A New York State ALJ held that a yacht club’s charges for dock rentals to its members were taxable “dues” paid to a social or athletic club for sales tax purposes, and not nontaxable charges for the leasing or rental of real property. Matter of Genesee Yacht Club, Inc., DTA No. 827668 (N.Y.S. Div. of Tax App., May 2, 2019).
Facts. Genesee Yacht Club, Inc. (“Genesee”) is a not-for-profit social and athletic club that owns waterfront property on the Genesee River. Genesee charges its members annual fees and makes its clubhouse facilities available to all members. In addition, Genesee owns and maintains docks that may be leased by its members. The docks, and the piers to which they are attached, are located entirely within Genesee’s property and are permanent structures, constructed from wood and steel, and immovably attached to pilings driven into the ground. Genesee’s charges to its members for renting a dock are separate from and in addition to annual membership dues, and the annual dues do not entitle a member to use Genesee’s docks. Genesee collected and remitted sales tax on its membership dues, but did not charge sales tax on the dock rental fees.
The Department had audited Genesee for sales tax periods from 2008 through 2011 and determined that Genesee should have collected sales tax on the dock rental fees it charged to its members. However, the Department declined to assess sales tax for the audit period because of Genesee’s reliance on a Monroe County Supreme Court judge’s unpublished decision in Rochester Yacht Club v. Department of Taxation & Finance (Sup. Ct. Monroe Cnty, Sept. 4, 1985). In that case, the judge held that a yacht club located less than a mile away from Genesee on the same river did not have to collect sales tax on charges for rental of its docks and moorings because the charges were nontaxable charges for the lease of real property. Like Genesee, Rochester Yacht Club’s docks and piers were solely within its property, were permanent structures constructed of wood and steel, and were immovably attached to pilings driven into the ground. Nevertheless, and notwithstanding the decision in Rochester Yacht Club, the Department instructed Genesee that going forward it was required to collect and remit sales tax on the charges to members for dock rentals. Genesee remitted sales tax for the next sales tax period and then requested a refund.
Law. Sales tax is imposed on “dues” paid to any social or athletic club. Tax Law § 1105(f)(2). Dues are defined as “[a]ny dues or membership fee including any assessment, irrespective of the purpose for which made, and any charges for social or sports privileges or facilities.” Tax Law §1101(d)(6). The regulations set forth examples of charges that are considered taxable dues. One of those examples reads as follows:
A club organized and operated for the promotion of yachting, and other aquatic sports, which is a social and athletic club, owns and maintains docking and mooring facilities for the use of its members. The club makes a charge to each member using its facilities. The amount of the charge depends upon the size of the member’s boat and the location of the docking and mooring facilities used. The charges made by the club for these facilities constitute taxable dues or membership fees.
20 NYCRR 527.11(b)(2)(i)(c), ex. 6.
ALJ Determination. The ALJ held that the definition of “dues” was very broad, and that dock fees, regardless of whether they are charges for leasing or renting real property, fell within the definition of “dues” under the Tax Law and were therefore taxable. The ALJ also found that the docking fees “squarely fall” within the example given in the regulation. In support of his conclusion, the ALJ cited to Matter of Youngstown Yacht Club, Inc., DTA No. 813503 (N.Y.S. Tax App. Trib., Dec. 11, 1997), in which the Tax Appeals Tribunal held that charges to members for a mooring, i.e., a weight or anchor sunk at a designated area in the water and attached by a chain to a mooring ball, were “dues” subject to sales tax. The ALJ did not address the fact that movable moorings are unlike permanent docks, which are affixed to real property.
The ALJ also rejected Genesee’s argument that the Rochester Yacht Club decision – which the Department did not appeal – collaterally estopped the Department from relitigating the same issue in Genesee’s case. The ALJ found that while Genesee met its burden in showing identity of the issues was the same, he concluded that the doctrine cannot be invoked against a governmental agency to preclude it from enforcing its laws, except in rare circumstances not present in this case, and further noted that collateral estoppel does not apply in tax cases unless “unusual circumstances support a finding of manifest injustice.” (Citation omitted.) He also found that requiring Genesee to collect sales tax on its dock rental fees, but not requiring Rochester Yacht Club to collect sales tax on its dock rental fees, did not affect a manifest injustice.
Charges by a club to its members for docking facilities are clearly subject to sales tax under the regulation. However, it is possible that the example in the regulation itself is invalid to the extent it imposes sales tax on the rental of real property. While Genesee did not appear to challenge the validity of the regulation, the docks at issue were clearly permanent and immovable structures affixed to real property owned by Genesee, and charges for their use were arguably charges for the rental or lease of real property, which is not subject to sales tax, rather than dues. Moreover, finding that the regulation impermissibly subjects rentals of real property to sales tax is not precluded by the Tribunal’s decision in Matter of Youngstown Yacht Club, which was relied upon by both the ALJ and the Department. That case involved charges for non-permanent moorings that were installed and uninstalled annually and were not located on the yacht club’s property, and thus may not have involved the rental of real property at all.