Must a health and fitness center collect sales tax on membership dues when members have no control, no proprietary interest, and there is no exclusivity?

Plain-English summary

Plaza Athletic Club, Inc. runs a health and fitness center in Rochester — Nautilus, racquetball, aerobics, weights, a swimming pool and saunas — with memberships sold for all functions or individually. It asked whether it must collect sales tax on membership dues.

The Department held the membership charges are not taxable dues, because the center is not a "social or athletic club."

• The dues tax applies only to a "social or athletic club." Section § 1105(f)(2) taxes the dues paid to a social or athletic club (where an active annual member's dues, excluding the initiation fee, exceed ten dollars per year).
• What makes something a "club" is member control or ownership — not the facilities. Under 20 NYCRR § 527.11(b)(5), the significant factors are whether the membership controls the social or athletic activities, tournaments, dances, elections, committees, the selection of members, or management, or holds a proprietary interest. The regulation adds that a business is not a club merely because it charges for the use of facilities (even by season pass sold first-come, first-served), restricts size to the physical capacity of the facility, uses the word "club" as marketing, or runs activities controlled solely by management.
• Here, none of the club factors were present. The members do not participate in management decisions, do not select other members, have no proprietary interest in the organization, and do not control the social or athletic activities — and there is no exclusivity of membership. So the center is not a social or athletic club, and its membership charges are not "dues" subject to tax.

What this means for you

Calling your business a "club" doesn't make its fees taxable dues. New York taxes dues paid to genuine social or athletic clubs — organizations the members actually run or own. A commercial gym, fitness center, or pool that simply sells access to its facilities is generally not such a club, even if "club" is in its name.

The test is who controls and who owns. Ask whether the members elect leadership, pick new members, sit on committees, or hold an ownership stake. If instead the business owner controls everything and just sells memberships to whoever pays, the fees are ordinary charges for using the facility — and, on these facts, not taxable dues.

Watch for separately stated taxable items. This opinion is about dues. A facility can still owe tax on other charges — for example, rentals of equipment or lockers, or sales of tangible personal property — analyzed under their own Tax Law sections. (See the companion swim-club opinion TSB-A-83(42)S, where the club's dues were not taxable but its separate chaise-lounge and locker rentals were.)

Common questions

Q: We run a commercial gym and call it a "club." Are our membership fees taxable?
A: Not on facts like these. If members don't control the operation and have no ownership interest, and membership isn't exclusive, you're not a "social or athletic club," so the fees aren't taxable dues under § 1105(f)(2).

Q: What actually makes an organization a taxable "club"?
A: Member control or ownership — members electing leadership, choosing members, running activities or committees, or holding a proprietary interest. Also, exclusivity of membership can point to club status even without member control.

Q: Does selling only annual or seasonal passes make us a club?
A: No. Charging for facility use on an annual or seasonal basis — even if a pass is the only way to buy — doesn't make you a club, so long as passes are sold first-come, first-served.

Citations and references

Statutes and regulations:

• Tax Law § 1105(f)(2) — tax on dues paid to a social or athletic club
• 20 NYCRR § 527.11(b)(5) — definition of "club or organization" and the factors distinguishing a club from a business that merely charges for facilities

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1983.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a83_43s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-83(43)S
Sales Tax
October 24, 1983

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S830812A

On August 12, 1983 a Petition for Advisory Opinion was received from Plaza Athletic Club,
Inc., 50 Chestnut Street, Rochester, New York 14604.
The issue raised is whether Petitioner is required to collect sales tax on membership dues.
Petitioner operates a health and fitness center consisting of Nautilus, racquetball, aerobics,
weights, swimming pool and saunas. Memberships can be purchased for all functions or purchased
on an individual basis.
The members of the organization do not participate in management decisions, do not select
other members, and neither have a proprietary interest in the organization nor control social or
athletic activities.
Section 1105(f)(2) of the Tax Law 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 . . . . "
Section 527.11(b)(5) of the Sales and Use Tax Regulations provides as follows:
(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.
(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;

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-83(43)S
Sales Tax
October 24, 1983

(d)

offers tournaments, leagues and social activities which are controlled solely by the
management.

Inasmuch as the organizational structure of Petitioner's business operation does not allow for
membership control of social or athletic activities, tournaments, dances, elections, committees,
participation in the selection of members or management of the club, and since there is no evidence
of possession by the members of a proprietary interest in the organization, or of exclusivity with
respect to membership, Petitioner does not constitute a social or athletic club within the meaning of
section 1105(f)(2) of the Tax Law. Accordingly, the membership charges do not constitute "dues"
subject to tax.

DATED: October 13, 1983

s/FRANK J. PUCCIA
Director
Technical Services Bureau