Is a homeowner association's mandatory annual charge for a pool, beach, and lake rights taxable as club dues?

Plain-English summary

Lake Louise Marie Country Club, Inc. was formed by homeowners in a community that owns a swimming pool, bathrooms, beach, and lake rights. To buy the property, the corporation sold stock to the homeowners. Under recorded covenants and restrictions, every lot owner must pay an annual charge of $125 for the privilege of using the lake, beach, pool, and other recreational facilities — whether or not they actually use them — and the charge becomes a lien on the lot if unpaid. The club asked whether that annual charge is subject to sales tax.

The Department held it is taxable as dues.

• The organization is a "club or organization" under § 527.11(b)(5) because its property-owner members vote for the board, own shares of stock, participate in management, and hold a proprietary interest — any one of which is a significant indicator.
• The annual charges are "dues" under § 1101(d)(6) and § 527.11(b)(2), which cover any dues, any assessment "irrespective of the purpose," and any charge for social or sports privileges or facilities.
• They are not charges for the use of real property. Citing Merrick Estates Civic Association, Inc. v. State Tax Commission, the Department treated the recreational charges as dues, not realty rent.
• The fact that the charge can become a lien on the owner's land does not change that it is taxable dues.

So the receipts are subject to New York State and local sales tax under § 1105(f)(2).

What this means for you

A homeowner "association" can be a taxable club

You don't have to call yourself a country club to be one for sales-tax purposes. When members elect the board, hold stock, and control the recreational facilities, the organization is a "club or organization," and its mandatory recreation charges are taxable dues. Community and homeowner associations that run pools, beaches, marinas, or clubhouses should check whether their annual assessments are taxable dues.

"It's really a charge for using the property" usually doesn't work

The club argued, in effect, that the charge was for use of realty (the lake and beach). The Department rejected that: a member charge for social or sports privileges is dues, taxable under § 1105(f)(2), not a tax-free real-property charge. The lien mechanism and the fact the charge is owed whether or not the facilities are used didn't help — both are hallmarks of dues, not rent.

Common questions

Q: Is a mandatory homeowner charge for a community pool and lake taxable?
A: Yes, where the organization is a member-controlled club (members vote, own stock, have a proprietary interest). The charge is taxable dues under § 1105(f)(2).

Q: Does it matter that the charge is really for using the lake and beach?
A: No. A member charge for social or sports privileges is dues, not a charge for the use of realty (Merrick Estates).

Q: What if a homeowner never uses the pool or beach?
A: Still taxable. Dues are owed and taxed regardless of whether the member uses the facilities.

Citations and references

Statutes and regulations:

• Tax Law § 1105(f)(2) — tax on dues of a social or athletic club
• Tax Law § 1101(d)(6) — definition of "dues" (any assessment; any charge for social/sports privileges or facilities)
• 20 NYCRR § 527.11 — dues; definition of "club or organization"

Cited authority:

• Merrick Estates Civic Association, Inc. v. State Tax Commission, 65 AD2d 669 (1978)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a90_46s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(46)S
Sales Tax
September 27, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S900525A

On May 25, 1990 a Petition for Advisory Opinion was received from Lake Louise Marie
Country Club, Inc., Box 2, Rock Hill, N.Y. 12775.
The issue raised by Petitioner, Lake Louise Marie Country Club, Inc., is whether an annual
charge to homeowners at Lake Louise Marie for use of a swimming pool, bathrooms and lake rights
are subject to New York State and local sales taxes.
In September 1984 Petitioner formed a corporation and purchased property consisting of a
swimming pool, bathrooms and lake rights. In order to raise funds for the purchase, stock was sold
to the homeowners. This purchase was made subject to covenants and restrictions which existed
prior to the purchase.
The Declaration of Covenants and Restrictions by Lake Louise Marie Corp. and S-M-W
Development Corp. dated July 29, 1960, sets forth these covenants and restrictions, in part as
follows:

10. Each lot or part thereof of the said. . .lots owned by the Declarant shall after conveyance
    be subject to a charge at the rate of One Hundred and Twenty Five Dollars ($125.00)
    annually from the date of delivery of title and each and every May 1st thereafter. Lot owner
    shall pay such charge to Declarant for the privilege of the use of the Lake, beach and
    swimming pool as set forth hereinafter and for such other designated recreational facilities
    which are now or hereafter may be made available whether or not the same are used. . .Lot
    owner further agrees that the use of said lake privileges, swimming pool, beaches are [sic]
    recreational facilities, is subject to the said annual charge. The charge for such privileges and
    other recreational facilities shall constitute a debt which may be collected by suit in any
    Court of competent jurisdiction, and upon the conveyance of any of the land described herein
    the successive owner or owners shall, from time of acquiring title, be deemed to have
    covenanted and agreed to pay the Declarant all charges, past or future, as provided for in this
    paragraph. This charge shall become a lien on the land on May 1st of each year and shall
    continue to be such lien until fully paid. . . .
    ...Denial of the use of such facilities by Declarant. . .shall remain in full force and effect until
    a final determination and decision is made by Lake Louise Marie Country Club Association,
    a membership corporation. . .
    Each lot owner, upon purchase or transfer or property, is given a copy of the covenants and
    must abide by them in full.
    TP-9 (9/88)

-2­
TSB-A-90(46)S
Sales Tax
September 27, 1990
Section 1101(d)(6) of the Tax Law defines dues as:
"Any dues or membership fee including any assessment, irrespective of the purpose for
which made and any charges for social or sports privileges or facilities except charges for
sports privileges or facilities offered to members' guests which would otherwise be exempt
if paid directly by such guests."
Section 1105(f)(2) of the Tax Law imposes tax on:
"The dues paid to any social or athletic club in this state if the dues of an active, annual
member. . .are in excess of ten dollars per year. . . . Where the tax on dues applies to any such
social or athletic club, the tax shall be paid by all members. . . .
Section 527.11 of the New York State Sales and Use Tax Regulations states, in part:
Dues. [Tax Law, §1105(f)(2)]
(a) Imposition
(1) A tax is imposed upon 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 $10 per year.
(3) Where the tax applies to any social or athletic club, the tax shall be paid by all members
thereof, regardless of the amount of their dues or initiation fee.
*

*

*

(b) Definitions. As used in this section, the following terms shall mean:
(2) Dues. (i) The term dues includes:
(a) any dues or membership fee;
(b) any assessment, irrespective of the purpose for which made; and
(c) any charge for social or sports privileges or facilities.
(5) Club or organization. (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 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. . .elections. . .,
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 organization
structure may be formal or informal.

-3­
TSB-A-90(46)S
Sales Tax
September 27, 1990
Since the property owners/members of Lake Louise Marie Country Club Inc. annually vote
for its board of directors and as such property owners/members own or are sold shares of stock, the
membership is considered to control the election and to participate in the management of the club
or organization and to possess a proprietary interest in such organization thereby causing Lake
Louise Marie Country Club, Inc. to fall within the definition of a club or organization as provided
under Section 527.11(b)(5) of the Sales and Use Tax Regulations.
Accordingly, the receipts from the annual charges to the property owners/members of Lake
Louise Marie Country Club are considered to be payments of dues as defined under Section
1101(d)(6) of the Tax Law and Section 527.11(b)(2) of the Sales and Use Tax Regulations and not
charges for the use of realty, Merrick Estates Civic Association, Inc. v. State Tax Commission, 65
AD2d 669 (1978). Therefore, such receipts are subject to New York State and local sales and use
tax as imposed under Section 1105(f)(2) of the Tax Law and Section 527.11(a) of the Sales and Use
Tax Regulations. The fact that the charges may become a lien on the real property of the
owner/members does not prevent such charges from being the payment of taxable dues.

DATED: September 27, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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