New York Advisory Opinion TSB-A-96(15)S: Is the fee charged for membership in a discount club -- which entitles members to discounts at participating boating and waterfront businesses -- subject to New York sales tax?

Plain-English summary

Nautical Miles, Ltd. sells memberships in its company to people both inside and outside New York State. A membership entitles the member to receive discounts at a list of designated participating businesses -- mostly boating-related retailers and waterfront restaurants -- that Petitioner recruits by attending boat shows where vendors display their products. Members get a printed list of participating vendors and a membership card, which they present to the vendor to receive the discount. The participating vendors don't pay Petitioner any fee to be included on the discount list.

The Department ruled the membership fee is not subject to New York State or local sales and use taxes. Tax Law § 1105 taxes sales of tangible personal property and a specific list of enumerated services; a membership that confers only the right to receive discounts from designated vendors is the sale of an intangible -- it isn't a sale of goods and isn't one of the taxed services -- so it falls outside § 1105's reach entirely. But the ruling adds an important qualifier: Petitioner still must pay sales and use tax on the materials it consumes producing the program itself, specifically the printed vendor lists and the membership cards, since Petitioner is using those items itself (not reselling them to members as a separate taxable good).

What this means for you

Discount club and buying-club operators

Selling a membership that grants members only the right to receive a discount from participating third-party vendors -- with no tangible goods or enumerated taxable service bundled in -- is generally treated as the sale of an intangible, outside New York sales tax. But watch the flip side: any physical materials you produce or purchase to administer the program (cards, printed lists, mailers) are your own taxable self-use purchases, since you're consuming them rather than reselling them.

Businesses evaluating whether a "membership" fee is taxable

The key question is what the membership actually confers. A bare right to a discount (an intangible) is untaxed; if a membership instead bundles in actual goods or an enumerated taxable service, that portion could be taxable -- this ruling doesn't address a hybrid membership offering both.

Common questions

Q: Would the answer change if participating vendors paid a fee to be listed?
A: The ruling doesn't address that scenario -- Petitioner's facts specifically stated vendors pay nothing to be included, and the ruling's ultimate conclusion (sale of an intangible) rests on the facts as presented.

Q: Why does Petitioner owe tax on the membership cards and vendor lists if the membership fee itself isn't taxed?
A: Because those are two separate transactions for tax purposes: the fee members pay is for an intangible right (untaxed), while the cards and lists are tangible personal property Petitioner purchases or produces and then consumes in running its own business -- a self-use purchase, which is taxable regardless of whether the underlying service sold to customers is taxed.

Q: Does this ruling mean all discount or buying clubs are automatically tax-exempt on membership dues?
A: Not necessarily -- this opinion is limited to Petitioner's specific facts (a bare discount-referral right with no bundled goods or enumerated services). A club whose membership includes taxable services or tangible goods would need separate analysis.

Citations and references

Statutes and regulations:

• Tax Law § 1105 (imposition of sales tax on tangible personal property and enumerated services)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a96_15s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-96 (15)S
Sales Tax
February 28, 1996

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S950908B

On September 8, 1995, a Petition for Advisory Opinion was received from Nautical Miles,
Ltd., 106 Ramapo Plaza, Suite 293, Pomona, New York 10970.
The issue raised by Petitioner, Nautical Miles, Ltd., is whether the fee charged for
membership in Petitioner which entitles members to receive discounts at designated places of
business is subject to State and local sales and use taxes.
Petitioner provides the following facts. Petitioner sells membership in its company to persons
both within and without New York State. This membership entitles members to receive discounts
at designated places of business. Members receive a list of the participating vendors offering
discounts. In addition, members receive a membership card which they must present to vendors to
receive the discounts.
The participating vendors sell mostly boating related materials or are restaurants on the
waterfront. Petitioner solicits businesses to participate in its discount offer by attending boat shows
where the vendors display their products. Vendors do not pay Petitioner a fee to be included on the
list as one of the vendors which offers discounts to members.
Section 1105 of the Tax Law imposes tax on receipts from the sale of tangible personal
property and certain enumerated services.
In this case, the sale of membership in Petitioner whereby members receive the right to
discounts from designated vendors is considered the sale of an intangible. Therefore, the fee charged
for membership in Petitioner is not subject to State and local sales and use taxes.
However, Petitioner must pay sales and use tax on the materials consumed in the production
of the list of vendors and membership cards.

DATED: February 28, 1996

/s/
DORIS S. BAUMAN
Director
Technical Services Bureau

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