Does a planned members-only fitness club owe New York sales tax on founding-member loans, refundable deposits, monthly dues, and forfeited minimum-spending credits toward its restaurant, spa, and massage services?

Plain-English summary

The Core Club planned to open a New York City health and fitness facility offering spinning, rowing, yoga, Pilates, martial arts, off-site golf/tennis/racquetball/equestrian activities, traditional gym equipment, personal training, a restaurant, and spa/massage/salon services. It offered two membership tiers: "founding" memberships, where members lent the club money on a five-year note and got their dues waived for that period (with the waived amount counted as taxable income to them), and "general" memberships, with a refundable deposit and ongoing monthly dues. A slice of everyone's dues was earmarked as a "minimum expenditure" credit that members could use toward the restaurant, spa, or massage services — spend less than the minimum and you forfeit the difference; spend more and you're billed separately. Critically, members had zero say over the club's social or athletic programming, no vote on new members, and no ownership stake — management ran everything, and membership size was capped purely because of the building's physical size.

New York taxes dues paid to a genuine "social or athletic club" — but only where members meaningfully control the club's activities, membership selection, or management, or hold a proprietary interest. Since this club's members controlled none of that, the Department found it wasn't a taxable club at all, so none of the loans, deposits, or ordinary dues were subject to tax as club dues, admission charges, or anything else under Tax Law § 1105. However, the "minimum expenditure" carve-out is different: because that money can be spent on genuinely taxable items (massage, salon services, restaurant meals, salon products) and isn't separately itemized by category on the member's bill, New York's bundling rule kicks in — the whole minimum-expenditure charge is taxed at the combined state-and-NYC rate, whether a member actually uses the services or ultimately forfeits the balance. And when a founding member has that minimum silently waived as part of the loan deal, the Department treats it exactly as if the club paid extra interest, the member then paid the minimum, and the two amounts were simply netted against each other — so tax is still due on the waived amount.

What this means for you

Membership clubs, gyms, and social clubs

The taxable-"club" test hinges on genuine member control — voting on activities, selecting new members, managing the organization, or holding a proprietary stake. A club run entirely by management, with membership capped only by physical facility size, isn't a taxable social or athletic club for sales tax purposes, no matter how exclusive it feels or how the marketing uses the word "club."

Clubs bundling minimum-spend credits into dues

If part of your dues is earmarked for taxable extras (spa, massage, food, retail products) and isn't separately stated by category, the entire minimum-spend allocation is taxable — even the portion a member never actually spends and instead forfeits. Separately itemizing a reasonable charge for the taxable pieces on the member's bill is the only way to avoid taxing the whole bundle.

Clubs offering "founding member" loans with waived fees

Watch for hidden taxable value: waiving a member's dues or spending minimum as an inducement for a below-market loan doesn't make that value disappear for tax purposes — the Department will treat it as if the fee were paid and simply netted against extra interest, so tax is still due on the waived amount at the time it would otherwise have been billed.

Clubs with restaurants, massage, or salon services

Restaurant food and drink for on-premises consumption is taxable regardless of the club analysis; massage/salon/beauty services are subject only to the New York City local tax (not state tax) unless performed by a licensed medical professional for medical purposes, in which case they're excluded entirely.

Common questions

Q: Does calling something a "club" and charging "dues" automatically make it taxable?
A: No — the label doesn't matter. What matters is whether members genuinely control social/athletic activities, participate in selecting members, help manage the organization, or hold a proprietary interest. Without that control, dues-like charges aren't taxed as club dues.

Q: Are restaurant charges at a fitness club taxed the same as at any restaurant?
A: Yes — food and drink sold for on-premises consumption is taxable regardless of whether it's served at a stand-alone restaurant or inside a private club.

Q: If a member never uses their minimum-expenditure allocation and forfeits it, is that forfeited amount still taxed?
A: Yes, per this ruling — because the allocation could have been used for taxable items and wasn't separately itemized, tax applies when the dues are collected (or when a founding member's waived amount would otherwise have been due), regardless of whether the member ultimately uses or forfeits it.

