SALT Report 2265 – The New York Department of Taxation and Finance issued an advisory opinion regarding the taxability of membership application fees and dues. The Taxpayer in this case is an independent business development organization whose members include entrepreneurs, individual proprietors, and family-owned businesses that have achieved a certain level of commercial success.
The Taxpayer’s by-laws state that the objective of the association is to exchange business information among its members. Through this exchange of information the Taxpayer hopes to provide its members with increased business productivity, networking, and promotional opportunities.
As a condition of membership, the members are required to attend a minimum number of monthly meetings. At these meetings, members are required to describe their own business and the business leads that they seek and provide other members with business leads. Essentially, the businesses are paying the Taxpayer to become members of the group so they can avail themselves of the promotional opportunities that the organization provides.
The Taxpayer charges its members an application fee of $300.00 and quarterly dues in the amount of $300.00. The Taxpayer requested a ruling as to whether the fees and dues are subject to sales tax.
In its response, the Department referred to Section 1105(f)(2) of the Tax Law which imposes sales tax on dues paid to social and athletic clubs. A Social club is defined as a club or organization whose purpose is to provide periodic dances, dinners, meetings, or other functions that offer its members the opportunity to interact socially.
Based on the above definition, the Department determined that the Taxpayer is an association of businesses and business owners and is in fact, a club. However, because the Taxpayer “does not convey or possess any sport privileges or facilities, it is not an athletic club, nor does it meet the definition of a social club as described above.” Rather, the purpose of the club is to promote its members’ businesses by offering them a networking forum.
Therefore, the Taxpayer’s club does not constitute a social or athletic club and its membership application fee and quarterly dues are not subject to New York state or local sales tax as provided in Tax Law §1105(f)(2).
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