Is a $1,500 assessment added to a country club member's required stock equity subject to Texas sales tax, and does it matter whether membership stock is later resold by the departing member or by the club itself?

Plain-English summary

A private club asked about the taxability of an equity "assessment" charged to its stockholding members. Under the club's structure, a new stockholding member pays $2,500 for one required share of stock plus a separate taxable initiation fee; when that member later resigns, the incoming replacement member pays the departing member $2,500 for the share. The club planned to assess existing stockholding members $1,500 each on July 31, 2001, after which the stock would be revalued at $4,000, meaning future incoming members would pay departing members $4,000 per share instead of $2,500. The club asked whether the $1,500 assessment — since it was being added directly to the member's equity — was subject to sales tax when billed.

The Comptroller explained the general framework: selling stock in a corporation is not, by itself, subject to sales tax. But where stock ownership is required for a special privilege, status, or membership classification in a private club that provides amusement services, the sale of that stock is taxable — unless the charge is really a refundable initiation fee evidenced by a written agreement (per Rule 3.298(b)). The Comptroller noted it had seen no documentation showing the club's stock charges were refundable initiation fees, which points toward the assessment being taxable as part of the taxable membership-stock structure, though the letter doesn't issue a flat final answer on the specific $1,500 assessment beyond walking through this framework.

The letter then separately addresses who resells the stock: when a resigning member — who does not hold themselves out as engaging or habitually engage in selling amusement services — sells the required membership stock directly to a prospective member, that sale can qualify for the occasional sale exemption under Rule 3.298(a)(3) and Rule 3.316(b)(3). But if the club itself sells the membership stock (rather than facilitating a member-to-member sale), the occasional-sale exemption does not apply, because the club is regularly and habitually in the business of selling amusement services.

What this means for you

Country clubs and private membership clubs

If stock ownership is mandatory for membership at your amusement-services club, treat sales/transfers/assessments tied to that stock as presumptively taxable, unless you have a written agreement establishing the charge as a refundable initiation fee. Also structure your stock-transfer process carefully: having departing members sell directly to incoming members (rather than the club reselling stock) can preserve the occasional-sale exemption for that transfer, while club-conducted resales cannot use it.

Accountants and tax professionals

The controlling distinction is Rule 3.298(b)'s refundable-initiation-fee carve-out (needs written-agreement proof) versus the default rule that mandatory membership stock tied to amusement-service privileges is taxable, plus the occasional-sale exemption's dependence on who is doing the selling (an individual non-habitual seller vs. the club itself) under Rule 3.298(a)(3) and Rule 3.316(b)(3).

Common questions

Q: Is buying required membership stock at a country club always taxable?
A: If stock ownership is required for membership/status/privilege at a club providing amusement services, the sale of that stock is generally taxable — unless it's structured and documented as a refundable initiation fee under Rule 3.298(b).

Q: Does it matter who sells the stock when a member leaves?
A: Yes. A departing member selling directly to an incoming member can qualify for the occasional-sale exemption if that member isn't habitually in the business of selling amusement services. If the club itself sells the stock, the exemption does not apply.

Q: Is a mandatory equity assessment treated differently from an initial stock purchase?
A: Based on this letter's framework, an assessment added to a member's required equity is analyzed the same way as the underlying mandatory stock — taxable unless proven to be a refundable initiation fee.

Q: Can another club rely on this letter for its own assessment structure?
A: No. It responds to one club's specific facts and documentation (or lack of it); a club with a written refundable-initiation-fee agreement could reach a different result.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.298 (Amusement Services), subsections (a)(3), (b)
• 34 Tex. Admin. Code Rule 3.316 (Occasional Sales), subsection (b)(3)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200107941L

Original ruling text

July 16, 2001

Via fax **

Dear **:

Thank you for your letter concerning the taxability of country club

assessments.

When a stockholding member joins your club he/she is charged $2,500 for one

share of stock plus a taxable initiation fee. When that member resigns from the

club, he/she is paid $2,500 for the share of stock by a new member joining the

club.

You are going to assess the stockholding members $1,500 on July 31, 2001. The

members have been advised that after the assessment their stock will be valued

at $4,000 and new members joining the club will have to pay the former member

$4,000 for a share of stock.

You ask; since the assessment is being added directly to the member's equity in

the club, is the assessment subject to sales tax at the time it is billed to

the member's account?

Response. As a general rule, the sale of stock in a corporation is not subject

to sales tax. However, if the stock ownership is a requirement for a special

privilege, status, or membership classification in a private club, that

provides amusement services, the sale of the stock is taxable. If the fee paid

for the stock is categorized as an initiation fee and is refundable, as

evidenced by a written agreement, sales tax would not be due (see section (b)

of Rule 3.298). I have not seen any information or contractual agreement that

states that your stock sales are refundable initiation fees.

A sale of membership stock in a country club by a member, who does not hold

himself out as engaging, or does not habitually engage in the selling of

amusement services, directly to a prospective member qualifies for exemption as

an occasional sale under Section (a)(3) of Rule 3.298 Amusement Services and

Section (b)(3) of Rule 3.316 Occasional Sales (copies enclosed).

If your client's membership is sold by the club, the occasional exemption cited

above would not apply as the club is engaged in the regular selling of

amusement services.

This opinion is based on the facts presented. If there are additional or

different facts, the opinion may change. You may call me toll free at

1-800-531-5441, ext. 5-0613. The direct line is 512/475-0613. You may also

write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Kevin Koller

Tax Policy Division