Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 295.0775


295.0775 Membership Fees. A taxpayer operates a discount membership store which offers two types of memberships, business ($25 per year) and individual ($30 per year). Each member pays the posted price for each product with no discount or surcharge. Nonmembers can not make purchases. The taxpayer is beginning a "90-day free pass" promotional program to obtain more members. Many selected individuals are offered a "90-day free pass" which allows them 90 days to shop and purchase goods at a price which is five percent above the posted price. When those individuals come to the store, they are given a choice of immediately becoming a member (which some do), or obtaining the free pass. Once the 90 days expires, the pass holder has the choice of becoming a regular member or being excluded from the store. The promotional program only covers a specific time period.

During the period of time this 90-day free pass program is being offered at the stores, the portion of the taxpayer's total membership fees related to taxable sales is subject to sales tax as it is considered derived from the retail sale of tangible personal property. Membership fees are part of taxable gross receipts when a person who pays a fee is entitled to purchase merchandise for a lower price than a person who does not pay a fee. (Regulation 1584.) 6/6/94.