Are annual assessments a homeowners' association charges its members subject to New York's tax on dues paid to a social or athletic club?

Plain-English summary

Fox Wander West Neighborhood Association, Inc. (Latham, New York) — a not-for-profit neighborhood association in the "Luther Forest Subdivision #1," where membership is automatic on buying a home or business — asked whether the annual assessments it charges members are subject to New York's tax on dues paid to a social or athletic club. The Association owns and maintains common green areas and a trail system for the recreation of members, their families, guests, and tenants; the assessments fund maintenance, taxes, insurance, administration, and a contingency fund.

The answer: yes for the State tax — the Association is a "social club," so assessments over $10 are taxable dues. (Saratoga County didn't impose the local version.)

• § 1105(f)(2) taxes dues over $10 a year paid to a social or athletic club. § 1101(d)(6) defines "dues" to include any assessment, whatever its purpose; § 1101(d)(13) defines a social or athletic club as one a material purpose or activity of which is social or athletic; and 20 NYCRR 527.11(b)(4) defines a "club or organization" as any entity of persons associated for a common objective or activities.
• The Association is clearly a "club or organization," and the annual assessments are "dues." The decisive question was whether a material purpose is social.
• Relying on Merrick Estates Civic Association, Inc. v. State Tax Commission, 65 A.D.2d 669 (1978) — which applied § 1105(f)(2) to a homeowners' association maintaining a beach and pool — the Department found the common green areas serve the same recreational, social function: places where members may gather for conversation or joint recreation. So a material purpose is social, making the Association a social club.
• Limited non-member use doesn't change it. Even if some non-members (e.g., under the anticipated trail lease to the Luther Forest Community Association) could use facilities, that alone wouldn't defeat social-club status, so long as the facilities aren't open without limit to the general public (citing Epstein v. United States, 357 F.2d 928).
• Result: assessments over $10/year are subject to the State tax under § 1105(f)(2). Saratoga County elected not to impose the parallel local tax it is authorized to levy under Article 29.

What this means for you

A homeowners' association can be a taxable "social club." If your HOA maintains common recreational areas — parks, trails, pools, beaches — where members gather, New York may treat it as a social club, making the annual assessments taxable dues over the $10 threshold.

"Assessment" counts as "dues." Calling a charge an assessment for maintenance, taxes, or reserves doesn't take it out of the dues tax; § 1101(d)(6) sweeps in any assessment regardless of purpose.

Check the local piece separately. The State dues tax applied here, but the parallel county tax did not, because Saratoga County hadn't adopted it. Whether the local tax applies depends on your county's own election — confirm it for your location.

Common questions

Q: Our HOA just maintains common green space and trails — is that really a "social club"?
A: The Department said yes. Under Merrick Estates, common recreational areas where members can gather serve a social purpose, so a material purpose of the association is social — enough to make it a social club whose assessments are taxable dues.

Q: Does letting some non-members use the trails avoid the tax?
A: No. Limited non-member use doesn't defeat social-club status, as long as the facilities aren't open without limit to the general public.

Q: Is every dollar of assessment taxed?
A: The State dues tax applies when the dues (assessments) exceed $10 per year. Also check whether your county has adopted the parallel local tax — Saratoga County had not.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(f)(2) — taxes dues over $10/year paid to a social or athletic club
• Tax Law § 1101(d)(6) — defines "dues" to include any assessment, regardless of purpose
• Tax Law § 1101(d)(13) — defines "social or athletic club" (a material purpose or activity is social or athletic)
• 20 NYCRR 527.11(b)(4) — defines "club or organization"
• Merrick Estates Civic Association, Inc. v. State Tax Commission, 65 A.D.2d 669 (1978) — applied the dues tax to a homeowners' association maintaining recreational facilities
• Epstein v. United States, 357 F.2d 928 — limited non-member use doesn't defeat social-club status if facilities aren't open without limit to the public

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1980.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h80_156s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-80 (156)S
Sales Tax
August 18, 1980

