Are health club membership and initiation fees subject to New York State and City sales tax?

Plain-English summary

Town Sports International, doing business as New York Sports Clubs, operates athletic clubs across New York City offering squash, tennis, rock climbing, swimming, martial arts, weightlifting, and similar facilities. Members pay an initiation fee and a membership fee that gives them access to all sporting facilities at every location (some pay extra for squash or tennis courts). Members don't vote on club management, control social or athletic activities, or hold any ownership stake in the company. The company asked whether its fees are subject to New York State or City sales tax.

The Department worked through three separate taxes and found none applied. First, the general admission-charge tax specifically excludes charges for the use of facilities "for sporting activities in which such patron is to be a participant" -- exactly what members are doing here (playing squash, swimming, climbing), so no tax applies under that provision. Second, New York taxes dues and initiation fees paid to a "social or athletic club," but the regulations define that narrowly: a club or organization exists only where members control social or athletic activities, tournaments, elections, or management, or hold a proprietary interest. Because Town Sports members have none of that control -- the company's own management runs everything -- it isn't a taxable "athletic club," even though it markets itself using the word "club." Third, New York City's separate 4% local tax on gymnasiums, health salons, and similar establishments didn't apply either, because the company's facilities are athletic/sporting facilities, not the kind of weight-control-salon-style establishments that tax targets.

What this means for you

Gym and fitness-club operators

Calling your business a "club" or your customers "members" doesn't by itself create a taxable athletic club. What matters is whether your customers actually control club governance, activities, or have an ownership stake. A commercially run fitness chain where management makes all the decisions is not an "athletic club" under 20 NYCRR § 527.11(b)(5), even if it uses club-style marketing and membership tiers.

Businesses charging for participatory sports facilities

Charges for facilities where the patron is the one playing -- squash courts, pools, climbing walls -- fall under the participatory-sports exclusion from the admission-charge tax, distinct from charges to merely watch or attend an event.

Accountants and tax professionals

This ruling is a useful three-part checklist for any membership-fee fact pattern: (1) does the participatory-sports exclusion from § 1105(f)(1) apply, (2) does the entity meet the regulatory definition of a "club or organization" under § 527.11(b)(5) triggering § 1105(f)(2) dues tax, and (3) does the New York City local gymnasium tax under Administrative Code § 11-2002(h) apply. All three require a facts-based structural analysis, not just a label.

Common questions

Q: Is a gym membership fee automatically exempt from sales tax in New York?
A: No. It depends on whether the operation qualifies as a taxable "athletic club" under the regulations (based on member control of the organization) and on the nature of the facilities offered. A membership structured so members genuinely control the club could be taxed differently.

Q: Does restricting membership size make a gym a taxable "club"?
A: Not by itself. The regulations specifically say restricting membership solely because of the physical size of the facility doesn't create a club or organization.

Q: Does this ruling apply to my fitness business?
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. It shows how the Department reasons, but your facts may differ.

Citations and references

Statutes and regulations:

• Tax Law § 1105(f)(1) (admission charges; participatory-sports exclusion)
• Tax Law § 1105(f)(2) (dues and initiation fees of social/athletic clubs)
• Tax Law § 1107(a) (additional New York City sales tax)
• Administrative Code of the City of New York § 11-2002(h) (gymnasiums, weight control salons, similar establishments)
• 20 NYCRR § 527.11(b)(5) (definition of "club or organization"), (7) (definition of "athletic club")

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_42s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(42)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S971229B

