Are country club membership dues taxable as an admission/user fee, and does it matter whether the membership carries voting rights over how dues are set?

Plain-English summary

The Tax Commission's own Auditing Division requested internal guidance while negotiating a compliance agreement with an association representing many Utah country clubs, aimed at settling recurring sales tax disputes over club membership fees. Since a 1994 legislative change (Senate Bill 191) and a related amendment to Administrative Rule R865-19S-33, confusion had persisted over which club membership dues qualify as exempt "dues paid to a private organization" versus taxable admission/user fees. The rule as written exempted only dues that members "directly or indirectly establish" -- with dues set by an elected board treated as indirectly member-set.

The specific trigger: at least one club was selling "equity" memberships (an upfront fee of perhaps $20,000) that did not carry voting rights over how dues were set, raising the question whether such non-voting equity memberships (and their dues) would flunk the existing rule's voting-based test and become taxable.

The Commission's answer significantly broadened the test:

• The equity/nonequity distinction is the real dividing line, not voting rights narrowly. An equity member buys a proprietary or ownership interest in the club, its facilities, or some level of control over the organization -- those dues are not taxable admissions. A nonequity member has no ownership interest and no operational control, paying dues merely as a condition of using the recreational facilities -- those dues ARE taxable admissions.
• The Commission held Rule R865-19S-33's literal text (exempting only dues members set) was "too limiting" to capture real-world club arrangements, and announced that a nontaxable membership can be shown by either:
  1. Operational control: the club's structure lets membership share internal operational control -- participating in decisions like selecting officers/committees, setting dues, or controlling social/athletic/recreational activities (broader than just voting on dues), or
  2. Proprietary interest: members own an equity/proprietary interest in the club or its facilities/assets.
• A club can run both taxable and nontaxable membership categories simultaneously and must collect tax on the taxable ones.
• Charges layered on top of dues (e.g., separate greens fees) are taxable whenever they're imposed in exchange for admission/use, regardless of whether the payer is an equity or nonequity member -- membership status doesn't exempt add-on usage fees. (The ruling notes the preexisting statutory exceptions for lessons and amateur athletics, in place since July 1, 1994, still apply.)
• The Commission suggested the Auditing Division's draft settlement agreement with the club association should reflect this broader equity/operational-control framework rather than turning strictly on voting rights, and invited feedback on amending Rule R865-19S-33 itself.

What this means for you

Country clubs and private membership organizations

Whether your dues are taxable turns on substance, not formal voting rights -- a member who shares real operational control (officer elections, committee participation, activity oversight) or holds a genuine equity/ownership stake can have nontaxable dues even without a specific vote on the dues amount. But add-on fees like greens fees are taxable regardless of membership type.

Accountants classifying club revenue

Apply the two-factor test (operational control OR proprietary interest) rather than checking only whether members vote on dues -- this ruling explicitly says the narrower rule text undersells the real exemption. Segment membership categories if your club mixes equity and nonequity tiers, since taxability is assessed per category.

Golf and country club developers structuring new membership tiers

This ruling is a useful design reference alongside companion PLR 00-014 (refundable membership deposits) -- if you want dues to be nontaxable, build in genuine operational participation or equity ownership, not just a nominal vote on the dues line item.

Common questions

Q: Are country club membership dues automatically taxable?
A: No, per this ruling -- dues paid to a private club aren't per se taxable; it depends on whether the membership is equity (nontaxable dues) or nonequity (taxable as an admission).

Q: Does a member need voting rights on the dues amount specifically for dues to be nontaxable?
A: No -- this ruling explicitly rejected that narrow reading, holding that broader operational control (not just a dues vote) or a proprietary/equity interest each independently qualify.

Q: Are greens fees or other add-on charges taxable even for equity members?
A: Yes, per this ruling -- charges imposed in exchange for actual admission/use of facilities are taxable whether the payer is an equity or nonequity member.

Q: Can a single club have both taxable and nontaxable memberships?
A: Yes, per this ruling -- and the club must collect and remit tax on the taxable membership category's sales.

Q: Can another club rely on this internal advisory opinion directly?
A: Not automatically -- it was issued to guide the Commission's own Auditing Division in a specific negotiation and addresses the facts as framed by that division. This ruling also references a 1994 legislative change and a specific 1997 case stipulation as background context, so verify current rule text before relying on the framework.

Citations and references

Rules:

• Utah Admin. Rule R865-19S-33 ("annual membership dues paid to a private organization" includes only those dues paid by members who directly or indirectly establish the level of dues -- the rule the Commission found too narrow on its own and supplemented with the broader operational-control/proprietary-interest test)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/97-069.pdf

Original ruling text

97-069

Response
December 1, 1997

REQUEST
LETTER

October
20, 1997

SUBJECT: Request for Internal Advisory Opinion

Dear
Chairman Oveson:

Since the passage of Senate Bill 191
by the 1994 Utah Legislature, there has been substantial confusion with respect
to how the law applies to certain transactions involving the sale of country
club memberships and their associated dues. With subsequent adoption of

changes
to Administrative Rule R865-19S-33, the Commission has indicated that
"annual membership dues paid to a private organization" [exempt under
the statute] includes "only those dues paid by members who, directly or
indirectly, establish the level of the dues." Dues determined by a duly
elected board of directors have been deemed as indirectly determined by

the
voting members.

