After further review, does a mandatory condominium association's entire assessment count as taxable club dues, or only the portion actually funding the pool and tennis courts?

Subject

Whether the portion of the dues paid by members of Petitioner to fund operating expenses and capital improvements are subject to sales tax.

What this means for you

This is a formal correction: about 13 months after issuing its original answer (TSB-A-94(6)S) on this exact petition, the Department revisited the case and issued this "Modified Advisory Opinion" changing its position. The facts are unchanged -- a 98-unit condominium association mandates membership for every unit owner, bundled as one non-optional assessment, and provides a swimming pool with a lifeguard and two tennis courts alongside ordinary building maintenance, lawn care, utilities, and management costs.

The original opinion had held the association's ENTIRE mandatory assessment taxable as social/athletic club dues, since membership couldn't be split into an optional recreational piece. On further review, the Department now holds only a REASONABLE PORTION of the assessment -- the part actually allocable to the pool and tennis facilities -- is subject to sales tax as club dues; the rest, covering ordinary maintenance and non-recreational operating costs, is not. The answers to the other two questions stay the same as before: making the facilities available to non-members doesn't change the outcome (since actual membership remains restricted to residents), and dues to a genuinely SEPARATE corporation formed just to operate the recreational facilities are treated independently of the main association's dues either way. The Department adds a practical note: because only a reasonable PORTION of the existing single assessment is taxable, there's no need to actually set up a separate recreational corporation just to isolate that taxable slice -- an allocation within the existing assessment works too.

Q&A

Q: Our mandatory condo/homeowners assessment funds both recreational amenities (pool, tennis) AND ordinary building upkeep in one bundled charge -- is the WHOLE assessment taxable as club dues?
A: No, per this modified opinion -- only a reasonable portion allocable to the recreational (social/athletic) facilities is taxable; the part of the assessment funding ordinary maintenance and non-recreational operations is not.

Q: How is "a reasonable portion" actually calculated?
A: This opinion doesn't provide a specific formula -- it simply directs that a reasonable allocation be made between the recreational-facility portion (taxable) and the rest of the assessment (not taxable), based on the association's own budget breakdown.

Q: Do we need to set up a separate corporation just to operate our recreational facilities, so we can isolate the taxable portion of dues?
A: No, per this opinion -- since only a reasonable portion of the SAME assessment is now taxable, there's no need to form a separate recreational corporation just for tax-allocation purposes (though a genuinely separate, separately-purchasable recreational corporation is still taxed independently if one already exists or is created for other reasons).

Citations

• Tax Law § 1105(f)(2) -- imposes sales tax on dues paid to a social or athletic club in New York.
• 20 NYCRR § 527.11(b)(5) -- defines "club or organization" based on member control/proprietary interest.
• 20 NYCRR § 527.11(b)(7) -- defines "athletic club," including Example 31 on automatic membership tied to condo/lot ownership.
• Matter of Merrick Estates Civic Association, Inc. v. State Tax Commission, 65 A.D.2d 669 -- held dues to a homeowner-formed pool association were taxable social-club dues.

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_6_1s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-94 (6.1)S
Sales Tax
April 17, 1995

