Are membership dues, an initiation fee, and an annual assessment charged by a private yacht club subject to New York's club dues tax?

Plain-English summary

Smithtown Bay Yacht Club is a closed-membership organization capped at 150 members, promoting pleasure boating and seamanship on a marina with 112 boat slips for boats ranging from 23 to 35 feet. Its members own the underlying property. The club is member-run through an elected Board of Governors and specific committees, including a Membership Committee (new members must be proposed in writing by four current members and reviewed by the Board) and an Entertainment Committee that runs all club entertainment. The clubhouse includes a restaurant and bar open to members only until midnight. Dues include $300 toward operations plus a separate $200 annual assessment funding capital improvements being paid off over 20 years, and there's a $600 initiation fee -- membership money can also be used to buy food and drink at the clubhouse between Memorial Day and Labor Day, apart from special events like Steak and Chicken Barbecues. The club asked whether its dues are subject to New York's club dues tax.

The Department found the club checks every box for a taxable "social club." First, it's a genuine "club or organization" under the regulations: membership controls the club through elected officers, committees made up of members, a formal new-member application and review process, and members' proprietary interest in the underlying property. Second, it's specifically a "social club" because a material purpose of the organization is giving members the opportunity to congregate for social interrelationship -- demonstrated by the restaurant/bar available to members, the Constitution's provision for special functions like the barbecues, and the dedicated Entertainment Committee. Since the club's initiation fee, dues, and assessment all individually exceed the statute's $10 threshold, all of these charges -- the $600 initiation fee, the $300 dues, and the $200 capital assessment -- are subject to New York's sales tax on social/athletic club dues.

What this means for you

Yacht clubs, country clubs, and similar membership organizations with dining/social facilities

If your club has a member-run governance structure, a dedicated committee overseeing entertainment or social functions, and a clubhouse restaurant/bar or regular organized social gatherings, expect your dues, initiation fees, and special assessments to all be treated as taxable club dues -- regardless of how the charges are labeled (dues, assessment, capital-improvement fee) or what they're specifically earmarked to fund.

Clubs deciding how to structure fees to minimize tax exposure

Splitting a charge into "dues" and a separate "assessment" for capital improvements doesn't avoid the tax -- the statute reaches "any dues or membership fee including any assessment, irrespective of the purpose for which made." All amounts charged to members are pulled into the tax base once the club qualifies as social or athletic.

Accountants and tax professionals

This ruling and its same-day companion, TSB-A-97(80)S (a boating club found NOT to be a social/athletic club), together illustrate the key factual dividing line under 20 NYCRR § 527.11(b): a clubhouse with dining/bar facilities plus a dedicated committee for organizing social functions tips a club into taxable "social club" status, while a club limited to facilitating members' own recreational activity without that infrastructure does not.

Common questions

Q: Are all forms of club charges (dues, initiation fees, special assessments) taxed the same way?
A: Yes -- Tax Law § 1101(d)(6) defines "dues" broadly to include any membership fee or assessment regardless of its specific purpose, so a capital-improvement assessment is taxed the same as ordinary annual dues once the club qualifies as social or athletic.

Q: What made this yacht club different from the boating club found non-taxable in the companion ruling?
A: The yacht club has a clubhouse restaurant/bar serving members, a dedicated Entertainment Committee, and organized recurring social functions (barbecues) -- all of which the non-taxable boating club lacked.

Q: Does member ownership of the underlying property affect the tax analysis?
A: Not directly -- the key factors are the club's organizational structure (member control, committees, formal admission process) and whether a material purpose is social or athletic activity, not who owns the real estate.

Q: Does this ruling apply to my club's dues structure?
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. Whether your club is a "social or athletic club" depends on your own facilities and activities.