Q: Are massage services always exempt from tax at a club?
A: Only if performed by a licensed medical professional (physiotherapist, chiropractor, podiatrist, osteopath, etc.) providing genuinely medical-type treatment. Ordinary massage/spa/beauty services at a club are subject to the New York City local tax.

Citations and references

Statutes and rules:

• Tax Law § 1101(d)(6), (7), (13) (dues, initiation fee, social/athletic club definitions)
• Tax Law § 1105(a), (d)(i), (f)(1)-(2) (retail sales tax, restaurant tax, admission/club dues tax)
• Tax Law § 1107(a) (NYC municipal assistance tax)
• Tax Law § 1115(a)(1) (food/beverage exemption)
• Tax Law § 1212-A(a)(2); NYC Administrative Code § 11-2002(h) (NYC beauty/massage/salon local tax)
• 20 NYCRR 527.11(b) (club/organization, athletic club factors); 527.1(b) (bundled sale rule)

Prior advisory opinions and case law relied on:

• New York Health and Racquet Club, TSB-A-99(26)S; Matter of Prospect Park Health and Racquet Associates, DTA No. 811196 (member-control test)
• Manhattan Athletic Club, TSB-A-02(43)S (medical-massage exclusion)
• Costco Wholesale Corporation, TSB-A-92(66)S; Tan Tara Country Club, Inc., TSB-A-84(19)S; Brierwood Village, Inc., TSB-A-89(6)S (bundled minimum-expenditure taxability)
• PricewaterhouseCoopers LLP, TSB-A-03(11)S; Salomon & Leitgeb CPA's, LLP, TSB-A-97(44)S (bundling rule extended to services)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2005.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a05_9s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-05(9)S
Sales Tax
April 1, 2005

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S030829A

On August 29, 2003, the Department of Taxation and Finance received a Petition for
Advisory Opinion from The Core Club 55th Street LLC, 60 East 55th Street, New York, NY
10022. Petitioner, The Core Club 55th Street LLC, provided additional information pertaining to
the Petition on November 20, 2003, January 5, 2004, and July 14, 2004.
The issues raised by Petitioner are:
(1) Whether a loan to Petitioner’s club by the founding members, secured by a five-year
note payable with interest, is subject to New York State and local sales taxes.
(2) Whether the refundable deposit paid by the founding members to join Petitioner’s
club is subject to New York State and local sales taxes.
(3) Whether membership dues charged by Petitioner for use of its facility are subject to
New York State and local sales taxes.
(4) Whether amounts forfeited by members due to spending below a minimum
expenditure for use of the facility’s services and products are subject to New York State
and local sales taxes.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is proposing to open a health and fitness club in New York City. Petitioner
will offer a variety of sport and fitness activities to Petitioner’s members. Petitioner will provide
the following activities: spinning (cycling), rowing, yoga, Pilates and martial arts. In addition,
Petitioner will offer off-site golf, tennis, racquetball and equestrian activities. Petitioner will also
offer traditional training facilities such as weightlifting equipment, aerobics, treadmills, life
cycles, Nautilus machines, saunas and steam rooms along with personal training, nutritional
counseling and spa services.
Petitioner will offer two levels of membership. Founding memberships will be offered
for individuals who wish to lend Petitioner an amount of money secured by a five-year note
payable with interest. Those members will have their dues waived for the period of the note.
Petitioner states that the founding members will be required to recognize the amount of such
waived dues as income. General memberships will be offered to individuals who will be charged
a refundable deposit and monthly membership dues. The deposit will be refunded at the earlier
of leaving the club or 30 years, and will not pay interest. The founding members, upon receiving
full repayment of the notes, will not be required to pay a refundable deposit, but will be required
to pay monthly membership dues.