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
MODIFIED ADVISORY OPINION

PETITION NO. S931118A

On November 18, 1993, a Petition for Advisory Opinion was received from Shaker
Commons Condominium Owners, Inc., 343-A Watervliet-Shaker Road, Watervliet, New York
12189.
The issues raised by Petitioner, Shaker Commons Condominium Owners, Inc., were:
1.
Whether the portion of the dues paid by members of Petitioner to fund operating
expenses and capital improvements are subject to sales tax.
2.
Whether dues paid by members of Petitioner will be subject to sales tax if use of its
swimming pool and tennis courts are made available to non-association members, regardless of
whether a fee is charged.
3.
Whether dues paid to a separate corporation to be created to operate the pool and
tennis facilities will be treated separately from dues collected by Petitioner for operation and
maintenance of non-recreational facilities for purposes of imposing sales tax.
On March 7, 1994, an Advisory Opinion in response to the Petition was issued. Upon a
further review of the matter, the aforementioned Advisory Opinion is modified as hereinafter set
forth.
Petitioner is an association of owners which own units in a ninety-eight unit condominium
community located in Colonie, New York. Petitioner's condominium community is set on 12.87
acres and comprises twenty-four 4-unit residential buildings, one 2-unit residential building, parking
lot space for 175 cars, two tennis courts, a kidney shaped in ground swimming pool with a lifeguard,
one mailhouse, and an office building with 708 square feet of leasable space.
The purpose of Petitioner is to provide for the maintenance and repair of buildings and
grounds, to establish and collect assessments, to pay common expenses, and to administer the rules
and regulations governing resident conduct. Membership in Petitioner is mandatory and restricted
to unit owners in the condominium community. Petitioner is governed by a Board of Directors who
are elected by the members annually.
The annual operating budget for Petitioner for the fiscal year ending 1994 totals
approximately $111,720. The budgeted cost for operation of the swimming pool is $4,020, broken
down as follows:
Lifeguard Wages
Chemicals and repairs
Permit fees and misc.

$2,520
$1,100
$ 400

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TSB-A-94 (6.1)S
Sales Tax
April 17, 1995
The lifeguards are employees of a managing agent and are billed at an hourly rate, plus
applicable sales tax. Purchases from pool service vendors for chemicals, supplies and repairs are
also billed with applicable sales tax. There are no expenses budgeted for the operation of the two
tennis courts.
The balance of Petitioner's expenses are comprised of management, lawn care services,
garbage removal, building maintenance, electric and water utility, office, accountant and capital
improvement expenses. The office building is leased to the managing agent for $4,000 annually and
is, therefore, unavailable to the residents for social or recreational 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)

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.
*

*

*

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TSB-A-94 (6.1)S
Sales Tax
April 17, 1995
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
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 and where membership was
limited to homeowners living in defined residential sections, the use of the facilities was deemed
"social" and, thus, sales tax should be imposed upon dues paid to the association. (emphasis added)
With respect to issue "1", pursuant to section 1105(f)(2) of the Tax Law sections 527.11(b)(5)
and 527.11(b)(7) of the Sales and Use Tax Regulations, and Merrick Estates Civic Association, Inc.,
supra, a portion of Petitioner's activities falls within the ambit of a social or athletic club since it
provides swimming pool and tennis court facilities. Accordingly, a reasonable portion of the

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TSB-A-94 (6.1)S
Sales Tax
April 17, 1995
assessments paid by the members would constitute dues paid to a social or athletic club. Since
membership in Petitioner is sold as a single unit and is mandatory for all residents of Shaker
Commons Condominiums and cannot be purchased separately as an option, a reasonable portion of
the assessment paid by members in Petitioner allocable to the social and athletic facilities is subject
to sales tax.
Concerning issue "2", pursuant to section 1105(f)(2) of the Tax Law, Sections 527.11(b)(5)
and 527.11(b)(7) of the Sales and Use Tax Regulations, Merrick Estates Civic Association, Inc.,
supra, although use of Petitioner's facilities may be available to non-association members, since
membership in Petitioner is restricted to persons residing in Shaker Common Condominiums and
Petitioner conducts social and athletic activities, a reasonable portion of the dues paid by members
for membership in Petitioner will be subject to sales tax as dues paid to a social or athletic club.
Regarding issue "3", since membership in the separate corporation will be able to be
purchased separately from the membership in Petitioner, the corporations will be treated separately
and independent of each other and only the dues paid for membership in the separate corporation
operating the swimming pool and tennis court facilities will be subject to the sales tax imposed by
Section 1105(f)(2) of the Tax Law. This is so regardless of whether membership in the separate
corporation is mandatory or optional for Petitioner's members. It is noted however, that in view of
the answers to issues "2" and "3", it is not necessary for separate companies to be formed in order
to determine the portion of the assessments which are used to fund the recreational facilities.

DATED: April 17, 1995

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

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