Does a member-owned club owe sales tax on dues from a new class of 'limited members' who have no ownership stake or voting rights?

Plain-English summary

A member-owned country club (golf, tennis, dining, pool) created a new "limited member" class for people 70 and older, charged at 70% of a golf member's rate. Unlike the club's other members, these limited members can't vote and don't share in the club's equity. The club argued that, because limited members have no ownership or governance interest, they aren't really "members," so their payments shouldn't be taxed as dues.

The Office of Counsel disagreed: the limited members' payments are taxable dues. New York taxes the dues of a "social or athletic club" when an active annual member's dues exceed ten dollars a year — and once that threshold is met, the tax reaches the dues of all classes of members (20 NYCRR 527.11(a)(3)). Ownership and governance are factors in deciding whether an entity is a club, but they are not required for an individual to be a "member." Earlier opinions (TSB-A-85(9)S, TSB-A-83(48)S) taxed fees from people who had no control over or stake in the club. The club's reliance on TSB-A-11(12)S failed because those non-members fit no membership class and got no membership privileges — whereas these limited members are a bylaw-contemplated class with club-usage rights similar to golf members.

What this means for you

Clubs adding "limited," "social," or non-equity tiers

Creating a membership tier without voting rights or an ownership stake does not keep those members' dues out of the sales tax. If your active annual members' dues exceed ten dollars a year, dues from every membership class are taxable. Don't assume a non-equity tier is exempt.

The dividing line that actually matters

The exemption argument only worked in cases where the people were not in any membership class and got no membership privileges (true non-members, e.g., outside green-fee players). A class that the bylaws contemplate and that enjoys club privileges is a "member" class, and its dues are taxable.

Accountants and tax professionals

Separate two questions: (1) is the entity a social or athletic club (where member control/proprietary interest are factors), and (2) is the individual a "member" (where those factors are not required). Once § 1105(f)(2)(i) applies, 20 NYCRR 527.11(a)(3) extends it to all members' dues and initiation fees.

Common questions

Q: Our new membership tier can't vote and owns no equity. Are their dues taxable?
A: Yes. Lacking ownership or voting rights does not stop someone from being a "member." If active annual members' dues exceed ten dollars a year, all classes' dues are taxable.

Q: Doesn't TSB-A-11(12)S exempt non-members?
A: That case involved people who fit no membership class and received no membership privileges. A bylaw-defined class with club-usage rights is different and is taxable.

Q: Where active members pay over ten dollars, who owes tax?
A: All members, across every class, on their dues and initiation fees.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your club's bylaws and membership structure.

Citations and references

Statutes and regulations:
- Tax Law § 1105(f)(2)(i) (tax on social/athletic club dues)
- Tax Law § 1101(d)(1), (d)(6), (d)(13) (active annual member; dues; social or athletic club)
- 20 NYCRR 527.11(b)(5)(i) (club-or-organization factors); 527.11(a)(3) (tax reaches all members' dues)

Decisions and guidance cited:
- TSB-A-15(4)S; TSB-A-85(9)S; TSB-A-83(48)S (members without control/stake taxed)
- TSB-A-11(12)S (true non-members not taxed — distinguished); TSB-M-83(19)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales-ao-2020.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a20-4s.pdf

Original ruling text

New York State Department of Taxation and Finance
Office of Counsel

TSB-A-20(4)S
Sales Tax
May 19, 2020

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

The Department of Taxation and Finance received a Petition for an Advisory Opinion from
[ REDACTED ] (“Petitioner” or “Club”). Petitioner asks whether amounts it collects from a new
class of “limited members” that do not have a proprietary interest in the Club or voting rights are
subject to sales tax. We conclude that such amounts constitute dues paid to a social or athletic club
and are subject to New York State and local sales tax under Tax Law § 1105(f)(2)(i).
Facts
Petitioner is a not-for-profit corporation that is wholly owned and operated by members.
According to its bylaws, the Club operates “as a private social club for the enjoyment of [m]embers
and their families and to promote social and sports activities among [its] [m]embers.” Petitioner
operates a number of facilities, including a golf course, tennis courts, dining facilities, and a
swimming pool. With respect to membership, Petitioner’s bylaws provide for three types of
members: “Regular Family Golf Members” (Golf Members), “Family Tennis Members” (Tennis
Members), and “Limited Members.” The rights and privileges of both Golf Members and Tennis
Members – whose numbers are limited to 231 and 50, respectively - are largely provided for in
Petitioner’s bylaws, and include the right to equity in the Club’s property and assets (i.e. a
proprietary interest in Petitioner), as well as the right to vote, hold office, and to serve on Petitioner’s
Board of Governors (“Board”), which is the Club’s governing body. By contrast, the rights and
privileges of “Limited Members” are not explicitly set forth in Petitioner’s bylaws. Rather, the
bylaws empower the Board to create such “additional classes of [m]embers” from time-to-time, and
to determine the rights and privileges of these members.
Petitioner indicates that, historically, all classes of membership have included both an equity
interest in the Club and the ability to participate in the Club’s governance (i.e., an ability to vote). In
addition, Petitioner notes that all dues and other charges of the Club have been subject to sales tax
pursuant to Tax Law § 1105(f)(2). However, on October 1, 2015, Petitioner’s Board created a new
“limited membership” class that is open to people 70 years of age and older, and which is charged
70% of what a Golf Member is charged. According to Petitioner, individuals in this new class have
“similar rights to the use of the Club as . . . Golf Members,” but lack the right to vote at the Club or
share in the equity of the Club should it ever be liquidated or dissolved. In addition, unlike other
club members, these new “limited members” are not required to make charitable contributions, are
not subject to minimum food usage charges, and are not subject to operating and capital assessments.
It is assumed for purposes of this opinion that Petitioner’s Golf Members enjoy full club
privileges, and that their dues are greater than ten dollars per year.

