Are dues paid to a private beach club association that's limited to residents of a specific housing development exempt from sales tax as a homeowners association?

Plain-English summary

Oakwood Beach Association, Inc. is a membership corporation that owns a private beach and park area in Baldwin Harbor, Nassau County. It was created in 1961 to hold title to beach land dedicated for community use under the original subdivision deeds for the "Oakwood at Baldwin" development, and both deeds restrict use of the property to residents of that specific development (and their families). The association has run the beach club since 1964, funded almost entirely by member dues ($675/year currently) and assessments, with membership -- and one share of stock -- available equally to any of the roughly 660 homes in the development. Facilities include a swimming pool, kiddie pool, basketball hoop, volleyball court, table tennis, card tables, and picnic areas, open seasonally from mid-June through Labor Day.

New York taxes dues paid to social or athletic clubs, but effective December 1, 1995, a new exclusion carved out homeowners associations: an association whose membership is exclusively owners or residents of dwelling units in a defined geographical area (like a housing development), and which operates social or athletic facilities in that area for those owners/residents, is not subject to the club-dues tax at all. The Department found Oakwood's facts fit this exclusion precisely -- its beach club serves only the residents of one defined development, its facilities are located in that development, and membership is tied to residency there. As a result, dues and initiation fees paid to Oakwood are no longer subject to State and local sales tax as of December 1, 1995.

What this means for you

Homeowners associations, community, and beach/pool club organizations

If your association's membership is limited to owners or residents of a specific defined development or subdivision, and you operate recreational or social facilities in that area for those owners/residents, your dues likely qualify for the homeowners association exclusion enacted effective December 1, 1995 -- a complete exemption, not just a reduced rate.

Community associations formed to hold deed-restricted common land

The deed restrictions here (limiting use to the development's residents, with an association's bylaws governing membership) were central to establishing that this is a genuine homeowners association rather than an open-to-the-public private club -- keep your organizing documents and deed restrictions on hand to document eligibility.

Accountants and tax professionals

This ruling is useful shorthand for the December 1995 homeowners association exclusion's practical application: check that (1) membership is exclusively tied to ownership/residency in a defined geographic area, and (2) the association's facilities serve that same area's owners/residents, even if not exclusively (the statute allows non-exclusive use).

Common questions

Q: Does the homeowners association exclusion require the club to be free or nonprofit?
A: No -- the exclusion turns on membership being limited to owners/residents of a defined geographic area and the facilities being located there for their use, not on the fee structure or corporate form.

Q: What if the club serves both residents and some outside guests?
A: The statute allows facilities to be used by owners/residents on a non-exclusive basis; here, Oakwood derives only a small portion of revenue from non-resident guest charges, which didn't affect the outcome.

Q: Can another homeowners or community association rely on this ruling?
A: No. This advisory opinion binds the Department only as to Oakwood Beach Association, Inc. and the specific deed restrictions, membership rules, and facilities described.

Citations and references

Statutes and regulations:

• Tax Law § 1105(f)(2)(i) (tax on social or athletic club dues)
• Tax Law § 1105(f)(2)(ii)(C) (homeowners association exclusion, effective December 1, 1995)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_03s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(3)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S961105B

On November 5, 1996, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Oakwood Beach Association, Inc., c/o Henry E.
Green, President, 1010 Woodoak Drive, Baldwin, NY 11510.
The issue raised by Petitioner, Oakwood Beach Association, Inc., is whether
the dues and initiation fees paid by members of the association as of December
1, 1995, are exempt from sales tax pursuant to Section 1105(f)(2)(ii) of the Tax
Law.
Petitioner submits the following facts as the basis for this Advisory
Opinion.
Petitioner is a membership corporation which owns a private beach and park
area located in Baldwin Harbor in Nassau County, Long Island, New York.
Petitioner was incorporated in New York State on October 23, 1961, for the
purpose of taking title to a parcel of beach land that was dedicated for
community usage as part of the development plans filed with the Nassau County
Clerk by Strow & Green Associates and Waterview at Merrick, Inc. Petitioner
submitted copies of the two deeds by which Strow & Green Associates and Waterview
at Merrick, Inc. conveyed the property to Petitioner.
Both deeds contain somewhat similar terminology restricting the usage of
the deeded property. The Strow & Green Associates deed states that the premises
are "to be used and maintained for the purposes of a private beach and park area
for the use and benefit of all the residents and owners of lots shown on Maps of
Oakwood at Baldwin, Section 1 and Addition No. 1." The Waterview at Merrick,
Inc. deed states that the premises are "to be used and maintained for the sole
and specific use and benefit of all of the residents and their respective
families on the Maps of Oakwood at Baldwin, Sections 1 through 14, both
inclusive, and Oakwood at Baldwin, Addition No. 1, for recreational and bathing
beach purposes only."
The Waterview at Merrick, Inc. deed further states, "[t]he party of the
second part covenants, by the acceptance of this deed, that the premises
hereinabove described shall be perpetually used as a beach and for civic and
recreational purposes for all residents of the development known as 'Oakwood at
Baldwin', consisting of persons, including members of their immediate families,
now or hereafter owning property or residing in homes now or hereafter located
in lands contained in 'Maps of Oakwood at Baldwin, Sections 1 to 14, both
inclusive, and Oakwood at Baldwin, Addition No. 1,' which maps were and are to
be filed in the office of the Clerk of the County of Nassau."