-2TSB-A-05(9)S
Sales Tax
April 1, 2005

Petitioner will operate a restaurant on the premises. Members will incur additional
charges for the restaurant services. Petitioner will offer massage services, spa and beauty salon
services, including pedicures and manicures, and salon products to members for an additional
charge. A portion of members’ dues will be allocated to a minimum expenditure level for use of
the facility’s services and products, ( i.e., the massage services, restaurant services, salon
services, and salon products). Founding members will have a similar minimum expenditure
allocation for the facility’s services and products, which will also be waived for the period of the
note. Petitioner states that the founding members will be required to recognize the amount of
such minimum expenditure allocation as income. Expenditures for salon services and products,
massage services or restaurant service or any combination will be credited against the minimum
expenditure level. The amount invoiced for services and products will include the applicable
sales tax and the full amount of the invoice will be applied to meet the minimum expenditure
amount. If a member uses services beyond the minimum expenditure required, the member will
be separately billed for those additional services and products. If a member’s use of services is
below the allocated amount, the remaining balance is forfeited.
Petitioner’s members will not control any social or athletic activities, nor will Petitioner’s
members participate in the selection of members or management of the facility. The members
will not possess any proprietary interest in Petitioner. The number of members will be restricted
solely because of the physical size of the facility.
Applicable law and regulations
Section 1101(d) of the Tax Law provides, in part:
When used in this article for purposes of the tax imposed under
subdivision (f) of section eleven hundred five, the following terms shall mean:
*

*

*

(6) Dues. Any dues or membership fee including any assessment,
irrespective of the purpose for which made, and any charges for social or sports
privileges or facilities, except charges for sports privileges or facilities offered to
members’ guests which would otherwise be exempt if paid directly by such
guests.
(7) Initiation fee. 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.
*

*

*

-3TSB-A-05(9)S
Sales Tax
April 1, 2005

(13) Social or athletic club. Any club or organization of which a material
purpose or activity is social or athletic.
Section 1105 of the Tax Law provides, in part:
Imposition of sales tax
On and after June first, nineteen hundred seventy-one, there is hereby
imposed and there shall be paid a tax . . . upon:

(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
*

*

*

(d)(i) The receipts from every sale of beer, wine or other alcoholic
beverages or any other drink of any nature, or from every sale of food and drink
of any nature or of food alone, when sold in or by restaurants, taverns or other
establishments in this state, or by caterers, including in the amount of such
receipts any cover, minimum, entertainment or other charge made to patrons or
customers (except those receipts taxed pursuant to subdivision (f) of this section):
(1) in all instances where the sale is for consumption on the premises
where sold;
*

*

*

(f)(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. . . .
(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 1105(c) of the Tax Law imposes tax upon the receipts from every sale, except for
resale, of certain enumerated services.
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

-4TSB-A-05(9)S
Sales Tax
April 1, 2005

hundred ten of this part, there is hereby imposed on such date, within the territorial limits of such
city, and there shall be paid, additional taxes . . . which except as provided in subdivision (b) of
this section, shall be identical to the taxes imposed by sections eleven hundred five and eleven
hundred ten of this part. 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 1115(a) of the Tax Law provides, in part:
Receipts from the following shall be exempt from the tax on retail sales imposed
under subdivision (a) of section eleven hundred five and the compensating use tax
imposed under section eleven hundred ten:
(1) Food, food products, beverages, dietary foods and health supplements, sold for
human consumption but not including (i) candy and confectionery, (ii) fruit drinks which
contain less than seventy percent of natural fruit juice, (iii) soft drinks, sodas and
beverages such as are ordinarily dispensed at soda fountains or in connection therewith
(other than coffee, tea and cocoa) and (iv) beer, wine or other alcoholic beverages, all of
which shall be subject to the retail sales and compensating use taxes, whether or not the
item is sold in liquid form. The food and drink excluded from the exemption provided by
this paragraph under subparagraphs (i), (ii) and (iii) of this paragraph shall be exempt
under this paragraph when sold for seventy-five cents or less through any vending
machine activated by the use of coin, currency, credit card or debit card. With the
exception of the provision in this paragraph providing for an exemption for certain food
or drink sold for seventy-five cents or less through vending machines, nothing herein
shall be construed as exempting food or drink from the tax imposed under subdivision (d)
of section eleven hundred five.
Section 1212-A(a)(2) of the Tax Law authorizes the City of New York to impose a local
sales tax at the same uniform rate on "beauty, barbering, hair restoring, manicuring, pedicuring,
electrolysis, massage services and similar services, and every sale of services by weight control
salons, health salons, gymnasiums, turkish and sauna bath and similar establishments and every
charge for the use of such facilities. . . but excluding services rendered by a physician, osteopath,
dentist, nurse, physiotherapist, chiropractor, podiatrist, optometrist, ophthalmic dispenser or a
person performing similar services licensed under title VIII of the education law. . .;" such tax to
be administered and collected by the Commissioner of Taxation and Finance.
Section 11-2002(h) of the Administrative Code of the City of New York imposes sales
tax on:
Receipts from beauty, barbering, hair restoring, manicuring, pedicuring,
electrolysis, massage services and similar services, and every sale of services by weight

