Must a title-holding company that sells club-membership stock register as a vendor, and does the assessment statute of limitations run if it never filed sales-tax returns?

Plain-English summary

St. George Operating and Improvement Co. is a title-holding company that owns a golf course and clubhouse leased to the St. George Country Club for a nominal $6,000 a year. It has no employees and no other business; almost all its shareholders are club members. The club requires new members to buy stock and a bond in the company as a condition of joining. Members pay the company for the stock directly (with a separate check to the club for the sales tax). The company asked two follow-up questions to an earlier ruling: must it register as a vendor, and does the statute of limitations protect it for past uncollected tax?

Building on its earlier opinion to the same taxpayer, TSB-A-90(57)S, the Department held:

• The stock and bonds are taxable initiation fees. Required as a condition precedent to membership, they are initiation fees in the nature of dues under § 1105(f)(2) and the broad § 1101(d)(7) definition of "initiation fee" (which includes a payment "evidenced by ... a share of stock," regardless of who receives it).
• The company must register as a vendor. Because St. George directly received the members' payments for the securities, it is a "person required to collect tax" under § 1131(1) and 20 NYCRR § 526.11(a)(4) (recipient of club dues). So it must be a registered vendor.
• No statute of limitations protects it — it never filed. Section 1147(b) normally gives a three-year assessment window from the filing of a return. But because St. George failed to file the required returns, no time period limits assessment against it for the tax it never collected or remitted on the stock and bond sales.

The Department later issued a Modified Advisory Opinion to the same petitioner, TSB-A-91(17.1)S, which restated the required-stock holding and added that voluntary stock purchases (which reduce annual dues) are also taxable dues.

What this means for you

Whoever receives the taxable payment has to register and collect

St. George couldn't sidestep vendor registration by being a passive title-holding entity. Because it received the members' money for the taxable securities, the law made it a person required to collect the tax — and therefore a registered vendor. If your entity collects amounts that are taxable dues or initiation fees, expect a registration and collection duty.

Not filing returns removes the statute-of-limitations shield entirely

The three-year assessment limit in § 1147(b) only starts running when you file a return. A business that never registered and never filed has no limitations protection — the state can reach back with no time cap. Failing to file doesn't run out the clock; it stops the clock from ever starting.

Routing membership money through a separate stock company doesn't change the tax

Consistent with the companion opinions, structuring the required payments as stock and bonds in a separate title-holding corporation did not avoid dues treatment. The § 1101(d)(7) definition reaches payments evidenced by stock, "irrespective of the person or organization to whom it is paid."

Common questions

Q: Does a company selling required club-membership stock have to register as a vendor?
A: Yes. Because it directly receives the members' payments for the taxable securities, it is a person required to collect tax under § 1131 and § 526.11(a)(4), and must register.

Q: Can the statute of limitations bar assessment of the uncollected tax?
A: No. Section 1147(b)'s three-year limit runs from filing a return. With no returns filed, there is no time limit on assessment.

Q: Are the stock and bond purchases really taxable?
A: Yes — as initiation fees in the nature of dues under §§ 1105(f)(2) and 1101(d)(7). The modified opinion TSB-A-91(17.1)S also taxed voluntary, dues-reducing stock purchases.

Citations and references

Statutes, regulation, and related opinions:

• Tax Law § 1105(f)(2) — tax on social/athletic club dues and initiation fees over $10
• Tax Law § 1101(d)(7) — definition of "initiation fee," including payments evidenced by stock
• Tax Law § 1131(1) — persons required to collect tax; 20 NYCRR § 526.11(a)(4) — recipient of club dues
• Tax Law § 1147(b) — assessment limitations period (none where no return is filed)
• St. George Operating and Improvement Co., TSB-A-90(57)S (Dec. 24, 1990) and TSB-A-91(17.1)S (Apr. 29, 1991) — related opinions to the same petitioner

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_17s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (17) S
Sales Tax
January 28, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S901204A