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Both deeds contain the following identical paragraph:
The rights of all such residents, as set forth above, shall be as
fixed and determined by rules, regulations and by-laws of OAKWOOD
BEACH ASSOCIATION, INC., the same to be applicable equally to all
such residents; and membership therein shall be equally available to
all such residents.
Petitioner completed construction of the beach club facilities in 1963,
which became available for use by its members in 1964. From that year forward
to the present time, Petitioner has continually operated as a private beach club
available equally to all residents in the geographical area described in the
deeds. The beach club facility is located in this geographical area, Oakwood at
Baldwin, and membership in Petitioner is limited to residents of this
geographical area.
There are presently approximately 660 homes located in the geographical
area. The operations of the beach club are funded almost exclusively by dues and
assessments paid equally by all active annual members. A very small percentage
of the beach club's revenues are received from charges to non-resident guests and
interest from such funds as may be available for temporary investment from time
to time.
In order to be a member of Petitioner, an eligible resident must pay an
initiation fee, or meet whatever the then current membership requirements may be
as set forth in Petitioner's rules, regulations or by-laws. Such member then
receives a certificate indicating that he or she owns one share of stock in
Petitioner. All members who are current on their dues payments have equal voting
rights.
The physical facilities of Petitioner consist of a large swimming pool and
a kiddie pool and a building used by a food concessionaire which also has
restrooms, a first aid room which is also used by lifeguards and other employees
of Petitioner, and a storage area for beach chairs, lounges, etc. There are also
basketball hoops, a volleyball court, a table tennis table, card tables and
chairs, lounge chairs, a sand box for small children, and a covered area with
picnic tables. Petitioner is open on a seasonal basis from mid-June through
Labor Day each year, seven days a week, from 9:00 A.M. to 7:00 P.M.
Members' dues are charged and paid on an annual basis, and dues are
required to be fully paid prior to the opening date of the beach club each year.
Current dues are $675 per year.
Effective December 1, 1995, Section 1105(f) of the Tax Law was amended to
provide an exclusion from sales tax, under certain conditions, for dues and
initiation fees paid to homeowners associations that provide social or athletic
facilities to members.
Section 1105(f)(2) of the Tax Law imposes sales tax on:

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(i) 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. Where the tax on dues applies to any
such social or athletic club, the tax shall be paid by all members,
other than honorary members, thereof regardless of the amount of
their dues, and shall be paid on all dues or initiation fees for a
period commencing on or after August first, nineteen hundred
sixty-five. In the case of a life membership, the tax shall be upon
the amount paid as life membership dues, however, a life member,
other than an honorary member, paying an annual sales tax, based on
the dues of an active annual member, shall continue such payments
until the total amount of such tax paid is equal to the amount of
tax that would have otherwise been due had the tax been imposed at
the time such paid life membership has been purchased and at the
then applicable rate.
(ii) Dues and initiation fees paid to the following shall not be
subject to the tax imposed by this paragraph:
(A) A fraternal society, order or association operating under the
lodge system;
(B) Any fraternal
university;

association

of

students

of

a

college

or

(C) A homeowners association. For purposes of this subparagraph,
a homeowners association is an association (including a cooperative
housing or apartment corporation) (I) the membership of which is
comprised exclusively of owners or residents of residential dwelling
units, including owners of units in a condominium, and including
shareholders in a cooperative housing or apartment corporation,
where such units are located in a defined geographical area such as
a housing development or subdivision and (II) which operates social
or athletic facilities located in such area for use (whether or not
exclusive) by such owners or residents. (emphasis added)
In the instant case, Petitioner operates a beach club facility consisting
of a large swimming pool, a kiddie pool, a basketball hoop, a volleyball court,
a table tennis table and a card table and chairs for the approximately 660
homeowners in the development known as Oakwood at Baldwin.
The beach club
facility is located in this development and membership in Petitioner is limited
to residents of this development.
Members' dues are charged and paid on an
annual basis and dues are required to be fully paid prior to the opening date of
the beach club each year.
The current dues are $675 per year.
Effective
December 1, 1995, Section 1105(f) of the Tax Law was amended to provide an
exclusion from sales tax, under certain conditions, for dues and initiation fees

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paid to homeowners associations that provide social or athletic facilities to
members. Accordingly, as of December 1, 1995, the dues and initiation fees paid
by members for membership in Petitioner are no longer subject to State and local
sales taxes.

DATED: January 30, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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