Is a nonprofit venture-capital networking group a tax-exempt organization, and are its member dues and the meeting rooms it rents subject to New York sales tax?

Plain-English summary

The Western New York Venture Association, Inc., is a not-for-profit corporation (federally a 501(c)(6) business league) whose sole purpose is to encourage capital formation in Western New York. It holds monthly meetings where a few presenters pitch business opportunities to potential investors; its only revenue is annual dues from members and corporate sponsors, and its only expenses are meeting-room rentals and supplies. It asked three questions.

1. Is it a § 1116 exempt organization? No. Being a 501(c)(6) business league for federal income-tax purposes does not make an organization exempt under New York Tax Law § 1116(a)(4), which requires being organized and operated exclusively for religious, charitable, scientific, testing-for-public-safety, literary, or educational purposes. The Association's certificate of incorporation and by-laws describe a purpose of promoting venture-capital activity and economic development — not one of the § 1116(a)(4) purposes — so it does not qualify.

2. Are its dues taxable? No. Tax Law § 1105(f)(2) taxes dues paid to a social or athletic club. Under Regulation § 527.11, a social club exists to arrange dances, dinners, or functions for social interrelationship, and an athletic club exists to promote sports or athletics. The Association is neither, so receipts from its dues to members and sponsors are not subject to the § 1105(f)(2) tax.

3. Are the meeting rooms it rents taxable? No. When the Association rents rooms for its meetings, it occupies them as a "place of assembly" — rooms with no sleeping accommodations used for business or educational meetings. Under Regulation § 527.9(e), that occupancy is not subject to the hotel-occupancy tax (§ 1105(e)), even if the room is located in a hotel or similar establishment.

What this means for you

Federal 501(c) status is not New York § 1116 status

A common trap: an organization that is tax-exempt for federal income-tax purposes assumes it is automatically exempt from New York sales tax. It isn't. New York's § 1116(a)(4) exemption is narrower — it demands being organized and operated exclusively for a listed purpose (charitable, scientific, educational, etc.). A 501(c)(6) business league (chamber-of-commerce-type group) generally does not meet that test, because promoting business or an industry isn't one of the § 1116(a)(4) purposes.

But losing exempt status didn't create tax here

Being denied § 1116 status matters for things like the group's purchases, but it didn't make its dues or meeting-room rentals taxable — because those weren't taxable in the first place. The dues escape § 1105(f)(2) because the group isn't a social or athletic club, and the rooms escape § 1105(e) because they're places of assembly. It's a useful reminder that "not exempt" is not the same as "taxable."

Networking and trade groups: dues usually aren't "club" dues

The § 1105(f)(2) dues tax is aimed at social and athletic clubs, not professional, business, or civic associations. If your group's material purpose is business networking, education, or advocacy — not arranging social functions or athletics — your member dues generally aren't taxable club dues.

Renting a meeting room is a place-of-assembly occupancy

Booking a hotel or conference room for a meeting (no sleeping) is a nontaxable place-of-assembly occupancy under Regulation § 527.9(e), even though the room is in a hotel. The hotel-occupancy tax is aimed at sleeping-room rentals, not meeting space.

Common questions

Q: Does 501(c)(6) status make the group exempt from New York sales tax?
A: No. Section 1116(a)(4) requires being organized and operated exclusively for charitable, scientific, educational, and similar purposes; a business league promoting venture capital doesn't qualify.

Q: Are the group's member and sponsor dues taxable?
A: No. Because it isn't a social or athletic club under Regulation § 527.11, its dues aren't taxable under § 1105(f)(2).

Q: Are the meeting rooms it rents subject to hotel-occupancy tax?
A: No. Rooms rented for meetings, with no sleeping accommodations, are nontaxable places of assembly under Regulation § 527.9(e), even in a hotel.

