Are a country club's membership fees and dues taxable when membership is by invitation only and restricted to a defined group?

Plain-English summary

Cobblestone Creek Country Club, Inc. — a private, not-for-profit country club in a residential development in Victor, New York — asked whether the fees and dues it charges members are subject to the sales tax on social or athletic club dues under Tax Law § 1105(f)(2). Membership at the Club is by invitation only and limited to resident owners in Cobblestone Creek plus a limited number of outsiders. Members do not control the Club: until a future closing date, the developer appoints the Board of Governors, and members' committee is only advisory. The Club had been collecting sales tax on dues, and members questioned whether that was correct.

The Department said the fees and dues are taxable. Regulation § 527.11(b)(5) (Example 18) says a "club or organization" exists where an entity restricts its membership by means other than the physical capacity of its facilities — restrictions of that kind "may be viewed as an attempt at exclusivity." Because the Club offers membership by invitation only and limits it to a defined group, it is a club or organization — even though members currently have no control over the Club and no proprietary interest, since member control and proprietary interest are only some of the possible indicators (citing Max Pollock, TSB-A-83(48)S, and IBM Corporation, TSB-A-85(9)S). "Dues" under § 527.11(b)(2) sweeps in any dues, membership fee, or assessment. Accordingly, the Club's charges to members — whether called fees or dues — are subject to the sales tax imposed by § 1105(f)(2).

What this means for you

Country clubs and membership organizations

If your club limits who can join by invitation, geography, or any means beyond the physical size of the facility, the Department will likely treat it as an exclusive "social or athletic club" whose dues, fees, and assessments are taxable under § 1105(f)(2) — and it does not matter that members lack a board seat or an ownership stake. Member control and proprietary interest are only some of the indicators; an exclusivity-based membership restriction alone is enough.

The exclusivity line — compare TSB-A-92(72)S

Contrast the companion 1992 opinion TSB-A-92(72)S (KPMG's golf-club client), where dues were held not taxable because the only membership restriction was the physical size of the facility and members lacked control and proprietary interest. The deciding difference is the type of membership restriction: a cap based on physical capacity is fine, but limiting membership by invitation/exclusivity makes the entity a taxable club.

Accountants and tax professionals

Apply Reg. § 527.11(b)(5) and Example 18: an exclusivity-based membership restriction independently establishes a taxable "club or organization," regardless of member control or proprietary interest. "Dues" under § 527.11(b)(2) includes any dues, membership fee, or assessment. Supporting opinions: Max Pollock (TSB-A-83(48)S) and IBM Corp. (TSB-A-85(9)S); contrast the physical-capacity result in TSB-A-92(72)S.

Common questions

Q: Are invitation-only country club dues taxable in New York?
A: Yes. Restricting membership by invitation is an attempt at exclusivity, which makes the club a taxable "social or athletic club," so its dues and fees are subject to sales tax under § 1105(f)(2).

Q: The members don't control the club or own it — doesn't that make it non-taxable?
A: No. Member control and proprietary interest are only some of the indicators. An exclusivity-based membership restriction is by itself enough to make the entity a taxable club.

Q: How is this different from TSB-A-92(72)S, where club dues weren't taxable?
A: There the only membership restriction was the physical size of the facility, which the regulation says does not make an entity a club. Here membership was by invitation only, an attempt at exclusivity, which does.

Q: Can another taxpayer rely on this opinion?
A: No. An advisory opinion binds the Department only as to the petitioner and the facts described; another taxpayer with different facts cannot rely on it.

Citations and references

Statutes and authorities:

• Tax Law § 1105(f)(2) (tax on dues paid to a social or athletic club)
• Sales and Use Tax Regulations § 527.11 (dues; definition of "club or organization," including Example 18)
• Max Pollock, Adv Op St Tx Comm, November 18, 1983, TSB-A-83(48)S; International Business Machines Corporation, Adv Op St Tx Comm, April 30, 1985, TSB-A-85(9)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_74s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (74) S
Sales Tax
November 2, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S920804A

