Are annual membership dues charged by a newly formed private-club restaurant subject to Utah sales tax, when members vote for a board that sets the dues?

Plain-English summary

A group had recently incorporated a Utah nonprofit corporation to operate a restaurant structured as a private club: at least one member of any dining party had to be a club member to gain access, members paid an annual due granting a full year of access with no separate cover charges or admission fees, and club members voted to elect a Board of Trustees, which in turn set the annual membership dues. The organizers asked whether the annual dues were subject to Utah sales tax, pointing to the statutory exclusion for "annual membership dues to private organizations" and an administrative rule limiting that exclusion to dues paid by members who directly or indirectly set the dues level.

The Commission confirmed a two-track test for nontaxable private club dues. Utah taxes admission or user fees (§ 59-12-103(f)), but the statutory definition of "admission or user fees" explicitly excludes annual membership dues paid to private organizations (§ 59-12-102(1)(b)). Utah Admin. Rule R865-19S-33(B) narrows that exclusion further: nontaxable membership dues are limited to those paid by members who, directly or indirectly, establish the level of the dues themselves. From these sources, the Commission recognizes nontaxable memberships can be shown by EITHER of two factors: (1) the club has an organizational structure where the membership shares internal operational control -- demonstrated by member participation in decisions like selecting officers/committees, setting dues, or controlling other club activities; or (2) members hold a proprietary (equity) interest in the club or its facilities/assets.

This club's bylaws satisfied the first factor. Based on the facts presented, all dues-paying club members can vote to determine the Board of Trustees, and that board then sets the annual membership dues. The Commission found this structure gives members indirect control over the dues level -- they select the officers (the board) who set the dues -- which satisfies the first nontaxable-membership factor. As a result, the Commission concluded the private club's annual membership fees are nontaxable.

What this means for you

Private clubs, membership-based restaurants, and similar member-access businesses

To keep your annual membership dues exempt from Utah sales tax, build genuine member control into your governance structure -- letting dues-paying members vote for the officers/board who set membership dues levels is enough to satisfy the "indirectly establish the level of the dues" test, even without giving members a direct vote on the dues figure itself.

Nonprofit and membership organizations structuring dues and access fees

Keep membership dues separate from any per-visit cover charges or admission fees -- this ruling's exemption specifically applies to the ANNUAL membership due itself, which grants ongoing access, not to any separately charged admission fee (though this particular club charged none).

Accountants and tax professionals advising private clubs

This ruling is a clean application of the two-factor test under Rule R865-19S-33(B) -- either member operational control (electing officers/setting dues) or proprietary/equity interest in the club satisfies the nontaxable-dues standard; only one factor needs to be met.

Common questions

Q: Are private club membership dues subject to Utah sales tax?
A: Not automatically. Annual membership dues to a private organization are excluded from taxable admission/user fees, but only if members directly or indirectly control the dues level (e.g., by electing the board that sets dues) or hold a proprietary/equity interest in the club.

Q: Does letting members vote for a board that sets dues satisfy the test, even without a direct vote on the dues amount?
A: Yes, according to this ruling -- indirect control through electing officers who then set the dues level is sufficient.

Q: Do club members need to own equity in the club for dues to be nontaxable?
A: No. That's only one of two alternative ways to qualify; operational control through governance participation (like this club's board-election structure) independently satisfies the test.

Q: Does this ruling apply to my private club or membership organization?
A: No. It binds the Commission only for the requesting taxpayer and the facts described, and can't be relied on by another taxpayer, though it illustrates how the Commission applies the nontaxable-membership-dues test to similar member-governed clubs.

Citations and references

Statutes and rules:

• § 59-12-103(f) (sales tax on admission or user fees)
• § 59-12-102(1)(b) (exclusion of private organization membership dues from admission/user fees)
• Utah Admin. Rule R865-19S-33(B) (nontaxable dues limited to those set directly/indirectly by members)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/98-017.pdf

Original ruling text

98-017

Response February 21, 1998

REQUEST LETTER

February 2, 1998

Dear NAME:

Please issue a written advisory opinion regarding the taxability of private club membership dues based upon the following information.

-COMPANY A associates have recently incorporated a Utah non-profit corporation to operate a restaurant as a private club.

-At least one member of a dining party must be a club member to gain access.

-Club members must pay an annual due which allows access to the facility for one year.

-There are no cover charges or other admissions fees charged.

-Club members vote to determine the Board of Trustees who, in turn, set the annual club membership dues.

Utah statute 59-12-102 states that "admission or user fees does not include annual membership dues to private organizations." Annual membership dues are therefore, not taxable as they are not considered admission or users fees.

Additionally, Utah State Tax Commission Rule R865-195-33 states "annual membership dues paid to a private organization includes only those dues paid by the members who, directly or indirectly, establish the level of the dues." Therefore, we feel that the membership dues charged for access to the restaurant are not taxable. We feel that the membership fee is an

annual membership due paid to a private organization where the members indirectly establish the level of the dues through the voting rights that they have been granted.

Please provide us with a written opinion regarding the taxability of the club membership dues. Feel free to contact me at ##### if you have any questions or concerns.

Respectfully,

NAME

RESPONSE LETTER

February 21, 1998

NAME

ADDRESS

CITY STATE ZIP

RE: Advisory opinion - membership dues for private club

Dear NAME,

We received your request regarding whether annual membership dues charged by a recently incorporated private club are subject to sales tax. Utah Code Ann. �59-12-103(f) imposes sales tax on admission or user fees. Admission or user fees, as defined by Utah Code Ann. �59-12-102(1)(b), do not include annual membership dues paid to private organizations. Annual membership dues paid to a private organization, as further defined in Utah Administrative Code R865-19S-33(B), include only those dues paid by members who, directly or indirectly, establish the level of the dues.

From these sources, the Tax Commission has established that nontaxable memberships may be evidenced by either of the following:

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 other club activities; or

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

From the facts you provided, we assume that the bylaws of your private club allow all club members who pay the annual membership fee to determine the Board of Directors by vote. This board then sets the annual membership dues. Given these facts, it would appear that the club has an organizational structure that allows its members who pay an annual membership fee to select officers (the board) and, thus, indirectly set club dues. As these conditions satisfy the first factor listed above, the Tax Commission would consider the private club�s annual membership fees nontaxable.

Please contact us if you have any other questions.

For the Commission,

Joe B. Pacheco,

Commissioner

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