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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