At a social or athletic club, is buying stock in a related land company — required for membership or bought voluntarily to cut annual dues — subject to sales tax as dues?

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 a year. It has no employees and does no other business. Almost all its shareholders are club members (the rest are former members).

The club makes every new member buy stock and a bond in the company as a condition of joining. Members may also, at any time, voluntarily buy additional shares — and each share cuts their annual club dues by $15. Every share is repurchased by the company when the member resigns, so the member takes no real investment risk. The company asked whether the voluntary stock purchases are taxable as dues.

This is a Modified Advisory Opinion — a revision of the Department's companion opinion TSB-A-91(17)S to the same taxpayer, following its original opinion TSB-A-90(57)S. The Department held:

• Mandatory stock and bonds are taxable. Stock and bonds required as a condition precedent to membership are initiation fees in the nature of dues, taxable under § 1105(f)(2) and the § 1101(d)(7) definition of "initiation fee" (which expressly includes a payment "evidenced by a certificate of interest or indebtedness or share of stock," no matter who receives it).
• Voluntary stock is ALSO taxable dues. Because buying a share reduces the member's annual dues by $15 and is bought back on resignation with no risk, the purchase is really a prepayment of a portion of the member's dues — so it, too, is taxable under § 1105(f)(2).

Both kinds of stock purchase are subject to sales tax.

What this means for you

Routing club money through a separate stock or land company doesn't avoid the dues tax

New York's dues tax looks at substance. Even though the stock is issued by a separate title-holding corporation, the payments function as membership fees, so they are taxed as initiation fees or dues. Splitting the real estate into its own entity did not change the result.

"Voluntary" payments that buy down dues are still dues

The label "voluntary stock purchase" didn't help, because each share bought reduced annual dues dollar-for-dollar and was refunded on exit. When a payment operates as a prepayment of dues, the Department treats it as dues — regardless of how it is structured or what it is called.

The § 1101(d)(7) definition of "initiation fee" is deliberately broad

It reaches any payment, contribution or loan required to join, "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." Clubs using stock-purchase or bond requirements to fund a related entity should expect those amounts to be taxable.

Common questions

Q: Are club initiation fees and dues taxable in New York?
A: Dues to a social or athletic club are taxable if annual dues exceed $10, and an initiation fee is taxable on its own if over $10 (§ 1105(f)(2)).

Q: Does issuing the payment as "stock" in a separate company avoid the tax?
A: No. Section 1101(d)(7) includes payments evidenced by a share of stock, and it applies irrespective of who receives the money — here, a related title-holding company.

Q: Why were the voluntary purchases taxed too?
A: Because each share reduced annual dues by $15 and was repurchased on resignation, so it functioned as a prepayment of dues rather than a genuine at-risk investment.

Citations and references

Statutes and prior opinion:

• Tax Law § 1105(f)(2) — tax on social/athletic club dues and initiation fees over $10
• Tax Law § 1101(d)(7) — definition of "initiation fee," including payments evidenced by stock, regardless of recipient
• St. George Operating and Improvement Co., TSB-A-91(17)S (companion opinion) and TSB-A-90(57)S (Dec. 24, 1990) — earlier opinions to the same petitioner

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_17_1s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (17.1)S
Sales Tax
April 29, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
MODIFIED ADVISORY OPINION

PETITION NO. S901204A

On December 4, 1990, a Petition for Advisory Opinion was received from St. George
Operating and Improvement Co. Inc., PO Box AN, Stonybrook, New York 11790.
The issue raised by Petitioner, St. George Operating and Improvement Co., is whether the
voluntary purchases of stock in a land company related to a social and athletic club for which the
purchaser received a reduction in annual dues is subject to sales tax as dues.
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. Members
can at any time during the term of their membership voluntarily purchase additional shares of stock.
Each share purchased reduces the members dues in the club by $15.00 a year. The cost of the stock
is $153.60 per share. All stock is re-purchased from the member after his resignation. 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.
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 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

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TSB-A-91 (17.1)S
Sales Tax
April 29, 1991

the person or organization to whom it is paid, contributed or loaned."
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. St. George Operating and Improvement Co., Adv
Op Comm T&F, December 24, 1990, TSB-A-90(57)S.
Moreover, the voluntary purchase of additional shares of stock constitutes dues pursuant to
Section 1105(f)(2) of the Tax Law since the purchase of stock results in the prepayment of a portion
of the member's annual dues. This is evident by the fact the membership dues are annually reduced
by $15.00 for the subsequent years following the voluntary purchase of stock and the fact that all
stock is re-purchased from the member after his resignation from membership with no risk to the
members investment.
Accordingly, the purchase of stocks and bonds, whether purchased as a condition precedent
to membership in the club or as a voluntary purchase with an incentive such as a reduction in annual
dues, are subject to sales tax pursuant to Sections 1105(f)(2) and 1101(d)(7) of the Tax Law.

DATED: April 29, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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