Is sales tax due on a member-owned golf club's Certificate of Membership and a required Subordinate Debenture Bond, and is the tax refundable when the member later leaves and redeems the bond?

Plain-English summary

Lawrence Wittlin (Garden City, New York) joined the Muttontown Golf and Country Club and was billed for a Certificate of Membership and a Subordinate Debenture Bond, plus sales tax. The bond bears no interest and is redeemable if he leaves the club. He asked whether sales tax was properly charged on both items, and — if the bond was taxed — whether he'd get the tax refunded when he later leaves and cashes in the bond.

The answer: both are taxable, and there's no refund on the bond.

• § 1105(f)(2) taxes the dues paid to a social or athletic club (over $10/year) and the initiation fee (over $10), on top of dues.
• 20 NYCRR 527.11(b)(3) defines an initiation fee broadly: any payment, contribution, or loan required as a condition precedent to membership — whether or not it's evidenced by a certificate of interest, indebtedness, or a share of stock, and no matter who receives it.
• Both the Certificate of Membership and the Subordinate Debenture Bond are payments or loans required to join the club, so both are subject to sales tax.
• No refund. Cashing in the bond after leaving the club does not entitle Wittlin to a refund of the tax, because the transaction that created the tax liability (joining and paying to become a member) was never set aside or cancelled.

What this means for you

A "loan" to the club can still be a taxable initiation fee. New York looks at substance, not form. Even though a debenture bond is technically a loan you may get back, if you must buy it to join, it counts as an initiation fee subject to sales tax.

Getting your money back later doesn't reverse the tax. The taxable event was joining the club. Redeeming a refundable bond when you leave doesn't undo that transaction, so the sales tax you paid stays paid.

This applies to member-owned clubs too. The fact that a club is owned by its members — and issues certificates or bonds instead of a plain fee — doesn't change the result. Required buy-ins are treated as initiation fees.

Common questions

Q: Why is a refundable bond taxed like an initiation fee?
A: Because 20 NYCRR 527.11(b)(3) defines an initiation fee to include any loan required as a condition of joining, even if it's evidenced by a bond or share and even if it may be returned.

Q: If I leave and get the bond redeemed, do I get the sales tax back?
A: No. The transaction that created the tax wasn't cancelled or set aside — you were a member and paid to join — so redeeming the bond later doesn't produce a tax refund.

Q: What if the certificate or bond had cost $10 or less?
A: The tax on initiation fees under § 1105(f)(2) applies when the initiation fee is over $10. The opinion treats these required buy-ins as taxable initiation-fee payments.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(f)(2) — taxes dues paid to a social or athletic club (over $10/year) and the initiation fee (over $10)
• 20 NYCRR 527.11(b)(3) — defines "initiation fee" to include any payment, contribution, or loan required as a condition precedent to membership, whether or not evidenced by a certificate of interest, indebtedness, or share of stock

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1980.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h80_259s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-80(259)S
Sales Tax
December 28, 1980

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S80100lA

On August 1, 1980 a Petition for Advisory Opinion was received from Mr.
Lawrence Wittlin, 1144 Franklin Avenue, Garden City, New York 11530.
The issues raised are whether State and local sales taxes, which are
imposed under Articles 28 and 29 of the Tax Law, are due on the purchase of a
Certificate of Membership plus a Subordinate Debenture Bond at a member-owned
golf club, and, if sales tax is due on the bond, is it refundable if Petitioner
subsequently leaves the club and redeems the bond.
Petitioner joined the Muttontown Golf and Country Club and received a bill
showing charges for a Certificate of Membership and a Subordinate Debenture Bond,
plus sales tax. The non-interest bearing bond is redeemable if Petitioner should
leave the club.
Section 1105(f)(2) of the Tax Law, contained in Article 28, imposes a tax
on "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)(3) of the Sales and Use Tax Regulations defines the term
initiation fee as: "Any payment, contribution, or loan, required as a condition
precedent to membership, whether or not such payment, contribution or loan is
evidenced by a certificate of interest or indebtedness or share of stock, and
irrespective of the person or organization to whom paid, contributed or loaned."
20 NYCRR 527.11(b)(3)
Since the Certificate of Membership and the Subordinate Debenture Bond are
payments or loans required as a condition precedent to membership in the
Muttontown Golf and Country Club, both are subject to sales tax. Subsequent
redemption of the bond will not entitle Petitioner to a refund of the tax paid,
because the transaction that necessitated the purchase of the bond and created
Petitioner's tax liability has not been set aside or cancelled.

DATED: December 15, 1980

TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR