Does the sales tax on club dues apply to a refundable security deposit that a country club requires members to pay to protect it against loss or damage?

Plain-English summary

Lancaster Country Club, Inc. collects a security deposit from members to secure the club against loss, damage or other injury. New York taxes the dues paid to a social or athletic club (§ 1105(f)(2)). The club asked whether that dues tax also reaches the security deposit.

The Department held the security deposit is taxable dues.

• "Dues" is defined very broadly. Under § 1101(d)(6), "dues" means "any dues or membership fee including any assessment, irrespective of the purpose for which made." The purpose of the charge — here, protecting the club against damage — does not matter.
• A membership-required deposit is dues. Because the security deposit is required as a condition precedent to membership in a social or athletic club, it is subject to the dues tax under § 1105(f)(2). (The Department had reached the same result in Advisory Opinion to Lawrence Wittlin, TSB-H-80(259)S.)
• The club's cited case did not help. Lancaster pointed to Matter of Olin Rent-A-Car of New York, Inc. and Morris C. Moad, TSB-H-78(38)S, but there the Tax Commission only held that a car lessee's payments indemnifying the lessor for property damage were not taxable "rent" under § 1105(a) — a different tax on a different transaction — so it compelled no contrary conclusion here.

What this means for you

A club charge doesn't escape the dues tax just because it's called a "deposit." If members must pay it to join or stay members, New York treats it as taxable dues, whatever label or purpose you attach.

"Irrespective of the purpose" is doing the work. Assessments, initiation charges and required deposits all fold into "dues" because the statute expressly ignores why the charge is made.

A refundable deposit tied to membership is still taxable when collected. The opinion turns on the deposit being a required condition of membership, not on whether it might later be returned.

Damage-indemnity payments in an ordinary rental are a different question. The Olin result — that a lessee's damage-indemnity payment wasn't taxable "rent" — was about the § 1105(a) rental tax, not the club-dues tax, so don't read it across.

Common questions

Q: Our club security deposit is refundable. Is it still taxable?
A: Yes. What matters is that it is required as a condition of membership; "dues" under § 1101(d)(6) covers any membership charge "irrespective of the purpose for which made."

Q: We call it an "assessment," not "dues." Does that change anything?
A: No. The definition of "dues" expressly includes assessments and membership fees.

Q: Doesn't the Olin decision say damage deposits aren't taxable?
A: Olin addressed a car lessee's damage-indemnity payments under the § 1105(a) rental tax and held they weren't "rent." It did not address the club-dues tax and did not exempt this deposit.

Citations and references

Statutes:

• Tax Law § 1105(f)(2) — tax on dues paid to a social or athletic club
• Tax Law § 1101(d)(6) — "dues" includes any dues, membership fee or assessment, irrespective of purpose

Department guidance and decisions referenced:

• Advisory Opinion to Lawrence Wittlin, December 15, 1980, TSB-H-80(259)S
• Matter of Olin Rent-A-Car of New York, Inc. and Morris C. Moad, April 30, 1976, TSB-H-78(38)S (distinguished)

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_4s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-82(4)S
Sales Tax
February 22, 1982

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S811009A

On October 9, 1981 a Petition for Advisory Opinion was received from Lancaster Country
Club, Inc., 6061 Broadway, Lancaster, New York 14086.
The issue raised is whether the sales tax on dues paid to a social or athletic club is applicable
to charges constituting security deposits collected in order to secure such club against loss, damage
or other injury.
The tax referred to above is imposed under section 1105(f)(2) of the Tax Law. The term
"dues" is defined, in section 1101(d)(6) of the Tax Law, as "Any dues or membership fee including
any assessment, irrespective of the purpose for which made . . . ." (emphasis added). Accordingly,
where payment of a security deposit is required as a condition precedent to membership in a social
or athletic club, such charge is subject to the tax imposed under section 1105(f)(2) of the Tax Law.
See Advisory Opinion to Lawrence Wittlin, December 15, 1980 (Technical Services Bureau
Memorandum TSB-H-80(259)S).
The State Tax Commission Determination cited by Petitioner, Matter of Olin Rent-A-Car of
New York, Inc. and Morris C. Moad, April 30, 1976 (Technical Services Bureau Memorandum
TSB-H-78(38)S), compels no conclusion contrary to that expressed herein. In that Determination the
State Tax Commission merely held that a lessee's payments representing indemnification for damage
to property of the lessor did not constitute "rent" of a type subject to tax under section 1105(a) of the
Tax Law.

DATED: January 7, 1982

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR