Are the initiation fees, dues, listing fees, and office assessments that local real estate boards charge for operating a multiple listing service subject to New York sales tax?

Plain-English summary

The New York State Association of Realtors asked about the tax treatment of fees that local real estate boards charge their broker and realtor-associate members for running a "multiple listing service" (MLS). An MLS lets a broker who lists a property (the listing broker) share the eventual sales commission with another participating broker who finds the buyer (the selling broker), by circulating the listing terms and the commission split to all MLS participants as a standing offer of cooperation. MLS operations are typically funded through some combination of a one-time initiation fee, periodic dues or participation fees, per-listing fees to cover the cost of circulating listings, general office assessments, and a separate charge for a printed book of current listings.

The Department found that the MLS's core function -- serving as the mechanism through which brokers exchange offers of cooperation and compensation so they can share commissions -- isn't a service New York's sales tax specifically enumerates, so the initiation fees and dues/participation fees that fund that core function aren't taxable. The listing fees (and rental filing fees) that cover the cost of actually transmitting each listing's cooperation offer and property details to other participants, whether electronically or on paper, are treated as a charge for advertising -- itself a nontaxable service. General office assessments used to cover overhead likewise aren't receipts from any taxable enumerated service. The one item that remains taxable (and wasn't really in dispute) is a separate charge for a printed book compiling the current listings, which is an ordinary sale of tangible personal property.

What this means for you

Real estate boards, MLS operators, and realtor associations

Your core membership, participation, and listing-fee revenue used to fund the multiple listing service's cooperation-and-commission-sharing function isn't subject to New York sales tax -- but a separately sold printed listings book is an ordinary taxable sale of tangible personal property.

Brokers and realtor associates paying MLS fees

Don't expect sales tax to be added to your MLS initiation fee, dues, listing fees, or office assessment -- if a listings book is sold separately, that specific charge is the one item that should carry sales tax.

Accountants and tax professionals

This ruling walks through several distinct MLS fee types and confirms each escapes tax on its own footing -- core dues/fees as unenumerated services, listing fees specifically as nontaxable advertising charges, and office assessments as non-enumerated overhead recovery -- useful precedent for any trade association or membership-based referral network with a similar fee structure.

Common questions

Q: Are multiple listing service dues and initiation fees subject to sales tax?
A: No -- the MLS's core function of letting brokers exchange cooperation offers and share commissions isn't a specifically enumerated taxable service.

Q: Are per-listing fees charged to transmit property information to other MLS participants taxable?
A: No -- these are treated as a nontaxable charge for the service of advertising.

Q: Is a printed book of current MLS listings taxable?
A: Yes -- a separate charge for a printed listings book is an ordinary taxable sale of tangible personal property.

Q: Does this ruling apply to my real estate board's or MLS's specific fee structure?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. Your own fee structure would need its own analysis.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_55s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(55)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S960606A

On June 6, 1996, the Department of Taxation and Finance received a Petition
for Advisory Opinion from the New York State Association of Realtors, Inc., 130
Washington Avenue, Albany, New York 12210-2298.
The issue raised by Petitioner, the New York State Association of Realtors,
Inc., is whether certain fees charged participating brokers and realtor
associates in connection with the operations of multiple listing services are
subject to New York State and local sales and compensating use taxes.
Petitioner submits the following facts as the basis for this Advisory
Opinion.
Realtors in the various communities throughout New York State have formed
trade associations as not-for-profit corporations, which are generally known as
real estate boards. These are membership corporations and the voting members are
usually brokers who are the owners or other principals of real estate brokerage
companies. Realtor associates, who are licensed sales persons, generally have
a lesser class of membership. There are sometimes a small number of affiliate
members who are persons and businesses that are related to the real estate
brokerage industry, such as mortgage lenders. Generally, each of these local
real estate boards has established a multiple listing service ("MLS"). The MLS
is usually an activity conducted within the board, itself, but which is sometimes
conducted by a wholly-owned subsidiary corporation. In some cases when the MLS
is run by a separate corporation, it is a business corporation rather than a
not-for-profit corporation. Under either structure, participation in the MLS is
restricted to realtor members of the board.
The purpose of an MLS is to provide a mechanism whereby the commission on
the sale of a property can be shared between the participant in the listing
service who obtains the listing for a property (the "listing broker") and the
participant in the listing service who finds a buyer for the property (the
"selling broker").
While the listing broker will receive only part of the
commission if another participant in the listing service is successful in finding
a buyer, the efforts of that selling broker will generate a share of the
commission for the listing broker. Because all of the multiple listed properties
are available to all participants in the MLS, each benefits from having a much
greater inventory of properties available to sell. In the same way, owners of
properties benefit from having large numbers of sales people trying to sell the
properties that they have placed on the market, while prospective buyers have
many properties available through the sales people with whom they are working.
When a property owner who is selling a property lists the property with an
MLS participant and authorizes the use of the MLS, he or she will enter into an
"exclusive right to sell" contract with the listing broker. Under the terms of

