Could a Section 501(c)(7) singles club recover tax collected on dues and admissions, and were its member charges taxable?

Plain-English summary

A singles social club sought to recover sales tax it had collected on membership dues and admissions that were not taxable before October 1, 1991. The Comptroller said the state would not refund the tax—and the club could not take a future-return credit—until the club first refunded the members and guests who had paid it.

After making those customer refunds, the club could resubmit its claim with proof and amended returns or take a future credit under Rule 3.338.

The letter also revised earlier advice about the club's ongoing charges. After reviewing the Tax Code change for Section 501(c)(7) organizations, the Comptroller said the club's membership dues would not be taxable, but separate admission charges to dances or other entertainment would be taxable.

What this means for you

Social clubs

Separate recurring dues from event admissions. This letter gave them different tax treatment.

Accountants and tax professionals

Tax collected from customers cannot be recovered from the state while the seller keeps it. Customer repayment and proof came first.

Common questions

Were the club's membership dues taxable? No, according to this letter's revised conclusion.

Were dance or entertainment admissions taxable? Yes.

Could the club claim a refund before repaying members and guests? No.

What could the club do after repayment? Resubmit a refund request with proof and amended returns or take a future-return credit under Rule 3.338.

Citations and references

• Internal Revenue Code § 501(c)(7) (social club status)
• 34 Tex. Admin. Code Rule 3.338 (credit procedure cited by the letter)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9202779L

Original ruling text

February 11, 1992

Dear **:

Thank you for your letter regarding a refund of sales tax collected on
membership dues prior to October 1, 1991.

As we discussed in a telephone conversation prior to my September 17, 1991,
letter, the tax remitted to the state on membership dues and admissions that
were not taxable could be refunded to you only after the club refunded the tax
to the members/guests from whom it was collected. At that time you indicated
this could not be done. Therefore, the sales tax cannot be refunded nor can you
take credit on future tax returns at this time. If you can and do refund the
tax, you may resubmit your refund request along with proof of refund and
amended sales tax returns for the appropriate reporting periods or take credit
on future tax returns as outlined in Rule 3.338, Allowance of Credit for Tax
Paid to Suppliers.

Since my letter of September 20, 1991, advising that the club's membership dues
were taxable effective October 1, 1991, we have reviewed the change in the Tax
Code regarding the taxability of membership dues to 501 (c) (7) organizations.
The membership dues will not be taxable. However, any admission charges to
dances or other entertainment will be taxable.

This opinion is based on the facts presented. If there are additional of
different facts, the opinion my change.

If you have any questions or need additional information, you may call toll
free 1-800-252-5555. My extension is 3-4666. You may also write to Tax
Administration Division.

Sincerely,

Jo Ann Dieck
Tax Administration Division