Does a tennis club collect sales tax on a required purchase of the landholding company's stock, and can members get that tax refunded when the stock is redeemed?

Plain-English summary

Shelter Rock Tennis Club is a social and athletic club. As a condition of membership, each member must buy a $6,128 share of stock (plus sales tax) in Searingtown Associates, Inc., the title-holding company that owns the club's land and facilities; the share price had grown over the years by adding in past assessments (including a 1988 assessment for pool repairs). The club collects and remits sales tax on those required stock purchases. When a member resigns and a new member buys in, the departing member's share is redeemed. The club asked: is the required stock purchase taxable, and can members get the tax refunded on the purchase or on redemption?

The Department held:

• The required stock purchase is taxable. New York taxes dues paid to a social or athletic club under Tax Law § 1105(f)(2). "Dues" is defined broadly (§ 1101(d)(6); 20 NYCRR § 527.11(b)(2)) to include any assessment "irrespective of the purpose," and an "initiation fee" includes any payment required as a condition precedent to membership — even if evidenced by a share of stock (§ 527.11(b)(4)). Because buying the Searingtown share is required to join, the payment is both dues and an initiation fee, and is subject to tax.
• No refund on redemption. Redeeming the share later does not entitle the member to a refund of the tax, because the transactions that required the purchase and created the tax liability were not set aside or cancelled (citing Lawrence Wittlin, TSB-H-80(259)S).
• A prior refund was an error. The Department noted that a sales-tax refund it had earlier issued to one member on such a share was issued erroneously.

What this means for you

Clubs structured with a required stock or bond purchase

If joining your club requires buying stock, a bond, or paying any assessment — regardless of what the money funds or what instrument documents it — that payment is taxable dues/initiation fee under § 1105(f)(2). The label ("stock purchase," "capital assessment," "bond") doesn't change the result; the trigger is that it's required as a condition of membership. Collect and remit the tax.

Members expecting the tax back at the exit

Getting your money back for the share when you leave (redemption) is not a cancellation of the original taxable transaction, so it does not generate a refund of the sales tax you paid to join. The tax attached when you paid to become a member and stays paid.

Accountants and tax professionals

The opinion applies the broad § 1101(d)(6) / § 527.11(b) definitions of "dues" and "initiation fee" — an assessment "irrespective of the purpose" and a condition-precedent payment "whether or not evidenced by a ... share of stock." Redemption isn't a rescission, so Lawrence Wittlin (TSB-H-80(259)S) forecloses a refund, and the Department flagged its own earlier refund as erroneous.

Common questions

Q: Does the club collect sales tax on the required stock purchase?
A: Yes. Because buying the share is required to join, it's both taxable dues and an initiation fee under Tax Law § 1105(f)(2), so the club collects tax on it.

Q: Does it matter that the payment buys stock in a separate title-holding company?
A: No. An initiation fee includes any payment required as a condition precedent to membership, whether or not evidenced by a share of stock and regardless of who receives it (20 NYCRR § 527.11(b)(4)).

Q: Can a member get the tax refunded when the stock is redeemed?
A: No. Redemption doesn't set aside or cancel the original transaction that created the tax liability, so there's no refund (citing Lawrence Wittlin, TSB-H-80(259)S).

Q: What about the member who already got a refund?
A: The Department stated that refund was issued erroneously.

Q: Can another club 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)
• Tax Law § 1101(d)(6) (definition of "dues," including any assessment irrespective of purpose)
• Tax Law § 1101(d)(13) (definition of "social or athletic club")
• 20 NYCRR § 527.11 (dues; definitions of dues, initiation fee, club, social club, athletic club)
• Lawrence Wittlin, Adv Op St Tax Comm, TSB-H-80(259)S (no refund where the transaction was not set aside or cancelled)

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_78s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (78) S
Sales Tax
November 13, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S920908A

