If a residential community requires every homebuyer to join a separately-run country club as a social member -- even though the same club also sells memberships to the general public on a first-come, first-served basis without any restrictions -- are the required social-membership dues and fees taxable as social/athletic club dues?

Subject

, is whether the dues and fees charged to members by Corporation B are subject to the sales tax imposed under Section 1105(f)(2) of the Tax Law.

What this means for you

Two commonly-owned New York corporations split a golf-community development: Corporation A builds and sells homes around a golf course, while Corporation B separately operates the country club as a for-profit business under an agreement with Corporation A. Every homebuyer in Corporation A's community is required to become a social member of Corporation B's club, and can pay extra for a golf membership (170 of the club's 325 golf memberships are reserved for these homeowners). The rest of the club's memberships -- both remaining golf memberships and other membership types -- are sold to the general public on a first-come, first-served basis, with no restriction by geography, income, race, religion, or anything else beyond the physical capacity of the facility. Members don't control admissions, elect officers, run club activities, or hold any ownership stake in the club.

New York taxes dues paid to a "social or athletic club," defined broadly to include any organization with a structure that amounts to an attempt at membership exclusivity -- restricting membership based on anything besides a facility's physical capacity counts as exclusivity under the Department's own regulatory example. Here, even though the club opens most of its memberships to anyone willing to pay, the mandatory requirement that every homeowner specifically join is itself the kind of restriction that makes an organization a "club or organization" for tax purposes -- following both a federal case and a prior Department opinion on similar mandatory-membership community associations. That's true even without any of the classic markers of club control (no member vote, no proprietary interest, no say in management). Because the club also functions as a social/athletic club under the regulations (social gatherings and recreational/sports facilities), Corporation B's dues and fees -- charged to all its members, not just the mandatory homeowner-members -- are subject to sales tax.

Q&A

Q: Our club sells most memberships openly to the public with no restrictions -- doesn't that keep us out of the "club or organization" definition?
A: Not if any subset of your membership is required to join as a condition of something else (like buying a home in an affiliated community) -- per this opinion, that mandatory requirement alone is an attempted restriction/exclusivity that brings the whole club within the definition, regardless of how open your other membership tracks are.

Q: Members of our club don't control management, elections, or activities, and have no ownership interest -- doesn't that mean we're not really a "club"?
A: Not decisive by itself -- this opinion (citing Cobblestone Creek Country Club, Inc., TSB-A-92(74)S) confirms a club can be found taxable even when no member controls social/athletic activities, elections, or committees, or holds a proprietary interest, as long as some form of membership restriction/exclusivity exists.

Q: Is it only the mandatory homeowner-members' dues that are taxed, or everyone's?
A: Per this opinion, once the entity is found to be a taxable "club or organization," its charges to ALL members -- fees or dues, whether from mandatory homeowner-members or voluntary public memberships -- fall within the taxable "dues" definition.

Citations

• Tax Law § 1105(f)(2) -- imposes sales tax on dues paid to any social or athletic club.
• 20 NYCRR § 527.11(b)(2) -- defines "dues" to include membership fees, assessments, and charges for social or sports privileges/facilities.
• 20 NYCRR § 527.11(b)(5) -- defines "club or organization," including the example that restricting membership by any means other than physical facility capacity is an attempt at exclusivity.
• 20 NYCRR § 527.11(b)(6) -- defines "social club."
• 20 NYCRR § 527.11(b)(7) -- defines "athletic club."
• Epstein v. United States, 353 F.2d 928 -- cited on club-exclusivity analysis.
• Fox Wander West Neighborhood Association, Inc., Adv Op St Tx Comm, July 29, 1980, TSB-H-80(156)S -- prior opinion on mandatory-membership community associations.
• Cobblestone Creek Country Club, Inc., Adv Op St Comm T&F, November 2, 1992, TSB-A-92(74)S -- club found taxable despite lacking member control over activities/management/ownership.

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_47s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (47)S
Sales Tax
October 18, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940624A

On June 24, 1994 a petition for Advisory Opinion was received from The Hamlet Golf and
Country Club, Inc., Fred Fallik, Controller, The Holiday Organization, Inc., 400 Post Avenue
Westbury, NY 11590.
The issue raised by Petitioner, The Hamlet Golf and Country Club, Inc., is whether the dues
and fees charged to members by Corporation B are subject to the sales tax imposed under Section
1105(f)(2) of the Tax Law.
Two regular New York State business corporations with common private ownership were
formed for the following business purposes:
1.

Corporation A constructs and sells homes in a residential community with a golf

course.
2.
Corporation B is a separate entity operating the country club facility under an
agreement with Corporation A. Corporation B will operate the club as a for-profit commercial
activity.
Purchasers of homes within Corporation A's residential community are required to become
social members in the club operated by Corporation B and for an additional fee may obtain a golf
membership.
There will be 325 golf memberships sold in Corporation B with 170 reserved for home
owners within Corporation A's residential community who can select annually to be golf members.
All unsold reserved golf memberships as well as other types of memberships will be sold to the
general public.
The membership, will not control, in any way, the admission of new members. The
membership will not be involved in the management of the club nor the election of corporate officers
and will not own a proprietary interest in the club.
The memberships in the club which will be offered to the general public by Corporation B
will be on a first-come, first-served basis without restriction on geographic area, income, race,
religion, or any other means. Any restrictions on the size of the membership will be based solely on
the physical size of the facility.
Section 1105(f)(2) of the Tax Law imposes sales tax upon "The dues paid to any social or
athletic club in this state ...."

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TSB-A-94 (47)S
Sales Tax
October 18, 1994
Section 527.11 of the Sales and Use Tax Regulations states, in part:
Dues. [Tax Law, §1105(f)(2)] (a) Imposition.
(1)
this State ...

A tax is imposed upon the dues paid to any social or athletic club in

(b)

Definitions. As used in this section, the following terms shall mean:

(2)

Dues. (i) The term dues includes:
(a)
(b)
(c)

any dues or membership fee;
any assessment, irrespective of the purpose for which made; and
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.
*

*

*

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TSB-A-94 (47)S
Sales Tax
October 18, 1994
(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, home owners within Corporation A's residential community are required to
become social members in Corporation B's club which constitutes a social or athletic club as defined
in Section 527.11(b)(6) and (7) of the Sales and Use Tax Regulations. Despite Petitioner's offering
of numerous additional memberships to the general public on a first-come, first-served basis without
restriction on geographic area, income, race, religion or any other means, the requirement that all
purchasers of residences within Corporation A's residential community become social members in
Corporation B's club is viewed as a restriction on membership and an attempt at exclusivity. See
Epstein v. United States, 353 F2d 928; Fox Wander West Neighborhood Association, Inc., Adv Op
St Tx Comm, July 29, 1980, TSB-H-80(156)S.
Since Corporation B attempts to restrict it membership in the club, it is considered to be a
"club or organization" in accordance with the meaning and intent of Section 527.11(b)(5) and
Section 527.11(b)(5) Example 18 of the Sales and Use Tax Regulations. This is true even though
no members of the club control social or athletic activities, tournaments, dances, elections,
committees, participation in the selection of members and management of the club or organization,
or possess a proprietary interest in the organization. See Cobblestone Creek Country Club, Inc., Adv
Op St Comm T & F, November 2, 1992, TSB-A-92(74)S.
Accordingly, Corporation B'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 and
Section 527.11(a)(1) of the Sales and Use Tax Regulations.

DATED: October 18, 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.