New York Advisory Opinion TSB-A-95(44)S: Does a boat-slip condominium association's common charges become subject to the sales tax on social/athletic club dues because the condominium includes tennis courts and a swimming pool, and must the association form a separate corporation to run those facilities?

Plain-English summary

Anchorage Yacht Club Condominium is a condominium association whose 460 units are boat SLIPS, not residential dwellings -- each Slip Unit Owner holds fee title to an individual boat slip and an undivided common interest in shared facilities that include the outdoor pool, two outdoor tennis courts, a snack bar kiosk, and common bathroom facilities, along with roads and an office. Common charges are collected from all members as a single combined assessment to operate every facility together; tennis court and swimming pool maintenance costs make up roughly 5% of the total budgeted expenses. Petitioner asked three related questions: whether it can segregate its operations and charge sales tax only on the portion of member income specifically used for the tennis courts and pool; whether it must create a separate corporation to operate those facilities; and whether common charges funding other operating expenses and capital improvements are subject to sales and use tax.

Tax Law § 1105(f)(2) imposes sales tax on dues and initiation fees (above small statutory thresholds) paid to a "social or athletic club," but specifically excludes dues paid to a "homeowners association" -- defined as an association whose membership consists EXCLUSIVELY of owners or residents of RESIDENTIAL DWELLING UNITS in a defined geographical area, operating social or athletic facilities for those owners/residents. Because Petitioner's members are boat slip owners, not residential dwelling owners, this homeowners-association exclusion doesn't apply to Petitioner. The regulations (20 NYCRR §§ 527.11(b)(5) and (i)(7)) define a "club or organization" broadly (membership control over social/athletic activities, tournaments, elections, or a proprietary interest are significant factors) and an "athletic club" as any club with sports/athletics as a material purpose or activity -- and since the condominium provides swimming pool and tennis court facilities to its members, a portion of Petitioner's activities does fall within this definition. However, the Department ruled that because common charges are collected from members as a SINGLE, UNDIFFERENTIATED assessment covering all the condominium's facilities together (not separately billed for the athletic facilities), only a REASONABLE PORTION of each member's total assessment -- specifically the share allocable to the tennis and pool facilities -- is subject to sales tax as club dues, following the Department's own prior Shaker Common Condominium Owners precedent. Given that answer, Petitioner does not need to form a separate corporation just to operate the tennis courts and pool; the same reasonable-allocation approach applies whether or not a separate entity exists. And charges funding OTHER operating expenses and capital improvements (unrelated to the tennis/pool facilities) fall entirely outside the club-dues tax.

What this means for you

Condominium and homeowners associations with recreational amenities

Whether your association's common charges are exempt as "homeowners association" dues turns on what kind of UNITS your members own -- residential dwelling units qualify for the exemption; other unit types (like boat slips, commercial units, or storage units) generally don't, even if the association otherwise looks and functions like a typical residential HOA.

Associations billing one combined charge for mixed facilities

You don't need to restructure your billing into separate line items or form a separate legal entity to limit sales tax exposure -- the Department accepts a REASONABLE ALLOCATION of a single combined common charge between taxable athletic/social facilities and everything else, based on relative costs like maintenance budgets.

Associations evaluating whether their facilities trigger the club-dues tax

Providing recreational amenities like a pool or tennis courts to members can trigger a partial club-dues tax obligation even if athletics aren't your association's primary purpose -- the key trigger is simply that the facilities exist and are used by members, not how central they are to the overall organization.

Common questions

Q: Would residential condominium associations with the same tennis/pool facilities be taxed the same way?
A: No -- a residential condominium (or cooperative housing/apartment corporation) whose members are owners/residents of residential dwelling units in a defined area, operating those same social/athletic facilities for those owners, would generally qualify for the homeowners-association exemption under § 1105(f)(2)(ii)(C), which is unavailable to Petitioner precisely because its units are boat slips, not dwellings.

Q: How is the "reasonable portion" of common charges allocable to the athletic facilities determined?
A: The ruling doesn't specify an exact formula, but points to the Shaker Common Condominium Owners precedent for the same reasonable-allocation approach -- in Petitioner's case, the fact that pool/tennis maintenance is about 5% of the total budget would likely inform (though not necessarily exactly equal) the taxable share of common charges.

