Are the annual dues paid to a lakeside property owners association subject to New York sales tax as social or athletic club dues, when the association has no pool, clubhouse, tennis courts, or docking/swimming facilities and spends its dues on common-area upkeep?

Subject

Issue raised by Petitioner, Lake Lucille Property Owners Association, is whether the annual dues paid for membership in Petitioner are subject to sales tax.

What this means for you

Lake Lucille Property Owners Association is a non-profit homeowners group whose entire income is member dues, almost all of which (90%+) goes toward maintaining common-area property -- snow removal, road paving, landscaping, real estate taxes, and similar upkeep. It has no pool, clubhouse, tennis courts, or other social/recreational facilities, and doesn't operate or maintain any swimming or docking facilities, patrol the lake, or handle water-pollution control.

New York taxes dues paid to a "social or athletic club" over $10/year. The Department's regulations define such clubs largely by whether they exist to run social gatherings (dances, dinners, meetings for social interrelation) or athletic/sports activities and facilities for members. Because this association has built and maintains none of that -- no pool, tennis courts, beach, or dedicated social-gathering space -- and every dollar of dues funds non-sport, non-recreational activities, the Department found it isn't a social or athletic club under the regulations. None of its annual dues are subject to sales tax.

Q&A

Q: Our association's dues fund only road maintenance, landscaping, and property taxes on common areas -- are those taxable?
A: Not per this opinion -- dues spent entirely on non-recreational, non-social common-area upkeep (no pool, courts, clubhouse, or docking facilities) fall outside the social/athletic club tax entirely.

Q: What if our association maintains a lake, beach, or swimming area for members?
A: That's the distinguishing fact here -- this association explicitly does NOT maintain or operate swimming/docking facilities or patrol its lake. An association that does typically crosses into "athletic club" territory under the Department's regulatory examples (see the companion opinion TSB-A-94(56)S for a similar no-recreational-facilities holding).

Q: Does having a clubhouse used only for meetings change the outcome?
A: No -- the regulations require a material purpose of arranging dances, dinners, or similar social gatherings before a clubhouse makes an association a "social club"; purely administrative/meeting use isn't enough (consistent with the companion opinion issued the same day, TSB-A-94(56)S).

Citations

• Tax Law § 1105(f)(2) -- imposes sales tax on dues over $10/year paid to a social or athletic club.
• 20 NYCRR § 527.11(b)(5) -- defines "club or organization."
• 20 NYCRR § 527.11(b)(6) -- defines "social club" as one with a material purpose of arranging dances, dinners, meetings, or similar social functions.
• 20 NYCRR § 527.11(b)(7) -- defines "athletic club" as one with a material purpose of sports/athletics activity or facilities.
• Merrick Estates Civic Association, Inc. v. State Tax Commission, 65 AD2d 669 -- residents' corporation that built and ran a community pool was a taxable social club.

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_55s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (55)S
Sales Tax
December 27, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940615A

On June 15, 1994, a Petition for Advisory Opinion was received from Lake Lucille Property
Owners Association, c/o Terri Thal, 8 Lake Drive, Lake Lucille, New City, New York 10956.
The issue raised by Petitioner, Lake Lucille Property Owners Association, is whether the
annual dues paid for membership in Petitioner are subject to sales tax.
Petitioner is a non-profit association of homeowners whose purpose is to preserve, protect,
maintain and improve their properties. One hundred percent of Petitioner's gross income consists
of dues paid by the homeowners. Ninety percent or more of Petitioner's expenditures are for
acquisition, construction, management, maintenance and care of Petitioner's property, i.e., snow
removal, road paving, landscaping, real estate taxes, etc. of the common area. Petitioner has no pool,
clubhouse, tennis courts or other types of social or recreational facilities. Petitioner does not
maintain or operate any swimming or docking facilities nor is it responsible for supervising or
patrolling Lake Lucille or controlling water pollution.
Section 1105(f)(2) of the Tax Law imposes sales tax upon the following:
(2) 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,
and on the initiation fee alone, regardless of the amount of dues, if such initiation fee
is in excess of ten dollars...
Section 527.11(b)(5) of the Sales and Use Tax Regulations provides, in part, 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 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.

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TSB-A-94 (55)S
Sales Tax
December 27, 1994
(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". (emphasis added)
Section 527.11(b)(6) of the Sales and Use Tax Regulations provides, in part, as follows:
(6) Social Club. A social club is any club or organization which has a
material purpose or activity of maintaining quarters for arranging periodic dances,
dinners, meetings, or other functions affording its members an opportunity of
congregating for social interrelation.
Section 527.11(b)(7) of the Sales an Use Tax Regulations provides, in part, as follows:
(7) Athletic club. (i) An athletic club is any club or organization which has
a material purpose or activity the practice, participation in or promotion of any sports
or athletics.
*

*

*

Example 30: An association owns land on which it provides
tennis courts and bathing beaches, with equipment and attendants and
parking lots for members and their guests, gives parties for members
and guests, provides water to the land of its members and maintains
private roads. Only the owners of property in the vicinity of the
association's land may be members of the association. The association

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TSB-A-94 (55)S
Sales Tax
December 27, 1994

is an athletic club as the use of its facilities is restricted to members
and a material purpose of it is providing sports privileges and
facilities.
Example 31: Each purchaser of a lot or condominium within
a real estate subdivision automatically becomes a member of an
association which operates a pool, tennis courts and nature trails
within the subdivision. The association assesses each owner an
annual charge to provide funds for the operation of these facilities.
The association has the right to limit the number of guests of
members and to charge reasonable fees for the use of the facilities.
The association is an athletic club as it has a material purpose or
providing sports privileges and facilities. The fact that membership
is automatic upon purchase of real property has no effect on the
association's status as a club. (emphasis added)
In the Matter of Merrick Estates Civic Association, Inc. v. State Tax Commission, 65 AD2d
669, the Court held that where residents of a particular residential section formed a corporation in
order to construct a community swimming pool and related facilities, where membership was limited
to homeowners living in defined residential sections, that the use of the facilities was deemed
"social" and, thus, sales could be imposed upon dues paid to a social club. (emphasis added)
In the instant case Petitioner has not constructed nor does it maintain a swimming pool or
related facilities, tennis courts, or a beach. In addition, Petitioner does not maintain quarters for the
material purpose of arranging dances, dinners, meetings or other functions. Moreover, all dues
collected by Petitioner are expended for non-sport and non-recreational activities. Accordingly,
Petitioner is not a social or athletic club as described in Sections 527.11(b)(5), (6) and (7) of the
Sales and Use Tax Regulations. Therefore, no portion of the annual dues paid by its membership
to Petitioner are subject to the sales tax imposed by Section 1105(f)(2) of the Tax Law.

DATED: December 27, 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.