Are a mandatory condominium association's dues, which fund both a swimming pool/tennis courts and ordinary building maintenance, fully subject to sales tax as social/athletic club dues?

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 opinion was later formally modified by TSB-A-94(6.1)S, issued about 13 months afterward -- read that opinion for the Department's revised, currently controlling analysis of these same facts.

A 98-unit condominium association in Colonie, New York provides two tennis courts and a swimming pool (staffed by a lifeguard), among other common facilities, and asked three questions: (1) whether dues funding both operations and capital improvements are taxable, (2) whether letting non-members use the pool/courts changes the answer, and (3) whether dues to a SEPARATE corporation formed just to run the recreational facilities would be treated differently from the main association's dues.

As originally decided here, the Department held that because membership is mandatory for every unit owner, sold as one non-optional package (you can't opt out of the recreational-facilities portion), and the association provides athletic/social facilities (the pool and courts), the ENTIRE mandatory assessment -- not just a portion tied to the pool and courts -- was subject to sales tax as dues to a "social or athletic club," even though most of the budget actually funds ordinary maintenance, lawn care, garbage removal, and utilities unrelated to recreation. On question 2, letting outsiders use the facilities didn't change the answer, since membership itself was still restricted to residents. On question 3, dues to a genuinely SEPARATE, separately-purchasable recreational corporation would be taxed on their own, independent of the main association's dues.

Q&A

Q: Is this opinion still the Department's current position?
A: No -- per TSB-A-94(6.1)S, issued later on the same facts, the Department revised its answer to question 1: only a REASONABLE PORTION of the assessment allocable to the recreational facilities is taxable, not the entire mandatory assessment as originally held here.

Q: Our condo/homeowners association bundles a mandatory, single-package assessment covering both recreational facilities (pool, courts) and ordinary building upkeep -- is the whole assessment club dues?
A: As this specific opinion originally held, yes -- but see TSB-A-94(6.1)S for the Department's later, controlling position that only a reasonable allocated portion is taxable.

Q: We're setting up a SEPARATE corporation just to operate our recreational amenities, with its own optional membership dues apart from the main association -- would that be taxed differently?
A: Yes, per this opinion (and reaffirmed in the later modification) -- dues to a genuinely separate corporation formed to run recreational facilities are analyzed on their own, independent of the main association's dues, regardless of whether membership in that separate corporation is mandatory or optional.

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, with examples on marketing use of "club" and facility-size restrictions.
• 20 NYCRR § 527.11(b)(7) -- defines "athletic club" and includes Example 31, holding that automatic membership tied to condo/lot purchase doesn't prevent an association from being a taxable athletic club.
• 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.
• Pattison, Koskey, Rath & Florio, P.C., Adv. Op. Comm. T&F, November 13, 1992, TSB-A-92(79)S -- held a mandatory homeowners association with recreational facilities was a taxable social/athletic club, but dues to a SEPARATE recreational corporation would be treated independently; followed here.

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_6s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (6)S
Sales Tax
March 7, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S931118A

On November 18, 1993, a Petition for Advisory Opinion vas 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., are:
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 if a fee
was 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.
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, one mailhouse,
and a 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 total 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

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.

-2­
TSB-A-94 (6)S
Sales Tax
March 7, 1994
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.
*

*

*

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)

-3­
TSB-A-94 (6)S
Sales Tax
March 7, 1994
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, 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 Pattison, Koskey, Rath & Florio, P.C., Adv Op Comm T&F, November 13, 1992, TSB-A­
92(79)S the Commissioner held that dues paid to a homeowners association incorporated under the
Not-for-Profit Corporation Law to own, develop and operate the common property such as, tennis
courts, a pool, and a beach, where membership in the association was mandatory and limited to
person residing in the development was subject to sales tax since the association constituted a social
or athletic club; membership in the association was sold as a single unit; and membership was
mandatory for all homeowners residing in the development. However, the Commissioner held that
dues paid to a separate corporation created by the homeowners association to operate the sports and
recreational facilities would be treated separately from dues collected by the association for non­

-4­
TSB-A-94 (6)S
Sales Tax
March 7, 1994
sports and non-recreational activities for purposes of determining the sales tax liability, regardless
of whether membership in the recreational corporation was mandatory or optional for association
members.
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, Merrick Estates Civic
Association, Inc., supra, and Pattison, Koskey, Rath & Florio, P.C., supra, Petitioner falls within the
ambit of a social or athletic club since it provides swimming pool and tennis court facilities.
Accordingly, assessments paid by the members would constitute dues paid to a social or athletic
club. Furthermore, 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, the
entire assessment paid by members for membership in Petitioner 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, and Pattison, Koskey, Rath & Florio, P.C., 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 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", pursuant to Pattison, Koskey, Rath & Florio, P.C., supra, 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
members.

DATED: March 7, 1994

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

NOTE: The opinions expressed in Advisory 0pinions
are limited to the facts set forth therein.