On December 4, 1990, a Petition for Advisory Opinion was received from St. George
Operating and Improvement Co. Inc., PO Box AN, Stonybrook, New York 11790.
The issues raised by Petitioner, St. George Operating and Improvement Co., are whether
Petitioner is required to be a registered vendor in connection with the sale of certain stocks and
bonds and whether the statute of limitations set forth in Section 1147(b) of the Tax Law applies to
the sales of said securities, where such purchases are required to be made in connection with
obtaining membership in a club leasing property from Petitioner.
Petitioner owns a golf course, building and related facilities. Petitioner's property is leased
to the St. George Country Club Inc. (hereinafter the "club"). Petitioner is a title holding company.
It has no employees, it provides no services to the club nor has any other business activity.
Substantially all of the shareholders in Petitioner are members of the club. The non-member
shareholders are all former members. The club and Petitioner's directors and officers are members
of the club. The club pays Petitioner a minimal annual rental of $6,000.00.
The club requires all new members to buy shares of stock and a bond in Petitioner as a
condition precedent to membership. The stock and the sales tax are billed by the club. The members
execute separate checks, one made payable to Petitioner for the stock and one made payable to the
club for the sales tax due on such stock purchase. The members accounts receivable are credited on
the club's books upon receipt of the payments. The employees of the club maintain the stock transfer
and bond records for Petitioner. The amount collected by the club for the stock purchase is paid over
by the club to Petitioner. The sales tax collected by the club is retained by the club and reported on
their sales tax return as initiation fees. Petitioner records the stock payments in its capital account.
Sales tax has not been collected on the bond sales or reported as initiation fees in the club's
sales tax return. However, it is conceded that bonds required to be purchased as a condition
precedent to membership are taxable as initiation fees.
Section 1105(f)(2) of the Tax Law imposes sales tax upon:
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, and on the initiation fee
alone, regardless of the amount of dues, if such initiation fee is in excess of ten dollars,.
TP-9 (9/88)

-2­
TSB-A-91 (17) S
Sales Tax
January 28, 1991

Section 1101(d)(7) of the Tax Law defines an "initiation fee" as "[a]ny payment, contribution,
or loan required as a condition precedent to membership, whether or not such payment, contribution
or loan evidenced by a certificate of interest or indebtedness or share of stock, and irrespective of
the person or organization to whom it is paid, contributed or loaned."
Section 1131(1) of the Tax Law states, in part, that a "'[p]erson required to collect tax' or
',person required to collect any tax imposed by this article shall include:
every vendor of tangible
personal property or services; every recipient of amusement charges; and every operator of a hotel.
."
Section 526.11(a)(4) of the Sales and Use Tax Regulations provides in part
that:
Persons required to collect tax includes:
(4) Every person who is the recipient of dues from members of a social or athletic club,
organization or association.
Section 1147(b) of the Tax Law and Section 535.3 of the Sales and Use Tax Regulations
provide that in general the statute of limitation for assessment of tax is three years from the date of
the filing of a sales tax return. If a return has not been filed as required by the tax law, no time period
limits assessment.
Accordingly the stocks and bonds sold by Petitioner as condition precedent to membership
in the club are subject to the imposition of sales tax as initiation fees in the nature of dues in
accordance with Section 1105(f)(2) and 1101(d)(7) of the Tax Law. St. George Operating and
Improvement Co., Adv Op Comm T&F, December 24, 1990, TSB-A-90(57)S.
Since the Petitioner directly received the payment for the stocks and bonds from members
of the club, it was a person required to collect the sales tax due on said securities in accordance with
Section 1131 of the Tax Law and Section 526.11(a)(4) of the Sales and Use Tax Regulations.
Petitioner is therefore required to be a registered vendor. St. George Operating and Improvement
Co., supra.

-3­
TSB-A-91 (17) S
Sales Tax
January 28, 1991

Further, since Petitioner failed to file the required returns, pursuant to Section 1147(b) of the
Tax Law and Section 535.3 of the Sales and Use Tax Regulations no time period limits assessments
against Petitioner for taxes not collected and remitted by it on stock and bond sales. St. George
Operating and Improvement Co., supra.

DATED: January 28, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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