-2-

TSB-A-20(4)S
Sales Tax
May 19,2020

Analysis
Tax Law § 1105(f)(2)(i) imposes a sales tax on dues paid to any social or athletic club in
New York if the dues of an active annual member, exclusive of an initiation fee, exceed ten dollars
per year. See N.Y. Tax Law § 1105(f)(2).
An “active annual member” is a member who is
not a life member but who enjoys full club privileges, as opposed to a member that holds a partial or
restricted membership. See N.Y. Tax Law § 1101(d)(1). The term “Dues” includes any membership
fee paid to a social or athletic club. See Tax Law § 1101(d)(6); 20 NYCRR 527.11(b)(2). A “social
or athletic club” is any club or organization of which a material purpose or activity is social or
athletic. See Tax Law § 1101(d)(13). A “club or organization” is an entity composed of persons
associated for a common objective or common activities. See 20 NYCRR 527.11(b)(5)(i).
Significant factors, any one of which may indicate that an entity is a “club or organization,” include
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 possession by the members of a proprietary interest in the organization.
See id. See also TSB-M-83(19)S.
As noted above, Petitioner is a member-owned and operated not-for-profit corporation. In
addition, Petitioner’s bylaws make clear that its purpose is to be a “private social club for the
enjoyment of Members,” and it operates a number of sports-related and/or social facilities, including
a golf course, tennis courts, dining facilities and a swimming pool. It is clear, therefore, that
Petitioner is a “social or athletic club” for Tax Law § 1105(f)(2)(i) purposes.
It is well settled that, where sales tax pursuant to Tax Law § 1105(f)(2)(i) applies to the dues
of an active annual member of a social or athletic club, such tax also applies to all dues and initiation
fees paid by all members of such club. See Tax Law § 1105(f)(2)(i); 20 NYCRR 527.11(a)(3). In
TSB-A-15(4)S, for example, it was found that where the dues of “active annual members” were in
excess of $10 per year, the dues of all classes of membership, including those members who paid
less than ten dollars per year, and charges paid by members who did not have full club privileges,
were subject to sales tax pursuant to Tax Law § 1105(f)(2)(i). Thus, any charges paid by Petitioner’s
new “limited membership” members are dues subject to sales tax pursuant to Tax Law §
1105(f)(2)(i). See Tax Law § 1101(d)(6); 20 NYCRR 527.11(a)(3) & (b)(2).
Petitioner, however, contends that its new “limited members” are not “members” of its Club because
they do not have an ownership or governance interest in it. While ownership and/or governance
interest by individuals is, as noted above, one of the factors considered when assessing whether an
entity is a social or athletic club for Tax Law § 1105(f)(2)(i) purposes, no such requirement exists for
one to be a “member” of such club. In TSB-A-85(9)S, for example, even though the social or
athletic club at issue was not owned or controlled by the individuals who used it, the individuals
associated with it were considered “members,” and the fees charged to these individuals – to the
extent that any class of “member” was charged more than ten dollars per year – were deemed to be
taxable. Likewise, in TSB-A-83(48)S, fees collected by a social or athletic club from individuals
were deemed to be subject to sales tax even though the individuals charged the fee lacked
membership control over, or a proprietary interest in, the club. Thus, the lack of an ownership or
governance interest in a social or athletic club is not determinative of whether one is a “member” of
such club.

TSB-A-20(4)S
Sales Tax
May 19,2020

-3-

Petitioner, however, points to TSB-A-11(12)S in support of its contention that charges made
to its new class of “limited members” should not be subject to sales tax. In TSB-A- 11(12)S, the
Department determined that charges to non-members of a club for use of its golf course were exempt
from sales tax because “the non-members do not obtain any proprietary interest or status in [the club]
under[its] by-laws.” However, TSB-A-11(12)S does not address what constitutes “membership” in a
social or athletic club for Tax Law § 1105(f)(2) purposes. Further, and more significantly, TSB-A11(12)S reflects that the individuals deemed “non-members” in that decision did not fit into any
class of membership provided for in the petitioner’s bylaws, and further were afforded “no
membership privileges” by the club at issue. By contrast, Petitioner’s new class of “limited
members” is a class of membership that is contemplated by its bylaws, and the members of this class
have club usage rights that are “similar” to the rights of Golf Members. Accordingly, we find that
individuals in Petitioner’s new “limited membership” class are “members” of Petitioner, and that
their payments to it are dues (i.e., charges for social or sports privileges or facilities) subject to sales
tax pursuant to Tax Law § 1105(f)(2)(i). See 20 NYRCC 527.11(a)(3).
DATED: May 19, 2020

/S/
DEBORAH R. LIEBMAN
Deputy Counsel
NOTE: 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.