If a club makes new members buy stock and bonds in a related land-holding company, must that company register and collect sales tax on the sales?

Plain-English summary

St. George Operating and Improvement Co. is a title-holding company — it owns a golf course, clubhouse, and related facilities, which it leases to the St. George Country Club for a nominal $6,000 annual rent. It has no employees and provides no services; its shareholders are essentially the club's members (and former members). The club requires every new member, as a condition precedent to membership, to buy shares of stock and a bond in the holding company. The club bills the stock and the sales tax; members write one check to the holding company for the stock and one to the club for the tax; the club has been reporting the stock tax as initiation fees but had not collected tax on the bond sales.

The company asked two things: must it register as a vendor, and does the statute of limitations in § 1147(b) protect it. The Department answered:

• The stock and bonds are taxable initiation fees. Section 1105(f)(2) taxes club dues and initiation fees, and § 1101(d)(7) defines an "initiation fee" as "any payment, contribution, or loan required as a condition precedent to membership, whether or not... evidenced by a certificate of interest or indebtedness or share of stock, and irrespective of the person or organization to whom it is paid." So required stock and bonds both count — the parties had already conceded the bonds are taxable.
• The company must register as a vendor. Because the holding company directly received the members' payments for the securities, it is a "person required to collect tax" under § 1131(1) and § 526.11(a)(4) (recipient of club dues), and therefore must register as a vendor.
• No statute of limitations applies. Under § 1147(b) and § 535.3, assessment is normally limited to three years after a return is filed — but where no return is filed, no time period limits assessment. Because the company never filed the required returns, the Department can assess the uncollected stock and bond tax without any time limit.

This opinion was later followed by TSB-A-91(17)S and then modified by TSB-A-91(17.1)S in the continuing St. George matter (which addressed the treatment of voluntary, dues-reducing repurchased shares). A companion opinion the same era, TSB-A-90(56)S, addressed the related St. George's Golf & Country Club's late-payment finance charges.

What this means for you

A "condition precedent" payment is an initiation fee — whatever you call it

The statute is deliberately broad: a required payment is an initiation fee even if it's dressed up as stock, a bond, a loan, or a certificate, and even if it's paid to a separate entity (here, a land-holding company rather than the club itself). Clubs that route mandatory buy-ins through an affiliated corporation don't escape the dues/initiation-fee tax that way.

Receiving the money makes you the collector

The holding company argued, in effect, that it was just a passive title holder. But because it directly received the members' payments, it became the vendor responsible for collecting and remitting the tax — and had to register. Whoever actually takes in the taxable payment carries the collection duty.

Not filing returns removes your time-limit protection

The three-year assessment limit only starts running when you file a return. A taxpayer who never files gets no limitations protection — exposure stays open indefinitely. That makes the failure to register and file far more costly than the tax alone.

Common questions

Q: Are required stock or bond purchases taxable if they're a condition of joining a club?
A: Yes. Section 1101(d)(7) defines an initiation fee to include a required payment evidenced by stock or a bond, regardless of who it's paid to, so it's taxable under § 1105(f)(2).

Q: Does a separate land-holding company have to register and collect the tax?
A: Yes, if it directly receives the members' payments — that makes it a person required to collect tax under §§ 1131(1) and 526.11(a)(4).

Q: How far back can the state assess if no returns were filed?
A: There is no limit. Under § 1147(b), the normal three-year limit applies only after a return is filed; with no return, assessment is not time-barred.

