Are a members-only Fire Island beach club's dues taxable as club dues, and are its furnished unit rentals taxable hotel occupancy?

Plain-English summary

Ocean Bay Park Hotel Owners, Inc., doing business as Ocean Watch Beach Club, is a members-only beach club on Fire Island. It asked two questions: (1) is it a social or athletic club whose dues and initiation fees are taxable under Tax Law § 1105(f)(2); and (2) does renting its units make it a hotel whose room occupancy is taxable under § 1105(e)?

The club has four one-story cabins and four two-story buildings (fully furnished single-family units), a pool, and beach access. It plans to sell up to about 1,000 memberships to the general public on a first-come, first-served basis, limited only by the physical size of the club. A membership (about $5,900 initiation plus roughly $230 annual dues) entitles the member to occupy a unit for at least seven nights a year for twenty years. Members have no proprietary interest, don't pick new members, and don't manage the club. At the start of a member's use period the club provides clean linens and towels, but no housekeeping/maid or food services, and it plans no social or athletic events.

The Department's answers:

• Issue 1 — not a social or athletic club (dues not taxed). Under § 1105(f)(2) and Regulation § 527.11(b)(5), an entity is a taxable club when members control activities/management or hold a proprietary interest. Here membership isn't exclusive (sold first-come, first-served, capped solely by facility size), members have no proprietary interest and no control. Following Brierwood Village, Inc. (TSB-A-89(6)S), the club is not a social or athletic club, so dues aren't taxable.
• Issue 2 — not a hotel (rentals not taxed). Under Regulation § 527.9(e)(5), a lessor of furnished single-family units rented for at least a week with no maid, food, or other common hotel services is not operating a hotel — and furnishing linens without changing them doesn't change that. So the unit rentals are rentals of real property, not taxable hotel occupancy under §§ 1101(c)(1) and 1105(e).

What this means for you

Club dues: control and proprietary interest are the test

Charging membership fees, restricting size to your facility's capacity, and calling yourself a "club" don't make you a taxable social or athletic club. What matters is whether members control the activities/management or hold a proprietary interest. Without those, dues generally aren't taxable.

Facility-size caps are allowed; other restrictions signal exclusivity

Limiting membership solely because of physical capacity is fine and doesn't make the club taxable. Other membership restrictions (geography, income, and the like) can be read as exclusivity, which points toward taxable-club status.

Furnished rentals can escape hotel tax

Renting furnished single-family units for a week or more with no maid, food, or planned-activity services is treated as a real-property rental, not taxable hotel occupancy. Providing linens is okay as long as you don't provide a changing service.

Accountants and tax professionals

This opinion pairs the Brierwood Village club-dues analysis with the § 527.9(e)(5) bungalow rule. Compare the companion opinion TSB-A-92(28)S (Kingbrook), which reaches the same club-dues result on similar facts.

Common questions

Q: Are the beach club's dues and initiation fees taxable?
A: No. Because members have no proprietary interest or control and membership is capped only by facility size, it isn't a taxable social or athletic club under § 1105(f)(2).

Q: Are the furnished-unit rentals taxable as hotel occupancy?
A: No. Renting furnished single-family units for at least a week with no maid/food/common hotel services is a real-property rental, not hotel occupancy.

Q: Does providing linens make it a hotel?
A: No. Furnishing linens without a changing service doesn't convert the rental into taxable hotel occupancy.

Q: What would have made it a taxable club?
A: Members controlling the club's activities/management or holding a proprietary interest, or restricting membership by something other than facility size.

Citations and references

Statutes, regulations, and authorities:

• Tax Law § 1105(f)(2) (tax on dues over ten dollars paid to a social or athletic club)
• Sales and Use Tax Regulations § 527.11(b)(5) (definition of club or organization; facility-size and marketing carve-outs; Example 18)
• Tax Law § 1105(e) (tax on hotel room occupancy)
• Tax Law § 1101(c)(1) (definition of hotel, including apartment hotel, motel, boarding house, or club)
• Sales and Use Tax Regulations § 527.9(e)(5) (bungalow/single-family furnished rentals of at least a week are not hotel occupancy)
• Brierwood Village, Inc., D/B/A Brierwood Golf & Country Club, Adv. Op. Comm. T&F, Feb. 13, 1989, TSB-A-89(6)S

