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Noonan’s Notes Blog is written by a team of Hodgson Russ tax attorneys led by the blog’s namesake, Tim Noonan. Noonan’s Notes Blog regularly provides analysis of and commentary on developments in the world of New York and multistate tax law. Noonan's Notes Blog is a winner of CreditDonkey's Best Tax Blogs Award 2017.

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New Tax Department Sales Tax Ruling Issued on Club Dues and Sports Activities

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The New York State Department of Taxation and Finance has issued a new sales tax ruling on the taxability of club dues at a social club. In an advisory opinion released May 24, tax department held that fees charged to nonmembers for club-sponsored activities are not subject to tax merely as a result of the club’s relationship to its members and that the nature of each activity should determine its taxability. The ruling was also written up in a recent Tax Notes article, in which yours truly was quoted.

An example of this, they say, are children's camps. The club’s receipts from membership dues are subject to sales tax under tax law. Members are considered owners of the club and its properties, while nonmembers hold no rights, according to the opinion. But as this ruling makes clear, the customer’s membership status makes a big difference.  Indeed, two taxpayers could get the same thing from the club (tennis lessons, sing-a-longs, etc.), but only the member would have to pay sales tax.

However, the specifics of a member's status can affect the department's stance on whether membership dues are taxable. For instance, dues paid to clubs are not taxable if the members have no proprietary interest in the club, do not participate in the selection of management or other members, etc. The ruling doesn't really get into this issue, but the nuances here highlight how careful these sorts of clubs need to be.

In any case, based on this, the opinion concluded that three activities offered to nonmembers — tennis lessons, half-day children’s camps, and singalong sessions — are not subject to the state’s 4 percent sales tax because those services are typically not taxable statewide. The camp fee includes lunch, which could have made the fee subject to sales tax, but the tax department determined the lunch to be incidental to the overall charge for the camp.

On this issue, the ruling also illustrates how the sales tax analysis can turn on the presence of food. If food is provided along with a product or service that would otherwise be nontaxable (such as the rental of a facility), the whole charge ends up getting taxed. However, if the food is incidental to the thing being sold, then you won’t get tripped up by sales tax. In this ruling, the provision of a lunch to kids at a camp was found to be incidental.

A fourth activity — the rental of club facilities for an event — was determined to be subject to sales tax only if the club also provides catering services for the event, according to the opinion. Citing state tax law, the opinion said tax is imposed on the receipts from every sale by caterers, including in the amount of such receipts any 'other charge' made to its customers. The juxtaposition of the “incidental provision of food” discussion and the “rental of real property is taxable if any catering services are provided” discussion in the opinion evidences the tension in this area.  What if the catering services are incidental?

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