Opinion Letter

Letter Number:O-2001-011
Tax Type:Kansas Retailers' Sales Tax
Brief Description:Country club membership dues.
Approval Date:02/22/2001

Office of Policy & Research

February 22, 2001


Thank you for your letter of February 12, 2001. You continue to assert that the department owes the XXX Country Club a sales tax refund because the club collects tax on membership dues and pays sales tax on it purchases. You state:

In my earlier letter, I advised you: “Double taxation occurs when the same person is taxed twice during the same taxing period for the same purpose. Sales and Use Tax, 68 Am.Jur.2d, Sec. 12 (1993).” Opinion Letter 2001-0010. In the case of your country club, the members who pay the dues and the incorporated club are two different and distinct entities. Accordingly, there can be no double taxation because the same person is not being taxed, the taxes are paid for different purposes (one tax is paid on membership dues while the other tax is paid on on purchases of tangible personal property), and the taxes are being paid at different times on different transactions. Accordingly, there is no “double taxation.”

You argue that your members have formed a separate legal corporation that qualifies under the Internal Revenue Code as a tax exemption 501(c)(7) organization. This acknowledges that the country club is a one person or legal entity, while is members are individually a separate person or separate legal entities. Having chosen this type of organization, you cannot claim the advantage of being a non-profit organization for purposes of state and federal income tax and then ignore the corporate form because it allows you to argue that your members are being double taxed for sales tax purposes since they pay tax on their dues and the club pays tax on its purchases.

In Commissioner v. Nat’l Alfalfa Dehydration, 417 U.S. 134, 149 (1974), the United States Supreme Court stated:

Similarly, in Pemco v. KDOR, 258 Kan. 717 (1995), the Kansas Supreme Court stated:
Here, your argue that the country club members incorporated the club. The legal act of incorporation created a new legal entity that allows the members to enjoy the benefits accorded under I.R.C. 501(c)(7). The corporate form provides members with benefits that they could not otherwise enjoy. Now, you are asking the department to ignore this corporation and treat it as if the members and the corporation are one and the same. That is, accept the argument that the members are being taxed twice --- once when the moneys are paid as dues and a second time when the same moneys are spent by the club on taxable purchases. This is a flawed legal analysis, as the case decisions quoted above shows and for the reasons stated in my earlier letter. As my earlier letter explained:

This should make it clear that the club and its members are not being double taxed.

I understand that the country club has filed a refund request based upon your argument. Please note that our exchange of correspondence does not provide you with any appeal rights. Procedurally, the club will receive a denial of its refund request, either in part or in whole. Once denied, the country club will have 60 days from the date of the denial to submit a written request for an informal conference with the secretary of revenue or secretary’s designee. The club must submit this written request for an informal conference or the department’s action will become final and the country club will have no further appeal rights. If the club files this request, it can then pursue its claim of double taxation through the department, the Board of Tax Appeals, and the Kansas appellate courts, if it wishes to pursue this course. cc: Shirley Sicilian, Tamara Crider, Mike Hale

Date Composed: 02/23/2001 Date Modified: 10/10/2001