Are Memberships Taxable?

Taxability is an area that if you get wrong can lead to large amounts of taxes owed, penalties, and interest. Business and their trusted advisors sometimes get this wrong. One area of trouble, in particular, is membership fees. Many places offer memberships - gyms, retail stores, etc. When determining the taxability of a membership, the nature of that membership could have an impact on its taxability. 

Generally speaking, memberships are going to be taxable if they offer nothing more than a discount. This idea was recently upheld in the South Carolina Supreme Court, where they decided Books-A-Million owes just under $250,000 in taxes, penalties, and interest on their membership fees. The court claimed that because the membership essentially gives members discounts on taxable transactions, the sale is taxable under state statute.

However, other types of memberships in South Carolina may be exempt from the state tax. For example, membership fees to for-profit gyms can be exempt, as long as the fitness center provides only the following activities or facilities:

• aerobics or calisthenics

• weightlifting equipment

• exercise equipment

• running tracks

• racquetball

• swimming pools for aerobics and lap swimming

• other similar items approved by the commission

But, if the facility provides another activity or facility, like a basketball court, it may still be subject to the state’s admission tax. Any charge made to any member of a nonprofit organization for the use of the facilities of the organization (health club, spa, gym, etc.) is generally not taxable in South Carolina either. (https://www.scstatehouse.gov/code/t12c021.php) 

This is an excellent example of how intricate taxability can be. Even within a state, it is not enough to put a blanket statement over the taxability of memberships. You couldn’t say “memberships are taxable” or “memberships are exempt” in South Carolina. In fact, you can’t even say “gym memberships are taxable” or “gym memberships are exempt.” Instead, you have to dig deeper into the legislation, state definition of terms, and previous court rulings to gain a solid understanding.

Memberships are a great example of just how complex taxability can be, but the same is true for many types of products, services, digital goods, and more across all states. If you require assistance in determining your taxability, contact us here!

By: Briana Wagner

This blog is intended for educational purposes and not as tax advice. Tax policies and procedures change frequently, so specific information, such as thresholds, rates, etc. included in this blog may have changed since it was originally published. Please request a consultation for more in-depth information.