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_24s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (24)S
Sales Tax
March 16, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S911211E

On December 11, 1991, a Petition for Advisory Opinion was received from Ocean Bay Park
Hotel Owners, Inc., D/B/A Ocean Watch Beach Club, 1 East Main Street, Bay Shore, New York
11706.
The issues raised by Petitioner, Ocean Bay Park Hotel Owners, Inc., D/B/A Ocean Watch
Beach Club, are as follows:

1. Whether Petitioner will be a social or athletic club within the meaning of Section
   1105(f)(2) of the Tax Law and whether dues and initiation fees paid by Petitioner's members will
   be subject to New York State and local sales tax.
2. Whether the business operations of Petitioner will fall within the definition of a hotel, as
   provided under Section 1101(c)(1) of the Tax Law, and thereby become subject to the imposition
   of New York State and local sales tax under Section 1105(e) of the Tax Law.
   Petitioner is a New York corporation which owns a beach club (the "club") located at Fire
   Island, New York that will be operated on a members-only basis. The club consists of four one-story
   cabins (the "cabins"), four two-story buildings (the "buildings"), a swimming pool and access to
   certain beachfront property. Presently, there are a total of four residential units in the cabins and a
   total of 40 residential units in the buildings. It is anticipated that Petitioner will expand certain units
   situated in the buildings which will reduce the total number of units in the buildings to 36.
   The cabins and the buildings are permanent structures constructed of sheetrock and wood.
   The units in the four cabins contain approximately 600 square of space and are divided into separate
   rooms, including two bedrooms, a living room, a kitchen and a bath facility The units in the
   buildings range in size from approximately 225 square feet to approximately 300 square feet and
   consist of either single rooms containing sleeping, kitchen and bath facilities or larger living space
   with separate bedroom, living room, kitchen and bath areas. All of the units have electrical power
   and plumbing and all fully furnished. Each unit at the club has a separate entrance way and has its
   own deck.
   Petitioner proposes to sell a maximum of approximately 1,000 private memberships in the
   club. Club memberships will be offered to the general public on a first-come, first-served basis. The
   size of the membership will be so limited solely because of the physical size of the club.
   Membership in the club will entitle a member to occupy a unit for minimum of seven nights a year
   ("annual use period") for a period of twenty years. The occupancy of each unit will be limited to
   asingle family. It is anticipated that the club will operate for approximately 26 weeks each year,

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commencing on or about May 1, 1992. In addition to a right to occupy a unit during an annual use
period, a club member will also have the right to use the club's outdoor swimming pool and beach
areas during such period.
Applicants for membership in the club will pay a one-time initiation fee of approximately
$5,900 and will also pay annual membership dues of approximately $230. The annual membership
dues may be increased by an amount not to exceed the prior year's percentage increase in the
consumer price index for all urban consumers, as reported by the U.S. Department of Labor, Bureau
of Labor Statistics. As a condition to membership in the club, each prospective member will be
required to enter into a written Membership Agreement which will set forth the members rights and
obligations with respect to the club.
Memberships in the club will be divided into three categories, based upon the following
seasonal designations: standard, prime and holiday. The annual use period for the purchaser of a
standard membership in the club will consist of weeks 18-20 and 36-43 of each year. The annual use
period for the purchaser of a prime membership in the club will consist of weeks 21-35 of each year,
exclusive of Memorial day, Fourth of July and Labor Day weeks. Finally, the annual use period for
the purchaser of a holiday membership will consist of all 26 weeks of anticipated operation of the
club, including weeks 21, 26 and 35 of each year.
Members will be entitled to reserve their annual use period each year by sending a written
request to the club therefore during the period commencing February 1 and ending thirty days prior
to the reservation date requested. All such reservations will be honored on a first-come, first-served
basis, subject to availability.
At the beginning of a members' annual use period, the club will furnish the member's unit
with clean linens and towels. However, during each period, no housekeeping or other maid services
will be provided to a member with respect to his unit. In addition, the club will not plan or conduct
any social or athletic events or other common activities for its members.
A member will be entitled to resell his membership in the club for an amount equal to his
initiation fee plus reasonable selling expenses. However, the club will not repurchase the
membership from the member, sell the membership for such member, locate a buyer for the member,
or provide a list of prospective buyers to such member.
Members of the club will not have any proprietary interest in the club and they will not
participate in either the selection of new members or management of the club. The management of
the club will not be obligated to accept opinions or suggestions of members regarding club policies
and/or rules.
The club has arranged with Interval International, Inc. ("Interval"), an exchange organization,
to make exchange services available to its members on an optional basis. Under this arrangement,
upon payment by a club member of all membership fees to Interval, such member will have the right
to exchange his annual use period at the club for equal time at another club or resort associated with
Interval.