The Auditing Division is currently
attempting to work with an association representing

many
of the clubs to draft an agreement acceptable to the clubs and the Commission
that will

alleviate
the problems, clarify compliance issues and obviate or minimize further
assessment, appeal, and litigation processes.

Most of the issues that are of
concern are familiar to the Auditing Division and are

being
addressed in the discussions and drafts of a proposed agreement. However, the
association representative has posed a concern for which we feel we need
additional guidance to stay in accord with the Commission's posture on the
issues at hand.

A Stipulation approved by a
Commission Order dated May 19, 1997 in the case of the

Ogden
Golf and Country Club was worded as differentiating between
"non-equity" and equity

memberships.
The stipulation was not framed in terminology as "voting" or
"nonvoting" memberships because, in the case of OGCC,
"equity" was synonymous with
"voting", and non-equity'' was synonymous with ''nonvoting.''

While we have not reviewed but a
very few of the clubs' charters, bylaws, articles of

incorporation,
etc., we understand that at least one of the clubs is concerned about their
sales of

equity
memberships and associated dues which do not carry voting rights for actions
taken by the club with respect to setting the level of the dues.

The questions, then, for which we
request this opinion are as follows.

1. Would the sale of an equity
   membership which does not give the member voting rights affecting establishing
   of dues be taxable as an admission or user fee? In the alternative, would the
   sale of the equity membership (an up-front fee of perhaps $20,000) be
   considered a nontaxable sale of a share of the club's assets (real, personal,
   intangible) and assumption of the club's obligations, etc.?

2. Would the dues paid by such a
   member be taxable as an admission or user fee?

If you have questions about this
request, please contact me.

Respectfully,

NAME

Auditing
Division

December
1, 1997

NAME

ADDRESS

CITY
STATE ZIP

Advisory
Opinion - Application of sales tax on club membership fees and charges.

Dear
NAME,

We have received your request for an
internal advisory opinion concerning the sale of country club memberships. As you point out in your request letter,
fees or other charges imposed on the use of a club�s recreational or athletic
facilities are taxable as admissions to recreational and athletic events. Fees or charges imposed by the club on its
members for some purpose other than for use of the club�s recreational or
athletic facilities are not taxable as admissions. Membership dues paid to private clubs or organizations are not
per se taxable as admissions.

In distinguishing between taxable
and nontaxable club membership fees, we have generally relied on the distinction
between �equity� and �nonequity� memberships.
When an equity member pays membership dues, that member is purchasing
some proprietary or ownership interest in the club or its facilities or some
level of control over a private organization.
Nonequity members have no interest in the assets of the club, nor do
they have control over club operations.
They pay dues only as a condition of, or in conjunction with, the use the club�s recreational
facilities. Unlike the membership dues
of equity members, the membership dues
paid by nonequity members can only be viewed as admissions within the meaning
of the sales tax law.

The distinction between equity and
nonequity memberships is reflected in Utah Administrative Rule R865-19S-33,
which states that ��[a]nnual membership dues paid to a private organization�
includes only those dues paid by members who, directly or indirectly, establish
the level of dues.� In considering your
question, we have concluded that the rule, as written, is too limiting to
address the various arrangements that may comprise nontaxable membership
agreements. Nontaxable memberships may
be evidenced by either of the following factors:

1. The
   club has an organizational structure under which the membership shares internal
   operational control of the club, as demonstrated by membership participation in
   operational decisions, such as selecting officers and committees; setting club
   dues; or controlling social, athletic, recreational and other club activities.

2. Members
   own a proprietary interest (equity) in the club or its facilities or other
   assets.

A country club may deal in both
taxable and nontaxable membership transactions. In that case, the club is required to collect and remit tax on
its taxable membership sales. A taxable
membership transaction is one in which the fee charged by the club is imposed
merely in exchange for admission to or rights to use the club�s
facilities.

A club may impose periodic charges
over and above membership dues. If the
charge is imposed in exchange for an admission within the meaning of the sales
tax law, it is taxable whether imposed
on an equity or nonequity member. For
instance, if an equity member is required to pay separate greens fees, over and
above his equity membership dues, the greens fees are taxable. (Of course, we continue to recognize the
exceptions that have been in place since July 1, 1994 for lessons and amateur
athletics.)

We understand that you are working
on an agreement that will settle sales tax disputes with some country clubs,
and that will clearly describe the clubs� collection responsibilities in the
future. Your draft agreement attempts
to distinguish between taxable and nontaxable membership charges on the basis
of voting rights. We suggest that you
craft the language to reflect the distinction as it is drawn in this
opinion. We would also appreciate your
suggestions pertaining to an amendment of R865-19S-33.

Please let us know if you have
further questions.

For
the Commission,

Joe
B. Pacheco,

Commissioner

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