-5TSB-A-05(9)S
Sales Tax
April 1, 2005

control salons, health salons, gymnasiums, turkish and sauna bath and similar
establishments and every charge for the use of such facilities, whether or not any tangible
personal property is transferred in conjunction therewith; but excluding services rendered
by a physician, osteopath, dentist, nurse, physiotherapist, chiropractor, podiatrist,
optometrist, ophthalmic dispenser or a person performing similar services licensed under
title VIII of the education law, as amended, and excluding such services when performed
on pets and other animals.
Section 527.11(b) of the Sales and Use Tax Regulations provides, in part, the following
definitions of 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)
(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.
*

*

*

-6TSB-A-05(9)S
Sales Tax
April 1, 2005

(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 . . . 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 members do not control any social or athletic activities, do not participate in
the 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 and its charges are not subject to tax as
dues paid to an athletic club under section 1105(f)(2) of the Tax Law.
Petitioner’s charges to its patrons entitle them to use facilities for activities which are
dedicated to improving their physical well-being and overall fitness. Thus, the fees paid by the
members for the use of Petitioner’s facilities do not constitute admissions to a place of
amusement. Petitioner’s membership fees for use of the facility are not subject to the tax on
admission charges under section 1105(f)(1) of the Tax Law.
It follows, therefore, that Petitioner’s charges to its members for founding memberships,
including the amount loaned as well as any monthly charges, and general memberships including
the refundable deposit and monthly charges, are not subject to tax as admissions under section
1105(f)(1) of the Tax Law and are not subject to tax as dues under section 1105(f)(2) of the Tax
Law.
Since a membership in Petitioner makes available a variety of sporting activities through
use of off-site facilities (i.e., golf, tennis and racquetball) to its members, Petitioner is not a
weight control salon, gymnasium or other establishment as described in section 11-2002(h) of
the Administrative Code of the City of New York. Petitioner’s charges to its members for
monthly membership dues, founding member loans and general membership refundable deposits,
therefore, are not for services provided by, or use of facilities in, weight control salons,
gymnasiums or other establishments described in such section 11-2002(h) and are thus not
subject to the tax imposed in New York City upon such entities and their services. See New York
Health and Racquet Club, Adv Op Comm T & F, May 19, 1999, TSB-A-99(26)S; Matter of
Prospect Park Health and Racquet Associates and Peter J. Sferrazza and George Hart, as
Partners, Dec Tax App Trib, July 22, 1997, DTA No. 811196.
A portion of Petitioner’s members’ dues are allocated to a minimum expenditure level
for use of the facility’s salon and massage services, restaurant services and the purchase of salon
products. Beauty, barbering, hair restoring, manicuring, pedicuring, electrolysis, and massage
services are not included within the services taxed under section 1105(c) of the Tax Law.

