Is a fraternal organization like the Grange exempt from New York sales tax on meals and hotel rooms it buys for its meetings?

Plain-English summary

The New York State Grange (Patrons of Husbandry), a nonprofit established by a special act of the Legislature in 1872, holds meetings at which it arranges and pays for hotel rooms for officers and meals for delegates and members. It asked whether it and its subordinate Granges are exempt from State and local sales tax on those meals and rooms.

The Department held the Grange is not a qualifying exempt organization, so the meals and rooms are taxable.

• Meals and hotel rooms are taxable. Section § 1105(d)(i) taxes food and drink sold by restaurants and other establishments and caterers, and § 1105(e) taxes hotel room occupancy.
• The exempt-organization test tracks IRC § 501(c)(3). Section § 1116(a)(4) exempts organizations organized and operated exclusively for religious, charitable, scientific, public-safety-testing, literary or educational purposes. The Department noted this provision is modeled after — and identically worded to — § 501(c)(3) of the Internal Revenue Code, and that only organizations meeting 501(c)(3)'s requirements qualify for the § 1116(a)(4) sales-tax exemption. (Section 527.9(d)(4) likewise ties the hotel-occupancy exemption to § 1116(a)(4) status.)
• The Grange is a 501(c)(10) fraternal society, not 501(c)(3). The Grange's federal exemption is under § 501(c)(10) as a domestic fraternal society, not under 501(c)(3). Promoting fraternal and social purposes is not among the purposes § 1116(a)(4) covers.
• Result. Because the Grange doesn't qualify under § 1116(a)(4), its purchases of restaurant meals and hotel rooms are subject to State and local sales tax.

What this means for you

Not every tax-exempt group qualifies for New York's sales-tax exemption. Section 1116(a)(4) mirrors IRC § 501(c)(3); a federal exemption under a different 501(c) paragraph — fraternal, social, business-league, and so on — doesn't carry the New York sales-tax exemption.

Check which 501(c) paragraph your federal exemption falls under. If it's not 501(c)(3)-type (religious, charitable, educational, scientific, literary), you likely owe sales tax on your purchases, including meals and lodging for meetings.

Fraternal and social purposes aren't covered. Even a long-established, legislatively chartered nonprofit pays tax on its meals and rooms if its purposes are fraternal/social rather than 501(c)(3)-type.

Common questions

Q: We're a federally tax-exempt nonprofit. Aren't our purchases exempt from New York sales tax?
A: Only if you qualify under § 1116(a)(4), which mirrors IRC § 501(c)(3). A federal exemption under another 501(c) paragraph (like 501(c)(10)) doesn't qualify.

Q: Does it matter that we were chartered by the Legislature and are non-profit?
A: No. What matters is whether your purposes are the 501(c)(3)-type purposes § 1116(a)(4) lists. Fraternal and social purposes aren't among them.

Q: So are our meeting meals and hotel rooms taxable?
A: Yes. Because the organization doesn't qualify under § 1116(a)(4), those purchases are subject to State and local sales tax.

Citations and references

Statutes and regulations:

• Tax Law § 1105(d)(i) — tax on food and drink sold by establishments/caterers
• Tax Law § 1105(e) — tax on hotel room occupancy
• Tax Law § 1116(a)(4) — exempt organizations (modeled on IRC § 501(c)(3))
• 20 NYCRR 527.9(d)(4) — hotel-occupancy exemption tied to § 1116(a)(4) status
• IRC § 501(c)(3); § 501(c)(10) (domestic fraternal society)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a81_55s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-81(55)S
Sales Tax
November 27, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810910A

On September 10, 1981 a Petition for Advisory Opinion was received from New York State
Grange Patron of Husbandry, 100 Grange Place, Cortland, New York 13045.
The issue raised is whether or not the New York State Grange and its subordinate Granges
are exempt from the payment of State and local sales tax on meals and rooms purchased in
conjunction with their meetings and other functions.
The New York State Grange was established as a non-profit corporation by a special act of
the Legislature in 1872. Its activities include the holding of meetings at which attending delegates
and members carry on the business of the organization. The Grange arranges and pays for certain
rooms for its officers. Various lunches and dinners are also scheduled at these meetings for delegates
and members. The Grange pays for these meals out of the receipts it obtains from ticket sales to
members.
Section 1105(d)(i) of the Tax Law imposes a tax on "The receipt 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 . . . ."
Section 1105(e) of the Tax Law imposes a tax on "The rent for every occupancy of a room
or rooms in a hotel in this state, . . . ."
Section 527.9(d)(4) of the Sales and Use Tax Regulations states that "Organizations
determined to be exempt under section 1116(a)(4) . . . of the Tax Law" are exempt from the tax
imposed on hotel occupancy.
Section 1116(a)(4) of the Tax Law exempts from sales and use tax any sale to and any use
or occupancy by:
"(4) Any corporation, association . . . organized and operated exclusively for religious,
charitable, scientific, testing for public safety, literacy or educational purposes, . . . , no part
of the net earnings of which inures to the benefit of any private shareholder or individual,
. . . ;"
This section was modeled after section 501(c)(3) of the Internal Revenue Code and contains
identical wording. Although section 501(c) of the Internal Revenue Code contains twenty-two
paragraphs which provide income tax exemption to different types of organizations, only those

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-81(55)S
Sales Tax
November 27, 1981

organizations which meet the requirements of paragraph three of section 501(c) qualify for sales tax
exemption pursuant to section 1116(a)(4) of the Tax Law.
The Federal exemption received by the New York State Grange Patrons of Husbandry and
its subordinate units is not granted under section 501(c)(3) of the Internal Revenue Code, as
charitable or educational organizations, but rather under section 501(c)(10) as a domestic fraternal
society. The promotion of fraternal and social purposes are not among those objectives specified in
section 1116(a)(4) of the Tax Law for which sales tax exemption is granted.
Accordingly, since the New York State Grange and its subordinate Granges do not qualify
for sales tax exemption pursuant to section 1116(a)(4), their purchases of restaurant meals and
rentals of hotel rooms are subject to State and local sales tax.

DATED: November 10, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau