Does the annual charge homeowners pay for use of a community's pool, bathrooms, and lake rights qualify for New York's homeowners-association exclusion from the club dues tax?

Plain-English summary

LLM CC Inc. was formed in 1984 to buy a swimming pool, bathrooms, and lake rights at Lake Louise Marie, funding the purchase by selling stock exclusively to homeowners within the community. A 1960 Declaration of Covenants and Restrictions binding every lot owner requires an annual charge (originally $125) "for the privilege of the use of the Lake, beach and swimming pool" and other recreational facilities -- payable whether or not a homeowner actually uses them, and enforceable as a lien on the property. Petitioner's corporate purpose is to "exercise, promote and protect the community of Lake Louise Marie" and its recreational facilities. Petitioner asked whether this annual charge falls under New York's newly effective (December 1, 1995) homeowners-association exclusion from the club dues tax.

Tax Law § 1105(f)(2) taxes dues over $10/year paid to a "social or athletic club," but carves out several categories, including a "homeowners association": an entity whose membership is exclusively owners/residents of residential units in a defined geographic area, and which operates social or athletic facilities located in that same area for those owners/residents. The Department confirmed Petitioner's annual charges are "dues" under the statute (relying on its own 1990 ruling about this SAME organization, TSB-A-90(46)S), then walked through the exclusion's two elements: Petitioner's membership is limited exclusively to owners/residents of residential units in the defined Lake Louise Marie community, and the pool/beach/lake facilities are located within that same geographic area and used by that membership. Both boxes checked, so the dues fall within the homeowners-association exclusion. The Department added one important caveat, though: even though the DUES themselves are excluded, a homeowners association's PURCHASES of maintenance and repair services for its recreational facilities (including the pool and bathrooms) remain fully taxable, per its own guidance (TSB-M-95(12)S).

What this means for you

Homeowners associations and community corporations charging recreational-facility dues

If your membership is limited exclusively to owners/residents of a defined community and your social/athletic facilities sit within that same geographic area, your annual dues or assessments -- even ones tied to specific amenities like a pool or lake rights -- likely qualify for the December 1995 homeowners-association exclusion from the club dues tax, following this pattern. But don't extend that exclusion to your own PURCHASES: maintenance, repairs, and similar services for those facilities are still taxable to the association as the purchaser.

Homeowners paying mandatory community assessments

An annual charge you're required to pay for community recreational facilities -- even if structured as a lien-backed covenant obligation rather than a traditional "membership fee" -- can still count as "dues" for sales tax purposes, but if your association meets the homeowners-association test, that particular tax won't apply to the charge itself.

Common questions

Q: Does it matter that the charge is framed as a covenant-based lien obligation rather than a typical club membership fee?
A: No. The Department treated it as "dues" under the statute regardless of that structural label, since it's an assessment paid for the privilege of using the recreational facilities.

Q: Does the homeowners-association exclusion cover an association's own purchases of pool/facility maintenance and repairs?
A: No. The exclusion only reaches the DUES an association collects from its members -- purchases the association itself makes for maintaining or repairing its recreational facilities remain taxable.

Q: What are the two requirements for the homeowners-association exclusion?
A: (1) Membership must be composed exclusively of owners or residents of residential units in a defined geographic area, and (2) the association must operate social or athletic facilities located in that same area for use by those owners/residents.

Q: Can another homeowners association rely on this exact result?
A: No. This advisory opinion binds the Department only as to LLM CC Inc. and the facts it described; another association should confirm its own membership and facility-location facts satisfy both prongs of the exclusion.

Citations and references

Statutes and regulations:

• Tax Law § 1105(f)(2) (tax on club dues and initiation fees)
• Tax Law § 1105(f)(2)(ii)(C) (homeowners association exclusion, effective December 1, 1995)
• 20 NYCRR § 527.11 (dues and club/organization definitions)

Prior rulings and cases referenced:

• Matter of Lake Louise Marie Country Club, Inc., Advisory Opinion, Commissioner of Taxation and Finance, September 27, 1990, TSB-A-90(46)S
• TSB-M-95(12)S, Dues Paid to Homeowners Associations and Certain Other Organizations

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_58s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (58)S
Sales Tax
September 23, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S960626A

On June 26, 1996, a Petition for Advisory Opinion was received from LLM CC Inc., PO Box
2, Rock Hill, New York 12775.
The issue raised by Petitioner, LLM CC Inc., is whether the annual charge to homeowners
at Lake Louise Marie for use of a swimming pool, bathrooms and lake rights falls within the
exclusion from sales tax under section 1105(f)(2)(ii)(C) of the Tax Law, which became effective
December 1, 1995.
Petitioner submits the following facts as the basis for this Advisory Opinion. In September
1984 Petitioner was formed and purchased property consisting of a swimming pool, bathrooms and
lake rights. This purchase was made subject to covenants and restrictions which existed prior to the
purchase. In order to raise funds for the purchase, stock in Petitioner was sold to the homeowners
at Lake Louise Marie. Petitioner's Certificate of Incorporation provides that its stock may only be
sold to owners of residential units within Lake Louise Marie, Hamlet of Rock Hill, Town of
Thompson, Sullivan County.
The Declaration of Covenants and Restrictions dated July 29, 1960, submitted by Petitioner,
sets forth the covenants and restrictions noted above, in part as follows:

10. Each lot or part thereof of the said . . . lots owned by the Declarant shall after
    conveyance be subject to a charge at the rate of One Hundred and twenty-five Dollars
    ($125.00) annually from the date of delivery of title and each and every May 1st
    thereafter. Lot owner shall pay such charge to Declarant for the privilege of the use
    of the Lake, beach and swimming pool as set forth hereinafter and for such other
    designated recreational facilities which are now or hereafter may be made available
    whether or not the same are used . Lot owner further agrees that the use of said lake
    privileges, swimming pool, beaches are (sic) recreational facilities, is subject to the
    said annual charge. The charge for such privileges and other recreational facilities
    shall constitute a debt which may be collected by suit in any Court of competent
    jurisdiction, and upon the conveyance of any of the land described herein the
    successive owner or owners shall, from time of acquiring title, be deemed to have
    covenanted and agreed to pay the Declarant all charges, past or future, as provided
    for in this paragraph. This charge shall become a lien on the land on May 1st of each
    year and shall continue to be such lien until fully paid. . . Denial of the use of such
    facilities by Declarant. . .shall remain in full force and effect until a final
    determination and decision is made by Lake Louise Marie Country Club Association,
    a membership corporation ...

-2­
TSB-A-96 (58)S
Sales Tax
September 23, 1996

Each lot owner, upon purchase or transfer of property, is given a copy of the covenants and
must abide by them in full.
Petitioner's Certificate of Incorporation provides that Petitioner's corporate purposes include
the following:
To exercise, promote and protect the community of Lake Louise Marie and ...
generally to protect the environment of Lake Louise Marie and the recreational
facilities available to the residents of Lake Louise Marie ....
Section 1105(f)(2) of the Tax Law imposes a tax on:
(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 ..... (emphasis supplied)
(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 supplied)
Section 527.11 of the Sales and Use Tax Regulations provides:
(b) Definitions. As used in this section, the following terms shall mean:
*
(2) Dues. (i) The term dues includes:
(a) any dues or membership fee;

*

*

-3­
TSB-A-96 (58)S
Sales Tax
September 23, 1996
(b) any assessment, irrespective of the purpose for which made; and
(c) any charge for social or sports privileges or facilities.
*

*

*

(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 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.
In this case, Petitioner's membership was organized to exercise, promote and protect Lake
Louise Marie, the environment of Lake Louise Marie, the community of Lake Louise Marie and the
recreational facilities available to its residents. Petitioner's annual charges to its members are dues
for purposes of Section l101(d)(6) of the Tax Law. See Lake Louise Marie Country Club. Inc., Adv
Op Comm T&F, September 27, 1990, TSB-A-90(46)S.
Petitioners' membership consists exclusively of owners or residents of residential units within
a defined geographical area (Lake Louise Marie, Hamlet of Rock Hill, Town of Thompson, Sullivan
County). The social or athletic facilities are in the geographical area of the residential units, namely
Lake Louise Marie, and these facilities are used by Petitioner's membership. Accordingly, the dues
charged to Petitioner's membership fall within the exclusion from sales tax under Section
1105(f)(2)(ii)(C) of the Tax Law, which became effective December 1, 1995.

-4­
TSB-A-96 (58)S
Sales Tax
September 23, 1996
However, payments made by homeowners associations for purchases of maintenance and
repairs (including maintenance and repairs to social and athletic facilities) continue to be subject to
sales tax. (See: TSB-M 95(12)S, Dues Paid to Homeowners Associations and Certain Other
Organizations).

DATED: September 23, 1996

/s/
JOHN W. BARTLETT
Deputy Director
Technical Services Bureau

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