Must a national fraternity's parent organization collect sales tax when it sells pins, cards, and supplies to its chapters and members?

Plain-English summary

Tau Delta Phi Fraternity's parent organization (headquartered in New York) intends to buy tangible personal property from vendors — membership ID cards, pins, pamphlets, jewelry, emblem and chapter supplies, manuals, ritual equipment, chapter certificates — and resell it to its subordinate chapters and individual members. It asked whether it must collect tax on those sales.

The Department applied the ordinary resale rules (Tax Law § 1101(b)(4)(i); Reg. § 526.6):

• Sales to members — taxable; buy for resale. When the parent sells items like ID cards, pins, certificates, and pamphlets to individual members, those are retail sales. The parent may buy the items tax-free for resale and must collect sales tax from the members who buy them.
• Sales to chapters — same treatment. When the parent sells items to chapters (which use them or pass them to members with their membership/pledge fees), the parent likewise buys for resale without tax and must collect tax from the chapters that buy them.
• Free (or minimal-charge) giveaways — use tax on the parent. Where the parent gives items to chapters or members without charge, or for a minimal charge, that isn't a resale — under Reg. § 526.6(c)(4)(i) property given away for promotion is a retail sale to the parent, so the parent owes compensating use tax on those items under Tax Law § 1110.

What this means for you

Membership and fraternal organizations

If your national/parent body sells regalia and supplies to chapters or members, treat those as retail sales: give your supplier a resale certificate, then collect and remit sales tax on what you sell downstream. But anything you give away free (or for a token charge) to chapters or members is not a resale — you're the consumer and owe use tax on those items. Track which items are sold versus given away; they're taxed differently.

The line between resale and giveaway

A genuine sale (even to your own chapters) lets you buy for resale and shifts the tax to your buyer. A giveaway — items handed out with a membership/pledge fee at no separate charge — makes you the taxable end user, owing use tax on your cost.

Accountants and tax professionals

Standard resale analysis under § 1101(b)(4)(i) and Reg. § 526.6(c)(1): sales to chapters/members are taxable retail sales bought for resale. Promotional giveaways fall under Reg. § 526.6(c)(4)(i) — a retail sale to the giver — so § 1110 use tax applies to items distributed free or for a minimal charge.

Common questions

Q: Does the parent organization collect tax when it sells pins and cards to its chapters?
A: Yes. Those are retail sales. The parent buys the items tax-free for resale and must collect sales tax from the chapters or members who purchase them.

Q: Can the parent buy the items tax-free?
A: Yes, for items it will resell — it can purchase them for resale without paying sales tax and then collects tax on the resale.

Q: What about items given to members for free with their dues?
A: Those aren't resales. The parent is the consumer and owes compensating use tax under § 1110 on items it gives away free or for a minimal charge.

Q: Can another taxpayer rely on this opinion?
A: No. An advisory opinion binds the Department only as to the petitioner and the facts described; another taxpayer with different facts cannot rely on it.

Citations and references

Statutes and authorities:

• Tax Law § 1101(b)(4)(i) (definition of retail sale; resale exclusion)
• Tax Law § 1110 (compensating use tax)
• Sales and Use Tax Regulations § 526.6 (retail sale; § 526.6(c)(1) resale exclusion; § 526.6(c)(4)(i) property given away for promotion is a retail sale to the purchaser)

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_62s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (62) S
Sales Tax
August 14, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S920414A

On April 14, 1992 a Petition for Advisory Opinion was received from Tau Delta Phi
Fraternity, Inc., P.O. Box 4169, Great Neck, New York 10027-4169.
The issue raised by Petitioner, Tau Delta Phi Fraternity, Inc. is whether the parent
organization of a national fraternity is required to collect tax from its subordinate chapters when it
sells them tangible personal property.
A national fraternity has its parent organization headquartered in New York State. The parent
organization intends to purchase tangible personal property from various vendors and then resell
such tangible personal property to the chapters and individual members for their use.
Items to be purchased by the parent organization and resold to the individual members or
chapters include membership certificate cards, pins, pamphlets, jewelry, emblem supplies, chapter
supplies, manuals, ritual equipment and chapter certificates.
When individual members join the fraternity chapters, they are charged a flat membership
fee and receive a small membership I.D. card, pin, certificate and pamphlet. These items are
incidental to the pledge process and represent a minimal, incidental portion of the pledge fee. A
pledge is able to refuse to accept these items, but the pledge fee will not be reduced thereby. If
individual members quit or are suspended, several of the aforementioned items must be returned to
the organization. If a chapter's charter were revoked, several of the chapter's items must be returned
to the parent organization.
Section 1101(b)(4)(i) of the Tax Law defines a retail sale as "[A] sale of tangible personal
property to any person for any purpose, other than (A) for resale as such. . "
Section 526.6 of the Sales and Use Tax Regulations provides in part that:
(a) The term retail sale or sale at retail means the sale of tangible property to
any person for any purpose, except as specifically excluded.
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(c) Resale exclusion. (1) Where a person, in the course of his business operations,
purchases tangible personal property or services which he intends to sell, either in the
form in which purchased, or as a component part of other property or services, the
property or services which he has purchased will be considered as purchased for
resale, and therefore not subject to tax until he has transferred the property to his
customer.
TP-9 (9/88)

-2­
TSB-A-92 (62) S
Sales Tax
August 14, 1992

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(4) (i) Tangible personal property which is purchased and given away without charge,
for promotion or advertising purposes is not purchased for resale. It is a retail sale to
the purchaser thereof, and is not a sale to the recipient of the property.
Accordingly, where Petitioner sells tangible personal property, such as I.D. cards, pins,
certificates and pamphlets, to individual members of fraternity chapters, such sales constitute a sale
at retail in accordance with the meaning and intent of Section 1101(b)(4)(i) of the Tax Law and
Section 526.6 of the Sales and Use Tax Regulations. Therefore Petitioner may purchase such items
for resale without the payment of sales tax and must collect the appropriate sales tax from the
individuals who purchase such items.
Similarly, where Petitioner sells such types of items to individual fraternity chapters who use
them for their own purposes or who give such items to their members without charge in connection
with the members' membership or pledge fees, Petitioner may purchase such items for resale without
the payment of sales tax and must collect the appropriate sales tax from the chapters who purchase
such items.
In instances where the Petitioner gives such items directly to chapters or members of chapters
without charge or for a minimal charge, Petitioner would be liable for the use tax on said items in
accordance with Section 1110 of the Tax Law.

DATED: August 14, 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.