Tax Guide for Membership Fees

Overview

Membership fees are payments made to obtain access to benefits and services offered by an organization or business. Memberships and subscriptions are increasingly common in today's business environment. They provide a consistent revenue stream while offering members access to exclusive benefits and services. This guide provides easily accessible information to assist you in understanding your sales and use tax obligations related to membership fees.

Application of Tax to Membership Fees

Membership fees related to the anticipated retail sale of tangible personal property (merchandise) are generally subject to tax (Regulation 1584), unless there is an applicable exemption or exclusion. Such fees are taxable when:

  • The retailer sells its products only to members and the membership fee exceeds a nominal amount of $70 or less per year (subject to increase), or
  • No matter the amount of membership fee, the retailer sells its products for a lower price to members than to non-members.

Membership fees not related to anticipated retail sales of taxable merchandise are not taxable. This includes situations where:

  1. The membership fee is primarily for the receipt of services and any merchandise transferred is incidental to the services.
  2. A member does not purchase any taxable merchandise during the period covered by the membership.
  1. Annotation 295.1384

Key Industry Topics

Beauty Salon or Spa Memberships

Beauty salons or spas may offer memberships for discounted services such as haircuts, lash extensions, and waxing. These membership fees are generally not taxable even if the beauty salon or spa also offers beauty merchandise for sale. The membership fee is related to accessing the services, not the anticipated retail sale of merchandise.

Country Club Membership

Country club memberships grant members access to golf courses, tennis courts, swimming pools, and other facilities. Country club membership fees are not taxable even when members may purchase or are required to purchase minimum meals and drinks. The membership fee is related to accessing the facilities, not the anticipated retail sale of food and merchandise.

Gun Club Membership

Gun club memberships typically allow members access to a shooting range, training classes, competitions, and discounts on merchandise such as ammunition. Gun club membership fees are generally not taxable even when members purchase taxable merchandise. The membership fee is related to accessing the shooting range and training classes, not the anticipated retail sale of merchandise.

Health Club Membership

Membership fees that grant access to health club facilities such as a gym, massage facility, etc. are generally not taxable even if the operator sells drinks and snacks for consumption on the premises, fitness and wellness merchandise, or other miscellaneous items. The membership fee is related to accessing the facility, not the anticipated retail sale of merchandise.

Theme Park Membership

Theme park memberships, often called season passes, generally grant members unlimited access to the theme park for a specific period. These memberships often come with additional benefits such as discounts on food, merchandise, and parking. These membership fees are not taxable even when they include discounts on taxable food and merchandise. The membership fee is related to park access and entertainment, not the anticipated retail sale of food and merchandise.

Online Retailer Membership

Online retailers may offer membership subscriptions that provide discounts on merchandise and free shipping. These membership fees are generally taxable because they are related to the anticipated retail sales of taxable merchandise, and the retailer sells merchandise at a lower price to members than to non-members.

When determining whether a retailer sells merchandise for a lower price to members than to non-members, we use “delivered price” as defined in Regulation 1628, subdivision (b)(1), not the listed retail selling price. The delivered price includes shipping and handling, which are typically added for non-members. Therefore, even if the listed retail selling price appears to be the same for members and non-members, the total cost is usually lower for members.

However, if a member does not buy any taxable merchandise during the membership period, the membership fee is not taxable. If this happens, the retailer may file a claim for refund or amend their return in order to refund their customer the tax, subject to the statute of limitations based on the date the overpayment was made.

Restaurant Membership

Certain restaurants and cafes offer a membership program that provides members free and reduced priced food and drinks. These membership fees are taxable because the membership is related to the anticipated retail sales of taxable products, and the retailer sells its food and drinks for a lower price to members than to non-members.

Wholesale Warehouse Membership

Wholesale warehouse memberships grant members access to purchase merchandise from wholesale clubs or their websites. If the retailer sells only to members, whether the membership fees are taxable depends on whether they exceed a nominal amount. As of January 1, 2021, the nominal amount is $70 or less per year, subject to increase every five years. If the membership fee does not exceed the nominal amount, it is not taxable.

If a retailer sells merchandise to both members and non-members but offers lower prices to members, the membership fee is considered part of the gross receipts from merchandise sales. In this case, if the sales of merchandise are taxable, the membership fee is also taxable no matter the amount of the membership fee.

However, if a member does not buy any taxable merchandise during the membership period, the membership fee is not taxable. If this happens, the retailer may file a claim for refund or amend their return in order to refund their customer the tax, subject to the statute of limitations based on the date the overpayment was made.

Wine Club Membership

Wine club memberships generally require members to regularly purchase wine, but at a discounted price. These membership fees are taxable because the membership is related to the anticipated retail sales of taxable merchandise, and the retailer sells its wine for a lower price to members than to non-members.

Resources

If You Need Help

If at any time you need assistance with topics included in this guide, or membership specific to your business not discussed in this guide, feel free to contact us by telephone or email. For contact information and hours of operation, please see our How to Contact Us webpage.

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