Q: If it's not a § 1116 exempt organization, why isn't it paying tax?
A: Because the specific things it does — collecting dues and renting meeting rooms — aren't taxable events. "Not exempt" doesn't automatically mean "taxable."

Citations and references

Statutes, regulations, and authorities:

• Tax Law § 1116(a)(4) (exemption limited to organizations organized and operated exclusively for religious, charitable, scientific, testing-for-public-safety, literary, or educational purposes)
• Tax Law § 1105(f)(2) (tax on dues paid to a social or athletic club)
• Tax Law § 1105(e) (tax on hotel room occupancy)
• Sales and Use Tax Regulations § 527.11 (definitions of social club and athletic club)
• Sales and Use Tax Regulations § 527.9(e) (nontaxable occupancy; place of assembly with no sleeping accommodations)
• Internal Revenue Code § 501(c)(6) (business leagues, chambers of commerce, boards of trade)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_22s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-92 (22)S
Sales Tax
March 16, 1992

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S911217B

On December 17, 1991 a Petition for Advisory Opinion was received from Western New
York Venture Association, Inc., 424 Main Street, Suite 1133, Buffalo, New York 14202.
The issues raised by Petitioner, Western New York Venture Association, Inc., are:
1.) Whether Petitioner qualifies as an entity exempt from the imposition of sales tax under
the provisions of Section 1116 of the Tax Law.
2.) Whether Petitioner is liable for collecting sales tax on the receipts from dues charged to
members and sponsors.
3.) Whether Petitioner is liable for paying sales tax on charges to Petitioner for meeting room
rentals.
Petitioner is a not-for-profit corporation organized under Section 402 of the New York Not­
For-Profit Corporation Law. For internal revenue purposes it is an exempt organization pursuant to
Section 501(c)(6) of the Internal Revenue Code. Petitioner's sole purpose is to encourage and
stimulate capital formation in Western New York. Petitioner conducts monthly meetings for its
membership during which approximately three presenters discuss a business opportunity for which
they are trying to raise capital. The formal segment of the meeting lasts approximately one hour. The
meetings are organized by the Board of Directors and one of the officers serves as Master of
Ceremonies for the meeting. The meetings are held at the offices of the Western New York Chamber
of Commerce.
Petitioner's Certificate of Incorporation states, in part, as follows:

2. Nonprofit purpose. The Corporation is formed exclusively for purposes for which
   a corporation may be formed under the Not-For-Profit Corporation Law and not for
   pecuniary profit or financial gain. No part of the assets, income, or profit of the
   Corporation shall be distributable to, or inure to the benefit of its members, directors,
   or officers except to the extent permitted under the Not-For-Profit Corporation Law.
   ...
3. Purposes. The general purpose of this corporation shall be to encourage the
   development and growth of venture capital activities including:
   (a) Providing the means for members to exchange experience and opinions through
   discussions and studies of all the aspects and functions of venture capital and its
   management and the development of growth oriented businesses.

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Sales Tax
March 16, 1992
(b) To encourage economic development in Western New York by providing a forum
at which owners of existing businesses may meet with potential investors. The
Corporation shall have no interest in any such business or investment and shall not
receive remuneration or profit therefrom.
...
Petitioner's By-Laws states, in part, as follows:
Article 1
Purposes
1.01 The general purposes of this corporation shall be to encourage the development
and growth of venture capital activities, including:
(a.) Providing the means for members to exchange experience and opinions through
discussions and studies of all the aspects and functions of venture capital and its
management and the development of growth oriented businesses. . . .
Petitioner's sole source of revenue is annual dues collected from individual members and
corporate sponsors. Petitioner's expenses consist of meeting room rentals and purchase of various
supplies. No wages are paid nor does any benefit inure to any member or sponsor. Upon dissolution,
all remaining assets will be distributed to a scientific educational, or charitable organization
qualifying under Section 501(c)(6) or 501(c)(3) of the Internal Revenue Code.
Section 501 of the Internal Revenue Code states, in part, as follows:
(a) Exemption From Taxation.--An organization described in subsection (c). . .shall
be exempt from taxation under this subtitle unless such exemption is denied under
section 502 or 503.
(c) List of Exempt Organizations.--The following organizations are referred to in
subsection (a):
(6) Business leagues, chambers of commerce,. . .boards of trade,. . .
not organized for profit and no part of the net earnings of which
inures to the benefit of any private shareholder or individual.
Section 1116 of the Tax Law states, in part, as follows:
Exempt organizations.-- (a) Except as otherwise provided in this section, any sale or
amusement charge by or to any of the following or any use or occupancy by any of
the following shall not be subject to the sales and compensating use taxes imposed
under this article:

