Is a country club member's voluntary contribution to a clubhouse renovation subject to the sales tax on club dues?

Plain-English summary

Joseph W. Burns, a Senior member of the Wykagyl Country Club in New Rochelle, asked whether his contribution to the club's $1.8 million "revitalization program" is subject to the sales tax on club dues under Tax Law § 1105(f)(2). The club funded the program by increasing the capital-contribution certificate, raising the initiation fee, and assessing non-certificate members. Under the club's by-laws, however, Senior members' dues and assessments are frozen, so the assessment did not apply to Burns — he chose to contribute anyway.

The Department drew a line between mandatory and voluntary payments:

• Mandatory assessments are taxable dues. "Dues" under § 1101(d)(6) includes any assessment, "irrespective of the purpose for which made." So non-voluntary capital contributions and assessments are taxable under § 1105(f)(2) — and an assessment is taxable as dues even when the money funds a capital improvement (20 NYCRR § 527.11(b)(2), Example 4: a $100 assessment to build a new dining room is taxable dues).
• Burns's contribution was voluntary. As a Senior member, his dues and assessments were frozen; the club's mandatory assessment did not apply to him, and the club had no legal right to pursue his payment. His membership and privileges were not threatened if he declined.
• A truly voluntary gift is not dues. The tax reaches "the effective call for a definite contribution" — a compulsory payment made to relieve the member from an enforceable demand — but not an "invited" contribution the club cannot legally collect (City Athletic Club v. United States; Garden City Golf Club v. Corwin; Pendennis v. United States). Burns's contribution was clearly voluntary, so it is not an assessment, dues, or initiation fee within § 1101(d) and is not taxable under § 1105(f)(2).

What this means for you

If you run a social or athletic club: Mandatory assessments are taxable dues — you can't avoid the § 1105(f)(2) tax by labeling a required payment a "capital contribution" or by earmarking it for a building project. If members must pay it, collect tax on it.

The test is enforceability, not the label or the purpose. What makes a payment taxable dues is that the club can effectively compel it — an assessment "calling on the membership to meet pro rata particular needs of the club." A payment the club has no legal right to pursue, that doesn't jeopardize membership if refused, is a voluntary contribution and isn't taxed.

Watch member categories. Here the member's frozen dues/assessment status (Senior membership) was decisive — because the assessment didn't legally apply to him, his payment was a gift, not dues. If your rules exempt a class of members from an assessment, contributions from that class may be non-taxable voluntary gifts.

Common questions

Q: We assessed all members to fund a renovation — is that taxable?
A: Yes, for members who must pay it. A mandatory assessment is taxable dues under § 1105(f)(2) even though it funds a capital improvement.

Q: A member who wasn't required to pay chipped in anyway. Is that taxable?
A: No. A truly voluntary contribution the club can't legally compel — where refusing wouldn't cost the member their membership or privileges — isn't dues or an initiation fee and isn't taxable.

Q: Does calling it a "capital contribution" instead of "dues" change the answer?
A: No. The label and the purpose don't control; "dues" includes any assessment irrespective of purpose. What matters is whether the payment is compulsory.

Citations and references

Statutes and regulation:

• Tax Law § 1105(f)(2) — tax on dues paid to a social or athletic club (over $10/year)
• Tax Law § 1101(d)(6) — "dues" includes any assessment, irrespective of purpose
• Tax Law § 1101(d)(7) — definition of "initiation fee"
• 20 NYCRR § 527.11(b)(2) — assessments taxable as dues, even when used for a capital improvement

Cases cited:

• City Athletic Club v. United States, 242 F.2d 43 (1957)
• Garden City Golf Club v. Corwin, 62 F.2d 246 (1932)
• Pendennis v. United States, 20 F. Supp. 758 (1937)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a89_21s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89 (21)S
Sales Tax
July 25, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S881214A

On December 14, 1988, we received a Petition for Advisory Opinion from Joseph W. Burns,
127 Oxford Road, New Rochelle, New York 10804.
The issues raised are whether supplemental capital contributions paid in installments by
members to a club are subject to sales tax pursuant to Section 1105(f)(2) of the Tax Law and in
particular whether Petitioner's voluntary supplemental capital contribution is subject to said tax.
Petitioner is a member of the Wykagyl Country Club located in New Rochelle, New York.
Me joined the Club as a Regular member in March 1946 and was granted Senior member status in
May 1980.
The Club launched a "revitalization program" designed to completely renovate, rejuvenate,
and reinvigorate the Club into a completely modern establishment. The club members voted and
approved a four-year $1,800,000 modernization program embracing replacement and improvement
projects from tee to green and from clubhouse to pool. Funding would be provided from a
combination of increasing the capital contribution certificate, increasing the initiation fee, and
assessing non-certificate holding members. This funding plan provides for all members, certificate
holders and non-certificate holders alike, to contribute to the revitalization program. The funding
package allows for an increase in the certificate by $4,500 (collected over four years), an increase
in the initiation fee to $7,500, and an assessment on non-certificate holding members.
The Club's by-laws provide that: "... for current regular members, their certificates will be
increased by $4,500, payable over four years. They will be billed $1,500 in February 1988 and
$1,000 in February '89, '90, '91 respectively." It has been the policy of the Club to refund the amount
of a member's capital contribution certificate when he resigns or dies.
Petitioner, on the other hand, is not a Regular member, but a Senior member. The Club's
policy toward Senior members is that all dues and assessments are frozen with respect to members
who have attained Senior status. Therefore, the increase in the capital certificate and the assessment
upon non-certificate holding members does not apply to those members who have attained Senior
status.
Section 1105(f)(2) of the Tax Law imposes a tax on "[t]he 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..."
TP-9 (9/88)