Q: Does the exemption analysis change if Petitioner charges non-members or the general public to use the tennis courts or pool?
A: The ruling's facts and analysis are limited to charges paid BY MEMBERS as common charges -- it doesn't address a scenario involving separate fees charged to non-member guests or outside users of the facilities.

Citations and references

Statutes and regulations:

• Tax Law § 1105(f)(2) (social/athletic club dues and initiation fee tax; homeowners association exclusion)
• 20 NYCRR 527.11(b)(5) (definition of club or organization)
• 20 NYCRR 527.11(i)(7) (definition of athletic club)

Prior rulings and cases referenced:

• Shaker Common Condominium Owners, Inc., Advisory Opinion, Commissioner of Taxation and Finance, April 17, 1995, TSB-A-94(6.1)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a95_44s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-95 (44)S
Sales Tax
November 14, 1995

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S950629A

On June 29, 1995, a Petition for Advisory Opinion was received from Anchorage Yacht Club
Condominium, 410 East Shore Rd., Lindenhurst, New York 11757.
The issues raised by Petitioner, Anchorage Yacht Club Condominium, are:
1.

Whether Petitioner can segregate its operations and charge sales tax
only on income from members that is specifically used to operate the
tennis courts and swimming pool.

2.

Whether Petitioner must create a separate corporation to operate its
tennis courts and swimming pool.

3.

Whether common charges paid by members to fund other operating
expenses and capital improvements are subject to sales and use taxes.

Petitioner is a condominium association. The facilities in the condominium include roads,
boat slips, tennis courts, swimming pool and an office. Common charges are collected from the
members of the association to operate all the facilities. The swimming pool and tennis court
maintenance costs make up approximately 5% of the total budgeted expenses.
The introduction of Petitioner's Condominium Offering Plan states, in part, as follows:
Purpose of the Plan
Anchorage Associates (the "Sponsor") presents this Offering Plan (the "Plan")
for the condominium ownership of the premises known as 401 East Shore Road,
Lindenhurst, New York (the "property") under the provisions of the Condominium
Act.
The purpose of this Plan is to set forth all of the material terms of the offer
to establish the Property as a condominium and to sell 460 Slip Units therein.
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Interest in the Property to be Submitted to Condominium Act
A condominium will be created and established by submitting fee title to the
Property to the provisions of the Condominium Act . . . in accordance with the

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Declaration and By-laws set forth in Part II of the Plan. The Condominium will be
known as The Anchorage Yacht Club Condominium and will be subject to the
Condominium Act and all laws regulating condominiums.
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Offer of Sale of Condominium Units
The Sponsor hereby offers for sale 460 Slip Units on the terms and conditions set forth in the
plan.
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Features of Condominium Ownership
The ownership of a Slip Unit is similar in many respects to the ownership of
a parcel of ocean front property. Each Slip Unit Owner owns fee title to his Slip Unit
and is entitled to the exclusive possession thereof.
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Each Slip Unit Owner also owns in common with other Unit Owners an
undivided interest in the Common Elements known as his Common Interest. The
Common Elements, as described in "Description of the Property" . . . and in the
Declaration . . . include portions of the Land, the central and appurtenant installations
for services such as power, the outdoor pool, two outdoor tennis courts, the snack bar
kiosk, and the common bathroom facilities . . .
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The Sponsor will make application to divide the Property into separate tax lots for each Unit
and its Common Interest, which will then be taxed as a separate tax lot for real estate tax purposes.
Once a separate tax lot is established for a Unit, a Unit Owner will then be responsible for the
payment of the real estate taxes on his, but not any of real estate taxes of any other Unit Owner. The
amount of the tax assessed against any Unit will depend upon various factors affecting value,
including but not limited to square footage, location, purchase price and other factors taken into
consideration by the taxing authorities.
Definitions
"Board" means the Board of Managers of the Condominium.
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"Common Charges" means any charges assessed by the Board of Managers
against any Unit Owner.
"Common Expenses" means all cost and expenses incurred or paid generally
by the Board in connection with the operation of the Condominium which, pursuant
to the Plan, the Declaration and By-laws, are to be paid by the Unit Owners in
proportion to their Common Interest. . . .