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_81s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(81)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S970715B

On July 15, 1997, a Petition for Advisory Opinion was received from
Smithtown Bay Yacht Club, Inc., P.O. Box 562, Smithtown, New York 11787.
The issue raised by Petitioner, Smithtown Bay Yacht Club, Inc., is whether
dues charged to the club membership are subject to sales tax.
Petitioner submits the following facts.
Petitioner is a closed/limited membership corporation.
The object of
Petitioner's club, as stated in its Constitution and By-Laws, is to promote
pleasure boating in all its forms and the science of seamanship and navigation,
to further better boating in local waters, and to provide and maintain a suitable
club house and anchorage for the use and recreation of its members. Petitioner’s
membership is limited to 150 members and is closed to the public. Petitioner's
members own the property where the marina and building are built. The marina
contains 112 boat slips, and members' boats range from 23' to 35' in length, and
from 8' to 13'3" in width.
Petitioner's clubhouse includes a restaurant and bar
which serves members only and remains open until midnight.
Petitioner's Constitution provides for officers and a Board of Governors
to run the club.
The officers and Board of Governors are elected by club
members.
Article VI of Petitioner's Constitution, entitled "Committees," provides
for various committees to be set up with specific functions to operate the club,
made up of the members of the club. Among the committees established are the
Membership Committee (consisting of the Board of Governors) and the Entertainment
Committee. Section 5 of such article provides that the Entertainment Committee
will provide and take charge of all entertainment given by the club with the
exception of Special Affairs as approved by the Board of Governors.
Article IX of the Constitution provides that new members must be proposed
in writing by four current members. A new member's application must be submitted
to the Secretary of the club ten days prior to the meeting of the Board of
Governors, and afterwards the application is given to the Membership Committee
for review.
Article XII of the Constitution, entitled "Fees and Dues," Section 4,
provides:
All members will be assessed a prescribed amount as stipulated in
the By-Laws each year, payable on the 1st of November each year.
This money may be used to buy food and drink at the Club House
during the period between Memorial Day through Labor Day, excluding
food served at Special Affairs and Entertainment functions held
during this period (i.e., Steak Barbecue, Chicken Barbecue).

-2­
TSB-A-97(81)S
Sales Tax

The initiation fee for Petitioner's club is $600.00. The amount of the
club dues is $300.00 per member plus a $200.00 assessment charged annually. The
$300.00 goes toward the costs of operations. The $200.00 assessment charges are
based on the capital improvements made to the club facilities which are being
paid off over a twenty year period.
Applicable Law and Regulations
Section 1101(d)(6) of the Tax Law defines dues as, "[a]ny dues or
membership fee including any assessment, irrespective of the purpose for which
made, and any charges for social or sports privileges or facilities, . . . "
Section 1101(d)(13) of the Tax Law defines social or athletic club as,
"[a]ny club or organization of which a material purpose or activity is social or
athletic."
Section 1105(f)(2) of the Tax Law provides, in part:
(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, . . .
Section 527.11 (b) of the Sales and Use Tax Regulations provides, in part:
Definitions.
mean:

As used in this section, the following terms shall

*

*

*

(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:

-3­
TSB-A-97(81)S
Sales Tax

(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.
(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. (i) 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.
Opinion
Petitioner is formally organized with a Board of Governors, individual
officers and specific committees which are organized to provide various functions
on behalf of the club membership, such as the Membership Committee (consisting
of the Board of Governors) and the Entertainment Committee. The committees are
composed of club members.
New members must be proposed in writing by four
current members. A new member's application must be submitted to the Secretary
of the Club ten days prior to the meeting of the Board of Governors, and
afterwards the application is given to the Membership Committee for review. The
Entertainment Committee is in charge of all entertainment given by the club, with
a few exceptions. This is a club organized and operated by the club's membership.
Accordingly, Petitioner is a club as defined in Section 527.11(b)(5) of the Sales
and Use Tax Regulations.
Petitioner also meets the qualifications of a social club as defined in
Section 527.11(b)(6) of the Sales and Use Tax Regulations. As one of its stated
purposes, Petitioner provides its membership the opportunity to congregate at the
club house for food and drink during the period between Memorial Day and Labor
Day.
Petitioner's Constitution provides for special functions such as the
Chicken Barbeque and the Steak Barbeque, and establishes an Entertainment
Committee to provide entertainment for club members.
A material purpose,
therefore, of Petitioner is to give its members opportunities for social
activities.

-4­
TSB-A-97(81)S
Sales Tax

The initiation fee to join Petitioner's club, along with its dues and
assessment, are in excess of ten dollars per year.
Accordingly, Petitioner is a social or athletic club for purposes of
Section 1105(f)(2)(i) of the Tax Law and the charges to its club members are
subject to sales tax. (See Section 1101(d)(6) of the Tax Law).

DATED: December 18, 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.