Is a minimum food/beverage spending charge billed to private club members taxable in Texas?

Plain-English Summary

A private, nonprofit 501(c)(7) club billed some members a "minimum spending charge" when they didn't buy enough food and beverages during a given period. Clubs impose these charges to help cover the fixed overhead of keeping food-service staff (waiters, cooks, etc.) on hand, even when members don't eat or drink much. The Comptroller ruled that these minimum spending charges are taxable, just like membership dues and other club privilege fees.

The reasoning rests on Tex. Tax Code Sec. 151.007(e), which defines the taxable "sales price" of a private club membership to include not just dues and initiation fees, but also "other assessments and fees" charged by the club for privileges. Because a member owes tax on club membership and privilege fees regardless of whether they ever actually visit the club, a minimum spending charge — which is really just another fee for the privilege of belonging — is taxed the same way, whether or not the member consumes any food or beverages.

What This Means For You

If you operate or belong to a private or nonprofit club (such as a 501(c)(7) social, dining, or country club) that bills members a minimum spending requirement for food and beverage service, that charge is subject to Texas sales tax. It doesn't matter that the member didn't actually purchase food or drinks — the charge is treated as an assessment for club privileges, not as a separate, optional purchase, so it is taxed the same as dues and initiation fees. Clubs should include minimum spending charges in the taxable base when calculating tax on membership billings.

Q&A

Q: Our club charges members a minimum amount if they don't spend enough on food and beverages in a given period. Is that charge taxable?
A: Yes. The Comptroller treats minimum spending charges as taxable the same as membership dues or other fees for club privileges under Tex. Tax Code Sec. 151.007(e).

Q: What if the member never actually eats or drinks at the club — do they still owe tax on the charge?
A: Yes. A person owes tax on club membership and other fees for club privileges regardless of whether they ever visit the club, so the minimum spending charge is taxable even without any food or beverage purchase.

Q: Does it matter that our club is a nonprofit 501(c)(7) organization?
A: No. The ruling confirms that a 501(c)(7) organization's members still pay tax on dues and fees for club privileges; nonprofit status does not exempt these charges.

Citations

• Tex. Tax Code § 151.007(e) (defining the taxable sales price of private club membership to include dues, initiation fees, and other assessments and fees for club privileges)

Subject

Food And Beverage Minimums — Part Of Private/Nonprofit Clubs Memberships Fees

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9407L1307A01

Original ruling text

July 15, 1994

Dear ****:

Thank you for your July 11, 1994, letter concerning a minimum spending
charge billed to some * members. Our records show that the
** is a 501(c)(7) organization in which members pay tax on dues
and fees for club privileges.

We have previously addressed the question of whether minimum spending
charges billed to club members for not purchasing enough food and beverages
are taxable. Clubs sometimes charge these minimum fees in order to recoup the
overhead costs of maintaining food service staff (waiters, cooks, etc.) even
during times when people did not eat and drink.

Your point regarding the lack of food or beverage purchases is well
taken. However, the enclosed Texas Tax Code Sec. 151.007(e) defines the sales
price of membership in a private club.

Taxable charges include membership dues, initiation fees, and other
assessments and fees charged by the club for privileges. A person owes tax on
club membership and other fees for club privileges regardless of whether the
person ever visits the club. Minimum spending charges are taxable the same as
membership dues or other fees for privileges at the club.

This opinion is based on the facts you submitted. Other facts, though
similar, may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct
line is 512/475-0030. You may also write to Tax Administration, Comptroller of
Public Accounts.

Sincerely,

David Somerville
Tax Administration Division

NOTE: Previous Accession Number 9407449L