Information Release

ST 2002-03 - Recreation and Sports Club Service - July 2002
UPDATED Supersedes Information Release Dated April 1993

The purpose of this information release is to describe the policy the Department of Taxation will use in applying sales tax to memberships in recreation and sports clubs.

[See Paragraph Q for Policy Change]

Effective January 1, 1993, the Ohio General Assembly enacted R.C. 5739.01(B)(3)(o), which added "recreation and sports club service" to the definition of "sale" and "selling." This made the provision of this service a sale subject to the Ohio sales and use tax. R.C. 5739.01(NN) defines "recreation and sports club service" as:

" ...all transactions by which a membership is granted, maintained, or renewed, including initiation fees, membership dues, renewal fees, monthly minimum fees, and other similar fees and dues, by a recreation and sports club, which entitles the member to use the facilities of the organization. "Recreation and sports club" means an organization that has ownership of, or controls or leases on a continuing, long-term basis, the facilities used by its members and includes an aviation club, gun or shooting club, yacht club, card club, swimming club, tennis club, golf club, country club, riding club, amateur sports club, or similar organization."

A "membership" is the privilege, right, or entitlement, including the privilege to use club facilities or the right to purchase the use of club facilities, to those who have met the criteria necessary for membership, including the mere payment of a fee, dues, renewal or other similar fee. It is only a membership if the privileges, rights, or entitlements granted by the club are not available to the non-member and include more than the economic benefit of volume purchase (season pass) or discounts on purchases.

A "club" is an organization, association, corporation, or other entity which promotes or fosters participation in common objectives or common activities, a membership in which grants privileges over and above privileges available to non- members who are not guests of the club or guests of a member.

An organization is a club if:

1. One must be a member to use the facility (or be a guest of the club or guest of a member) regardless of whether there is an additional user fee to participate or whether the use of the facility is included in the membership, or

2. The organization allows limited or occasional use of facilities by non-members but the members are entitled to privileges not available to casual or one-time non-member users (excluding mere economic benefit). An organization is not a club if the annual or seasonal membership (fee) does not entitle a member to any privileges in excess of those available to the general public on a non-membership, non-guest basis (except not having to pay each time or discounts on purchases). An example of this would be the purchase of an amusement park season pass that grants admission to the park and/or discounts on purchases. The only advantage over a daily ticket purchase is economic benefit.

Only memberships in clubs that have a facility available for use by its members are potentially subject to the tax. The tax is levied only on memberships to recreation and sports clubs that own or control a facility available for use by its members. The purpose and/or mission promoted and fostered by a club determine whether or not it is a recreation and sports club.

A club is not a "recreation and sports club" if it is organized and operated with an exclusive purpose and/or mission other than fostering and promoting member participation in recreation and sports activity. This is true even though the club incidentally owns or controls some recreation and sports facility that is available for the occasional use and enjoyment by its membership and that is incidental to the purpose and/or mission of the club. For example, a club organized exclusively for social purposes, which has a pool table that its members occasionally use, is not a "recreation and sports club."

A club is a "recreation and sports club" if it owns or controls a facility and its purpose is to foster and promote membership participation in recreation and sports activity. The sale of any level of membership as described above is the sale of a recreation and sports club service and is subject to the tax. Such memberships are taxable in their entirety even though levels of membership restrict or exclude privileges.

If a club is organized and operated with an exclusive purpose other than fostering and promoting recreation and sports activity and, as a part of the club's operation, it maintains a recreation and sports facility promoting member participation at this facility through the sale of an additional or supplemental membership, the additional or supplemental membership fee is the sale of a "recreation and sports club service" and is subject to the tax. This additional or supplemental fee must be separated from the general club membership fee or the entire membership fee is subject to the tax. The separation of fees must be clearly stated in the initial billing or in the contract and must be reasonably allocated between the services provided to allow an exclusion of the general fee from the tax base.

All payments that are required as a condition precedent to membership in a sports and recreation club are taxable. Initiation, registration and sign-up fees are payments required for membership and are taxable. Other specific examples of payments included in the membership fee are discussed below. However, a one-time user fee, guest fee, or one-time pay-for-play fee (greens fee for a round of golf) to use a facility at a recreation and sports club is not a membership fee and is not subject to the tax. Although a one-time pay-for-play charge is not a membership, a season pass or multiple-play pass paid by a member of a recreation and sports club is taxable as an additional membership or similar fee if this privilege is restricted to members only.