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Section 1105(f)(2) of the Tax Law imposes a tax on "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. . . ."
Section 527.11(b)(5) of the Sales and Use Tax Regulations defines the term "club or
organization" as follows:
(5) Club or organization. (i) 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.
(ii) A "club or organization" does not exist merely because a business entity:
(a) charges for the use of facilities on an annual or seasonal basis even if an
annual or season pass is the only method of sale and provided such passes are sold
on a first-come, first-served basis.
(b) restricts the size of the membership solely because of the physical size of
the facility. Any other type of restriction may be viewed as an attempt at exclusivity.
(c) uses the word "club" or "member" as a marketing device.
(d) offers tournaments, leagues and social activities which are controlled
solely by the management.
*
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". However, a "club" owned by an individual which restricts its
membership only because of the physical capacity of its facilities is not a club or
organization.

In Brierwood Village, Inc., D/B/A Brierwood Golf & Country Club, Adv Op Comm T&F,
February 13, 1989, TSB-A-89(6)S, the Commissioner advised that inasmuch as (1) the membership
of Petitioner's club possess no proprietary rights therein and have no control over its activities or
management and (2) membership in the club is not exclusive, with members being appointed and
accepted from a waiting list maintained by Petitioner, the subject club is not a "social or athletic

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club" within the meaning of section 1105(f)(2) of the Tax Law. Annual membership "fees" or "dues"
are thus not subject to tax imposed under the statutory provision.
Section 1105(e) of the Tax Law imposes sales tax on the rent for every occupancy of a room
or rooms in a hotel in this state, except that the tax shall not be imposed upon (1) a permanent
resident, or (2) where the rent is not more than at the rate of two dollars per day.
Section 1101(c)(1) of the Tax Law defines the term "hotel" to mean:
(1) Hotel. A building or portion of it which is regularly used and kept open
as such for the lodging of guests. The term "hotel" includes an apartment hotel, a
motel, boarding house or club, whether or not meals are served.
Section 527.9(e)(5) of the Sales and Use Tax Regulations provides that:
A lessor of bungalows, who rents bungalows which are furnished living units
limited to a single-family occupancy, is not the operator of a hotel. Therefore, the
rents for the occupancy of such bungalows are not taxable, provided:
(i) no maid, food or other common hotel services, such as
entertainment or planned activities, are provided by the lessor; and
(ii) the rental is for at least one week.
The furnishing of linen by the lessor with the rental of a bungalow, without the
service of changing the linen, does not alter the nontaxable status of the rental
charges. (emphasis added)
Concerning issue 1, pursuant to Section 1105(f)(2) of the Tax Law, Section 527.11(b)(5) of
the Sales and Use Tax Regulations and Brierwood Village, Inc., supra, since membership will not
be exclusive, members will not possess proprietary interest in Petitioner and will not have control
over its activities or management, and membership will be restricted solely because of physical size
of the facilities, Petitioner will not be deemed a social and athletic club. Accordingly, dues paid by
members will not be subject to sales and use taxes.
Regarding issue 2, pursuant to Section 527.9(e)(5) of the Sales and Use Tax Regulations,
Petitioners rental of residential units in cabins and buildings to its members will constitute the rental
of real property and will not be deemed the occupancy of a hotel pursuant to Sections

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March 16, 1992
1101(c)(1) and 1105(e) of the Tax Law. Therefore, since such charges for the units will represent
charges for the rental of real property, such charges will not be subject to sales and use taxes.

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.