Are a racquetball club's membership dues and court fees taxable, and can tax it wrongly collected be credited to members instead of remitted to the State?

Plain-English summary

Unique Racquetball and Health Clubs, Inc. owns four racquetball clubs on Long Island. Membership (about $60/year) lets a member reserve court time and use the equipment; non-members get the same privileges for a $4 guest fee. Membership is open to all, first-come, first-served; members have no proprietary interest and don't control management, member selection, or the club's leagues and tournaments. The club had collected sales tax on membership fees since 1979 and held it in escrow. It asked whether its dues and court fees are taxable, and whether the escrowed tax could be credited to members instead of refunded.

The Department held: the dues and court fees are not taxable — but the wrongly collected tax must be remitted to the State, not credited to members.

• Not a "social or athletic club," so dues aren't taxable. Section § 1105(f)(2) taxes dues paid to a social or athletic club (defined in § 1101(d)(13)), and 20 NYCRR § 527.11(b)(5) looks to member control and proprietary interest. Because members here have no proprietary interest and don't control management, member selection, or tournaments, the club is not a social or athletic club, and the dues are not taxable.
• Court fees fall under the participant-sports exclusion. Section § 1105(f)(1) taxes amusement admission charges but excludes charges for the use of facilities for sporting activities in which the patron is a participant. So the court-time charges — for members and non-members — are not taxable.
• Tax collected "as tax" must be remitted, not credited. Under § 1137, a registered vendor must pay the State all money it collected purportedly as tax, even on receipts that aren't taxable. So the escrowed amounts should have been remitted and must be remitted now. The club cannot return the money by crediting it against court time or future dues; instead, the individuals who paid the tax may file refund claims.

What this means for you

Escaping the tax doesn't let you keep — or informally refund — tax you already collected. If you charged customers "sales tax" on something that turned out not to be taxable, New York's § 1137 requires you to turn that money over to the State. You can't quietly convert it into store credit or a discount on future services.

Refunds run through the State, to the people who paid. The customers who were charged the tax are the ones entitled to claim it back, by filing refund claims — not the business crediting it back at its own discretion. Collecting tax makes you a trustee of those funds for the State.

Participant sports are on the untaxed side of the amusement line. Charges to use a court, rink, or similar facility where the customer plays are excluded from the amusement-admission tax. That's different from paying to watch an event, which is a taxable admission.

Common questions

Q: We run an open, first-come racquetball club. Are membership dues taxable?
A: Not on these facts. With no member proprietary interest and no member control of management or tournaments, it isn't a "social or athletic club," so the dues aren't taxable under § 1105(f)(2).

Q: Are court-time fees for members and guests taxable?
A: No. Section 1105(f)(1) excludes charges for facilities used for participant sporting activities, which covers court time for both members and non-members.

Q: We collected sales tax we didn't owe and are holding it. Can we credit it back to members?
A: No. Under § 1137, money collected purportedly as tax must be remitted to the State. It can't be credited toward court time or future dues; the members who paid it can file refund claims.

Citations and references

Statutes and regulations:

• Tax Law § 1105(f)(2) — tax on dues paid to a social or athletic club
• Tax Law § 1105(f)(1) — tax on amusement admission charges, excluding charges for participant sporting facilities
• Tax Law § 1101(d)(13) — definition of "social or athletic club"
• Tax Law § 1137 — vendor's duty to remit amounts collected purportedly as tax
• 20 NYCRR § 527.11(b)(5) — definition of "club or organization"

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1983.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a83_38s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-83(38)S
Sales Tax
September 16, 1983

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S830411A

On April 11, 1983 a Petition for Advisory Opinion was received from Unique Racquetball
and Health Clubs, Inc., 55 Jericho Turnpike, Jericho, New York 11753.
The issues raised by Petitioner are:

1. Whether Petitioner is a "club or organization" as defined in Section 527.11(b)(5) of the
   New York State Sales and Use Tax Regulations;
2. Whether Petitioner is or was required to collect New York State sales tax on membership
   fees under Sections 527.10 and 527.11 of such Regulations, or under any provision of the Tax Law;
3. Whether collections of sales tax (which have been held in escrow by Petitioner) from
   current and former members may, in lieu of being refunded to such members, be allowed as a credit
   toward the cost of court playing time or future membership fees; and
4. Whether charges for court playing time and fees for non-members are subject to sales tax
   under Section 527.10(d)(4) of such Regulations.
   Petitioner is a privately held corporation which owns and operates four racquetball clubs,
   with locations in Nassau and Suffolk Counties. Petitioner generally charges its members an annual
   membership fee of approximately $60.00. Petitioner has collected sales tax on membership fees
   since the inception of Petitioner's business in 1979, and such funds are presently held in an escrow
   account.
   Membership in Petitioner's club entitles the individual to reserve court playing time and to
   use the club's exercise equipment and other recreational equipment. Membership is open to all and
   is on a first-come, first-served basis. Members may also participate in racquetball leagues,
   tournaments and exercise classes. A non-member can obtain entry into the club and enjoy the same
   privileges as a member. However, there is imposed upon such non-member a $4.00 guest fee which
   can later be credited towards membership.
   Court playing time for members and non-members is available on a first-come, first-served
   basis. Members can reserve court playing time one week in advance. Court playing time for any
   individual is restricted only by the physical capacity of the club's facilities.
   League and tournaments may be established by members and non-members, participants in
   leagues or tournaments purchasing "blocks" of court playing time. Such leagues and tournaments
   are operated at the sole discretion of the club. Thus, club management establishes rules for the

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

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Sales Tax
September 16, 1983

leagues and tournaments, retains authority to cancel leagues and tournaments established by
members, and has sole discretion as to matching contestants and judging the outcome of the
tournaments.
Members have neither a proprietary interest in the club nor do they participate in the selection
of members or management of the club. Management is not obligated to accept opinions or
suggestions of members regarding club policies.
Petitioner contends that it is not a club or organization because the membership does not
control athletic activities, tournaments or social activities of the club, does not participate in the
selection of members, management, or committees of the club, and does not possess a proprietary
interest in the organization.
Petitioner contends, finally, that the membership dues which were erroneously collected since
the club's inception, and which are currently held in an escrow account, should be returned in the
form of a credit towards the cost of court playing time or future membership fees.
Section 1105(f) of the Tax Law imposes taxes on:
"(1) Any admission charge where such admission charge is in excess of ten cents to or for
the use of any place of amusement in the state . . . except charges to a patron for admission
to, or use of, facilities for sporting activities in which such patron is to be a participant
(2) The dues paid to any social or athletic club in this state if the dues of an active annual
member, exclusive of the initiation fee, are in excess of ten dollars per year . . . . "
Section 1101(d)(13) of the Tax Law defines the term "social or athletic club" to mean "Any
club or organization of which a material purpose or activity is social or athletic."
Section 527.11(b)(5) of the Sales and Use Tax Regulations provides, in relevant part, as
follows:
(i) The phrase club or organization means any entity which is composed of persons
associated for a common objective or common activities. Whether the organization is a
membership corporation or association or 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 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. The organizational structure may
be formal or informal.
(ii) A club or organization does not exist merely because a business entity:
(a) charges for the use of facilities on an annual or seasonal basis, even if an annual or season
pass is the only method of sale and provided such passes are sold on a first-come, first-serve
basis;

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Sales Tax
September 16, 1983

(b) restricts the size of the membership solely because of the physical size of the facility. Any
other type of restriction may be viewed as an attempt at exclusivity;
(c) uses the word club or member as a marketing device;
(d) offers tournaments, leagues and social activities which are controlled solely by the
management.
Inasmuch as the membership has no proprietary interest in the club, and does not control the
management of the club, membership selection, or tournaments or other social or athletic activities
at the club, Petitioner is not a "social or athletic club" within the meaning of section 1105(f)(2) of
the Tax Law. The dues paid to Petitioner are accordingly not subject to tax under such provision. Nor
are they be subject to tax under section 1105(f)(1), because of that provision's exclusion of charges
for participant sports activities. Such exclusion would also apply to the fees paid by non-members.
Section 1137 of the Tax Law requires that registered vendors, into which category Petitioner
falls, pay to the State Tax Commission, inter alia, "all moneys collected by such person, purportedly
as tax imposed by this article with respect to any receipt, amusement charge . . . not subject to tax
...."
Accordingly, any money collected by Petitioner purportedly as sales tax should have been
remitted to the State Tax Commission at the time of filing of Petitioner's sales and use tax returns.
They should be so remitted at the present time. Claims for refund may be filed by the individuals
who paid the tax. Petitioner's suggested method of returning the erroneously collected tax money by
granting a credit against playing time or future membership fees is not consistent with the applicable
statutory provisions.

DATED: August 30, 1983

s/FRANK J. PUCCIA
Director
Technical Services Bureau