On December 29, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Town Sports International and Subsidiaries,
888 Seventh Avenue, New York, New York 10106.
Petitioner, Town Sports
International and Subsidiaries, submitted additional information pertaining to
the petition on March 19, 1998 and March 25, 1998.
The issue raised by Petitioner is whether the fees charged by it for the
use of its facilities are subject to New York State and local sales taxes.
Petitioner submits the following facts as the basis for this Advisory
Opinion.
Petitioner and its wholly owned subsidiaries, doing business as New York
Sports Clubs, operate athletic clubs in the New York City area.
Petitioner
provides a variety of sporting activities at its clubs. Most of Petitioner’s
clubs have squash courts, cycling, running, rowing, boxing, in-line skating,
martial arts, and dance facilities. Certain locations offer indoor swimming
pools, tennis courts, and rock climbing.
In addition, Petitioner offers
traditional training facilities such as weight lifting equipment, aerobics,
stepping machines, saunas and steam rooms. Brochures and flyers submitted by
Petitioner indicate that members must pay an extra fee for use of the squash and
tennis courts.
Petitioner offers lessons at its clubs for sports such as tennis and
squash.
It organizes tournaments in various sports at its facilities and
sponsors teams in a number of athletic leagues throughout New York City.
Petitioner charges an initiation fee and a membership fee for use of its
facilities. These fees allow members access to all sporting facilities offered
by Petitioner.
Members have access to the facilities available at all of
Petitioner’s locations (on either an unlimited or off-hour basis, depending upon
a member’s choice of membership plan).
Petitioner’s members do not control any social or athletic activities,
selection of members or club management, or possess any proprietary interest in
Petitioner.
Applicable Law & Regulations
Section 1105(f) of the Tax Law imposes sales tax, in part, on:
(1)
Any admission charge . . . except charges to a patron for
admission to, or use of, facilities for sporting activities in which
such patron is to be a participant, such as bowling alleys and
swimming pools.

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TSB-A-98(42)S
Sales Tax

(2)(i) The dues paid to any social or athletic club in this state if
the dues. . . 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 1107(a) of the Tax Law provides:
General. On the first day of the first month following the month in
which a municipal assistance corporation is created under article
ten of the public authorities law for a city of one million or more,
in addition to the taxes imposed by sections eleven hundred five and
eleven hundred ten, there is hereby imposed on such date, within the
territorial limits of such city, and there shall be paid, additional
taxes, at the rate of four percent, which except as provided in
subdivision (b) of this section, shall be identical to the taxes
imposed by section eleven hundred five and eleven hundred ten. Such
sections and the other sections of this article, including the
definition and exemption provisions, shall apply for purposes of the
taxes imposed by this section in the same manner and with the same
force and effect as if the language of those sections had been
incorporated in full into this section and had expressly referred to
the taxes imposed by this section.
Section 11-2002(h) of the Administrative Code of the City of New York
imposes sales tax, in part, on:
(h)
Receipts from . . . every sale of services by weight control
salons,
gymnasiums,
turkish
and
sauna
bath
and
similar
establishments and every charge for the use of such facilities. . .
Section 527.11(b) of the Sales and Use Tax Regulations provides, in part,
the following definitions of certain terms that are contained in section
1105(f)(2) of the Tax Law:
(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.
(Emphasis
supplied)

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TSB-A-98(42)S
Sales Tax

(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;
(d) offers tournaments, leagues and social activities which are
controlled solely by the management.
*

*

*

(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.
*

*

*

(ii) Athletic activities does not include exercising or calisthenics
solely for health or weight reduction purposes, as contrasted to
sports. An establishment that merely provides steam baths, saunas,
rowing machines, shaking machines and other exercise equipment shall
not be considered an athletic club.
However, there is a four­
percent local sales tax in the city of New York on every sale of
services by weight control salons, health salons, gymnasiums,
Turkish baths, sauna baths and similar establishments, and on every
charge for the use of such facilities.
Opinion
Petitioner’s charges to its patrons entitle them to use facilities for
sporting activities in which the patron is to be a participant. Petitioner’s
charges, therefore, are not subject to the tax on admission charges under Section
1105(f)(1) of the Tax Law. Petitioner’s charges would be subject to sales tax
under Section 1105(f)(2) of the Tax Law if Petitioner operated an athletic club
as defined in paragraphs (5) and (7) of section 527.11 of the Sales and Use Tax
Regulations.
Petitioner’s members do not control any social or athletic activities,
selection of members or club management, or possess any proprietary interest in
Petitioner. Therefore, Petitioner is not operating an athletic club as defined
in paragraphs (5) and (7) of section 527.11 of the Sales and Use Tax Regulations.
Accordingly, Petitioner’s charges to its members are not subject to tax as dues
of an athletic club under Section 1105(f)(2) of the Tax Law.

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TSB-A-98(42)S
Sales Tax

Petitioner’s facilities are not weight control salons, gymnasiums or
similar establishments described in Section 11-2002(h) of the Administrative Code
of the City of New York. Therefore, Petitioner’s charges to its members are not
subject to the tax imposed by Section 11-2002(h).
Accordingly, membership charges for the use of Petitioner’s facilities are
not subject to any of the taxes imposed under Sections 1105(f) and 1107 of the
Tax Law or Section 11-2002(h) of the New York City Administrative Code.

DATED: July 1, 1998

NOTE:

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

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