Citations and references

Statutes and regulations:

• Tax Law § 1105(f)(2) — tax on dues and initiation fees of a social or athletic club
• Tax Law § 1101(d)(7) — definition of "initiation fee" (includes stock, bonds, certificates; any required condition-precedent payment)
• Tax Law § 1131(1) — persons required to collect tax (vendors)
• Tax Law § 1147(b) — no statute of limitations on assessment where no return is filed
• 20 NYCRR § 526.11(a)(4) — recipient of club dues is required to collect tax
• 20 NYCRR § 535.3 — assessment statute of limitations

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_57s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(57)S
Sales Tax
December 24, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S900912A

On September 12, 1990, a Petition for Advisory Opinion was received from St. George
Operating and Improvement Co., PO Box AN, Stonybrook, New York 11790.
The issues raised by Petitioner, St. George Operating and Improvement Co., are whether
Petitioner is required to be a registered vendor in connection with the sale of certain stocks and
bonds and whether the statute of limitations set forth in Section 1147(b) of the Tax Law applies to
the sales of said securities, where such purchases are required to be made in connection with
obtaining membership in a club leasing property from Petitioner.
Petitioner owns a golf course, building and related facilities. Petitioner's property is leased
to the St. George Country Club Inc. (hereinafter the "club"). Petitioner is a title holding company.
It has no employees, it provides no services to the club nor has any other business activity.
Substantially all of the shareholders in Petitioner are members of the club. The non-member
shareholders are all former members. The club and Petitioner's directors and officers are members
of the club. The club pays Petitioner a minimal annual rental of $6,000.00.
The club requires all new members to buy shares of stock and a bond in Petitioner as a
condition precedent to membership. The stock and the sales tax are billed by the club. The members
execute separate checks, one made payable to Petitioner for the stock and one made payable to the
club for the sales tax due on such stock purchase. The members accounts receivable are credited on
the club's books upon receipt of the payments. The employees of the club maintain the stock transfer
and bond records for Petitioner. The amount collected by the club for the stock purchase is paid over
by the club to Petitioner. The sales tax collected by the club is retained by the club and reported on
their sales tax return as initiation fees. Petitioner records the stock payments in its capital account.
Sales tax has not been collected on the bond sales or reported as initiation fees in the club's
sales tax return. However, it is conceded that bonds required to be purchased as a condition
precedent to membership are taxable as initiation fees.
Section 1105(f)(2) of the Tax Law imposes sales tax 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 ten dollars per year, and

TP-9 (9/88)

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TSB-A-90(57)S
Sales Tax
December 24, 1990

on the initiation fee alone, regardless of the amount of dues, if such initiation fee is in excess
of ten dollars,. . .
Section 1101(d)(7) of the Tax Law defines an "initiation fee" as "[a]ny payment, contribution,
or loan required as a condition precedent to membership, whether or not such payment, contribution
or loan evidenced by a certificate of interest or indebtedness or share of stock, and irrespective of
the person or organization to whom it is paid, contributed or loaned."

Section 1131(1) of the Tax Law states, in part, that a "'[p]erson required to collect tax or
person required to collect any tax imposed by this article shall include: every vendor of tangible
personal property or services; every recipient of amusement charges; and every operator of a
hotel. . ."
Section 526.11(a)(4) of the Sales and Use Tax Regulations provides in part that:
Persons required to collect tax includes:
*

*

*

(4) Every person who is the recipient of dues from members of a social or
athletic club, organization or association.
*

*

*

Section 1147(b) of the Tax Law and Section 535.3 of the Sales and Use Tax Regulations
provide that in general the statute of limitation for assessment of tax is three years from the date of
the filing of a sales tax return. If a return has not been filed as required by the tax law, no time period
limits assessment.
Accordingly the stocks and bonds sold by Petitioner as condition precedent to membership
in the club are subject to the imposition of sales tax as initiation fees in the nature of dues in
accordance with Section 1105(f)(2) and 1101(d)(7) of the Tax Law.
Since the Petitioner directly received the payment for the stocks and bonds from members
of the club, it was a person required to collect the sales tax due on said securities in accordance with
Section 1131 of the Tax Law and Section 526.11(a)(4) of the Sales and Use Tax Regulations.
Petitioner is therefore required to be a registered vendor.

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TSB-A-90(57)S
Sales Tax
December 24, 1990

Further, since Petitioner failed to file the required returns, pursuant to Section 1147(b) of the
Tax Law and Section 535.3 of the Sales and Use Tax Regulations no time period limits assessments
against Petitioner for taxes not collected and remitted by it on stock and bond sales.

DATED: December 24, 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.