Is the finance charge a country club adds for a member's overdue account balance subject to sales tax?

Plain-English summary

St. George's Golf & Country Club, Inc. is a 501(c)(7) social and athletic club that bills members for dues, assessments, food and bar, guest fees, interclub charges, and equipment rentals. When a member's account balance goes more than 30 days unpaid, the club adds a 1½%-per-month finance charge on the overdue portion. The club asked whether that finance charge is subject to sales tax.

The Department held that it is taxable as dues.

• § 1105(f)(2) taxes the dues of a social or athletic club, and § 1101(d)(6) defines "dues" to include "any assessment, irrespective of the purpose for which made."
• Regulation § 527.11(b)(2)(i), Example 2 answers the question directly: where members pay $30 dues and a $1 penalty is assessed on any member who fails to pay promptly, the penalty "is considered to be an increase in the amount of the member's dues... and is taxable as such."
• The club's late-payment finance charges are the same kind of thing — assessments that increase the member's dues — so they are taxable.

The club pointed to § 526.5(h)(1), which excludes separately stated credit, service, or finance charges from the taxable receipt on a sale. The Department said that exclusion does not apply here: it covers charges for extending credit on a sale of tangible personal property or services, whereas these finance charges are dues, taxed under a different part of the law.

What this means for you

A late fee on member dues is itself taxable dues

For a social or athletic club, a penalty or finance charge for paying late isn't a neutral cost of credit — it's an assessment that bumps up the member's dues, and dues are taxable. Clubs should collect sales tax on late-payment charges the same way they do on the underlying dues.

The finance-charge exclusion is for sales, not dues

It's easy to assume any separately stated "finance charge" is tax-free under § 526.5(h)(1). But that exclusion is aimed at credit charges layered on top of a taxable sale of property or services. When the charge is really an add-on to club dues, the dues rules govern and the exclusion doesn't reach it.

Watch the character of every member charge

A club's bill mixes taxable and non-taxable items. This opinion is a reminder to classify each line by what it actually is: a finance charge on overdue dues follows the dues; a finance charge on an overdue taxable sale may fall under § 526.5(h)(1). The label "finance charge" alone doesn't decide it.

Common questions

Q: Does a club charge sales tax on late-payment finance charges?
A: Yes, when the underlying balance is dues. The finance charge is treated as an assessment increasing the member's dues and is taxable under § 1105(f)(2).

Q: Isn't a separately stated finance charge exempt?
A: Not here. Section 526.5(h)(1) excludes finance charges on sales of property or services, but these charges are dues, so that exclusion doesn't apply.

Q: What's the authority that a penalty counts as dues?
A: 20 NYCRR § 527.11(b)(2)(i), Example 2 — a penalty for failing to pay dues promptly is an increase in the member's dues and is taxable as such.

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" (includes any assessment, irrespective of purpose)
• 20 NYCRR § 527.11(b)(2)(i) — dues include any assessment (Example 2: late-payment penalty is taxable dues)
• 20 NYCRR § 526.5(h)(1) — separately stated credit/finance charges excluded from a sale's taxable receipt (inapplicable to dues)

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_56s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(56)S
Sales Tax
November 12, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S901002A

On October 2, 1990 a Petition for Advisory Opinion was received from St. George's Golf &
Country Club, Inc., P.O. Box AN, Stonybrook, New York 11790.
The issue raised by Petitioner, St. George's Golf & Country Club, Inc., is whether a finance
charge for late payment of a member's account receivable balance is subject to sales tax.
Petitioner is an Internal Revenue Code 501(c)(7) social and athletic club. The club bills its
members for dues, assessments, food and bar sales, guest fees, interclub charges and equipment
rental fees.
Members with account receivable balances older than 30 days are billed a finance charge of
1 ½ % per month on the portion of the balance over 30 days old.
Section 1105(f)(2) of the Tax Law imposes sales 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, 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, other than honorary 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....
Section 1101(d)(6) of the Tax Law provides that:
When used in this article for purposes of the tax imposed under subdivision
(f) of section eleven hundred five, the following terms shall mean:
*
*
*
(6) Dues. 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 527.11(b)(2)(i) of the Sales and Use Tax Regulations provides in part that:
TP-9 (9/88)

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TSB-A-90(56)S
Sales Tax
November 12, 1990

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.

Example 2:

*
*
*
All members of a social club pay dues of $30 per year. A penalty of $1 is
assessed on any member who fails to pay his dues promptly. The penalty is
incurred and paid in that particular year by the member. The penalty is
considered tobe an increase in the amount of the member's dues or
membership fees and is taxable as such.

Section 526.5(h)(1) of the Sales and Use Tax Regulations provides that:
Any charge for credit imposed by a vendor and paid by a purchaser in
addition to the purchase price under a designation such as interest, service
charge or finance charge is not deemed to be part of the sale price of tangible
personal property or charge for services rendered. Such charges are
consideration for the extension of credit and shall not be included in the
receipt subject to sales tax. (For credit investigation charges in New York
City, see Part 538 of this Chapter.)
Therefore in the instant case any penalties, late charges, finance charges or interest charges
imposed upon the member for the late payment of his account receivable balance, which are retained
by the Petitioner, are considered to be "dues" and as such are subject to sales tax, since such charges
are considered to be assessments in accordance with Section 1101(d)(6) of the Tax Law and Sections
527.11(b)(2)(i)(b) and 527.11(b)(2)(i) Example 2 of said regulations. The provisions of Section
526.5(h)(1) of said regulations are not applicable to those charges which are considered to be dues
under the aforesaid sections.

DATED: November 12, 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.