When a country club bills its golf members a monthly assessment to pay for a capital improvement (like a new cart path), is that assessment subject to Texas sales tax — for both equity members (who've vested capital in the club) and non-equity members?

Plain-English summary

A nonprofit country club (referred to as "COUNTY CLUB") has two kinds of members: equity members, who've vested capital in the club (in one of several dollar tiers, across social, tennis, and golf membership types) and have voting rights, and non-equity members, who've never paid capital and have no voting rights. Both types pay monthly dues.

The club planned to bill all of its golf members — both equity and non-equity — an additional monthly fee to pay for a capital improvement project (installing a new concrete cart path to replace deteriorating paths). The club believed equity members might not owe sales tax on this capital assessment (reasoning it was more like a capital contribution than a service fee), while non-equity members would owe tax since they hold no equity.

The Comptroller rejected that distinction: the monthly capital improvement fee is taxable for both equity and non-equity members. The reasoning:

• Tex. Tax Code § 151.051(a) imposes sales tax on the sales price of a taxable item; § 151.010 defines taxable items to include taxable services.
• Tex. Tax Code § 151.007(e) specifically defines the taxable "sales price" of membership in a private club or organization to include "the dues, fees, and other assessments, including initiation fees, required for membership or a special privilege, status, or membership classification in the club or organization."
• A capital improvement assessment tied to a member's golf membership classification falls within that definition — there is no exception in the statute for capital-type assessments, and no exception based on whether the member holds equity in the club.

What this means for you

Private clubs and country clubs

Don't assume that framing a member charge as a "capital improvement assessment" (rather than ordinary dues) takes it outside the sales tax base. Under § 151.007(e), any dues, fees, or assessment required for membership or a membership classification is part of the taxable sales price of the membership — including capital assessments for facility improvements.

Equity vs. non-equity club members

Your equity status doesn't change the sales tax outcome on a club assessment tied to your membership — both equity and non-equity members owe tax on the same type of charge here.

Accountants and tax professionals

A useful, direct citation for the broad reach of § 151.007(e): "dues, fees, and other assessments" required for membership sweeps in capital improvement charges, and the equity/non-equity distinction the taxpayer proposed had no basis in the statute.

Common questions

Q: Is a country club's capital improvement assessment subject to Texas sales tax?
A: Yes, when it's billed as a fee or assessment required for a member's membership or membership classification, per Tex. Tax Code § 151.007(e).

Q: Does it matter whether the member is an equity member or a non-equity member?
A: No. Both are taxed the same way on this type of assessment.

Q: Can I rely on this letter for my own club's assessments?
A: No. This opinion is based on the facts presented, and other similar facts may provide a different result; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes:

• Tex. Tax Code § 151.051(a) (imposition of sales tax on the sales price of a taxable item)
• Tex. Tax Code § 151.010 (definition of taxable items, including taxable services)
• Tex. Tax Code § 151.007(e) (sales price of private club/organization membership includes dues, fees, and assessments required for membership or a membership classification)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200002046L

Original ruling text

February 14, 2000

FAX: **

RE: Tax On Capital Improvement

Dear **:

This is in response to your request for a ruling on the following fact
situation and questions:

COUNTY CLUB is a nonprofit corporation is owned by equity members. An equity
member is an individual who has vested $**, $**, or
$** capital into the c1ub and has voting rights. The amounts are
based on three different types of memberships. Those being social, tennis and
golf.

The club also has non-equity members. These individuals have never paid any
capital to be a member of the club and have no voting rights. Both equity and
non-equity members pay monthly dues for services rendered by the club.

On March 1, 2000 COUNTY CLUB will bill it's golf members for a capital
improvement project, the installation of a concrete cart path. The current cart
paths are in a poor deteriorating condition and a new concrete cart path is
vital to the safety of our members.

We are proposing to bill all our golf members, equity and non-equity members an
additional $** per month to pay for the project This would be
billed to the members until the project is paid off.

For equity members we are questioning the need to charge sales tax on this
amount since it is a capital improvement. We are under the impression that for
the non-equity members we would have to collect and pay sales tax, since they
do not have equity in the club.

The dues vary according to the type of memberships an individual has. In
addition to the dues they would get billed for all other purchases.

Response: The $** monthly fee charged to both equity and non-equity
members for capital improvements is taxable. Section 151.051(a) of the Texas
Tax Code imposes a sales tax on the sales price of a taxable item. Section
151.010 of the code defines taxable items to mean tangible personal property
and taxable services. The basis for taxing the capital assessments is found in
Section 151.007(e) of the tax code which states:

The sales price of membership in a private club or organization consists of the
dues, fees, and other assessments, including initiation fees, required for
membership or a special privilege, status, or membership classification in the
club or organization. (Emphasis added.)

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts. You may also e-mail our tax help section at:

Sincerely,

Gilbert Zamora
Tax Policy Division