Are dues paid to a homeowners association's community center exempt from New York's club dues tax?

Plain-English summary

Community Center of Smallwood, Inc. is a membership organization built around the residential community of Smallwood, New York. To join, a person must own a home in Smallwood, own a share of the organization's stock, and pay annual dues; its social and athletic facilities are available only to those owners and their guests. The organization asked whether its dues escape New York's club dues tax under the specific exemption for homeowners associations.

New York's dues tax generally reaches dues and initiation fees paid to social or athletic clubs, but it carves out an exemption for a "homeowners association" -- defined as an association (including a cooperative housing or apartment corporation) whose membership is made up exclusively of owners or residents of homes within a defined geographical area (like a housing development or subdivision), and which operates social or athletic facilities in that area for those owners or residents. Because Community Center of Smallwood's membership is limited exclusively to homeowners within the defined Smallwood area, and its facilities serve only those owners and their guests, it fits the homeowners association definition precisely. As a result, the dues its members pay aren't subject to sales tax at all.

What this means for you

Homeowners associations, community organizations, and similar residential membership groups

If your organization's membership is limited exclusively to owners or residents of homes in a defined geographic area, and your social or athletic facilities serve only those owners/residents (and their guests), your dues can qualify for New York's homeowners-association exemption from the club dues tax -- regardless of how much you charge or that membership requires owning stock in the organization.

Community associations weighing whether to open facilities to outsiders

Keeping membership and facility access limited to actual homeowners within the defined area is central to this exemption -- opening membership or facility use more broadly to non-owners could jeopardize the homeowners-association classification.

Accountants and tax professionals

This is a clean, narrow application of Tax Law § 1105(f)(2)(ii)(C)'s two-part homeowners-association test (membership limited to owners/residents in a defined area; facilities operated in that area for those owners/residents) -- useful shorthand for any community-association dues question.

Common questions

Q: What makes an organization a "homeowners association" for New York's club dues tax exemption?
A: Its membership must be made up exclusively of owners or residents of homes within a defined geographical area (like a subdivision or housing development), and it must operate its social or athletic facilities in that area for those owners or residents.

Q: Does requiring members to own stock in the organization affect the exemption?
A: No -- this ruling found stock ownership alongside home ownership in the community didn't prevent the organization from qualifying as a homeowners association.

Q: Can guests use a homeowners association's facilities without affecting the exemption?
A: Based on this ruling, allowing owners' guests to use the facilities didn't disqualify the exemption, since the underlying membership and facility-use structure still centered on the community's homeowners.

Q: Does this ruling apply to my community association's dues?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. Your organization's own membership and facility-use rules would need their own analysis.

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_68s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(68)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S970818A

On August 18, 1997, a Petition for Advisory Opinion was received from
Community Center of Smallwood, Inc., Box #56, Smallwood, New York 12778.
The issue raised by Petitioner, Community Center of Smallwood, Inc., is
whether its organization's dues are excluded from sales tax under the provisions
of Section 1105(f)(2)(ii)(C) of the Tax Law as dues paid to a homeowners
association.
Petitioner submits the following facts.
Petitioner was formed for the purpose of cultivating and promoting a
friendly spirit of cooperation and the development of the social and recreational
interests of the members of the community.
Conditions of membership in
Petitioner's organization are that the member own a home in Smallwood, own a
share of Petitioner's stock, and pay annual dues to remain in good standing.
Petitioner's social and athletic facilities are for use by owners and their
guests only.
Tax Law
Section 1105(f)(2)(ii) of the Tax Law provides, in part:
Dues and initiation fees paid to the following shall not be
subject to the tax imposed by this paragraph:
*

*

*

(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.

-2­
TSB-A-97(68)S
Sales Tax

Opinion
In this case, Petitioner's membership consists exclusively of owners
or residents of residential dwelling units within a defined geographical area
(Smallwood, New York). Petitioner's social and athletic facilities are within
the area mentioned above and may only be used by homeowners and their guests.
Petitioner, therefore, qualifies as a homeowners association for purposes of
Section 1105(f)(2)(ii)(C) of the Tax Law. Accordingly, the dues paid by members
of the Petitioner are not subject to sales tax.

DATED: October 28, 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.