Are the yearly dues a homeowners beach-club association charges its members taxable as dues to a social or athletic club?

Plain-English summary

Pickwick at Rocky Point Beach Club, Inc. is a homeowners association (organized under the Membership Corporation Law) that owns and maintains a beach facility on Long Island Sound. Membership is required of every record owner of a lot subject to assessment; members hold voting rights; and the association is managed by a board of directors elected by the members. Yearly dues have always exceeded $10 per homeowner. It asked whether its member charges are taxable dues to a social or athletic club.

The Department held the dues are taxable.

• The dues tax. Tax Law § 1105(f)(2) taxes dues paid to a social or athletic club if an active annual member's dues (excluding initiation fee) exceed ten dollars a year.
• This is a "club or organization." Under 20 NYCRR 527.11(b)(5), a club is any entity of persons associated for a common objective; the legal form (membership corporation, etc.) is irrelevant. Member control of activities, elections, committees, member selection, and management — or a members' proprietary interest — are significant factors. Restricting membership by geographic area marks a club. This association's elected-board, member-voting structure fits squarely.
• It's also an athletic club. Under 527.11(b)(7), an athletic club has a material purpose of practicing, participating in, or promoting sports. Example 31 treats a subdivision association operating a pool, tennis courts, and nature trails as an athletic club — and the fact that membership is automatic on buying property doesn't change that.
• The 1982 amateur-sports amendment doesn't help. A 1982 amendment exempts dues of organizations operated exclusively to foster national or international amateur sports competition — which does not describe this association.
• Result. Member assessments are taxable dues, and all dues from the association's inception are subject to State and (where applicable) local sales tax.

What this means for you

A homeowners or property-owners association that runs shared recreational facilities can be a taxable "club." New York looks past the not-for-profit or membership-corporation label to how the group is organized and what it does. Member voting, an elected board that manages the group, and mandatory membership tied to property ownership all point to a club.

Running a pool, beach, or tennis facility makes it an athletic club. If a material purpose is providing sports or recreational facilities to members, the dues are taxable once they exceed $10 a year — even though members join automatically by owning a lot.

"We don't hold social events anymore" may not save you. The test is the organizational structure and the recreational purpose of the facilities, not whether the group currently throws parties.

Common questions

Q: Our homeowners association just maintains a members-only beach/pool. Are dues taxable?
A: Yes, if dues exceed $10 a year. Providing members-only recreational facilities makes it a social or athletic club under § 1105(f)(2).

Q: Membership is automatic because you own a lot — doesn't that mean it's not a club?
A: No. The regulations and Example 31 say automatic membership on buying property doesn't change club status.

Q: We're a not-for-profit membership corporation. Does that exempt us?
A: No. The legal form is irrelevant; what matters is member control/management and the recreational purpose.

Citations and references

Statute and regulation:

• Tax Law § 1105(f)(2) — taxes dues over $10/year paid to a social or athletic club
• 20 NYCRR 527.11(b)(5) — defines "club or organization" and lists member-control/management factors; geographic-area restriction marks a club
• 20 NYCRR 527.11(b)(7) — defines an athletic club (material purpose of sports); Example 31 treats a pool/tennis/trails association as an athletic club regardless of automatic membership
• Merrick Estates Civic Association v. State Tax Commission line of authority — homeowners associations treated as social clubs (see companion opinion TSB-A-87(40)S)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a87_34s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87 (34)S
Sales Tax
September 25, 1987

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO: S870622B

On June 22, 1987, a Petition for Advisory Opinion was received from Pickwick at Rocky
Point Beach Club, Inc., P.O. Box 300, Rocky Point, New York 11778.
The issue raised is whether Petitioner's charges to members are dues paid to a social or
athletic club within the meaning and intent of Section 1105(f)(2) of the Tax Law.
Petitioner is a homeowners association organized in 1967 under the provisions of the New
York Membership Corporation Law. Yearly membership dues from inception have exceeded $10.00
per homeowner.
The corporate bylaws give as the purpose of the corporation "to promote the health, safety
and welfare of its members, and for this purpose to own. . . and maintain a beach facility on Long
Island Sound. . . . " Membership is required of "every person or entity who is a record owner of
a fee or undivided fee interest in any lot, which is subject by covenants of record to assessment by
the Association. . . ." The bylaws further provide for the assignment of voting rights to each
member and for management of the association through a board of directors elected by the members.
The association has not conducted any social functions since 1979; it owns no equipment
except buoys to mark off the swimming area and a lifeguard chair.
Section 1105(f)(2) of the Tax Law imposes a tax on
(t)he 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, and on the initiation fee alone, regardless of the
amount of dues, if such initiation fee is in excess of ten dollars. . . .
Where the tax on dues applies to any such social or athletic club, the tax
shall be paid by all members thereof regardless of the amount of their
dues, and shall be paid on all dues or initiation fees for a period
commencing on or after August first, nineteen hundred sixty-five. . . .
The term "club" is defined in the Sales and Use Tax Regulations of the State
Tax Commission 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,

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

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

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TSB-A-87 (34)S
Sales Tax
September 25, 1987

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).
The regulations explain further that a business entity is not considered a "club or
organization" merely because it restricts the size of the membership solely by reason of the physical
size of the facility, but that any other type of restriction may be viewed as an attempt at exclusivity.
For example, a club which restricts its membership by geographic area is a "club or organization".
20 NYCRR 527.11(b)(5).
Regulation Section 527.11(b)(7) defines an athletic club as "any club or organization which
has as a material purpose or activity the practice, participation in or promotion of any sports or
athletics". It offers the following example:
Example 31:

Each purchaser of a lot or condominium within a real estate subdivision
automatically becomes a member of an association which operates a pool, tennis
courts and nature trails within the subdivision. The association assesses each owner
of an annual charge to provide funds for the operation of these facilities. The
association has the right to limit the number of guests of members and to charge
reasonable fees for the use of the facilities. The association is an athletic club, as it
has a material purpose of providing sports privileges and facilities. The fact that
membership is automatic upon purchase of real property has no effect on the
association' status as a club.

Clearly, the format of Petitioner's organization and its activities fall within the purview of
the above quoted sections of the Tax Law and regulations. Accordingly, amounts assessed its
members are taxable as dues paid to a social or athletic club in this State.
Petitioner also questions whether its tax status is affected by an amendment to the regulation
section at issue, dated June 14, 1982. It is assumed that the inquiry refers to the addition of paragraph
three to subdivision (c) of Section 527.11 of the sale and use tax regulations. Since this provision

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TSB-A-87 (34)S
Sales Tax
September 25, 1987

exempts from tax dues paid to organizations operated exclusively to foster national or international
amateur sports competition, it does not apply to the Petitioner. All membership dues paid to the
association from its inception to the present are subject to State and, when applicable, local sales
taxes.

DATED: September 25, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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