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Sales Tax
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(4) Any corporation, association, trust or community chest, fund or foundation
organized and operated exclusively for religious, charitable, scientific, testing for
public safety, literary or educational purposes. . .no part of the net earnings of which
inures to the benefit of any private shareholder or individual, no substantial part of
the activities of which is carrying on propaganda, or otherwise attempting to
influence legislation. . ., and which does not participate in, or intervene in. . .any
political campaign on behalf of any candidate for public office;
Section 1105 of the Tax Law states, in part, as follows:
Imposition of sales tax.--. . .there is hereby imposed and there shall be paid a tax of
four percent upon:
(e) The rent for every occupancy of a room or rooms in a hotel. .
(f)(2) The dues paid to any social or athletic club. . .
Section 527.9 of the Sales and Use Tax Regulations states, in part, as follows:
Hotel occupancy. [Tax Law, 1105(e)] (a) Imposition. A sales tax is imposed on every
occupancy of any room or rooms in a hotel, motel or similar establishment. . .
(b) Definitions. As used in this section, the following terms shall mean:
(5) Room. Any room or rooms of any kind in any part or portion of a hotel, which is
available or let out for any purpose other than as a place of assembly. . . .
(6) Place of assembly. A room or suite of rooms containing no sleeping
accommodations and intended to be occupied and used by persons for purposes other
than as sleeping and living quarters such as education, recreation, amusement or
business or religious meetings. . . .
(e) Nontaxable occupancy. The following occupancies are not subject to tax on hotel
occupancy:
(1) a room or suite of rooms containing no sleeping facilities and used solely as a
place of assembly (see paragraph [b][6] of this
section);. . .
Section 527.11 of the Sales and Use Tax Regulations states, in part, as follows:
Dues. [Tax Law, §1105(f)(2)]
(b) Definitions. As used in this section, the following terms shall mean:

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Sales Tax
March 16, 1992
(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. (1) 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. . . .
Although Petitioner, Western New York Venture Association, Inc. may qualify as an exempt
organization under Section 501(c)(6) of the Internal Revenue Code, this does not mean that
Petitioner qualifies as an exempt organization as defined in Section 1116(a)(4) of the Tax Law.
To the contrary, Petitioner's general purposes as stated in Petitioner's Certificate of
Incorporation and in its By-Laws indicates that the corporation was not organized and operated
exclusively for any of the purposes enumerated in Section 1116(a)(4) of the Tax Law. Accordingly,
Petitioner does not qualify for the exemption provided under Section 1116(a)(4) of the Tax Law.
Because Petitioner is not considered to be a social or athletic club, as described under Section
527.11 of the Sales and Use Tax Regulations, receipts from its annual charges to members and
sponsors will not be subject to the sales tax imposed under Section 1105(f)(2) of the Tax Law.
Furthermore, since Petitioner rents rooms as meeting places, Petitioner is considered to be
occupying such rooms for purposes of a place of assembly. Accordingly, under the provisions of
Section 527.9(e) of the Sales and Use Tax Regulations Petitioner is not subject to sales tax on the
rental charges for the room, even though such room may be located on the premises of a hotel, motel
or similar establishment.

DATED: March 16, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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