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION # S800514B

On May 14, 1980, a Petition for Advisory Opinion was received from the Fox Wander West
Neighborhood Association,.Inc., 1202 Troy-Schenectady Road, Latham, NY 12110.
The issue raised is whether or not certain assessments paid to a homeowners' association are
subject to New York State and Saratoga County taxes on dues paid to a social or athletic club
imposed under Article 28, and authorized under Article 29, of the Tax Law, respectively.
Petitioner, Fox Wander West Neighborhood Association, Inc., is a neighborhood association
formed as a Type A corporation under the Not-For-Profit Corporation Law. Membership is
automatic upon the purchase of a home or place of business within a real estate development known
as "Luther Forest Subdivision #1." Members have the right to vote annually for the Board of
Directors, which conducts the affairs of the Association. The Association owns and maintains
certain common green areas, as well as a trail system. The trails are maintained for the use of
residents, their families, guests and tenants, although it is anticipated that the right to use the trails
will be leased to the Luther Forest Community Association, described as "the umbrella
organization." The common areas are maintained for the use of the members, their families, guests
and tenants, for recreation and related activities. It is anticipated that in the event pools, club houses
and recreational facilities are built they will be profit making ventures, available on a fee basis to
residents and the general public. An annual assessment is imposed upon the members to pay for
maintenance of the common areas and the trails, for taxes, administrative costs, insurance and for
the maintenance of a contingency fund.
Section 1105(f)(2) of the Tax Law imposes a tax on "...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 .... "The term "dues" is defined in section 1101(d)(6) of the Tax Law as including
"...any assessment, irrespective of the purpose for which made .... "Section 1101(d)(13) of the Tax
Law defines the term "social or athletic club" to mean any "... club or organization of which a
material purpose or activity is social or athletic." The term "club or organization" is defined in the
Sales and Use Tax Regulations as ". . .any entity which is composed of persons associated for a
common objective or common activities." 20 NYCRR 527.11(b)(4) Since Petitioner fits the
definition of club or organization, and since the annual assessments clearly constitute "dues" within
the meaning of the Tax Law, the dispositive question is whether it is a social or athletic club or
organization; that is, whether a material purpose or activity of the club or organization is social or
athletic.
Section 1105(f)(2) has been held applicable to a homeowners' association as a "social club"
where the same maintained a beach, a swimming pool and related facilities. Merrick Estates Civic
Association, Inc. v. State Tax Commission,65 A.D.2d 669 (1978). In that case the transfer of home
ownership included the transfer of membership, members were obligated to pay pro rata shares of
the maintenance cost of the facilities, and use of the facilities was limited to association members.
The Court there relied on Federal judicial decisions construing the Federal statutory provision on
which section 1105(f)(2) was based, 26 U.S.C.A.4241.

JAMES H. TULLY., COMMISSIONER

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-H-80 (156)S
Sales Tax
August 18, 1980

The common green areas maintained by Petitioner are similar in function to the facilities
involved in the Merrick Estates case. In both instances there is a recreational facility maintained for
the use of the members of an organization where, whether by prearrangement or happenstance, such
members may meet together for conversation or joint recreation. Thus, Petitioner is a club or
organization one of the material purposes of which is social. It is therefore a social club or
organization and the annual assessments paid by the members constitute dues as described in Section
1105(f)(2) of the Tax Law.
Petitioner urges that the present situation differs from that in Merrick Estates because in
Merrick Estates the use of the facilities was limited to members only. The Offering Plan submitted
by Petitioner in support of its petition contains a copy of a Declaration of Covenants, Conditions,
Restrictions and Easements affecting the land conveyed to Petitioner. That Declaration provides in
Article II, section I that the common areas "...are not dedicated hereby for use by the general public,
but are dedicated for, the common use and enjoyment of the owners, and those delegated such use
pursuant to the terms of this Declaration." The only such delegation expressly contemplated, in
addition to that to family members, guests and tenants, is the leasing of the right to use the trails
maintained by Petitioner to the Luther Forest Community Association. Thus, while the trail system
may be made available for the use of certain non-members of the Association, the common areas are
reserved for the use of Association members, their families, guests and tenants, and in this regard
the state of facts herein is close to that in Merrick Estates.
It should be noted, further, that even if it were the case that to some limited extent non­
members were permitted to utilize the facilities maintained by the Association, such fact in itself
would not mandate a determination that the Association is not a social club. See in this regard
Epstein v. United States, 357 F.2d 928, wherein the Court held, in construing the Federal statute
referred to earlier, that an entity otherwise constituting a social club did not cease to be such simply
because its facilities were not strictly limited to its members,". . . it being sufficient that the facilities
were not open, without limit, to the general public."
Accordingly, assessments paid to Petitioner in accordance with the above would constitute
dues paid to a social club and, if in excess of ten dollars per year, would be subject to the State tax
imposed under section 1105(f)(2) of the Tax Law. Saratoga County, however, has elected not to
impose a tax similar to that imposed under section 1105(f)(2) of the Tax Law, although it is
authorized to do so under Article 29 of the Tax Law.

Dated: July 29, 1980

S/LOUIS ETLINGER
Deputy Director
Technical Services Bureau