A clubhouse owned or controlled by an organization that is organized and operated with a purpose and/or mission of fostering and promoting member participation in recreation and sports activity is considered a facility even though the recreation and sports activity may be conducted on public lands or waters or at a site that is not owned or controlled by the club. A membership to such an organization is a membership to a recreation and sports club subject to the tax if it entitles the member to any use of the clubhouse facility.

The following is a summary of frequently asked questions along with the Department's responses.

A) IF I AM PROVIDING THIS SERVICE, WHAT TYPE OF LICENSE MUST I HAVE AND HOW DO I OBTAIN THIS LICENSE?

You must obtain a regular county vendor's license (if you do not already have one) from the county auditor's office in the county where your facility is located. You must file sales tax returns (form UST-1) on either a monthly or semiannual basis. The Department of Taxation will send you instructions for filing returns and remitting tax collected. If you already have a regular county vendor's license for your facility location, you should report the sales of this taxable service on that license.

B) AS A "RECREATION AND SPORTS CLUB," CAN I CLAIM EXEMPTION ON PURCHASES OF EQUIPMENT AND/OR SUPPLIES USED AT MY FACILITY TO PROVIDE THIS SERVICE?

No. There is no provision in the law for exemption on the purchase of equipment or supplies used in providing this service. However, you may claim the "resale" exemption on the purchase of any items that will be resold, such as clothing, sporting equipment, etc.

C) WHEN IS THE TAX TO BE COLLECTED ON THE SALE OF A YEARLY MEMBERSHIP TO MY FACILITY?

If the yearly membership fee is a legal charge against, and payable in full by, the purchaser, the tax on the full yearly fee is due in the month the sale is made even if you elect to collect the fee on an installment (monthly) basis.

If the yearly membership is conditioned on the payment of a monthly fee and the total fee for the year does not become a legal charge against the purchaser at the time the membership contract is initiated, the membership is considered to be a monthly membership and the club should collect the tax due when the monthly fee is paid.

D) ARE SINGLE DAY GUEST FEES FOR USE OF A FACILITY SUBJECT TO THE TAX?

No. Only membership fees are subject to the tax and one-time user fees are not considered to be membership fees.

E) ARE THE SALES OF MEMBERSHIPS TO "RECREATION AND SPORTS CLUBS" SOLD BY THE STATE OF OHIO, COUNTIES, CITIES, MUNICIPALITIES, OR ANY OTHER POLITICAL SUBDIVISION OF THE STATE SUBJECT TO THE TAX?

No. R.C.5739.02(B)(22) exempts from tax the sale of services by the State of Ohio or any of its political subdivisions.

F) IF A COUNTRY CLUB SELLS MEMBERSHIPS TO THE CLUB AND ALSO SELLS A SEASON PASS OR AN EQUIVALENT TO MEMBERS ONLY FOR USAGE OF THE GOLF COURSE, ARE BOTH FEES SUBJECT TO THE TAX?

Yes. The membership to the club and the golf membership (season pass) are both subject to the tax as they extend privileges only to the members for the use of the facilities. The fee for the season pass is a membership as it extends privileges to the members that are not available to the non-member public.

G) IS A SAILING CLUB, WHICH PROMOTES AND FOSTERS PARTICIPATION IN THE SPORT OF SAILING, THAT OWNS OR LEASES A BUILDING THAT IS USED BY ITS MEMBERS FOR MEETINGS, PLANNING CLUB OUTINGS, SOCIALIZING, AND ENTERTAINMENT, OR OTHER MEMBER ACTIVITIES, A "RECREATION AND SPORTS CLUB"?

Yes. The building is a facility of the club that is used by its members and the organization is a club as described in this release. Its membership charges would be subject to the tax if participation with the club were limited to members or guests or if members enjoy any privileges not available to non-members. The same result occurs when a Rod and Gun Club which promotes and fosters participation in fishing, shooting, and hunting activities owns or leases a building that is used by its members for meetings, planning club outings, socializing, entertainment and other members activities.

H) A ROD AND GUN OR SAILING CLUB WHICH PROMOTES AND FOSTERS PARTICIPATION IN RECREATIONAL ACTIVITIES OWNS OR LEASES A BUILDING THAT IS USED BY ITS MEMBERS FOR MEETINGS, PLANNING CLUB OUTINGS, SOCIALIZING, AND ENTERTAINMENT. ALL REGULAR FISHING, SHOOTING, AND HUNTING OUTINGS ARE CONDUCTED ON EITHER PUBLIC LANDS AND WATERS OR PRIVATE PROPERTIES THAT ARE NOT OWNED OR CONTROLLED BY THE CLUB. THE CLUB ALSO SPONSORS OTHER SPECIAL EVENTS, SEMINARS, CAMPS, AND TOURNAMENTS IN WHICH MEMBERS MAY PARTICIPATE FOR AN ADDITIONAL FEE. SHOULD THE CLUB BE CHARGING TAX ON ITS MEMBERSHIP DUES OR ANY OF THE SPECIAL EVENT FEES THAT ARE PAID BY THE MEMBERS?