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Sales Tax

the contract, the property owner authorizes the listing broker to list the
property with the MLS. Pursuant to the contract, the property owner appoints the
listing broker as his or her exclusive agent for a designated period of time to
sell the property on the owner’s stated terms and agrees to pay a stated
commission when the property is sold. The contract also authorizes the listing
broker, as exclusive agent, to cooperate with other participants in the MLS and
compensate them for successfully arranging a transaction. The listing broker may
appoint subagents by this mechanism and divide the commission paid by the selling
property owner with such a subagent.
Alternatively, the cooperating MLS
participant who arranges the sale may be a buyer’s agent, and receive a share of
the commission for acting in that capacity. The terms of the commission split
between the listing broker and a subagent or buyer’s agent are provided for in
the contract and vary from one listing to another.
After the listing broker enters into an exclusive "right to sell" contract
with a property owner, he or she communicates to the other MLS participants the
information regarding the terms of the contract, including the commission that
will be paid to a cooperating MLS participant, whether as a subagent or buyer’s
agent, together with information relating to the property that is offered for
sale. In doing so, the listing broker extends a blanket unilateral offer of
subagency to all of the other participants in the MLS and/or an offer to
compensate a buyer’s agent. This is accomplished by furnishing the information
regarding the commission arrangement and listing terms, together with a
description of the listed property, to the MLS which, in turn, communicates the
offer of cooperation and compensation to all MLS participants on behalf of the
listing broker. MLS offers of cooperation and compensation are made available
only to participants in the MLS.
Generally, the corresponding information
concerning the property is only delivered to participants in the MLS with the
offer of cooperation and compensation. Without the offer of cooperation and
compensation to MLS participants that is the primary function of each listing,
the information provided about the property that is offered for sale would be
irrelevant to the broker receiving it because he or she could not earn a
commission by selling the property. The dissemination of information regarding
the property is merely a component of the MLS listing process, the primary
function of which is to exchange offers of cooperation and compensation and to
allow the sharing of commissions between listing brokers and selling brokers.
In the case of each MLS, the expense of operating the MLS is recovered
through charges that are made to the participants.
The structure of these
charges varies from one MLS to another, but in each case the structure includes
one or more of the following fees:
Initiation Fee This is a one-time charge made to a broker at the
time when he or she decides to participate in the MLS.
Dues/Participation Fees
These charges are made to participating
brokers on either a monthly or an annual basis to defray the costs
that are not offset by the other charges.

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Sales Tax

Listing Fee Listing fees and rental filing fees are paid by MLS
participants, where utilized, to offset the cost of transmitting
their offers of cooperation and compensation and related information
to other participants, whether electronically or through printed
materials.
This is a charge sometimes made by an MLS to
Office Assessment
offset general overhead expense.
Book Fee This is a charge made for a printed book containing the
current listings. This charge is subject to sales tax under Section
1105(a) of the Tax Law and is not at issue in this Advisory Opinion.
Opinion
The one-time initiation fees and periodic dues/participation fees charged
to participants in connection with the operation of a multiple listing service
are not subject to New York State and local sales and compensating use taxes
where the primary function of the multiple listing service is to serve as a
mechanism for such participants to exchange offers of cooperation and
compensation and to share in the commissions on the sales (or rentals) of listed
properties. In this regard, the information communicated to brokers and realtor
associates in the multiple listing is considered to be merely a component of the
primary function of the multiple listing service. Section 1105(c) of the Tax Law
imposes tax upon the receipts from every sale, except for resale, of certain
enumerated services.
A service of this nature is not one of the services
enumerated under Section 1105(c) and, therefore, is not subject to tax.
Listing fees and rental filing fees charged to multiple listing service
participants to offset the costs of communicating offers of cooperation and
compensation and related information regarding listed properties to others,
whether conveyed electronically or through printed materials, are considered to
be charges for the service of advertising and are not subject to tax.
Office assessments that are sometimes charged by a multiple listing service
to offset general overhead expenses are not considered to be receipts from the
sale of enumerated services taxable under the Tax Law and, consequently, are not
subject to tax.

DATED: September 3, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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