On August 4, 1992 a Petition for Advisory Opinion was received from Cobblestone Creek
Country Club, Inc., 7979 Pittsford-Victor Road, Victor, NY 14564.
The issue raised by Petitioner, Cobblestone Creek Country Club, Inc., is whether fees and
dues assessed to members and paid to Petitioner are subject to the sales tax imposed by Section
1105(f)(2) of the Tax Law.
Petitioner, hereinafter "the Club", was incorporated in the State of New York as a Type C
not-for-profit corporation on April 3, 1990. The Club is part of the residential community
development known as Cobblestone Creek, located in Victor, New York. The Club is a private, not­
for-profit, country club in which membership is available by invitation only and is limited to resident
owners in Cobblestone Creek and a limited number of persons outside of the Cobblestone Creek
residential community.
The Club has opened and memberships have been sold. The Club has collected sales tax on
all payments of membership contributions and monthly dues. Members of the Club have questioned
whether sales tax applies to these payments.
The Club offers two classes of memberships, golf and social. A golf membership entitles an
individual and his immediate family to use all of the golf, tennis, swimming and social facilities of
the Club. A social membership entitles an individual and his immediate family to use the tennis,
swimming and social facilities of the Club and further entitles the social member to a total of three
rounds of golf per year at the golf course upon payment of a greens fee.
The Club obtains most of its revenues from membership contributions, annual dues and
services provided to members (e.g., clubhouse concessions). A very small portion of its revenues
comes from services provided to non-members (in connection with specific outings).
The Club's facilities (e.g., golf course, golf carts, pro shop, etc.) are currently owned by
Vicwil Associates, a New York limited partnership and the developer of Cobblestone Creek (the
"Developer"). The Developer operates these facilities as a private membership club whose members,
upon admission and payment of a membership contribution and monthly dues, receive the benefits
previously described. All Cobblestone Creek property owners have the opportunity to apply for Club
membership.
The Developer has contracted to sell the facilities used by the Club (the "Club Facilities")
to the Club. Pursuant to the terms of the Cobblestone Creek Country Club Facilities Purchase
Agreement (the "Purchase Agreement"), until the Closing Date (as therein defined) which in any
event shall be no later than January 1, 1999, the Developer will operate the Club Facilities and will

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TSB-A-92 (74) S
Sales Tax
November 2, 1992
make those Facilities available to the members of the Club. The Purchase Agreement and the ByLaws of the Club call for a Board of Governors that will govern and administer the affairs and
property of the Club and have exclusive authority to:
1.

accept or reject applications for membership;

2.

set membership contributions, dues, assessments and charges;

3.

establish rules and regulations;

4.

hire and terminate personnel; and

5.

in general, control the management and operations of the Club and the Club Facilities.

Until the Closing Date, the Board of Governors is appointed by the Developer. The members of the
Board serve solely on behalf of the Developer and they are not required to be Club members.
The Purchase Agreement and the By-Laws also create an advisory committee of members
in the Club. This committee acts as a liaison between the Developer and the members of the Club.
The committee makes non-binding recommendations to the Board of Governors, but has no right,
duty or obligation to act on behalf of the members of the Club until the Closing Date.
If the holder of a resident or non-resident golf membership resigns from the Club, he or she
will receive a payment equal to the greater of 75% of the membership contribution actually paid by
the resigning member or 60% of the membership contribution then charged by the Club for the class
and category of the resigning member's membership, but in no event shall the amount paid to the
resigning member exceed the amount of the membership contribution actually paid by the resigning
member. The By-Laws also allow the Club to recall and repurchase certificate golf memberships
upon the giving of sufficient notice. If the Club repurchases a certificate membership, the certificate
member will receive a portion of his or her membership contribution ranging from 100% in Year 2
to 10% in Year 5 and thereafter.
Section 1105(f)(2) of the Tax Law imposes sales tax upon "The dues paid to any social or
athletic club in this state .... "
Section 527.11 of the 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 ...
*

*

*

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Sales Tax
November 2, 1992

(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 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 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 proprietary interest in the organization. The organization structure may
be formal or informal.
(ii) A club or organization does not exist merely because a business
entity:
*
*
*
(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;
*
*
*
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 the instant case, the Club offers membership by invitation only and limits such
membership to resident owners in Cobblestone Creek and to a limited number of persons outside of
the Cobblestone Creek residential community.

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TSB-A-92 (74) S
Sales Tax
November 2, 1992

Since the Club attempts to restrict its membership, it is considered to be a “club or
organization” in accordance with Section 527.11(b)(5), Example 18 of the Sales and Use Tax
Regulations. This is true even though no members of the Club may currently be serving on the
Club's Board of Directors, thereby creating an absence of membership control or possession of a
proprietorship interest in the Club. Max Pollock, Adv Op St Tx Comm, November 18, 1983, TSB-A­
83(48)S; International Business Machines Corporation, Adv Op St Tx Comm, April 30, 1985, TSBA-85(9)S.
Accordingly the Club's charges to its members, whether in the form of fees or dues, fall
within the definition of dues as defined under Section 527.11(b)(2)(i) of the Sales and Use Tax
Regulations and are subject to the sales tax imposed under Section 1105(f)(2) of the Tax Law.

DATED: November 2, 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.