The membership dues are subject to the tax as a sale of recreation and sports club service because they entitle the member to use the clubhouse facility, which is owned or controlled by the club. The fees charged to members to participate in special events or camps are not considered to be membership dues but are "pay-for-play" fees paid for the right to participate in the special event. These "pay-for-play" fees are not subject to the tax as they are for the one-time event and not part of the fees paid for the membership to the club.

I) A BOWLING LEAGUE THAT BOWLS EVERY TUESDAY NIGHT AT THE SAME BOWLING ALLEY NOT OWNED OR CONTROLLED BY THE LEAGUE. THE LEAGUE HAS ITS OWN OFFICERS WHO CONTRACT WITH THE BOWLING ALLEY TO USE THE FACILITIES FOR LEAGUE PLAY. ARE THE FEES PAID TO THE BOWLING LEAGUE SUBJECT TO THE TAX?

No. The bowling league does not own or control the facilities used by its members. Therefore, the fees paid to the league are not subject to the tax.

J) A SWIM CLUB HAS INDOOR AND OUTDOOR POOLS FOR THE EXCLUSIVE USE OF ITS MEMBERS AND THEIR GUESTS. MEMBERS PAY A ONE-TIME INITIATION FEE AND AN ANNUAL MEMBERSHIP FEE. EACH TIME THE MEMBER USES THE FACILITY, HE OR SHE PAYS AN ADMISSION FEE, BUT ONE MUST BE A MEMBER OR A GUEST OF A MEMBER TO GAIN ADMISSION. THE FEE FOR A GUEST OF A MEMBER IS SIGNIFICANTLY HIGHER THAN THE FEE PAID BY THE MEMBER. WHICH, IF ANY, OF THESE FEES ARE SUBJECT TO THE TAX UNDER THE NEW LAW?

The initiation fee and the annual membership fee are subject to the tax as they entitle the member to use the facility. The admission fee, including the guest fee, is considered a user fee and not a fee for membership to the club. This admission fee is not subject to the tax.

K) A SKY DIVING CLUB CHARGES ITS MEMBERS ANNUAL MEMBERSHIP DUES TO BELONG. THE MEMBERS MEET ONCE A MONTH AT A LOCAL RESTAURANT TO CONDUCT THEIR MEETINGS AND PLAN THEIR ACTIVITIES. THE CLUB LEASES A SPACE IN A BUILDING AT A LOCAL AIRFIELD WHERE MEMBERS CAN STORE THEIR EQUIPMENT, CHANGE CLOTHES, AND GATHER FOR PREPARATION TO EMBARK ON A "JUMP." ARE THE DUES FOR THIS ORGANIZATION SUBJECT TO THE TAX?

Yes. The space leased at the airport constitutes a facility for use by the members of the club. The organization qualifies as a "club" and the dues paid entitle the members to the use of club facilities.

L) A PRIVATE COUNTRY CLUB SELLS A SHARE OF STOCK IN THE CORPORA TION AS A MEMBERSHIP INITIATON FEE. THE CLUB CHARGES ANNUAL DUES OR ASSESSMENTS TO EACH MEMBER WHICH ENTITLE THE MEMBER TO USE OF THE FACILITIES AT THE CLUB. THE CLUB ALSO REQUIRES A MINIMUM MONTHLY EXPENDITURE BY EACH MEMBER. THE MEMBER MUST PAY ANY PORTION OF REQUIRED EXPENDITURE TO THE EXTENT THE MEMBER HAS NOT MET THE REQUIRED MINIMUM MONTHLY EXPENDITURE DURING THE MONTH. WHAT, IF ANY, ARE THE SALES TAX RAMIFICATIONS FOR THESE CHARGES?

The stock purchase, the annual dues and/or special assessments, and the minimum monthly charges by a country club are subject to the tax. These are all membership fees that entitle the member to the use of the facilities of the club.

M) A CONDOMINIUM ASSOCIATION LEVIES AN ASSOCIATION FEE ON ALL OWNERS OF PROPERTY IN THE COMPLEX FOR THE UPKEEP OF THE GROUNDS OF THE COMPLEX, WHICH INCLUDE A SWIMMING POOL AND CLUBHOUSE WITH EXERCISE AND SPA FACILITIES. ALL OWNERS (MEMBERS) OF THE ASSOCIATION ARE REQUIRED TO PAY THE FEES AS A CONDITION OF OWNERSHIP OF THE PROPERTY. OWNERS ARE ENTITLED TO THE OPEN USE OF THE POOL AND ALL OTHER FACILITIES WITH CERTAIN RESTRICTIONS FOR PRIVATE PARTIES AND SPECIAL EVENTS. DOES THIS ASSOCIATION FEE CONSTITUTE A TAXABLE MEMBERSHIP TO A CLUB?