On September 8, 1992 a Petition for Advisory Opinion was received from Shelter Rock
Tennis Club, Inc., Powerhouse Road, Manhasset, New York 11030.
The issues raised by Petitioner, Shelter Rock Tennis Club, Inc., are:
1.
Whether Petitioner should collect sales tax on receipts from members for required
purchases of stock of Searingtown Associates, Inc.
2.
Whether members of Petitioner are entitled to a refund of the sales tax paid on the
required purchase of stock of Searingtown Associates, Inc.
3.
Whether members of Petitioner are entitled to a refund of the sales tax paid at the time
their stock of Searingtown Associates, Inc. is redeemed.
Petitioner is a social and athletic club within the meaning of Section 501(c)(7) of the Internal
Revenue Code. Petitioner also functions as a social and athletic club as defined under Sections
1101(d)(13) of the Tax Law and 527.11(b)(5), (6) and (7) of the Sales and Use Tax Regulations, in
that the membership of this organization controls its activities through the elected Board of
Governors and committees.
Searingtown Associates, Inc. is a title holding company that owns the land, buildings and
other facilities occupied and used as a tennis club by Petitioner.
The members and former members (those awaiting redemption of their shares of stock) of
Petitioner own all the outstanding stock in Searingtown Associates Inc.
As a condition precedent to membership in Petitioner a member must purchase a share of
stock of Searingtown Associates Inc., in the amount of $6,128.00 plus sales tax. This purchase price
was arrived at by adding the amount of certain assessments imposed by the Board through the years,
the most recent one being in 1988 for $1,640.00 plus sales tax to cover major repairs to Petitioner's
outdoor pool.
Petitioner collects sales tax from each member based on the price paid for the required
purchase of stock of Searingtown Associates Inc. The sales tax is reported on and paid with the
return filed by Petitioner.
A members' stock in Searingtown Associates, Inc. is redeemed when he resigns from
Petitioner and a new member has paid for his required purchase of stock.
TP-9 (9/88)

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TSB-A-92 (78) S
Sales Tax
November 13, 1992
A member of Petitioner who is also a shareholder of Searingtown Associates Inc. applied to
the Department of Taxation and Finance for a refund of the sales tax paid on a share of stock in
Searingtown Associates, Inc. The member received a refund of the sales tax paid on the share of
stock in Searingtown Associates, Inc. from the Department.
Section 1105(f)(2) of the Tax Law imposes a tax on "[t]he dues paid to any social or athletic
club in this state . . . . "
Section 1101(d)(6) of the Tax Law defines "dues" as:
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 1101(d)(13) of the Tax Law defines the term "social or athletic club" as "[a]ny club
or organization of which a material purpose or activity is social or athletic."
*
*
*
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 if the dues of an active annual member, exclusive of the initiation fee, are in
excess of $10 per year.
(2) A tax is imposed on the initiation fee be paid to any social or athletic
club, regardless of the amount of dues, if such initiation fee is in excess of $10.
(3) Where the tax applies to any social or athletic club, the tax shall be paid
by all members thereof, regardless of the amount of their dues or initiation fee.
...
(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

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TSB-A-92 (78) S
Sales Tax
November 13, 1992

(c) any charge for social or sports
privileges or facilities.
...
Example 4:

A social club wishes to expand its clubhouse by adding a new dining room to it. In
order to finance the construction, the club will assess each member $100. The
assessment is subject to tax as dues, regardless of the fact that the proceeds will be
used for a capital improvement.

...
(4) Initiation fee. Any payment, contribution or loan, required as a condition precedent to
membership, whether or not such payment, contribution or loan is evidenced by a certificate of
interest or indebtedness or share of stock, and irrespective of the person or organization to whom
paid, contributed or loaned.
Example 12: As a condition necessary for membership in a social club, an applicant is
required to purchase a $50 bond from the club. This purchase is an initiation
fee subject to tax.
(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 organizational
structure may be formal or informal.
(6) Social club. A social club is any club or organization which has a material
purpose or activity of arranging periodic dances, dinners, meetings or other functions
affording its members an opportunity of congregating for social interrelationship...
(7) Athletic club. (i) An athletic club is any club or organization which has
as a material purpose or activity the practice, participation in or promotion of any
sports or athletics ....
In the instant matter, Petitioner is considered to be a social and athletic club as defined under
Section 1101(d)(13) of the Tax Law and Sections 527.11(b)(6) and (7) of the Sales and Use Tax
Regulations.

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TSB-A-92 (78) S
Sales Tax
November 13, 1992

Since the purchase of a share of stock of Searingtown Associates Inc. is required as a
condition precedent to membership, the receipts from such payments are considered to be both dues,
as defined under Section 1101(d)(6) of the Tax Law and Section 527.11(b)(2) of the Sales and Use
Tax Regulations, and an initiation fee as defined under Section 527.11(b)(4) of the Sales and Use
Tax Regulations. Accordingly the receipt from the purchase of the share of stock of Searingtown
Associates, Inc. is subject to the tax imposed under Section 1105(f)(2) of the Tax Law and Section
527.11(a) of the Sales and Use Tax Regulations.
Subsequent redemption of the share of stock of Searingtown Associates, Inc. will not entitle
a member to a refund of the tax paid, because the transactions which necessitated the purchase of
the stock and the creation of the members' tax liability have not been set aside or cancelled.
Lawrence Wittlin, Adv Op St Tax Comm., December 15, 1980, TSB-H-80(259)S.
It is noted that the refund of sales tax issued to one of Petitioner's members for sales tax paid
on a share of stock of Searingtown Associates, Inc. was issued erroneously.

DATED: November 13, 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.