If a country club makes members buy bonds to fund capital improvements, are those bond payments taxable club dues?

Plain-English summary

Nassau Country Club, a not-for-profit corporation, decided to finance capital improvements to its facilities by issuing bonds to its own members rather than borrowing from a bank. Each full (golf and tennis) member had to buy a $1,000 non-interest-bearing bond (other members bought smaller bonds), and buying the bond was a condition of continued membership. The bonds pay no interest and are redeemed when the member leaves the club. The club asked whether these bond payments are taxable "dues."

The Department held that they are taxable dues.

• § 1105(f)(2) taxes "the dues paid to any social or athletic club in this state."
• § 1101(d)(6) defines dues to include "any assessment, irrespective of the purpose for which made."
• Regulation § 527.11(b)(2)(i), Example 4 is directly on point: a club that assesses each member $100 to build a new dining room — a capital improvement — is charging taxable dues, "regardless of the fact that the proceeds will be used for a capital improvement."
• Nassau is a "social or athletic club" under § 1101(d)(13) and the "club or organization" test in § 527.11(b)(5)(i).

Because the mandatory bonds function as an assessment tied to membership, they are dues, and the club must collect sales tax on them under § 1105(f)(2) — the non-interest, redeemable, capital-improvement character does not change the result. The Department cited Port Jervis Country Club, TSB-H-79(110)S (Sept. 28, 1979).

What this means for you

Calling it a "bond" doesn't avoid the dues tax

The label on the payment isn't what matters. Because members had to buy the bonds to stay in the club, the payments were an assessment — and the dues definition sweeps in any assessment, "irrespective of the purpose." A club can't convert taxable dues into a tax-free transaction by structuring a required payment as a redeemable, interest-free bond.

The purpose of the money is irrelevant

Clubs sometimes assume that money earmarked for building or renovating — a true capital investment — is different from ordinary operating dues. It isn't, for sales-tax purposes. The statute and Example 4 both say a capital-improvement assessment is still taxable dues.

Who this hits

This applies to social and athletic clubs (golf, tennis, country clubs, and the like) that levy mandatory member assessments, capital-call bonds, or initiation-type charges. If a payment is required to obtain or keep membership, treat it as potentially taxable dues and collect tax unless a specific exclusion applies.

Common questions

Q: Are mandatory member bonds taxable if the money funds construction?
A: Yes. Dues include "any assessment, irrespective of the purpose for which made," and a capital-improvement assessment is taxable dues (§ 1101(d)(6); Reg. § 527.11(b)(2)(i), Example 4).

Q: Does it matter that the bonds pay no interest and are refunded when the member leaves?
A: No. The Department treated the required bond purchase as an assessment/dues regardless of its redeemable, interest-free form.

Q: Would a truly voluntary contribution be different?
A: The opinion turns on the bonds being required for continued membership. A payment that is genuinely optional and not a condition of membership presents a different question; here the payment was mandatory, so it was dues.

Citations and references

Statutes and regulations:

• Tax Law § 1105(f)(2) — tax on dues paid to a social or athletic club
• Tax Law § 1101(d)(6) — definition of "dues" (includes any assessment, irrespective of purpose)
• Tax Law § 1101(d)(13) — definition of "social or athletic club"
• 20 NYCRR § 527.11(b)(2)(i) — dues include any assessment regardless of purpose (Example 4: capital-improvement assessment is taxable)
• 20 NYCRR § 527.11(b)(5)(i) — definition of "club or organization"

Cited authority:

• Port Jervis Country Club, Inc., Dec. St. Tx. Comm., Sept. 28, 1979, TSB-H-79(110)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a90_59s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-90(59)S
Sales Tax
December 19, 1990

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK

COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S901106A

On November 6, 1990, a Petition for Advisory Opinion was received from Nassau County
Club, St. Andrews Lane, Glen Cove, New York 11542.
The issue raised by the Petitioner, Nassau Country Club, is whether the issuance of bonds
to its members to finance capital improvements constitutes dues and, therefore, is subject to State
and local sales and use tax imposed under Articles 28 and 29 of the Tax Law.
Petitioner, a not-for-profit corporation, has issued a non-interest bearing bond in the amount
of one thousand dollars to each current full (golf and tennis) member. Other bonds, in lesser face
amounts, have been issued to all other members. Each member is required to purchase a bond as a
condition for continued membership in Petitioner.
The bonds are evidenced by certificates which have been issued to each member in
connection with the contribution actually made by them. The bonds will bear no interest, and will
be redeemed by Petitioner when the member terminates his or her membership for any reason (or
at such earlier time if Petitioner chooses). The proceeds of the bonds will be used for financing
capital improvements to Petitioner's facilities, and were issued in lieu of obtaining a loan from other
sources.
Section 1105(f)(2) of the Tax Law imposes a tax on "the dues paid to any social or athletic
club in this state."
Section 1101(d)(6) of the Tax Law defines "dues" as:
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.
Section 527.11(b)(2)(i) of the Sales and Use Tax Regulations provides, in pertinent part, the
following:
(2)

Dues. (i) The term dues includes:
(a)
(b)

any dues or membership fee;
any assessment, irrespective of the purpose for
which made; and

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TSB-A-90(59)S
Sales Tax
December 19, 1990

(c)

any charge for social or sports privileges or facilities.
*

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.
(emphasis added)

Further, Section 1101(d)(13) of the Tax Law defines the term "social or athletic club" as "any
club or organization of which a material purpose or activity is social or athletic."
Section 527.11(b)(5)(i) of the Sales and Use Tax Regulations provides that:
"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."
Petitioner is a social or athletic club as defined in Section 1101(d)(13) of the Tax Law and
Section 527.11(b)(5)(i) of the Sales and Use Tax Regulations and therefore is required to collect
sales tax on any dues paid to it in accordance with Section 1105(f)(2) of the Tax Law. The bonds
issued by it to its members for the purpose of financing capital improvements constitute dues upon
which sales tax must be collected in accordance with the meaning and intent of Section

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TSB-A-90(59)S
Sales Tax
December 19, 1990

1101(d)(6) of the Tax Law and Section 527.11(b)(2)(i) of the Sales and Use Tax Regulations. Port
Jervis Country Club, Inc., Dec St Tx Comm, September 28, 1979, TSB-H-79(110)S.

DATED: December 19, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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