Are dues paid to a homeowners association subject to New York sales tax as a social or athletic club when the association has no pool, tennis courts, or other recreational facilities?

Subject

Cicero, is whether the dues paid by members of a homeowners association to fund operating expenses and capital improvements are subject to sales tax when the association does not provide recreational facilities.

What this means for you

A 108-family homeowners association collects dues to cover operating expenses and capital improvements. It has no pool, no tennis courts, and no other recreational amenities -- just a clubhouse that serves solely as the association's office and the site of its annual meeting, nothing more.

New York taxes dues paid to a "social or athletic club" over $10/year (Tax Law § 1105(f)(2)). The regulations define such a club by whether it exists mainly to run social or athletic activities for its members -- the classic examples in the regulations involve associations that maintain pools, tennis courts, beaches, or similar recreational facilities for member use. Since this association provides none of that -- no pool, no courts, no beach -- and its clubhouse serves purely administrative/governance functions (not social gatherings or athletics), the Department found it isn't a "club or organization" under the regulations at all. Its dues, whether earmarked for operating costs or capital improvements, are entirely untaxed.

Q&A

Q: Our homeowners association has a clubhouse -- doesn't that automatically make us a taxable social club?
A: Not by itself. This opinion turned on the clubhouse's actual use -- here, purely as the association's office and annual-meeting site, not a venue for member social functions -- which the Department found insufficient to make the association a "social club" under the regulations.

Q: What would make an association's dues taxable?
A: A material purpose of providing recreational or athletic facilities to members -- a pool, tennis courts, a beach, or similar amenities -- following the Department's own regulatory examples and the Merrick Estates Civic Association case (65 AD2d 669), where dues funding a community swimming pool were taxed as social-club dues.

Q: Does it matter that membership in our association is automatic once you buy a home there?
A: No -- per the Department's own regulatory example, automatic membership upon purchasing property doesn't change a club's status one way or the other; what matters is whether the association actually operates recreational/athletic facilities.

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," including examples of what does and doesn't create club status.
• 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_56s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (56)S
Sales Tax
December 27, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940809A

On August 9, 1994, a Petition for Advisory Opinion was received from Gregory J. Cicero,
35 Locust Avenue, Staten Island, New York 10306.
The issue raised by Petitioner, Gregory J. Cicero, is whether the dues paid by members of a
homeowners association to fund operating expenses and capital improvements are subject to sales
tax when the association does not provide recreational facilities.
Petitioner's client is a homeowner association consisting of 108 families. Dues paid by
members of the homeowner association fund operating expenses and capital improvements.
The Homeowners Association does not provide any recreational facilities. There are no pools
or tennis courts. There is a club house on the grounds which serves as the office of the association.
In addition it is used to hold the annual meetings of the association. It is not used for any other
purposes.
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.
(ii)
entity:

A "club or organization" does not exist merely because a business

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TSB-A-94 (56)S
Sales Tax
December 27, 1994
(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)(7) of the Sales and 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 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

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TSB-A-94 (56)S
Sales Tax
December 27, 1994
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 tax should be imposed upon dues paid to a social club. (emphasis added)
In the instant case since the homeowner association does not provide any recreational
facilities, it cannot be considered to be a social and athletic club in accordance with Section
1105(f)(2) of the Tax Law and Sections 527.11(b)(5) and 527.11(b)(7) of the Sales and Use Tax
Regulations. Accordingly no portion of the dues paid by members of the homeowners association
to fund operating expenses and capital improvements are subject to the imposition of sales tax.

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.