Are employer-owned country clubs open only to a company's employees 'social or athletic clubs' whose dues are taxable, even though the members have no ownership stake?

Plain-English summary

International Business Machines Corporation (IBM) owns and operates three country clubs in New York, each with a clubhouse, golf course, tennis, basketball and handball courts, and a swimming pool, and each hosting dinner dances. Membership is limited to past and current IBM employees and their families; a small annual fee ($2 in 1983) makes an employee a "yearly member" with reduced greens and court fees. IBM owns the property, sets all activities, and the members have no proprietary interest. IBM already collects tax on dances, meals, cart rentals and pro-shop sales, and asked whether the clubs are social or athletic clubs whose dues are taxable under § 1105(f)(2).

The Department held the clubs are social or athletic clubs, and their dues are taxable.

• Restriction = exclusivity = a "club or organization." A "club or organization" is an entity of persons associated for a common objective; membership control, member participation, or a proprietary interest are factors, but no single one is required (20 NYCRR 527.11(b)(5)). A club/organization does not exist merely because a business restricts membership to fit the facility's size — but "any other type of restriction may be viewed as an attempt at exclusivity." Example 18 treats even an individually owned club that restricts membership (by geography, income, race, religion, or any other means) as a club/organization. IBM's restriction of membership to its employees makes each club a club/organization.
• Social or athletic. A social club arranges dances/dinners/functions for social interrelationship; an athletic club has as a material purpose the practice or participation in sports (527.11(b)(6)–(7)). IBM's clubs provide both, so each is a "social or athletic club."
• Ownership/control doesn't save it. That IBM owns the clubs, controls activities, and members lack any proprietary interest does not change the result.
• What counts as dues, and the $10 trigger. "Dues" includes any membership fee, any assessment, and any charge for social or sports privileges or facilities (§ 1101(d)(6)). So members' charges for the golf course, pool and tennis are dues. Under § 1105(f)(2), if an active annual member's dues exceed $10 per year, the tax applies and is paid by all members on all their dues — even members paying $10 or less (Example 1). And a charge a member pays only on electing to use a facility (e.g., the golf course) is still dues (Example 5).

What this means for you

An employer-run recreation club is usually a taxable "club or organization." You don't need member ownership or member-run governance. Limiting membership to your employees is itself a restriction that signals exclusivity — enough to make the club a taxable social or athletic club when it offers social and sports facilities.

Almost every member charge is "dues." New York defines dues broadly: annual fees, assessments, and per-use charges for golf, tennis, or the pool all count. Structuring a fee as "pay only if you play" doesn't take it out of dues.

The $10 threshold is all-or-nothing. If even one active annual member's dues top $10 a year, tax applies to every member's dues — including those who pay less. Practically, that means the club must collect dues tax across the board.

Common questions

Q: Our company runs a golf/pool club only for employees. Members don't own it and we run everything. Are dues taxable?
A: Yes. Restricting membership to employees makes it a club/organization, and offering social and athletic facilities makes it a social or athletic club. Employer ownership and control don't exempt it.

Q: We charge separately for golf and tennis instead of bundling them into dues. Does that help?
A: No. Charges for social or sports privileges and facilities are "dues," even if a member pays only when using the facility.

Q: Most members pay only a token fee. Are their dues still taxed?
A: Yes, if any active annual member's dues exceed $10 per year, all members' dues are taxable — including the token payers.

Citations and references

Statutes:

• Tax Law § 1105(f)(2) — tax on dues paid to a social or athletic club where an active annual member's dues exceed $10/year; then all members pay on all dues
• Tax Law § 1101(d)(6) — "dues" includes any membership fee, any assessment, and charges for social or sports privileges or facilities

Regulation:

• 20 NYCRR 527.11 — defines club/organization, social club, and athletic club; restriction of membership beyond facility size may indicate exclusivity (Example 18); per-use facility charges are dues (Example 5); the $10 trigger taxes all members (Example 1)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a85_9s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85(9)S
Sales Tax
May 20, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S831116A

On November 16, 1983 a Petition for Advisory Opinion was received from International
Business Machines Corporation, Old Orchard Road, Armonk, New York 10504.
The issue raised is whether IBM Country Clubs are social or athletic clubs within the
meaning and intent of Section 1105(f)(2) of the Tax Law.
Petitioner owns and operates three country clubs in New York State. Each club has a club
house with conference rooms, golf course, tennis, basketball and handball courts and a swimming
pool. Each club also conducts dinner dances. The clubs collect sales tax on admission charges for
dances, the price of meals, golf cart rentals and pro-shop sales. Sales tax is also added to the fees
charged for the use of athletic facilities, such as the golf course, the swimming pool, and the tennis
courts.
Membership and use of the club facilities is limited to past and current employees of IBM
and their families. Upon payment of an annual fee employees can become "yearly members," which
status entitles them to reduced green fees and tennis court rental charges. In 1983 this membership
fee was two dollars.
All clubs are located on Petitioners property, the nature of activities held at the clubs is
determined solely by Petitioner, and club members have no proprietary interest in the clubs.
Section 527.11(b)(5) of the sales and use tax regulations defines the phrase "club or
organization" as:
(i)". . . 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, or 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:
. . .

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

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

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TSB-A-85(9)S
Sales Tax
May 20, 1985

(b) restricts the size of the membership solely because of the physical size of the
facility. Any other typeof restriction may be viewed as an attempt at exclusivity;
. . .
Example 18: A club owned by an individual which attempts to restrict its
membership by geographic area, income, race, religion, or any other means is a club
or organization. . . ."
Sales and Use Tax Regulations Section 527.11(b) further defines:
"(6) Social Club. A social club is any club or organization which has a material
purpose or activity of arranging periodic dances, dinners, meetings or other functions
affording its members an opportunity of congregating for social interrelationship.
(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."
Inasmuch as each IBM Country Club restricts its membership to employees of the IBM
Corporation, the same constitutes a "club or organization" within the meaning of the statute. Since
each country club provides both entertainment and sports facilities it is a "social or athletic club."
Section 1101(d) of the Tax Law defines
"(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."
It follows from the foregoing that all of the charges made by Petitioner's clubs for its
members' use of social or sports privileges and facilities constitute "dues" within the meaning of the
law.
Section 1105(f) of the Tax Law imposes a tax on "(2) The dues paid to any social or
athletic club in this state if the dues of an active annual member . . . are in excess of
ten dollars per year, . . .. Where the tax on dues applies to any . . . social or athletic
club, the tax shall be paid by all members thereof . . . regardless of the amount of
their dues, and shall be paid on all dues . . . ."
Sales and use tax regulations section 527.11 provides the following interpretation:
(a) "Imposition. (3) . . .

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TSB-A-85(9)S
Sales Tax
May 20, 1985

Example 1: A social club maintains two types of memberships. Full memberships
are $15 per year and limited memberships are $5 per year. Since the dues paid by the
full members are in excess of $10 per year, all members' dues are taxable even
though some are not more than $10.
(b) Definitions. (2) Dues. (i) . . .
Example 5: A social club collects $10 per year from each of its members as regular
dues. Members are entitled to use the clubhouse facilities without payment of an
additional charge. However, members who wish to use the golf course may do so
only upon payment of an additional charge. Since the golf course is a social or
athletic club facility, any charge made by the club to a member for the use of the
course constitutes dues. The fact that such charges are made upon the members'
election to use the course is immaterial."
Accordingly, if any member of an IBM Country Club is charged for "dues" in excess of ten
dollars per year, then all "dues" payments to the club are taxable.

DATED: April 30, 1985

FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.