Is a nonprofit aircraft co-ownership club, formed to make light-plane ownership affordable, a taxable 'social or athletic club' under New York's dues tax?

Plain-English summary

Grasshoppers Flying Club was formed in 1971 to make light-aircraft ownership and use affordable for its members. It owns three Cessna aircraft and has 32 members, each of whom makes a capital contribution based on the club's current per-capita net worth, then pays monthly shares of the club's fixed expenses (insurance, inspections, tiedowns, loan payments) and hourly aircraft expenses (fuel, oil, maintenance, engine-overhaul reserves) based on actual usage. The aircraft are available for members' personal use with no restrictions -- business trips, pleasure, or any lawful purpose. Monthly officer/director and member meetings cover maintenance, costs, and flight restrictions, and a certified instructor periodically presents safety topics. The club's bylaws state its purpose as providing "an environment with aviation as a common interest and a convenient means of aircraft ownership which would not be economically possible on an individual basis," and its Certificate of Incorporation similarly describes promoting private flying and aircraft ownership for members' exclusive use. It's a Type A corporation, exempt under IRC § 501(c)(7).

Tax Law § 1101(d)(13) defines a "social or athletic club" as any club or organization with a material purpose or activity that is social or athletic; the regulations further define a "social club" as one whose material purpose involves arranging dances, dinners, meetings, or other functions for social interrelationship, and an "athletic club" as one whose material purpose is practicing, participating in, or promoting sports or athletics. If dues exceed the statutory threshold, § 1105(f)(2)(i) taxes them.

Notably, an earlier 1982 State Tax Commission ruling on this SAME club (Matter of Grasshopper Flying Club, Inc.) had gone the other way -- but only because the club "failed to introduce any evidence or provide testimony" showing it wasn't a social or athletic club, so its dues were held taxable by default. This time, with the club's 1995 bylaws and a full factual record in hand, the Department reached a different conclusion: a club whose material purpose is affordable co-ownership and use of light aircraft is neither social nor athletic in nature. Accordingly, Grasshoppers Flying Club's charges to members are not subject to the § 1105(f)(2) dues tax.

What this means for you

Aircraft, boat, or equipment co-ownership clubs

If your club's real purpose is making expensive equipment ownership affordable through shared purchasing -- not arranging social functions or promoting athletic competition -- you may be able to avoid the club dues tax, but you need to actually document and present your bylaws, Certificate of Incorporation, and operational facts to support that characterization. This opinion shows the Department will look past labels like "club" and "member" to the club's real material purpose.

Clubs that previously lost a similar case by default

This opinion is a reminder that failing to submit evidence in a prior proceeding can produce an adverse result that doesn't reflect the club's actual character -- and that a later, well-documented advisory opinion request can produce a different, correct outcome on the same underlying facts.

Accountants and tax professionals

This is a valuable "same taxpayer, opposite result" pair with the 1982 Grasshopper Flying Club Tax Commission decision -- useful for illustrating to clients that an adverse prior ruling based on an inadequate factual record isn't necessarily controlling if a fuller record can be developed and presented in a new advisory opinion request.

Common questions

Q: Why did this same club lose a similar case back in 1982?
A: The 1982 State Tax Commission decision held the club's charges taxable specifically because the club "failed to introduce any evidence or provide testimony" showing it wasn't a social or athletic club -- not because the underlying facts actually supported taxable status.

Q: Does the club's use of the words "club" and "member" affect the analysis?
A: No -- the opinion expressly notes those words, as used throughout the opinion, aren't dispositive of the club's status for sales tax purposes.

Q: Can another aircraft co-ownership club rely on this ruling?
A: No. This advisory opinion binds the Department only with respect to Grasshoppers Flying Club, Inc. and the specific bylaws and facts it presented.

