If a social or athletic club opens membership to the public on a first-come basis, do its dues, initiation fees, and assessments stop being subject to NY sales tax?

Plain-English summary

The Petitioner is a 501(c)(7) not-for-profit that owns and runs a golf course, clubhouse, restaurant, and bar for its members. It concedes it is currently a social or athletic club, so its initiation fees, dues, and assessments are taxable. It proposed to amend its by-laws to drop the requirement of Board approval for membership and admit the general public first-come, first-served (reserving only the right to cap membership for overcrowding). It asked whether dropping the exclusivity clause would take it out of "social or athletic club" status -- and out of the dues tax.

The Office of Counsel concluded the dues, initiation fees, and assessments would remain taxable:

• The test is member control, not exclusivity. Section 1105(f)(2) taxes dues and initiation fees paid to a social or athletic club; "dues" includes assessments of any purpose (section 1101(d)(6)). A "club or organization" is marked by members controlling the activities, management, and selection, or holding a proprietary interest (Reg. 527.11(b)(5)).
• Members still control. The Board of Directors controls the facilities, and every director must be a member -- and that wouldn't change under the proposed by-laws. So the membership, through the members-only Board, retains control.
• Antlers Country Club distinguished. There the entity wasn't a club because stockholders held both control and a property interest and not all stockholders were members. Here control stays with the members.
• Result: opening the doors to the public doesn't remove the control feature, so the club stays a club and its member billings stay taxable.

What this means for you

Member-owned clubs

You can't escape the dues tax just by dropping membership screening or admitting anyone who applies. The question New York asks is whether the members control the club's activities and management (or hold a proprietary interest). If a members-only board runs the place, you're a taxable club.

Nonprofit status doesn't help

Being a 501(c)(7) doesn't exempt the dues -- the social-or-athletic-club tax applies to the dues, initiation fees, and assessments regardless.

What would actually change the answer

The control factor is decisive. An entity escapes "club" status when outsiders (e.g., non-member owners) control it and members don't -- as in Antlers.

Common questions

Q: If we let the public join freely, are our dues still taxable?
A: Yes, as long as members continue to control the club's activities and management -- here, through a members-only Board of Directors.

Q: We're a 501(c)(7) nonprofit -- doesn't that exempt our dues?
A: No. The social-or-athletic-club dues tax applies regardless of federal tax-exempt status.

Q: What makes an entity NOT a taxable club?
A: When non-member owners hold control and a property interest and members don't -- the situation in Antlers Country Club.

Citations and references

• Tax Law section 1105(f)(2) (dues and initiation fees of a social or athletic club)
• Tax Law section 1101(d)(6) (definition of dues)
• 20 NYCRR section 527.11 (social or athletic clubs; club or organization)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2014.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a14_31s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-14(31)S
Sales Tax
August 26, 2014

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

PETITION NO. S131021B

The Department of Taxation and Finance received a Petition for an Advisory Opinion
from Redaction, Redaction, Redaction. Petitioner requests guidance on whether initiation fees,
annual dues and general assessments billed to club members are subject to sales and use tax if
Petitioner amends its by-laws to remove its exclusivity of membership clause.
We conclude that Petitioner’s proposed changes to its membership policy would not
affect Petitioner’s status as a “club” or “organization” for sales tax purposes under Tax Law §
1105(f)(2) because its membership would continue to retain control over the use of the facilities.
Therefore, even if Petitioner makes the proposed changes to its membership policy, the initiation
fees, annual dues and general assessments paid to Petitioner still would be subject to sales and
use tax.
Facts
Petitioner is a not-for-profit organization exempt from Federal taxation pursuant to
Internal Revenue Code § 501(c)(7) and is the sole owner and operator of Redacted Redacted
Redacted, which provides its members use of a golf course, clubhouse, restaurant, and bar
facilities. The Board of Directors exercises control over the use of the facilities. The Board
consists solely of club members and club membership is mandatory for election to the Board.
Club membership is currently granted by a vote of the Board of Directors. Pursuant to Article
1.6(C) of the Petitioner’s by-laws: “No person shall be admitted to any classification of
membership until an application shall be approved by the Board of Directors or such committee
to which the Board may delegate such power. The Board of Directors is authorized to establish
such requirements for the recommendation and investigation of new applicants as it shall deem
necessary and in the best interest of [Petitioner].” Petitioner concedes that it is currently a
“social or athletic club” within the meaning of Tax Law § 1105(f)(2); therefore, sales tax is
imposed on amounts billed to members for initiation fees, annual dues, and general assessments.
Petitioner proposes to amend its by-laws to remove the requirement of Board of Directors
approval for membership and to accept membership from the general public on a first-come,
first-served basis. Under the proposed by-laws, the Board of Directors will reserve the right to
restrict membership based solely upon the size of the facilities and the possibility of
overcrowding. Although Petitioner will use the terms “club” and “member” in its marketing,
Petitioner will not restrict its membership by geographic area, income, race, religion, or any
other means. Petitioner seeks guidance as to whether elimination of the restricted membership
clause would exclude Petitioner from classification as a “social or athletic club” pursuant to

-2-

TSB-A-14(31)S
Sales Tax
August 26, 2014

§1105(f)(2), thereby not subjecting member billings for initiation fees, annual dues, and general
assessments to state and local sales tax.
Analysis
Tax Law § 1105(f)(2) imposes sales tax on the dues and initiation fees paid to any “social
or athletic club.” Tax Law § 1101(d)(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 are otherwise 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.”
In Antlers Country Club, Inc., the Tax Appeals Tribunal (November 19, 1992) held that
an entity was not a “club” because the entity’s stockholders retained both control and property
interest over the entity, and not all stockholders were members of the club. Here, the Board of
Directors exercises control over the use of the facilities, and each director is required to be a
member of the club. This would not change under Petitioner’s proposed amendments to its bylaws. Therefore, since the club members, through the “members only” Board of Directors,
would retain control over the club’s activities and management, Petitioner would remain a “club”
under Tax Law § 1105(f)(2), regardless of whether it implements its proposed membership
changes.
In light of the foregoing, we determine Petitioner would continue to be subject to sales
and use tax on its initiation fees, annual dues and general assessments.

DATED: August 26, 2014

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
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