Can a not-for-profit golf club buy topsoil, seed, fertilizer, and chemicals tax-free by arguing they are 'resold' to members through their dues?

Plain-English summary

Crag Burn Golf Club, Inc., an unincorporated not-for-profit golf club supported by member dues and assessments, buys topsoil, seed, fertilizer, and chemicals to improve and maintain its golf course. It argued these are effectively purchased for resale, because members pay dues to use the course into which the materials are incorporated. It asked whether the purchases are taxable.

The Department held the purchases are taxable — the resale theory fails.

• Not a resale. Section § 1105(a) taxes retail sales of tangible personal property, and § 1101(b)(4) excludes property bought for resale "as such or as a physical component" of tangible personal property. The topsoil, seed, fertilizer, and chemicals are not resold in either way.
• Not used to perform a taxable service. They also aren't bought to perform a taxable service. Maintaining the club's own course for its members is not a service "subject to tax." While course upkeep fits the general description of "maintaining, servicing or repairing real property" in § 1105(c)(5), that is taxable only when performed for another and giving rise to receipts — and member dues are not such receipts.
• No double taxation. The club pays tax on its purchases under § 1105(a); its members separately pay tax on their dues under § 1105(f)(2) (dues to a social or athletic club). Those are "wholly separate transactions," so there is no improper redundancy.
• Distinguished cases. Finch, Pruyn & Co. v. Tully and Burger King, Inc. v. Tully didn't help the club: both turned on an actual transfer of the purchased item to the ultimate customer, which didn't happen here.

What this means for you

"My members pay to use it" is not a resale. Materials you buy and build into your own property — a course, a facility, your premises — are consumed by you, not resold to members, even though members pay to use the result. You owe tax on those purchases.

The resale/exempt-service tests require an actual transfer or a taxable service for another. The exclusions in § 1101(b)(4) hinge on reselling the item or transferring it to a customer of a taxable service. Self-performed upkeep of your own property for your own members meets neither.

Being taxed on purchases and on dues isn't "double taxation." They are separate taxable events — your purchase of goods, and your members' payment of club dues. Both can be taxed.

Common questions

Q: Our club buys materials to maintain facilities our dues-paying members use. Are those purchases tax-free?
A: No. They aren't resold to members and aren't used to perform a taxable service for another, so the club pays sales tax on them under § 1105(a).

Q: Isn't it double taxation to tax our supplies and our members' dues?
A: No. The purchase of supplies and the payment of club dues are separate transactions; each is taxable on its own (§ 1105(a) and § 1105(f)(2)).

Q: What if we actually transferred the item to members?
A: Cases like Finch, Pruyn and Burger King turned on an actual transfer of the purchased item to the customer. Absent such a transfer, the resale theory does not apply.

Citations and references

Statutes:

• Tax Law § 1105(a) — tax on receipts from retail sales of tangible personal property
• Tax Law § 1101(b)(4) — definition of "retail sale," including the resale exclusion
• Tax Law § 1105(c)(5) — tax on maintaining, servicing, or repairing real property (taxable only when performed for another for receipts)
• Tax Law § 1105(f)(2) — tax on dues paid to a social or athletic club

Authority cited:

• Finch, Pruyn & Co. v. Tully, 69 A.D.2d 192
• Burger King, Inc. v. Tully, 70 A.D.2d 447

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a82_38s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-82(38)S
Sales Tax
October 28, 1982

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S820318A

On March 18, 1982 a Petition for Advisory Opinion was received from Crag Burn Golf Club,
Inc., North Davis Road, East Aurora, New York 14052.
The issue raised is whether sales tax is due upon Petitioner's purchases of topsoil, seed,
fertilizer and chemicals used to improve and maintain its golf course.
Petitioner is an unincorporated, not-for-profit golf club which operates a golf course. The golf
club is supported by the dues and assessments paid by the members, who are entitled to use the golf
course. Petitioner contends that the items enumerated above are, in effect, purchased for resale,
inasmuch as the club members pay dues and assessments for the use of the golf course into which
the topsoil, seed, fertilizer and chemicals have been incorporated.
Section 1105(a) of the Tax Law imposes a tax on the receipts from retail sales of tangible
personal property. The term "retail sale" is defined in section 1101(b)(4) of the Tax Law as: "A sale
of tangible personal property to any person for any purpose, other than (A) for resale as such or as
a physical component of tangible personal property, or (B) for use by that person in performing the
services subject to tax under paragraphs (1), (2), (3) and (5) of subdivision (c) of section eleven
hundred five where the property so sold becomes a physical component part of the property upon
which the services are performed or where the property so sold is later actually transferred to the
purchaser of the service in conjunction with the performance of the service subject to tax."
The items purchased are not resold as such or as a physical component of tangible personal
property. Neither are they purchased for use in performing a taxable service. Petitioner's maintenance
of its golf course for use by its members does not constitute the rendering of a service subject to tax,
for while such activity does come within the category of "maintaining, servicing or repairing real
property, property or land," as described in section 1105(c)(5) of the Tax Law, such activity would
constitute a service "subject to tax" only where it is performed for another and gives rise to receipts.
Such is not the case here. Petitioner's members' dues and assessments do not constitute such receipts.
Petitioner's citation of Finch, Pruyn & Co. v. Tully, 69 AD 2d 192 and Burger King, Inc. v.
Tully, 70 AD 2d 447, compel no conclusion contrary to that expressed herein, for the holdings in
both of those cases rested on a finding of an actual transfer to the ultimate customer of the item
purchased. Nor is Petitioner's complaint of double taxation well founded. Petitioner pays tax on its
purchases of items of tangible personal property pursuant to section 1105(a) of the Tax Law. Its

ROBERT W. BOUCHARD, ACTING COMMISSIONER
GABRIEL B. DiCERBO , DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (8/82)

-2­
TSB-A-82(38)S
Sales Tax
October 28, 1982

members pay tax on their dues and assessments pursuant to section 1105(f)(2) of the Tax Law, which
imposes a tax on "the dues paid to any social or athletic club in this state." The two tax liabilities
arise from the consummation of wholly separate transactions, and thus creates no improper
redundancy.

DATED: October 12, 1982

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau