Are a swim club's seasonal membership charges taxable dues when members have no control or ownership and membership is open?

Plain-English summary

Country Club Management Corp. operates a seasonal swim club — three pools, handball/volleyball/basketball/tennis courts, lockers, a snack bar and a children's day camp — whose facilities are available only to "members." It asked whether its membership charges are taxable dues of a social or athletic club.

The Department held it is not a social or athletic club, so the membership payments aren't taxable.

• The dues tax is narrow. Section § 1105(f)(2) taxes dues paid to a social or athletic club (over $10/year). The definition (20 NYCRR 527.11(b)(5)) looks for member control of activities/management or a member proprietary interest.
• Those features are absent. The petitioner stated its members don't control activities, tournaments, elections or committees, don't participate in selecting members or managing the club, and have no proprietary interest — and membership is not exclusive (sold first-come, first-served).
• "Not a club" safe harbors fit. An entity isn't a club merely because it sells seasonal passes first-come, restricts size only to the physical capacity of the facility, uses "club" as a marketing term, or offers management-controlled activities.
• Result. The swim club is not a social or athletic club under § 1105(f)(2), so payments for membership are not taxed.

What this means for you

A "members only" recreation business isn't automatically a taxable club. New York's dues tax targets member-controlled or member-owned clubs. A commercial swim or sports club open to the public first-come, where members have no governance role and no ownership stake, generally isn't a taxable club.

Control and exclusivity are the tests. Member governance or a proprietary interest points toward "club." Open, first-come membership with management-run operations points away from it.

Capacity limits are fine; exclusivity limits are not. Capping membership to what the facility can physically hold doesn't create a club. This tracks TSB-A-84(7)S (Willows Country Club) — another open, member-no-control facility found not to be a club — and contrasts with clubs whose membership is restricted to a select group.

Common questions

Q: We run a members-only swim club. Are the membership fees taxable?
A: On these facts, no. Because members have no control and no ownership interest and membership is open first-come, the club isn't a "social or athletic club," so its fees aren't taxed under § 1105(f)(2).

Q: What would make our fees taxable dues?
A: Member control over activities or management, a member proprietary interest, or exclusivity-based membership restrictions — the hallmarks of a taxable club.

Q: Does limiting membership to our pool's capacity make us a club?
A: No. Restricting size solely to the physical capacity of the facility doesn't create a club. Other kinds of restriction may be viewed as an attempt at exclusivity.

Citations and references

Statutes:

• Tax Law § 1105(f)(2) — tax on dues paid to a social or athletic club

Regulations:

• 20 NYCRR 527.11(b)(5) — definition of "club"; control and exclusivity factors, including Example 18

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1984.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a84_3s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-84(3)S
Sales Tax
February 20, 1984

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S830715B

On July 15, 1983 a Petition for Advisory Opinion was received from Country Club
Management Corp., 8900 23rd Avenue, Jackson Heights, N.Y. 11369.
The issue raised is whether Petitioner's charges to members constitute dues paid to a social
or athletic club, within the meaning of Section 1105(f)(2) of the Tax Law.
Petitioner operates a swim club, whose facilities are available only to "members".
Membership is available on a seasonal basis. The swim club's facilities consist of lockers, three
swimming pools, handball, volleyball, basketball and tennis courts, a snack bar and a children's day
camp. The lockers are provided as an incident of membership.
Section 1105(f)(2) of the Tax Law imposes a tax on "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 . . .".
The term "club" is defined as:
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 . . . 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 . . . 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 served
basis;

(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;

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

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

-2­
TSB-A-84(3)S
Sales Tax
February 20, 1984

(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. . . .
...

Example 18: A club owned by an individual which attempts to
restrict its membership by geographic area, income,
race, religion or any other means, is a club ....
However, a "club" owned by an individual which
restricts its membership only because of the physical
capacity of its facilities is not a club or organization.
20 NYCRR 527.11(b)(5)
Petitioner has stated that the membership does not control social or athletic activities,
tournaments, dances, elections or committees, does not participate in the selection of members, does
not participate in the management of the club, and possesses no proprietary interest in the
organization. Petitioner also states that the club is not exclusive, membership being sold on a first­
come, first-served basis.
In accordance with the foregoing, Petitioner's club is not a "social or athletic club" within the
meaning of section 1105(f)(2) of the Tax Law. Payments for membership are therefore not subject
to tax under such provision.

DATED: January 31, 1984

s/FRANK J. PUCCIA
Director
Technical Services Bureau