Is a warehouse discount-club membership fee (like Sam's Club) subject to sales tax, and if so, at which county's tax rate, and to which county should the tax be remitted -- the county where the membership was purchased, or the county where the club warehouse is located?

Subject

Whether the receipt from the purchase of a "discount club" membership is subject to New York State and local sales tax; if so, at which county's rate; and to which county the tax should be remitted.

What this means for you

A county executive raised a constituent's complaint: the constituent bought a Sam's Club membership at a Wal-Mart Discount Cities store in Rensselaer County (7% combined rate), but was charged the 8% Albany County rate instead, because the nearest actual Sam's Club warehouse was opening in Albany County -- and the store said the tax revenue would go to Albany County, not Rensselaer County where the sale took place.

New York has already established (through prior opinions on Costco, a credit-reporting bureau, and video-rental clubs) that a "membership fee" that mainly buys access to discounted future purchases is, in substance, a prepayment for the merchandise or services the membership unlocks -- not a separate, untaxed transaction. So the discount club membership fee is taxable retail-sale receipts. But since the whole point of the membership is to shop at the actual Sam's Club warehouse (located in Albany County, not Rensselaer County where the membership happened to be sold), the opinion sources the sale to where the underlying benefit is delivered: the 8% Albany County rate applies, and the collected tax must be credited to Albany County on the seller's sales tax return, even though the sale itself took place at a Rensselaer County store. The opinion adds a general rule for multi-location discount clubs: if the membership application names a specific store, tax goes to that store's county; if it doesn't specify a store, tax is sourced to the nearest county where a club location exists.

Q&A

Q: We sell "membership" access at one store location, but the actual discounted merchandise is only available at our warehouse in a different county -- which county's tax rate applies?
A: Per this opinion, the rate (and the county credited with the tax) is the one where the actual discount-club warehouse the membership unlocks is located (or the specific store named on the application), not the county where the membership itself was purchased.

Q: Is a "membership fee" for a warehouse club even taxable in the first place, or is it just an administrative fee?
A: Yes, it's taxable, per this opinion -- following prior Costco, credit-bureau, and video-club precedents, a membership fee that functions as a prepayment for future discounted merchandise or services is treated as retail-sale receipts under Tax Law § 1105(a), not a separate untaxed charge.

Q: What if our discount club has multiple warehouse locations and the membership application doesn't specify which one the customer intends to use?
A: Per this opinion, in that case the sales tax should be sourced to the nearest county (to the point of sale) where a club warehouse is located, with the tax credited to that county.

Citations

• Tax Law § 1105(a) -- imposes sales tax on retail sale receipts, including membership fees that function as merchandise prepayments.
• Matter of Costco Wholesale Corporation, Adv. Op. St. Tax Comm'n, September 17, 1992, TSB-A-92(66)S -- held Costco's warehouse membership fee taxable as a prepayment for merchandise; followed here.
• Matter of Credit Bureau of Central New York v. State Tax Commission, 105 A.D.2d 1042 (1984) -- held credit-bureau membership fees taxable as prepayments for credit reports.
• Norman Eiger, Adv. Op. St. Tax Comm'n, December 3, 1985, TSB-A-81(20.1)S -- held video-club membership fees taxable as prepayments for movie rentals.
• Technical Services Bureau Memorandum TSB-M-86(8)S, July 7, 1986 -- states the Department's policy that video club membership fees are taxable prepayments for rentals.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a94_10s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (10)S
Sales Tax
March 17, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S930920A

On September 20, 1993 a Petition for Advisory Opinion was received from John L. Buono,
as Rensselaer County Executive, Ned Pattison Government Center, 1600 Seventh Avenue, Troy, NY
12180.
The issues raised by Petitioner, John L. Buono, as Rensselaer County Executive, are:
1.
Whether the receipt from the purchase of a "discount club" membership is subject to
New York State and local sales tax.
2.
If yes, whether the receipt is subject to the sales tax rate applicable to the county
within which the membership is purchased or to the county within which the "discount club" is
located.
3.
Whether the sales tax collected should be remitted to the county within which the
purchase of the membership was made or to the county in which the "discount club" is located.
A constituent of Petitioner recently purchased a "Sam's Club" discount club membership at
the Wal-Mart Discount Cities Store located at 279 Troy Road, East Greenbush, Rensselaer County,
New York. The constituent was charged sales tax on the purchase of the membership. When he was
told at the store that sales tax was applicable to the purchase, he inquired as to why he was charged
8% sales tax and not the 7% rate that prevails in Rensselaer County. The store officials advised that
they must charge the 8% rate which prevails in Albany County since a Sam's Club warehouse was
about to open in Albany County. The constituent then inquired of store officials as to which county
would receive the sales tax revenue, and was informed that the revenue from the sale of the discount
club memberships was to be remitted to Albany County. The membership is valid at all Sam's Club
warehouses, regardless of their locations.
Section 1105(a) of the Tax Law imposes sales tax on the receipts from every retail sale of
tangible personal property, except as otherwise provided.
In Costco Wholesale Corporation, Adv Op St Tx Comm, September 17, 1992, TSB-A­
92(66)S the Commissioner of Taxation and Finance advised that the annual membership fee paid
by members for access to Costco's warehouse sales facilities was subject to sales tax pursuant to
Section 1105(a) of the Tax Law since, in substance the membership fee was a prepayment for the
merchandise sold by Costco.

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TSB-A-94 (10)S
Sales Tax
March 17, 1994
In the Matter of Credit Bureau of Central New York v. State Tax Commission, 105 AD2d
1042 (1984), the court determined that membership fees paid to a credit reporting agency were
merely part of the members' cost of the credit reports since the credit reports were the only things
provided to members by the credit bureau in return for the fee. The court concluded that such fees
are subject to tax since they are, in reality, prepayments which only entitled members to reduced
charges for the credit reports.
In Norman Eiger, Adv Op St Tx Comm, December 3, 1985, TSB-A-81(20.1)S the State Tax
Commission advised that membership fees charged by petitioner which entitled members only to a
reduced rental charge on movies and no other rights or benefits, was subject to sales tax since the
membership fee represented a prepayment for the rental of the movies.
Technical Services Bureau Memorandum TSB-M-86(8)S, July 7, 1986 states as follows:
This memorandum reflects the policy of the Tax Department on the taxability of
video club membership fees.
Video club "memberships" generally enable purchasers to rent movies at rates lower
than the rates charged to persons who do not purchase memberships.
Even though vendors of memberships in video clubs characterize the charges as
"membership fees", the substance of the charge is that of a prepayment for the rental
of a movie. Therefore, the fee for joining is determined to be taxable (section l105(a)
of the Tax Law).
In accordance with Costco Wholesale Corporation, supra, Credit Bureau of Central New
York v. State Tax Commission, supra, Norman Eiger, supra, and TSB-M-86(8)S the receipts from
the charge for a Sam's Club discount club membership is subject to the sales tax imposed under
Section 1105(a) of the Tax Law since, in substance, the membership fee is a prepayment for the
merchandise sold by Sam's Club.
Since the nearest Sam's Club is not located within Rensselaer County but is located in
Latham, which is within Albany County, the membership will allow the member to make discount
purchases at the Sam's Club located within Albany County. Accordingly, the proper rate of sales tax
to be applied to receipts from charges for memberships in Sam's Club is 8%, the current combined
State and local sales tax rate in effect in Albany County.
Moreover, since the membership is intended for the purpose of allowing the member to make
discount purchases within Albany County, the sales tax collected on the receipts from the sales of
memberships, even though made in Rensselaer County, must be credited to Albany County on the
Albany County line of the sales tax return filed for the Wal-Mart store located in Rensselaer County.

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TSB-A-94 (10)S
Sales Tax
March 17, 1994
It is noted that if the membership application for a discount club membership in a club that
has multiple locations in various counties specifically states the specific store which is issuing the
membership then the sales tax to be collected should be at the rate in the county in which the store
is located and the tax should be credited to said county. However in the event that no specific store
is indicated, then the sales tax to be collected should be at the rate in the nearest county to the point
of sale in which a discount club store is located and the tax credited to said county.

DATED: March 17, 1994

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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