Are membership deposits and dues for a developer-run recreational community club taxable as social or athletic club dues?

Plain-English summary

Kingbrook Development Corporation is developing The Club at Kingbrook, privately owned recreational facilities in a residential community in Cattaraugus County (ski, golf, tennis, equestrian, health/fitness, swimming, and social facilities). It asked whether membership deposits and dues are subject to state and local sales tax as social or athletic club dues.

Membership is open to the general public without restriction as to geography, income, race, or religion — capped at 2,400 members solely because of the physical size of the facilities. Members get no equity or ownership interest. Management and operation are vested in Kingbrook, which alone accepts members, sets dues, and makes the rules. Kingbrook appoints a Board of Governors and recreational committees, but they act only in a strictly advisory capacity — a liaison to discuss member programs, with no power to act on members' behalf.

The Department's answer, under Tax Law § 1105(f)(2) and Regulation § 527.11(b)(5):

• Dues are taxable only for a real "social or athletic club." An entity is a taxable club when its members control activities/management or hold a proprietary interest. Restricting membership solely by facility size, selling first-come/first-served, or using "club"/"member" as marketing don't make it one.
• Kingbrook isn't a social or athletic club. Membership isn't exclusive, members have no proprietary interest and no control over activities or management, and "club"/"member" are used solely as marketing terms. Following Brierwood Village, Inc. (TSB-A-89(6)S), it's not a social or athletic club.
• Result: the membership deposits and dues aren't subject to state or local sales tax.

What this means for you

Developer-run recreational clubs usually aren't taxable clubs

If a developer or business owns and runs the facilities, sets all the rules, and members have no ownership and no control, membership charges generally aren't taxable social/athletic club dues — even for a full slate of recreational amenities.

Advisory boards don't create member control

Appointing members to a Board of Governors or committees that are purely advisory doesn't give members the kind of control that makes an entity a taxable club. Real decision-making power is what counts.

Capping membership by facility size is safe

Limiting membership solely because of physical capacity doesn't make you a taxable club. Restrictions by geography, income, and the like can signal exclusivity and point the other way.

Accountants and tax professionals

This is a companion to TSB-A-92(24)S (Ocean Watch Beach Club), decided days earlier; both apply Brierwood Village to hold that facility-size caps plus no member control/ownership keep dues outside § 1105(f)(2).

Common questions

Q: Are the club's membership deposits and dues taxable?
A: No. Because members have no ownership or control and membership is capped only by facility size, it isn't a taxable social or athletic club under § 1105(f)(2).

Q: Does having ski, golf, tennis, and social facilities make it a taxable club?
A: No. The amenities don't matter; what matters is member control/ownership, which is absent here.

Q: Members sit on a Board of Governors — isn't that control?
A: No. The Board and committees are strictly advisory, with no power to act for members, so they don't create the control that defines a taxable club.

Q: What would make it a taxable social or athletic club?
A: Members controlling the activities/management or holding a proprietary interest, or membership restrictions beyond facility size that show exclusivity.

Citations and references

Statutes, regulations, and authorities:

• Tax Law § 1105(f)(2) (tax on dues over ten dollars paid to a social or athletic club)
• Sales and Use Tax Regulations § 527.11(b)(5) (definition of club or organization; facility-size and marketing carve-outs; Example 18)
• Brierwood Village, Inc., Adv. Op. Comm. T&F, Feb. 13, 1989, TSB-A-89(6)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_28s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (28) S
Sales Tax
March 20, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S920206A

On February 6, 1992, a Petition for Advisory Opinion was received from Kingbrook
Development Corporation, P.O. Box 656, Yorkshire, New York 14173.
The issue raised by Petitioner, Kingbrook Development Corporation, is whether deposits and
dues for memberships paid to Petitioner are subject to State and local sales taxes.
The Club at Kingbrook ("Kingbrook") consists of privately owned and operated recreational
facilities being developed by Petitioner. The facilities are located within the Kingbrook Residential
Community in Cattaraugus County, New York. When completed, the facilities will include various
ski, golf, tennis, equestrian, health and fitness, swimming, and social facilities.
Membership in Kingbrook is open to the general public without restriction as to geographic
area, income, race, religion, or any other qualification except that the total number of members shall
be limited to 2,400. The restriction on total members exists solely because of the physical size of
Kingbrook's facilities.
Membership in Kingbrook does not entitle any member to an equity or ownership interest
in Kingbrook or its facilities. Management and operation of Kingbrook is vested in Petitioner.
Petitioner has exclusive authority to accept members, set dues and charges, establish Rules and
Regulations, and exercise control and management over Kingbrook.
Petitioner also has authority to annually appoint members to serve on a Board of Governors
and certain recreational committees. The Board of Governors and recreational committees act as a
liaison with Petitioner to discuss member programs. The Board of Governors and committee
members have no duty or power to negotiate or otherwise act on behalf of Kingbrook's members and
are limited to acting in a strictly advisory capacity.
Section 1105(f)(2) of the Tax Law imposes a 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. . ."
Section 527.11(b)(5) of the Sales and Use Tax Regulations defines the term "club or organization"
as follows:
(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 association or
business 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 social or

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TSB-A-92 (28) S
Sales Tax
March 20, 1992

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 propriety interest in the organization. The organizational structure
may be formal or informal.
(ii) A "club or organization" does not exist merely because a business entity:
(a) charges for the use of facilities on an annual or seasonal basis even if an
annual or season pass is the only method of sale and provided such passes are
sold on a first-come, first-served basis.
(b) restricts the size of the membership solely because of the physical size of
the facility. Any other type of restriction may be viewed as an attempt at
exclusivity.
(c) uses the word "club" or "member" as a marketing device.
(d) offers tournaments, leagues and social activities which are controlled
solely by the management.
*
*
*
Example 18: A club owned by an individual which attempts to restrict its membership by
geographic area, income, race, religion or any other means, is a "club or
organization" However, a "club" owned by an individual which restricts its
membership only because of the physical capacity of its facilities is not a club or
organization.
In Brierwood Village, Inc., Adv Op Comm T&F, February 13, 1989, TSB-A-89(6)S, the
Commissioner advised that inasmuch as (1) the membership of the club possessed no proprietary
rights therein and had no control over its activities or management and (2) membership in the club
was not exclusive, with members being appointed and accepted from a waiting list maintained by
Petitioner, the subject club was not a "social or athletic club" within the meaning of Section
1105(f)(2) of the Tax Law. Annual membership "fees" or "dues" were thus not subject to the
imposition of sales tax.
Accordingly, pursuant to Section 1105(f)(2) of the Tax Law, Section 527.11(b)(5) of the
Sales and Use Tax Regulations and Brierwood Village, Inc., supra, since membership is not
exclusive, members possess no proprietary interest in Petitioner and have no control over its
activities or management, and the term "club" and "member" are used solely as a marketing device,

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TSB-A-92 (28) S
Sales Tax
March 20, 1992

Petitioner is not a social and athletic club and, therefore, membership deposits and dues paid by
members are not subject to State and local sales taxes.

DATED: March 20, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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