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The By-laws of Petitioner state, in pertinent part, as follows:
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Article II
Board of Managers
Section 1. Number and Term of Office. As more particularly set
forth in these By-laws and the Declaration, the affairs of the Condominium
shall be governed by a board of managers of the Condominium (the "Board
of Managers"). The Board of Managers shall be composed of five (5)
members. Until the first meeting of the Unit Owners, the members of the
Board of Managers shall consist of five (5) persons appointed by the
Declarant. Each member of the Board of Managers shall serve for a term of
one (1) year or until their respective successors shall have been duly elected.
..
Article III
Unit Owners
Section 1. Annual Meetings. Within forty-five (45) days after the date
Declarant conveys title to the first Unit pursuant to the Condominium Offering Plan
proposed by the Declarant for the Property (the "Plan"), the first meeting of Unit
Owners shall be held. At such meeting, the incumbent Board of Managers shall
resign and a new Board shall be elected by the Unit Owners as provided in the By­
laws. Thereafter, annual meetings shall be held. . . .At such meeting the Unit Owners
shall elect members of the Board of Managers to fill vacancies or to succeed retiring
members of the Board of Managers as provided in Article II of these By-laws and
shall also transact such other business of the Condominium as may properly come
before the meeting.
Section 1105(f) of the Tax Law, effective December 1, 1995, provides, in pertinent part, for
the imposition of sales tax upon the following:
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(2)(i) 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. Where the tax on dues applies to any such
social or athletic club, the tax shall be paid by all members, other than honorary
members, thereof regardless of the amount of their dues, and shall be paid on all dues
or initiation fees for a period commencing on or after August first, nineteen hundred
sixty-five. In the case of a life membership, the tax shall be upon the amount paid
as life membership dues, however, a life member, other than an honorary member,
paying an annual sales tax, based on the dues of an active annual member, shall
continue such payments until the total amount of such tax paid is equal to the amount

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of tax that would have otherwise been due had the tax been imposed at the time such
paid life membership has been purchased and at the then applicable rate.
(ii) Dues and initiation fees paid to the following shall not be subject to the
tax imposed by this paragraph:
(A) A fraternal society, order or association operating under the lodge system;
(B) Any fraternal association of students of a college or university;
(C) A homeowners association. For purposes of this subparagraph, a
homeowners association is an association (including a cooperative housing or
apartment corporation) (I) the membership of which is comprised exclusively of
owners or residents of residential dwelling units, including owners of units in a
condominium, and including shareholders in a cooperative housing or apartment
corporation, where such units are located in a defined geographical area such as a
housing development or subdivision and (II) which operates social or athletic
facilities located in such area for use (whether or not exclusive) by such owners or
residents. (emphasis added)
Section 527.11(b)(5) of the Sales and Use Tax Regulations provides that:
(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
organization 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;

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(d) offers tournaments, leagues and social activities which are controlled
solely by the management.
Section 527.11(i) of the Sales and Use Tax Regulations provides that:
(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 case, Petitioner is a condominium association consisting of boat slip owners
in a condominium. The facilities in the condominium include roads, boat slips, tennis courts,
swimming pool and an office. Common charges are collected from the members of the association
to operate all the facilities. The swimming pool and tennis court maintenance costs make up
approximately 5% of the total budgeted expenses.
Accordingly, with respect to issue "1", pursuant to 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 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. It is noted that since Petitioner's membership does not consist of
residents of residential dwelling units it does not fall within the exemption afforded to dues collected
by homeowners associations provided by Section 1105(f)(2)(ii)(C) of the Tax Law. Therefore, a
reasonable portion of the assessment paid by the members would constitute dues paid to a social or
athletic club. However, since common charges are collected from all members as a single unit to
operate all the facilities, only a reasonable portion of the assessments paid by the members in
Petitioner allocable to the social and athletic facilities are subject to sales tax. Shaker Common
Condominium Owners, Inc., Adv Op Comm T&F, April 17, 1995, TSB-A-94(6.1)S.
With respect to issues "2" and "3", in view of the answer to issue "1", it is not necessary to
form a separate corporation and only a reasonable portion of the assessments paid by the members
in Petitioner allocable to the social and athletic facilities are subject to sales tax. Shaker Common
Condominium Owners, Inc., Adv Op Comm T&F, April 17, 1995, TSB-A-94(6.1)S.

DATED: November 14, 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.