-7TSB-A-05(9)S
Sales Tax
April 1, 2005

Beauty, barbering, hair restoring, manicuring, pedicuring, electrolysis, massage services and
similar services are subject to the New York City sales tax provided for in section 1212-A of the
Tax Law and section 11-2002(h) of the New York City Administrative Code. Therefore,
Petitioner’s charges to its members for these services are subject to the New York City sales tax.
It should be noted, however, that where massage services are provided by a physiotherapist,
chiropractor, podiatrist, osteopath, or any person authorized to practice medicine, licensed under
Title VIII of the Education Law, the charges for such services are excluded from New York City
sales tax when the services are medical in nature and are like the services usually provided by the
professionals enumerated in section 1212-A of the Tax Law and section 11-2002(h) of the
Administrative Code. See Manhattan Athletic Club, Adv Op Comm T&F, July 26, 2002,
TSB-A-02(43)S.
Section 1105(d)(i) of the Tax Law imposes a sales tax on the receipts from:
every sale of beer, wine or other alcoholic beverages or any other drink of any
nature, or from the sale of food and drink of any nature or of food alone, when sold in or
by restaurants, taverns or other establishments in this state, or by caterers, including in
the amount of such receipts any cover, minimum, entertainment or other charge made to
patrons or customers. . . .
(1) in all instances where the sale is for consumption on the premises where sold.
(Emphasis added)
Petitioner's charges to its members for sales by its restaurant of food and drink, therefore,
are subject to State and local sales taxes.
Petitioner’s sales of vitamins and health supplements for off-premises consumption will
not be subject to tax under section 1105(d) of the Tax Law. Such sales will qualify for
exemption from the sales tax imposed by section 1105(a) of the Tax Law, pursuant to section
1115(a)(1).
Petitioner’s retail sales of salon products are subject to State and local sales taxes under
section 1105(a) of the Tax Law.
When tangible personal property composed of taxable and exempt items is sold as a
single unit, the tax is collected on the total price. See section 527.1(b) of the Sales and Use Tax
Regulations. The rule has been extended to sales of taxable and exempt services and sales of
services with tangible personal property. See PricewaterhouseCoopers LLP, Adv Op Comm
T&F, March 25, 2003, TSB-A-03(11)S; Salomon & Leitgeb CPA’s, LLP, Adv Op Comm T&F,
July 23, 1997, TSB-A-97(44)S. This rule will apply unless the charges for the taxable and
exempt services or tangible personal property are separately stated and reasonable on the
member’s statement. Since the amount of members’ dues allocated to a minimum expenditure
level for use of the facility’s services and purchase of products can be used to purchase taxable
property or services, and the charge for such minimum expenditure does not appear to separately

-8TSB-A-05(9)S
Sales Tax
April 1, 2005

state charges for taxable and nontaxable items, the amount of members’ dues allocated to a
minimum expenditure level is subject to State and local sales tax at the applicable rate in
New York City (currently 8⅝%). See Costco Wholesale Corporation, Adv Op Comm T&F,
September 17, 1992, TSB-A-92(66)S; Tan Tara Country Club, Inc., Adv Op Comm T&F, June
4, 1984, TSB-A-84(19)S; Brierwood Village, Inc., Adv Op Comm T&F, February 13, 1989,
TSB-A-89(6)S.
In the present case, Petitioner and the founding members entered into a transaction where
the founding members’ dues and minimum expenditure levels were waived in exchange for what
was presumably a lower interest rate on the note. This arrangement yields the same result as if
(1) Petitioner paid each founding member additional interest on his or her loan, which is
consistent with Petitioner’s statement that founding members are required to include this amount
in income for federal income tax purposes; (2) each founding member paid the dues; and (3)
Petitioner and each founding member offset the amounts due each other. Therefore, Petitioner
must collect State and local taxes at the applicable rate in New York City (currently 8⅝%) from
each founding member on the value of the minimum expenditure level which is waived.
The amount of the membership dues which are allocated for minimum expenditures for
use of the facility’s services and purchase of products are subject to State and local sales taxes at
the time the dues are collected or in the case of the founding members at the time the dues which
were waived would have been payable.
Accordingly, the loans, refundable deposits and membership dues (other than amounts
allocated for minimum expenditures for use of the facility’s services and purchase of products
and forfeited upon failure to spend such minimum), are not subject to any of the taxes imposed
under section 1105 or 1107 of the Tax Law or section 11-2002(h) of the New York City
Administrative Code. Petitioner’s receipts for massage and salon services are subject to the
New York City sales tax provided for in section 1212-A of the Tax Law and section 11-2002(h)
of the New York City Administrative Code if the massage services are not medical in nature as
discussed above. Petitioner’s receipts for salon products, restaurant charges and any portion of
the minimum expenditure amount forfeited are subject to sales tax at the combined State and
local (New York City) rate.

DATED: April 1, 2005

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

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