Are the membership dues of a public beach club taxable as dues of a 'social or athletic club,' when a permanent-member board can override the elected members' committee?

Plain-English summary

The Silver Gull Club, Inc., a New York membership corporation, runs a beach club on federal land, offering roughly 4,500 seasonal members and their guests seasonal use of the beach, cabanas, tennis courts, and a bar, restaurant, and cafeteria. Memberships are open to the public first-come, first-served. The club is governed by a Board of Directors (the three permanent/honorary members) and a Members' Governing Committee elected by the seasonal members. Because the by-laws let the Board reject any action of the Members' Governing Committee, the club argued the seasonal members lack control, so its dues should not be taxed under Tax Law 1105(f)(2) (and that 1105(f)(1) shouldn't reach them either, since members participate in sports and hold no proprietary interest).

The Department held that the club is a "social or athletic club" and its dues are taxable.

• What the tax reaches. Tax Law 1105(f)(2) taxes dues paid to any social or athletic club in New York if an active annual member's dues (excluding the initiation fee) exceed $10 per year.
• What makes an entity a "club." Under 20 NYCRR 527.11, a "club" is any entity of persons associated for a common objective or activities. A significant factor — any one of which may indicate a club — is an organizational structure under which the membership controls social or athletic activities, tournaments, dances, elections, committees, member selection, and management, or holds a proprietary interest. The legal form doesn't matter.
• Members do control the club. The Members' Governing Committee, elected by the seasonal members, "shall have the direction of the athletic and social affairs of the club," appoints committees, and makes rules for the facilities. That means the membership controls the management of the club.
• Example 19 doesn't apply. The regulation's Example 19 (members keep a non-binding advisory committee to make suggestions to a club owner) presumes management by an individual owner, so it is not applicable here.
• Result. The club is a "social or athletic club" under 1105(f)(2), and its membership fees are taxable dues subject to New York State and local sales tax.

What this means for you

Member-run clubs are taxable clubs — even if a small board can veto decisions. The test is whether the membership controls the club's social or athletic activities. An elected members' committee that directs the club's affairs establishes that control, and a permanent board's power to reject its actions doesn't erase it.

Being open to the public doesn't take you out of "club" status. The Silver Gull Club admitted anyone first-come, first-served and still qualified. What mattered was the internal governance structure, not exclusivity.

If annual dues top $10, expect them to be taxable. For a social or athletic club, dues above that threshold (excluding initiation fees) are subject to sales tax under 1105(f)(2).

Common questions

Q: Our members elect a committee, but the board can override it. Are our dues still taxable?
A: Likely yes. If the members' elected committee directs the club's social or athletic affairs, the membership controls the club, and the dues are taxable — even if a board can reject the committee's actions.

Q: We're open to the general public. Doesn't that mean we're not a 'club'?
A: No. Public, first-come membership doesn't prevent club status. The question is whether the membership controls the club's activities and management.

Q: What dues are actually taxed?
A: Dues paid to a social or athletic club are taxable if an active annual member's dues, excluding the initiation fee, exceed $10 per year.

Citations and references

Tax Law:

• 1105(f)(2) — taxes dues paid to a social or athletic club if annual member dues (excluding initiation fee) exceed $10 per year
• 1105(f)(1) — taxes admission charges (raised by the club as to participatory sporting activity)

Regulations (20 NYCRR):

• 527.11 — defines "club" and the membership-control factors; Example 19 (non-binding advisory committee to an individual owner) held inapplicable

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a85_28s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85(28)S
Sales Tax
July 29, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S841219A

On December 19, 1984 a Petition for Advisory Opinion was received from The Silver Gull
Club, Inc., P.O. Box 277, Fort Tilden, New York 11695.
The issues raised are whether Petitioner is a social or athletic club within the meaning and
intent of Section 1105(f)(2) of the Tax Law and whether dues paid by Petitioner's members are
subject to New York State and local sales taxes.
Petitioner, a New York State Membership Corporation, operates a beach club on federal land,
offering its members and their guests seasonal use of the beach and facilities, such as cabanas, tennis
courts, and a bar, restaurant and cafeteria.
The club property is occupied under a year-to-year permit issued by the United States
Department of the Interior, which specifically forbids discrimination based on sex, race, national
origin, etc. Club memberships are available to the general public on a first-come, first-served basis.
The membership includes some 4500 seasonal members and three permanent (honorary) members.
Club activities are governed by a Board of Directors (elected by, and comprised of the three
permanent members) and the Members' Governing Committee, which is elected by the seasonal
members.
Petitioner states that the corporate by-laws permit the Board of Directors to reject any or all
actions taken by the Members' Governing Committee. Petitioner contends that this power conferred
on the permanent members indicates an absence of membership control which exempts membership
dues from the sales tax imposed by Tax Law 1105(f)(2). Furthermore, Petitioner claims such dues
are not subject to tax under Tax Law 1105(f)(1), since the members participate in sporting activities
and have no proprietary interest in the organization.
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 exclusively 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. (Emphasis added).
RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

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

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TSB-A-85(28)S
Sales Tax
July 29, 1985

The purposes for which Petitioner's organization was formed are stated in the
Certificate of Incorporation as: "To. . . maintain a shore club to . . . provide recreation
for its members and their guests, for the development of social life among the
members of the club both for their mutual physical improvements, . . .and for the
promotion of the social life of the community."
The corporate by-laws provide, in part: Seasonal members of the club. . . shall make written
application . . . upon the terms . . . stated in these by-laws and upon such other terms and conditions
as may be required by the Board of Directors. . . . Permanent members of the club shall consist of
members of the Board of Directors and any individuals elected to permanent membership by a
majority vote of the Board of Directors. . . . Any permanent member of the club may be suspended
or expelled for cause by the . . . Board of Directors. The permanent members of the club shall be the
only class of members entitled to vote except as hereinafter provided . . . . No seasonal or daily
member shall be entitled to vote on any matter except as specifically hereinafter provided."
The by-laws further regulate the establishment of a Members' Governing Committee and
permit each seasonal member to cast one vote for each elective member of such committee. The by­
laws go on to describe the powers and duties of the Members' Governing Committee as follows:
"The Members' Governing Committee shall have the direction of the athletic and
social affairs of the club. It shall appoint such standing committees as it may deem
proper. It shall make such rules and regulations for the use of the Club House and all
the facilities of the club as may to the Committee seem expedient . . . Any action of
the Members' Governing Committee shall be final and binding on all members unless
and until disapproved by the Board of Directors. . . . Any seasonal member of the
club may be suspended or expelled for cause by the Members' Governing Committee
by the affirmative vote of such fractional portion of such Committee as the
Committee may establish in its governing rules."
In reasoning that the seasonal members have no control over club activities Petitioner relies
on an example given in Regulations Section 527.11(f)(ii):
Example 19:

Members of a "club" maintain an advisory committee to make suggestions to the
"club" owner. The owner is not obligated to accept any of the suggestions. The
members do not control any aspects of the "club's" activities; therefore, this is not a
club or organization.

Since this example presumes club management by an individual owner, it is not here applicable.

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TSB-A-85(28)S
Sales Tax
July 29, 1985

It is noted that, even if the extent to which seasonal members control club activities may be
limited by the powers granted in the by-laws to the directors of the organization, Petitioner states in
the petition with regard to the Board of Directors that: "The permanent members . . . three persons
who are directors of the corporation . . . have complete control over the affairs of the corporation."
It follows from the foregoing that the membership does control the management of the club.
Therefore Petitioner is a "club or organization: within the meaning of the Regulations provisions
quoted above and, thus, is a "social or athletic club" in accordance with Section 1105(f)(2) of the Tax
Law. In consequence, the membership fees charged by Petitioner constitute "dues paid to any social
or athletic club" which are subject to New York State and local sales taxes.

DATED: July 1, 1985

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.