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TSB-A-89 (21)S
Sales Tax
July 25, 1989

Section 1101(d)(6) of the Tax Law defines dues as "[a]ny dues or membership fee including
any assessment, irrespective of the purpose for which made...".
Section 1101(d)(7) of the Tax Law defines initiation fee as "[a]ny 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."
Section 527.11(b)(2)(i)(b) of the Sales and Use Tax Regulations provides
that:
"(2) Dues. (i) The term dues includes:...
(b)

any assessment, irrespective of the purpose for which made; and...
Example 4:

A social club wishes to expand its clubhouse by
adding a new dining room to it. In order to finance the
construction, the club will assess each member $100.
The assessment is subject to tax as dues, regardless of
the fact that the proceeds will be used for a capital
improvement..."

Accordingly, non-voluntary capital contributions made by members to Wykagyl Country
Club constitute dues within the meaning and intent of Section 1101(d)(6) of the Tax Law and are
subject to tax when paid pursuant to Section 1105(f)(2) of the Tax Law.
The next issue to be considered is whether Petitioner's voluntary capital contribution made
to Wykagyl Country Club is subject to sales tax.
The New York State sales tax is based on the former Federal Excise Tax that was imposed
upon club dues pursuant to Section 4241 of the Internal Revenue Code of 1954 (Section 4241 was
repealed by Pub. L. 89-44 on June 21, 1965).Section 4241 states:
(a) Rate. - There is hereby imposed ­
(1) ... [a] tax equivalent to 20 percent of any amount paid as dues or membership fees
to any social, athletic, or sporting club or organization, if the dues or fees of an active
resident annual member are in excess of $10 per year ....
Section 4242(b) of the Internal Revenue Code of 1954 defines initiation fees as "...any
payment, contribution, or loan, required as a condition precedent to membership, whether or not any
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."

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TSB-A-89 (21)S
Sales Tax
July 25, 1989

Petitioner joined the club as a Regular member in March 1946, and was granted Senior
member status in May 1980. The Club's by-Laws provide:
"Assessment. (A) The Board of Governors shall have the power to levy assessments on
all members except Senior Regular members...".
The Board of Governors special Report to Members of the Wykagyl Country Club, dated
December 22, 1987, reminded all members that Senior members had "all dues and assessments
frozen at the time a member attains Senior status." Moreover, the report continued"...a group of
Senior members led by Joe Burns plans to launch a campaign for voluntary participation from this
group" in the funding for the revitalization program.
Therefore, Petitioner has voluntarily contributed to the revitalization
program. As a Senior member, his membership dues and assessments
are frozen.
"...an assessment, effectively calling on the membership to meet pro
rata particular needs of the club, whether technically enforceable
under state law or not, is the type of payment sought to be reached ....
It is the effective call for a definite contribution or payment from the
members which should be held to characterize as assessment, as
distinguished from a voluntary contribution or gift." City Athletic
Club v. United States, 242 F. 2d 43, 44 (1957).
"...obligatory payments like dues and lawful assessments are to be
taxed. But invited assessments or contributions, the collection of
which the club has no legal right to pursue, are not assessments
within the act." Garden City Golf Club v. Corwin, 62 F. 2d 246, 248
(1932).
The general rule is that a payment is not regarded as compulsory
unless made to relieve the person from a legally enforceable demand
by the party to whom the money is due, and, unless the payment here
sought to be taxed was to prevent the loss of membership, or some
other privilege, it would not be within the language of the act.
Pendennis v. United States, 20 F. Supp. 758, 759 (1937).
Petitioner who is a Senior member of the club was not subject to the assessment levied by
the Board of Governors in raising revenue for the club's revitalization program. The membership or
any other privilege entitled to Petitioner was not threatened if he refused to contribute. Moreover,
the club had no legal right to pursue such contribution. Petitioner's contribution was clearly
voluntary.

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TSB-A-89 (21)S
Sales Tax
July 25, 1989

Accordingly, Petitioner's voluntary contribution to the Wykagyl Country Club does not
constitute an initiation fee or dues within the meaning and intent of Section 1101(d) of the Tax Law.
Thus, Petitioner's voluntary contribution is not subject to sales tax pursuant to Section 1105(f)(2)
of the Tax Law.

DATED: July 25, 1989

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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