf outing, and a holiday party -- does that make us a social club?
A: Not if your material purpose is promoting members' businesses. Incidental social events don't convert a business networking group into a social club.

Q: We've been collecting sales tax on our dues -- should we have?
A: Likely not, if you're a business-development club. This opinion found such dues are not taxable; review your situation (and any refund options) accordingly.

Citations and references

• Tax Law section 1105(f)(2) (sales tax on dues of social or athletic clubs)
• Tax Law section 1101(d)(6) (definition of dues)
• Tax Law section 1101(d)(13) (definition of social or athletic club)
• 20 NYCRR section 527.11(b)(5) (definition of club or organization)
• 20 NYCRR section 527.11(b)(6) (definition of social club)

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_8s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-13(8)S
Sales Tax
February 28, 2013

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S101118B

The Department of Taxation and Finance received a Petition for Advisory Opinion from
the name and address redacted. Petitioner asks whether its membership application fee and
dues for business entities and individuals to become and remain members of Petitioner are
subject to sales tax.
Based on the facts presented, Petitioner’s membership application fee and dues are not
dues of a social or athletic club and are not subject to State or local sales tax imposed by section
1105(f)(2) of the Tax Law.
Facts
Petitioner was incorporated in 1935 as an incorporated association and has continuously
conducted business as such since that time. The purpose of the association, pursuant to its ByLaws remains unchanged:
Article I, Section 3 - Objects of the Association
The objects of the Association shall be to institute and maintain a method of
exchanging and interchanging business information among its members; to create
and encourage cooperation, business efficiency and service to its members; to
bring its members in touch with business opportunities; to promote a better
acquaintance and closer association among its members.
The Petitioner is an independent business development organization whose members
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.
Public
companies are welcome to join, although the focus is entirely on developing organic business
growth through personal introductions and recommendations rather than short-term sales through
more costly methods such as promotional advertising campaigns. The members generate
revenue between $50,000 and several million dollars a year, with average revenue between
$50,000 and $500,000. In order to limit competition among its individual members, Petitioner
offers exclusive memberships in a particular category, e.g. plumber, electrician, florist.
Petitioner's By-Laws limit new members to corporations, partnerships, firms, business
organizations, or individuals whose main activity, profession, product, or service is not in
competition with the main activity, profession, product, or service of another member.

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Sales Tax
February 28, 2013

All members are required to follow the membership guidelines set forth in its By-Laws,
which include annually attending at least 50% of all regularly scheduled business meetings,
reporting to the other members without undue delay all business information that may assist
them to acquire additional business (except professional or bank members with confidentiality
regulations), and recommending members to friends and other business associates, generally
giving fellow members preference in business transactions, and conducting their business in a
manner that reflects credit on Petitioner and its members.
Petitioner’s goal is to promote business services for its members through word-of-mouth
recommendations and the "good will" fostered through long-term business relationships with
other business owners. By exposing its members to a process of continual learning, and by
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.
Petitioner hosts business development lunch meetings four times per month. It also hosts
an annual golf outing, holiday party and several open houses, on a rotating basis at a member
business. At meetings, members are expected to, among other things, report leads received from
fellow members, offer "Thank You's" to any member who referred business to it, present a "30
Second Commercial" once monthly about its business and any special pricing or offers being
made to its fellow members and, biannually give an educational 15-20 minute talk about its
business to keep its fellow members informed of its current business offerings.
Petitioner charges an application fee of $300.00 which is refunded to an applicant if it is
not invited to join. Quarterly dues of $300.00 are billed to each member and, at the present time,
the Petitioner is collecting Sales Tax on said sums. The members of the Association anticipate a
reasonable return on their investment, and Petitioner believes that a majority of its members
realize a multiple return on their dues. The dues are claimed by all members as a tax deductible
business expense.
Petitioner does not own or rent any buildings, offices, or other facilities. Nor does it own,
rent, or have the use of any sporting facilities. Petitioner’s members’ dues cover membership
and support Petitioner and luncheon meeting costs. That is, Petitioner pays for member's meals
at its various meetings and events, though members may pay an extra charge at certain special
events. Petitioner’s By-Laws do not restrict alcoholic beverages at its events, though alcohol is
usually not served. Petitioner also provided a copy of its By-Law of May, 2010, which provides
that Petitioner’s members propose prospects for new membership. Petitioner’s membership
committee considers nominations and any objections thereto and makes a final recommendation
to Petitioner’s Board of Directors, which then approves the new member or not.
Analysis
Section 1105(f)(2) of the Tax Law imposes sales tax on dues paid to any social or athletic
club in this state. “Dues” means any dues or membership fee, including any assessment

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Sales Tax
February 28, 2013

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. “Social or athletic club” means any
club or organization of which a material purpose or activity is social or athletic. Tax Law,
section 1101(d)(6) and (13).
Sales Tax Regulations section 527.11 (b)(5) defines “club or organization” as any entity
which is composed of persons associated for a common objective or common activities.
Whether the organization is a membership corporation or association, a 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 activities, 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.
If the members of a "club" maintain an advisory committee to make suggestions to the "club"
owner, but the owner is not obligated to accept any of the suggestions and the members do not
control any aspects of the "club's" activities, then the entity is not a club or organization. But if
the members of a club maintain an advisory committee and the management of the club is
obligated to accept the decisions of the advisory committee, then the members do control the
entity's activities and it is a club or organization. Furthermore, if a person must be sponsored by
a member of the club before the person can become a member, then the entity is a club, even if
the management of the club reserves the right to admit the new member, because members have
joint control with management over admission of new members.
Regulations section 527.11 (b)(6) defines “social club” to mean a club or organization
which has a material purpose or activity of arranging periodic dances, dinners, meetings or other
functions affording its members an opportunity of congregating for social interrelationship. For
example, a club that is organized for the purpose of educating its members in science, literature,
and art is not a social club, even though it holds an annual dinner dance.
Petitioner is an association of member business firms and individuals. Petitioner’s ByLaws provide that the objects of the association are to exchange business information among its
members, create and encourage cooperation, business efficiency, and service to its members,
bring its members in touch with business opportunities, and promote better acquaintance and
closer association among its members. Petitioner restricts its membership to one entity or
proprietor from each of any business type. Petitioner’s membership, either directly or through its
officers or board of directors, all of whom are members, controls admission to Petitioner and its
activities. No other entity has an ownership interest in Petitioner. Therefore, Petitioner is a club.
Because Petitioner does not convey or possess any sport privileges or facilities, it is not an
athletic club.
Petitioner’s main activities consist of weekly lunch and other meetings at which its
members can further their business interests in accord with the association’s objectives.
Petitioner is not engaged primarily in affording its members an opportunity to congregate for

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Sales Tax
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social interaction. Rather, the material purpose of the club is to promote its members’ businesses
by offering them a networking forum. Compelling facts supporting this conclusion are the
requirements that Petitioner imposes on its members. Members are required to attend a
minimum number of meetings. When they attend meetings, members are required to describe
their own business and the business leads/introductions that they seek. In addition, members
must provide business leads to other members. In sum, businesses pay Petitioner to become
members primarily to avail themselves of the business promotional opportunities that
membership in Petitioner provides. Thus, Petitioner does not constitute a social club for
purposes of sales tax, and its application fee and dues are not dues of a social club and are not
subject to sales tax. See, e. g., TSB-A-10(26)S.

DATED: February 28, 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.