No. This fee is a condition of ownership (deed restriction) and is for the upkeep of the property and facilities of the complex. It is not a fee that merely entitles the member to the use the facilities of a club. The association does not meet the requirements to be considered a "club" as described herein.

However, if the association was to operate a recreation and sports club facility for which a separate membership was sold and use of the facility was limited to only those residents who purchased this additional membership, the additional membership dues would be subject to the tax.

N) A SOCIAL ORGANIZATION, ORGANIZED TO FOSTER AND PROMOTE SOCIAL INTERACTION AND TO RAISE FUNDS FOR CHARITABLE CAUSES, CHARGES AN ANNUAL MEMBERSHIP FEE TO ALL MEMBERS. THE PROPERTY OWNED BY THIS ORGANIZATION INCLUDES A SWIMMING POOL WHICH IS INCIDENTALLY AVAILABLE TO THE MEMBERS AND THEIR FAMILIES DURING THE SWIMMING SEASON AT NO EXTRA CHARGE. ARE THE MEMBERSHIP FEES PAID TO THIS ORGANIZATION SUBJECT TO THE TAX AS THE SALE OF A RECREATION AND SPORTS CLUB SERVICE?

No. The organization is organized and operated exclusively for purposes other than fostering and promoting the recreation and sports activity. The incidental availability of the recreation and sports facilities for the occasional free use by members does not constitute the sale of a recreation and sports club service.

WHAT IF THE SOCIAL ORGANIZATION CHARGED BY THE DAY FOR THE USE OF THE POOL?

A per-day charge for the use of a facility is a user fee and not a membership fee. The per-day fee charged is not the sale of a recreation and sports club service and not subject to the tax.

O) A SOCIAL ORGANIZATION, ORGANIZED TO FOSTER AND PROMOTE SOCIAL INTERACTION AND FINE DINING AT ITS FACILITY. THE ORGANIZATION SELLS MEMBERSHIPS WHICH ENTITLE MEMBERS TO ENGAGE IN DINING AND SOCIAL ACTIVITIES AVAILABLE AT THE CLUB. THE ORGANIZATION ALSO MAINTAINS A RECREATION CENTER WITH AN INDOOR POOL THAT IS AVAILABLE TO MEMBERS OF THE ORGANIZATION FOR AN ADDITIONAL MEMBERSHIP FEE. WHAT IF ANY OF THE MEMBERSHIP FEES TO THIS ORGANIZATION ARE SUBJECT TO THE TAX?

The membership fee is not the sale of a recreation and sports club service subject to the tax if separately billed. However, the additional membership fee that is charged for the swim club membership is the sale of a recreation and sports club service and is subject to the tax. Both fees are subject to the tax if the organization does not reasonably separate the charges for the social/dining membership fee and the additional swimming membership fee.

P) ARE FEES, WHICH ARE STRUCTURED AS LOANS OR EQUITY CONTRIBUTIONS THAT ARE A CONDITION OF MEMBERSHIP IN A RECREATION AND SPORT CLUB SUBJECT TO THE TAX?

Yes. The Ohio Supreme Court considered this issue in Akron Mgt. Corp. v. Zaino (2002), 94 Ohio St.3d 101. The Supreme Court held that initiation fees that were structured as loans or equity contributions are subject to the tax.

Q) ARE SPECIAL ASSESSMENTS THAT ARE A CONDITION OF MEMBERSHIP IN A RECREATION AND SPORT CLUB, IN ADDITION TO REGULAR DUES AND FEES, SUBJECT TO THE TAX?

Yes. The decision in Akron Mgmt. undercut the rationale of an earlier decision of the Board of Tax Appeals (BTA) in Findlay Country Club v. Tracy (Feb. 23, 1996), BTA No. 94-H-1307, unreported. In that case, the BTA held that a one-time special assessment for the construction of a new clubhouse was not a taxable transaction under R.C. 5739.01(NN). The Department will no longer follow the decision of the BTA in the Findlay case after December 31, 2002.

If you have questions about the sales tax on memberships in sports and recreation clubs, please call (888) 405-4039. (Ohio Relay Services for the Hearing or Speech Impaired: 1-800-750-0750).