Did the 1991 removal of the Section 501(c)(7) club exemption make dues and membership fees taxable for fraternities, sororities, scouts, and similar service organizations?

Plain-English summary

This STAR document contains an internal distribution memo and the Comptroller's attached clarification letter. The memo said the letter was sent to reassure certain Section 501(c)(7) organizations that their dues were not taxable as amusement services.

The attached letter acknowledged that the recent tax bill removed the exemption for Section 501(c)(7) organizations generally. Even so, the Comptroller determined that dues and membership fees paid to fraternities, sororities, scouts, and similar service organizations were not subject to the newly enacted tax because the Legislature did not intend to extend it to those organizations.

What this means for you

The clarification was limited to the listed service-organization category. It did not say that every Section 501(c)(7) organization's dues remained exempt; other contemporary letters treated country-club dues differently.

Common questions

Were fraternity and sorority dues taxable under this clarification? No. What about scouts and similar service organizations? Their dues and membership fees were also treated as nontaxable. Did the letter preserve an exemption for every Section 501(c)(7) club? No; its language focused on the listed service organizations.

Citations and references

• Internal Revenue Code § 501(c)(7) (the organizational classification identified in the document)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9110L1137E05

Original ruling text

DATE: October 21, 1991

TO: Distribution List

FROM: Kim Baldwin

SUBJECT: Exemption Clarification Letter

Attached is a copy of a letter mailed late Friday, October 18, to reassure
certain organizations which fall under Section 501(c)(7) of the Internal
Revenue Code that their dues are not subject to sales tax as an amusement
service.

If you need any additional information, my number is 3-4148.

Thank you.

Distribution List:

Wayne Akridge, Acct Maintenance
John Neel, Adm. Law Judges
Martin Cherry, Ass't Gen. Counsel
Mark Ortosky, ASD
Harold Lee, Audit Division Hdqtrs.
Linda Pava, Central Administration
Greg Hartman, Communications
Sam Stewart, Data Services
Mary Buckley, Econ. & Local Asst
Jeff Wiginton, Executive Administration
Jim Teaver, Enforcement
Mike Shoemate, Field Operations
T.C. Mallett, Fiscal Management
George Tamayo, Funds Accounting
Cril Payne, General Counsel
Andy Welch, Information Services
Leo Aguirre, Internal Services
Mike Borkland, Legal Services
Tom Nilsen, Local Govt. Assistance
Nora Linares, Res. & Intergov't Svcs
Toni Lopez, Research
Robert Daniels, Revenue Accounting
Dovie Ellis, Revenue Administration
Tom Plaut, Revenue Estimating
Jacob Salisbery, Revenue Processing
Mike Doyle, Tax Administration
Wade Anderson, Tax Administration
Lucy Glover, Tax Administration
Loreto Espinoza, Tax Administration
Barbara Chavis, Tax Administration
Karen Glasscock, Tax Administration

cc: John Sharp
Tom Duffy
Billy Hamilton
Mike Reissig, House Ways and Means Committee
John Keel, Lt. Governor's Office
Brad Reynolds, Lt. Governor's Office
Dale Craymer, Governor's Office
Ben Lock, Senator John Montford's Office

Dear Taxpayer:

Within the tax bill recently passed by the Legislature, they wrote a provision
removing the sales tax exemption and therefore requiring tax on dues for all
501(c)(7) organizations such as yours.

However, upon my review, I have determined that dues and membership fees paid
by fraternities, sororities, scouts and similar service organizations such as
yours are not subject to this tax recently enacted by the 72nd Legislature.

I wanted to send you and your organization this letter letting you know of my
ruling and I hope this will answer any questions. I am sure the Legislature did
not intend to extend this tax to your organization!

If you have any questions or need additional information regarding this matter,
please call us toll-free at 1-800-252-5555.

If I can ever be of further assistance, please contact me.

Sincerely,

JOHN SHARP
Comptroller of Public Accounts