Citations and references

Statutes and regulations:

• Tax Law § 1101(d)(13) (definition of social or athletic club)
• Tax Law § 1105(f)(2)(i) (tax on dues paid to a social or athletic club)
• 20 NYCRR § 527.11(b)(6) (definition of social club)
• 20 NYCRR § 527.11(b)(7) (definition of athletic club)

Prior rulings and cases referenced:

• Matter of Grasshopper Flying Club, Inc., State Tax Commn., February 26, 1982, TSB-H-82(32)S

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_74s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (74) S
Sales Tax
December 6, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S960404B

On April 4, 1996, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Grasshoppers Flying Club, Inc., 108 Vassar Road, Poughkeepsie, New York 12603.
Petitioner, Grasshoppers Flying Club, Inc., submitted additional information pertaining to the
Petition on August 20, 1996.
The issue raised by Petitioner is whether it is a social or athletic club within the meaning of
Section l101(d)(13) of the Tax Law.
Petitioner submitted the following facts as the basis for this Advisory Opinion, together with
copies of its bylaws and its Certificate of Incorporation. (The words "club" and "member" as used
throughout this Opinion are not dispositive of Petitioner's status for sales tax purposes as a social or
athletic club.)
Petitioner was formed in 1971 for the purpose of making light aircraft ownership and use
affordable. Currently, Petitioner owns three Cessna aircraft (Models 152, 172 and 182) and has 32
members. The aircraft are for the personal use of members. Petitioner places no restrictions on the
use of the aircraft. The aircraft are considered a means of transportation and may be used for business
trips, pleasure or any other lawful purpose.
Each member, upon joining Petitioner's club, makes a capital contribution in the amount of
the approximate current per capita net worth of the club. Each month, the member is responsible for
his or her share of the club's fixed expenses (on a per capita basis) and for his or her share of the
hourly aircraft expenses (on an hourly usage basis). The fixed expenses include insurance, annual
inspections, painting, tiedowns, loan payments, etc. The hourly aircraft expenses include gas, oil,
maintenance, reserves for engine overhauls and generally those expenses that vary with hourly usage.
The business of the club is conducted at monthly officer/director meetings and at monthly
member meetings. During these meetings, the members discuss maintenance issues, aircraft costs,
flight restrictions and other issues affecting the use and operation of the aircraft. Periodically, a
certified instructor presents a safety-related topic for the purpose of improving members' safe
operation of the aircraft.
The following is an excerpt from the club's bylaws, dated May 1995:

-2­
TSB-A-96 (74) S
Sales Tax
December 6, 1996
ARTICLE I PURPOSE
The purpose of this Club shall be to provide for its members an environment with
aviation as a common interest and a convenient means of aircraft ownership which
would not be economically possible on an individual basis.
The club's Certificate of Incorporation provides in part:
*

*

*

3. The purposes for which the corporation is to be formed are the promotion of
   private flying and its members, the owning of aircraft and equipment necessary for
   its operation, for the exclusive use of its members. To buy, sell and/or exchange
   aircraft and equipment and any and all replacements thereof ....
4. The corporation is a Type A corporation.
   For federal purposes, the club is an exempt organization pursuant to Section 501(c)(7) of the
   Internal Revenue Code.
   Applicable Law and Regulations
   Section l101(d)(13) of the Tax Law defines "social or athletic club" as follows:
   Any club or organization of which a material purpose or activity is social or
   athletic.
   Section 1105(f)(2)(i) of the Tax Law imposes sales tax, in part, upon:
   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) of the Sales and Use Tax Regulations provides, in part:
   *

*

*

(6) Social club. A social club is any club or organization which has a material
purpose or activity of arranging periodic dances, dinners, meetings or other functions
affording its members an opportunity of congregating for social interrelationship.
*

*

*

-3­
TSB-A-96 (74) S
Sales Tax
December 6, 1996
(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.
Opinion
In Matter of Grasshopper Flying Club. Inc. (State Tax Commn., February 26, 1982, TSB-H­
82(32)S), the State Tax Commission concluded that Petitioner "failed to introduce any evidence or
provide testimony to show that it was not a social or athletic club within the meaning and intent of
section [l101(d)(13)] of the Tax Law; therefore, the charges to its club members constitute dues
which are subject to tax under section 1105(f)(2) of the Tax Law."
The facts presented in this matter indicate that Petitioner, as it now operates under these facts
and the May, 1995 bylaws, is not a social or athletic club within the meaning and intent of Section
l101(d)(13) of the Tax Law. A club, organization or other entity having as its material purpose the
affordable ownership and use of light aircraft is neither social nor athletic in nature. As indicated by
Petitioner and reflected in Petitioner's bylaws and Certificate of Incorporation, Petitioner's purpose
is to promote the ownership of aircraft by its members which would not be economically possible
on an individual basis. Accordingly, Petitioner's charges to its club members are not subject to sales
tax under Section 1105(f)(2) of the Tax Law.

DATED: December 6, 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.